Some More Data On How CwF + RtB Is Working In The Music Space

from the keep-on-keeping-on dept

While we keep presenting details of CwF+RtB working for various musicians, big, medium and small, some have complained that there needs to be more data to demonstrate that these kinds of business models can work. So, here we go. I briefly got to meet Shamal Ranasinghe from Topspin at Midem, but unfortunately wasn't able to go to his presentation. Thankfully, he's posted his slides along with some data from Topspin's own artists, who are making these business models work:
Some of the key points they've found so far are that fans are paying greater than $20 on average per band on its platform (more than a CD costs) and with big name "branded artists" that number is more like $50. But.. but.. but don't we keep hearing that no one wants to pay musicians any more? Apparently that's not true.

Digging into some of the details, Topspin found that while many people do pay for digital downloads, the big chunk of revenue actually comes from physical scarce goods:
And while the number of folks who buy cheaper packages is much higher, the total revenue earned on higher priced packages is much, much higher. In fact, more than 50% of the revenue was earned on price points higher than $25. The under $10 sales, while making up more than 50% of the volume, account for less than 18% of the revenue:
Again, it becomes clear: if you offer things of value people have no problem paying -- and often paying more than they did in the past. The claim that fans just want everything for free is pretty clearly untrue.

I won't go through all the slides, but Shamal also spends a fair amount of time talking about converting fans into buyers, and (no surprise) suggests that it helps to have a real connection with the fans, as opposed to just putting stuff out and expecting people to just show up and buy. You can't give it away and pray, but have to provide a real connection and real scarcities. But part of making that work is getting widespread distribution (Topspin uses a music playing widget) that helps bring people to the purchasing options, if they like the music. Rather than trying to hold back and hoard access to the music, sharing freely, and connecting it to reasons to buy helps bring in a lot of fans who are happy and willing to buy.

He also highlighted two case studies of amazing conversion rates. The David Byrne and Brian Eno album widget (the very first launched on Topspin) had a stunning 20% conversion rate of plays to purchases. Yes, one in five people who listened to the widget then purchased in the first few weeks of the campaign. That's an astounding rate -- and one I doubt many other bands would see, or sustain -- but still an amazing data point. In their case, since the average transaction price was over $15, it meant that every play was worth about $3 in sales. And yet some still don't believe that music online has promotional value that can lead to sales?

The second case study was with Fanfarlo, who sought to build up its email list -- and found that for every 1,000 plays of the widget, 49 fans either purchased or signed up for the email list. The presentation compares that to paid advertising, which found that per 1,000 impressions, they ended up with 0.7 new email users. Once again: the music is a great promotional tool, much better than traditional advertising in actually driving a conversion.

And, taking it one step further, to highlight the massive power of word of mouth, Topspin found that (again with Fanfarlo), the "Shares to Sales" ratio was 1.1. Yes, this meant that for every one person who shared the musical widget, more than one person ended up buying something -- though, admittedly, this number was likely skewed greatly by a $1 promo offer that ran for three weeks. But, either way, it shows that if you offer something that people want, at a good price, and you let people share (rather than punish them for sharing), great things can happen.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 11:56am

    Hey, I want to setup a "CWF -(RtB)" party this summer at Lake Powell on a houseboat.

    There will be no RtB, which means Mike's not invited, but there will be free hats and T-Shirts for those who show up.

    What's a good month for y'all? I was thinking Bullfrog Marina.

     

    reply to this | link to this | view in thread ]

  2.  
    icon
    Dark Helmet (profile), Feb 9th, 2010 @ 12:01pm

    Sorry...

    Don't mean to play Doubting Thomas here, but I'm seeing a great deal of percentages and not a whole lot of totals. Are those included in his original deck by chance? It's not coming through @ work, unfortunately....

     

    reply to this | link to this | view in thread ]

  3.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 12:01pm

    Some of the key points they've found so far are that fans are paying greater than $20 on average per band on its platform (more than a CD costs) and with big name "branded artists" that number is more like $50. But.. but.. but don't we keep hearing that no one wants to pay musicians any more? Apparently that's not true.

    I read this, and all I could think of was the number of people who just don't buy at all. When your average is high, it is likely that you cut off much of the low end business.

    It seems to run like I always say: Rather than collecting a few dollars from each fan because they want your music, you collect 10 times as much money from one out of ten fans who is stupid enough to pay over the value for it. The 10th guy is basically paying the free ride for the other 9. When the 10th guy figured it out, he too will stop paying, and then nobody is paying for the ride anymore.

     

    reply to this | link to this | view in thread ]

  4.  
    identicon
    NAMELESS.ONE, Feb 9th, 2010 @ 12:05pm

    so what thre saying is the people they look at aren't smart yet

    as in it costs me the following
    4 megabit unlimited
    2cents to download a cdr would cost them less as they can garner larger bandwith in blocks

    so distribution is nearly zero
    cost of stomped cdrs is nealry zero per unit too at round 5-10 cents

    so whay would i pay more then 25cents which is a 500% market for any cdr of data that can be copied for no costs.

    and when you consider mass internet markets...ugh.

     

    reply to this | link to this | view in thread ]

  5.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 12:17pm

    Re: so what thre saying is the people they look at aren't smart yet

    It's because 25 cents isn't a 500% markup.

    If it cost even $5000 to record the song, and they sell 1000 copies, the actual cost is $1.02 per copy (your price). So they would be losing 77 cents per song at 25 cents per.

    to even get it down to break even, they would have to sell almost 22,000 copies at 25 cents.

    You are making what I considering the marginal mistake.

     

    reply to this | link to this | view in thread ]

  6.  
    icon
    Alan Gerow (profile), Feb 9th, 2010 @ 12:20pm

    Re:

    "one out of ten fans who is stupid enough to pay over the value for it"

    You still obviously don't understand the difference between "value" and "price". "Value" is different from person to person. Your comments are value-less to me, yet to someone else they may hold value because they enjoy laughing at you.

    Your one out of ten fans in your example obviously values the music more than the other nine.

     

    reply to this | link to this | view in thread ]

  7.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 12:29pm

    Re: Re:

    Nope, I understand perfectly. The value is artificial, it is beyond the true value of the product, and they are paying a higher retail price than the true value of the goods. Effectively, they are playing supply / demand games to create a market price that is above the true value, pumped up only by mostly artificial scarcity. They could always print more t-shirts or allow 5 more fans to get back stage passes, whatever their scarce good may be. The scarcity is effectively artificial, shrinking supply in the face of constant demand pushing up the price. The value is a slippery concept, but another freaking t-shirt isn't specifically valuable in and of itself.

    Your one out of ten fans in your example obviously values the music more than the other nine.

    nope, the other 9 love the music, they are just smart enough not to pay for it. They have already figured out that the value of the music is higher than what they are paying as the market price, which is zero.

     

    reply to this | link to this | view in thread ]

  8.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 12:30pm

    Re:

    What you're calling stupid is a person finding value in someone else's work. Coming from you, I find that a tad hypocritical.

    Moreover, you're (again) confusing price and value. Is person 10 stupid because he thinks something has more value than the indicated price?

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 12:33pm

    Re: Re: Re:

    No, the value is not artificial - it's subjective.

     

    reply to this | link to this | view in thread ]

  10.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 12:45pm

    First Annual Cwf -(RtB) Party "TrollinTime!"

    Hmm. It looks like TrollinTime.org is available. Maybe someone should snag it so we can start setting plans and selling hats and T-Shirts for those who wish they could be there.

    What do you think of this- "TrollinTime is the premier Trollin' Troll Party on the interwebs: 100 miles from civilization. No phones, laptops, or blogging allowed. Those found blogging or doing things with a computer will be put on a pontoon with Mike's wet and slightly kidnapped dog (don't worry, Mike, she'll be promptly put on a Virgin flight bound for SFO, and well fed at the end of the week.) This is the perfect chance for Mike to troll himself while we cast our own lines and do some real trolling. Plenty of beer, and BBQ will be provided. Special appearances by the Bahama Mamas, Nebraska Sextuplets, Crash Test Hotties, Alex Trebek, Sean Connery, and Maddox."



    I think this will work.

     

    reply to this | link to this | view in thread ]

  11.  
    icon
    Killer_Tofu (profile), Feb 9th, 2010 @ 12:48pm

    Re: Re: Re:

    Nope, I understand perfectly.
    You obviously don't.
    WHOOOOSSHHHHH was what happened to you with the point of this story.
    These artists and the label are setting prices. Everybody will place their own subjective value on what is being sold.
    If Price > Value Then No Buy
    If Price less-than Value Then Buy
    It is incredibly simple.
    It is also why the record labels are not selling their plastic discs anymore.
    Their Price is higher than most people Value them at.
    Value and Price are not the same thing.
    Incredibly simple. And it makes perfect logical sense.
    Try to think about it for awhile before claiming you understand.

     

    reply to this | link to this | view in thread ]

  12.  
    icon
    Richard Corsale (profile), Feb 9th, 2010 @ 12:54pm

    Re:

    "who is stupid enough to pay over the value for it"

    You confuse value and cost. In the world of Software we know.. and have for sometime now, that The marginal production cost of software is zero. Zero is not the value of the software but it's understood to be between bupkis and some arbitrary number that people will pay. See the disconnect? Let me put it another way. Microsoft created an internal semi-secret policy that states, that if Linux were to gain significant market share that Windows would be given away free. They would rather loose the 200 or whatever dollars than the market share, which translates to sales of Office, Visual studio (which is also earmarked to become a loss leader in the event of a price war) and all of its other VALUE added products and services. This is understood to be good business, because they get "it". Customers are worth more than money. If you think about it another way, how much does it cost to acquire one customer? Right.. each customer that adopts early is a loss leader and margins improve over the long run. Now think about mindshare, it, on the other hand, is so much more expensive/illusive than customers, that it's not been quantified to date. I look at Google when I think Mindshare, I look at MS when I think customers.

    The new economy (I hate that phrase) will be for mindshar, not customers. The exact same rules hold for music. Now do see what hes saying? The fact that people still have to pay for Windows and office is because MS beat down the competition through marketing, lobbying and FUD. Wait... maybe you have been paying attention .... :)

     

    reply to this | link to this | view in thread ]

  13.  
    icon
    Richard Corsale (profile), Feb 9th, 2010 @ 12:56pm

    Re: Re: Re: Re:

    ding! ++

     

    reply to this | link to this | view in thread ]

  14.  
    icon
    Dark Helmet (profile), Feb 9th, 2010 @ 12:58pm

    Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    "Mike's wet and slightly kidnapped dog"

    I have no idea why, but that particular line had me giggling....

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 1:44pm

    Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    Yes? Well, just remember, the goal is to not give anyone a reason to buy. Especially not Mike. Which is why the hats and t-shirts will be so valuable.

    I need to hire a designer to create a series of T-shirts that will be as epic as "Three Wolf Moon", but perhaps it will be called "The Dog that CwF" Maybe it will be a t-shirt of a dog wearing a t-shirt. Hmm.

     

    reply to this | link to this | view in thread ]

  16.  
    icon
    The Groove Tiger (profile), Feb 9th, 2010 @ 1:51pm

    Re: Re: Re: Re:

    No, wait... value is artificial because it's man made, like a house. Some other attribute, like height, would be natural. Or is it natural only if it's the height of a tree? A house has artificial height?

    A tree has natural value? Or wait... does it have scarce value? Natural scarcity?

    A rock has mineral value and is a mineral scarcity.

    I think it's all the same to TAM, all he keeps hearing in his head is "free bad!"

     

    reply to this | link to this | view in thread ]

  17.  
    icon
    Emo the Libertarian (profile), Feb 9th, 2010 @ 1:53pm

    Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    OK ya had me at "Mike's wet and slightly kidnapped dog"
    Though it puts forth a question for the ages, How do you slightly kidnap?

    Beer and Alex Trebek are reasons to buy :)

     

    reply to this | link to this | view in thread ]

  18.  
    icon
    Leviathant (profile), Feb 9th, 2010 @ 2:00pm

    Re: Re: Re:

    Surely it's a fool thinking he's clever when he feels smart by not paying for music he likes.

    Growing up in smalltown York, PA we had a small community of punk bands (and fans) that kept doing what it was doing because of catch phrases like "Support local talent." With the advent of distribution on the internet, you don't really need the 'local' part in there.

    You get close enough insights into the music and the musicians, you get a better understanding of the process involved. I think it is extremely short-sighted to say that supporting artists you enjoy is stupid.

     

    reply to this | link to this | view in thread ]

  19.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 2:07pm

    all the whores claim to make a lot of money as well (but not nearly with such ppt skills), but no one ever reveals the NET on these methods, just percentages that are only relative to themselves. They could have sold 1 item at $25 and 1 item at $5 and claim that 5x the amount of dollars and 50% of the purchases were on the $25 and above price point. The numbers dont mean a dammmmmmnnnn thing, unless you have the actual numbers.

     

    reply to this | link to this | view in thread ]

  20.  
    icon
    SureW (profile), Feb 9th, 2010 @ 2:08pm

    Re: Re: Re:

    "nope, the other 9 love the music, they are just smart enough not to pay for it. They have already figured out that the value of the music is higher than what they are paying as the market price, which is zero."

    So you're an idiot if you buy the product and a thief if you don't. Great consumer options in the music marketplace...

     

    reply to this | link to this | view in thread ]

  21.  
    icon
    Dark Helmet (profile), Feb 9th, 2010 @ 2:17pm

    Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    "Beer and Alex Trebek are reasons to buy :)"

    Boop-boop! What is events I would be willing to attend.

    I'll take The Penis Mightier Than The Sword for $500, please....

     

    reply to this | link to this | view in thread ]

  22.  
    identicon
    :), Feb 9th, 2010 @ 2:28pm

    The Music Industry

    And digital sales slump by 50% after the industry implemented the tiered pricing scheme.

    LoL

     

    reply to this | link to this | view in thread ]

  23.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 2:28pm

    Re: Re: Re:

    You clearly don't understand a thing about basic microeconomics.

    Everyone's "value" is at a different point. A strawberry farmer will pay absolute no money for a basket of strawberries because he already has plenty. For him, strawberries have no value.

    For you, you may be willing to pay $5.00 for those strawberries. Your neighbour down the block may be willing to pay up to $10.00. That rich guy with plenty of money to throw around, he may not mind paying $20.00.

    Each and every person has their own set value point for products. A smart business man will try to cater to all ranges in order to maximize profits. That's why marketplaces still barter and haggle - because it's all about maximize the sale.

    The only reason the mass market has ignored this is because individual haggling is completely inefficient, so instead they choose a price point that maximizes (supposedly) the possible sales. Sure, 30% of your market may be willing to pay double what your price is, but the other 70% would be humming and hawing if you knocked the dollar amounts up.

    That's what "RtB" is: Offering something at a wide range of price points to maximize sales. If 1 million people want free stuff, hey, here's some free stuff. If 10 thousand want to shell out $10, hey, here's a $10 offering. If 100 people want to pay $700 for a special edition package, then that's there for them too.

     

    reply to this | link to this | view in thread ]

  24.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 2:45pm

    Re: Re:

    What you're calling stupid is a person finding value in someone else's work. Coming from you, I find that a tad hypocritical.

    That's the point - they value the work, but they aren't paying for work, they are paying for some other thing that has supposed value (miniputt game, t-shirt, whatever) and not paying a penny for the actual work.

    The value is in the music (as is the cost) but nobody is suppose to sell music anymore. They have to sell what most people don't value or don't want (stuff) in order to give the thing of true value to 10 out 10 fans (music) away for free.

    You end up with 9 freeloaders and one guy paying for the rest of them to ride the bus.

    person 10? he has no idea of the real value, and if he takes a moment to think, he will realize he is supporting 9 freeloaders. Then the value in his mind of the "scarce" thing goes down. At this point, there are enough 10th people to make this work, but like any shell game, sooner or later the marks get tired of being marks.

     

    reply to this | link to this | view in thread ]

  25.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 2:47pm

    Re: Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    "your sister has a great RtB!"

    "My Mom CwF for years!"

    I can see it now.

    But make only one of each, and sell them for $10,000 each. But give them a sample loop of someone else music for free!

     

    reply to this | link to this | view in thread ]

  26.  
    icon
    DocMenach (profile), Feb 9th, 2010 @ 3:14pm

    Re: Re: Re:

    Wow, TAM. You really just love showing off how much you really just don't get it.

    They have to sell what most people don't value or don't want (stuff) in order to give the thing of true value to 10 out 10 fans (music) away for free.

    Right there you show your complete ignorance. It's not about selling things that people don't want. That obviously would not work. It's about finding things that the fans do want and will pay for. It's difficult to set a price on music because because the marginal cost is $0. Due to this awesome fact of $0 marginal cost, you can use it to sell something (that people want) that has a non-zero marginal cost, and the music adds value to that.

    Your talk of "freeloaders" shows how you miss the point. You may call them "freeloaders", but a more appropriate term is "fans". If you connect with fans (CwF), they will gladly give you their money.

     

    reply to this | link to this | view in thread ]

  27.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 3:23pm

    Re: Re: Re: Re:

    Your talk of "freeloaders" shows how you miss the point. You may call them "freeloaders", but a more appropriate term is "fans". If you connect with fans (CwF), they will gladly give you their money.

    That is what you are missing. Most of them don't give anything. Remember the the Radiohead thing? Average was about 5 pounds paid, but more than half paid nothing. Half of the people were just freeloaders.

    Calling them fans is like calling mugging "wealth redistribution". It's a glass half full view of people who took something for nothing, and have no intention of paying for anything else either.

    When the people who are paying start to understand that most people got it for nothing, they will stop paying..

    Due to this awesome fact of $0 marginal cost, you can use it to sell something (that people want) that has a non-zero marginal cost, and the music adds value to that.

    Alas, marginal cost isn't the only part of the per unit cost for music. Jill Sobule's $75,000 record would need to sell 7500 copies at $10 each to break even. The marginal cost may be zero, but the actual cost per until (for 7500) is $10. You are making the marginal mistake.

     

    reply to this | link to this | view in thread ]

  28.  
    icon
    Hephaestus (profile), Feb 9th, 2010 @ 3:37pm

    Re: Re: Re:

    TAM what I find funny about you is that no matter what, no matter how much proof, no matter what the subject matter you take the opposite side, and no one can please your sorry ass.

    We thank you for being here. We really do appreciate your commentary. Your playing devils advocate is great for TechDirt. You make people think through the reasons why copryright needs to be redone, why and how there are different ways make money off infinite goods.

    Unintended consequences are something people never really get until way later.

    Also this was not sarcasm ... so no /Sarcasm tag reminder is needed asa reply

     

    reply to this | link to this | view in thread ]

  29.  
    icon
    Hephaestus (profile), Feb 9th, 2010 @ 3:54pm

    Re: The Music Industry

    Thats basic economics, Supply and demand. People are not clamoring to buy digital music in the first place. You increase the price, you will decrease the demand.

    CEO Edgar Bronfman Jr. "...he also suggested that in hindsight, perhaps it wasn’t a great idea to raise prices 30 percent during a recession"

    Even if there wasnt a recession it would have caused the same decline in sales.

     

    reply to this | link to this | view in thread ]

  30.  
    icon
    nasch (profile), Feb 9th, 2010 @ 3:55pm

    Re:

    I will be there in September, think you can wait that long?

     

    reply to this | link to this | view in thread ]

  31.  
    icon
    nasch (profile), Feb 9th, 2010 @ 4:00pm

    Re: Re: Re:

    That's the point - they value the work, but they aren't paying for work, they are paying for some other thing that has supposed value (miniputt game, t-shirt, whatever) and not paying a penny for the actual work.

    Only employers buy work. Nobody has ever paid for work by buying music. They paid for music (whether it was on CD, MP3, whatever).

     

    reply to this | link to this | view in thread ]

  32.  
    icon
    nasch (profile), Feb 9th, 2010 @ 4:02pm

    Re: Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    You would be better off with Anal Bum Cover.

     

    reply to this | link to this | view in thread ]

  33.  
    icon
    DocMenach (profile), Feb 9th, 2010 @ 4:04pm

    Re: Re: Re: Re: Re:

    Bring it TAMmy!

    That is what you are missing. Most of them don't give anything. Remember the the Radiohead thing? Average was about 5 pounds paid, but more than half paid nothing. Half of the people were just freeloaders.

    Yeah, but how many more downloads did they get compared to if they had been charging $10 each? They had over 1.2 million downloads of that album. It's hard to predict, but it's safe to say would have sold less if they were charging $10 each. But they also got alot more this way, because if they had done the traditional approach of putting the album out through a label, they would have likely only received around 25 cents per album.

    Calling them fans is like calling mugging "wealth redistribution". It's a glass half full view of people who took something for nothing, and have no intention of paying for anything else either.

    You make quite a leap there. What leads you to believe that they have no intention of paying for anything ever? I have seen many people who download music for free still fork out cash for concert tickets and band merchandise. Even if they don't buy anything, they still help spread the music to people who will pay.

    When the people who are paying start to understand that most people got it for nothing, they will stop paying.

    Wrong again. When you offer something that they want and are willing to pay for, they will pay. The trick is let the people who want it for free have it, but give the ones who do pay something extra that they want.

    Alas, marginal cost isn't the only part of the per unit cost for music. Jill Sobule's $75,000 record would need to sell 7500 copies at $10 each to break even. The marginal cost may be zero, but the actual cost per until (for 7500) is $10. You are making the marginal mistake.

    7500 copies? Why would you choose such an arbitrarily low number? You must be aware that selling only 7500 copies of any album would make that album an unrivaled failure. It's quite obvious that you chose that number out of the air simply to match the end number you were going for.

    So since you are just pulling number out of the air then showing how much per unit that costs I can do the same:
    75,000 copies = $1 per copy
    100,000 copies = 75 cents per copy
    300,000 copies = 25 cents per copy
    1 million copies (platinum) = 7.5 cents per copy

    See how the fact that you have 0 marginal costs encourages you to distribute it to as many people as possible? You don't have to get $10 an album if you get it to 1 million people. And if that many people are hearing your music then plenty of people will buy whatever else you are selling.

     

    reply to this | link to this | view in thread ]

  34.  
    identicon
    Henry Emrich, Feb 9th, 2010 @ 4:08pm

    The most ironic thing.....

    ...about the miracle that is TAM (and other such trolls), is their assumption that Masnick is actually an enemy of their corporate overlords, because he neglects to participate in their particular pipe-dream.

    The thing is, he's actually *much* more charitable and sympathetic to your corporate overlords, even though he understands that their actions are completely and utterly ridiculous, counter-productive, and ultimately suicidal.

    Evidence?

    http://www.techdirt.com/articles/20070201/004218.shtml

    "While I have no clue about their feelings towards me, I should clarify my feelings towards them -- which I would hope is clear from these posts. I do not hate the recording industry or the movie industry. Quite the opposite. I'm a big fan of both music and movies. The point of this series is not to slam the organizations making these moves, but to help them. I hope they succeed, because it would be a lot easier for everyone involved. However, I do believe that their current strategies of alienating their best customers, relying on government protection, and pretending this is some sort of epic battle between good and evil aren't just doomed to fail, they're actively making things worse for themselves. What I write shouldn't be viewed as hatred for these organizations, but suggestions on how they could create for themselves a much bigger and more successful market that doesn't require everyone to hate them. I'm quite confident that the market for entertainment is only going to grow to tremendous levels going forward -- and I believe these organizations have every opportunity to capture quite a bit of it (though, they've been throwing that chance away every day). It's just a matter of recognizing the long-term strategic errors of their ways."

    Ultimately, This is why TAM and others of that ilk are so fascinating -- rather than admit the (blindingly self-evident) fact that their corporate overlords "Strategy" as regards the Internet, digital culture, etc. has completely backfired, and *trying something different*, they persist in apologizing for/excusing/justifying the aforementioned idiocy, and, in so doing, hasten their corporate overlords' complete and utter ruination and collapse --- ALL THE WHILE, making themselves look like pretentious, uninformed, arrogant little shits in the process.

    They persist in frantically attacking probably the *only* person on this entire planet who BOTH understands what their corporate overlords are doing, AND wants to help them survive.

    That's what's fascinating to me. Beyond all the (willful) ignorance and corporate lap-doggery, TAM and other trolls are hell-bent on discrediting the very person/business-model that stands even a snowball's chance in hell of saving them from the slag-heap of obsolescence and/or total ignominy.

    Utterly astounding.

     

    reply to this | link to this | view in thread ]

  35.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 4:16pm

    Re: Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    Did you see remake with the Starwars figures?

     

    reply to this | link to this | view in thread ]

  36.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 4:16pm

    Re: Re: First Annual Cwf -(RtB) Party "TrollinTime!"

    "How do you slightly kidnap?"

    There's a few months to figure the final details. But if the rumors on the internet are true, Mike's dog can probably be lured away with a bacon-wrapped hotdog pizza. Mmmm. Just thinking about that makes me hungry!

     

    reply to this | link to this | view in thread ]

  37.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 4:18pm

    Re: The most ironic thing.....

    Let them all fail. Art will still be made with or without protections.

     

    reply to this | link to this | view in thread ]

  38.  
    icon
    Mike Masnick (profile), Feb 9th, 2010 @ 4:28pm

    Re: Re: Re: Re: Re:

    Alas, marginal cost isn't the only part of the per unit cost for music. Jill Sobule's $75,000 record would need to sell 7500 copies at $10 each to break even. The marginal cost may be zero, but the actual cost per until (for 7500) is $10. You are making the marginal mistake.

    Heh. Your economic ignorance is astounding -- especially since multiple people have tried to explain this to you.

    What you call "actual cost" is "average cost" as anyone with even the tiniest understanding of economics can tell you, average cost does not factor into pricing. You can try to price that way, but it's a recipe for failure. Which, as we now know, is basically the story of your career -- so perhaps that explains a lot.

     

    reply to this | link to this | view in thread ]

  39.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 6:28pm

    Re: Re: so what thre saying is the people they look at aren't smart yet

    The Anti-Mike fails Econ 101 yet again.

     

    reply to this | link to this | view in thread ]

  40.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 7:42pm

    Re: Re: Re: Re: Re: Re:

    Ahh Mike, that is the difference between a classroom and real life.

    How do you suggest that Ms Sobule recoup the costs of producing her album? She was luck in this case to essentially get donations, but what if she had borrowed the $75,000 from the bank? Would you want her to sell her music for pennies, even though she would never have a hope of recouping her costs?

    Oh, wait, I forgot. You want her to sell miniputt games so she can finance her records, so that she can give them away for free.

    Right, got it.

    Real life explains why Itunes songs are more than a dollar instead of just a few pennies. The cost of making the music, of recording it, of turning it into a product, the artist time to write it, arrange it... it is amazing all those non-marginal costs that have to be recouped somewhere along the line. It's the marginal error, thinking that pricing is only based on marginal costs. Without the ability to recoup all those up front costs at some point, there is no product.

    Can you explain otherwise? Very seriously, without mentioning t-shirts or other "scarcities", how would you do this in a normal business? I would love to hear your answer.

    For the rest of your post, well, all I can say is that what you pretend to know about me is wrong.

     

    reply to this | link to this | view in thread ]

  41.  
    icon
    Suzanne Lainson (profile), Feb 9th, 2010 @ 8:05pm

    Conversion rates

    This chart was the most interesting to me.

    Topspin Conversion Averages

     

    reply to this | link to this | view in thread ]

  42.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 8:31pm

    Re: Re: Re: so what thre saying is the people they look at aren't smart yet

    Econ 101 discusses this thing called Average Cost. You take all your up front costs, and all your variable costs (marginal costs x units produced) and put that all together, and divide by the units produced. That give you an average cost per unit. If your marginal costs are low, increasing the number of units will obviously lower the average cost.

    Taken to the techdirt extreme, if you produce a near infinite number of copies of something for nothing, the average cost will approach (but never reach) zero, unless your fixed up front costs were zero.

    Now, when you know what your market demand is (1000 copies), and you have your up front costs ($5000), and your marginal costs are 2 cents (for bandwidth), your cost per unit is $1.02. Now, if the market only supports pennies per copy, you either need to heck of a lot more sales, or it isn't worth doing the business to start with.

    Y'see, if you look only at the marginal cost (2 cents) it is pretty easy to think that 10 cents is a good price... 5 times the money, wouldn't we all like it in our stock portfolio. But once you start looking at average total cost per unit, you realize that you can't do business at 10 cents and make a living. If that is all the market supports, you cannot come to market.

    Taken now to the techdirt extreme, if you give away for free a near infinite number of copies, the average cost drops almost (but never completely) to zero. More importantly, no matter how you slice it, you are still out $5000.

    If the bottom line doesn't work, you can't afford to be in that business.

     

    reply to this | link to this | view in thread ]

  43.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 8:32pm

    Re: Re: Re: Re:

    work, as in "work of art"

     

    reply to this | link to this | view in thread ]

  44.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 8:34pm

    Re: Re: Re: Re: Re: Re:

    Mike, let me add this: average costs don't figure into pricing, that is true, but it figures heavily into the question of if you are even in the market. If market price is a quarter, and your average cost is $1, you have to be a fool to be in that business.

     

    reply to this | link to this | view in thread ]

  45.  
    icon
    The Anti-Mike (profile), Feb 9th, 2010 @ 9:04pm

    Re: The most ironic thing.....

    their corporate overlords

    Once again, I have no corporate overlords, I don't work in the music or movie industry.

    Mike often says nice thing about people, yet he characterizes the same people as buggy whip makers, people with their heads in the sand, and worse. Effecively, he looks at them the same sadness one might hold for the "slow kid" who never does quite manage to learn how to tie his shoes or write his name.

    particularly quotes like this:

    "suggestions on how they could create for themselves a much bigger and more successful market "

    His first suggestion is that they should all go away, and take copyright and patents with them. That sounds like a good way to grow their businesses.

    TAM and other trolls are hell-bent on discrediting the very person/business-model that stands even a snowball's chance in hell of saving them from the slag-heap of obsolescence and/or total ignominy.

    You pretty much so the same thing, making nice noises and then calling them idiots. You might understand that they don't want advice from people who's first idea is to take them out behind the shed and put them out of their misery, right?

     

    reply to this | link to this | view in thread ]

  46.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 11:00pm

    Re: Re: Re: Re: so what thre saying is the people they look at aren't smart yet

    Still failing Econ, but you get a D for effort, at least.

     

    reply to this | link to this | view in thread ]

  47.  
    identicon
    Anonymous Coward, Feb 9th, 2010 @ 11:00pm

    Re: Re: The most ironic thing.....

    "Once again, I have no corporate overlords"

    Prove it. After all, you prefer guilty until proven innocent.

     

    reply to this | link to this | view in thread ]

  48.  
    icon
    Mike Masnick (profile), Feb 10th, 2010 @ 2:42am

    Re: Re: Re: Re: Re: Re: Re:

    Ahh Mike, that is the difference between a classroom and real life.


    You really are a stunningly ignorant person sometimes. We are explaining how real life works, not the classroom.

    How do you suggest that Ms Sobule recoup the costs of producing her album? She was luck in this case to essentially get donations, but what if she had borrowed the $75,000 from the bank? Would you want her to sell her music for pennies, even though she would never have a hope of recouping her costs?

    Ok, since you seem to have trouble grasping this: she should sell whatever she CAN to recoup the cost. We're not saying that she shouldn't sell music, just that it's a BAD BUSINESS MODEL because of the economics.

    This is the part that you seem to continually fail to grasp. We're just explaining WHY the market says if you price something wrong, people won't buy.

    You can try to sell at whatever price you want, but if you fail econ, then you'll price badly and won't do well.

    Oh, wait, I forgot. You want her to sell miniputt games so she can finance her records, so that she can give them away for free.

    I said no such thing.

    Right, got it.

    Nope. Failed again.

    Real life explains why Itunes songs are more than a dollar instead of just a few pennies. The cost of making the music, of recording it, of turning it into a product, the artist time to write it, arrange it...

    Nope. iTunes has been able to charge that much because people are paying for convenience. It has nothing to do with the fixed costs.

    it is amazing all those non-marginal costs that have to be recouped somewhere along the line

    No, not amazing. If you hadn't failed econ, you would know that. Of course you have to recoup the non-marginal costs. But you DO THAT by OFFERING SOMETHING SCARCE. That's the only way that you can charge above marginal cost.

    I mean, come on, seriously. It's stunning how badly you fail econ.

    This is exactly what I've been saying all along, and you repeat it back to me as if it proves you right and me wrong?!?

    Yikes. You're amazing.

    Econ lesson time:

    1. In a competitive market (i.e., one where the product is NOT SCARCE) price gets forced to marginal cost.
    2. In a non-competitive market (i.e., one where product IS SCARCE) you can price above marginal cost.
    3. Average cost does not factor into pricing, but DOES factor into the go/no-go decision.
    4. So any business model has to be about focusing on building up SCARCE goods, such that you can make enough profit to surpass the average cost, but with knowledge that the pricing on NON-SCARCE goods will be pushed to the marginal cost.

    You are saying the same thing, even if you think you're disagreeing with me.

    For the rest of your post, well, all I can say is that what you pretend to know about me is wrong.


    I've seen enough proof to know otherwise.

     

    reply to this | link to this | view in thread ]

  49.  
    icon
    The Anti-Mike (profile), Feb 10th, 2010 @ 3:08am

    Re: Re: Re: Re: Re: Re: Re: Re:

    But you DO THAT by OFFERING SOMETHING SCARCE. That's the only way that you can charge above marginal cost.

    I mean, come on, seriously. It's stunning how badly you fail econ.


    it's why I can disagree with you for a long time Mike. You didn't answer the question in econ terms, you answered it in Mike terms. It is how you see things working in the future, not how the real world works.

    You make the basic assumption that something is not scarce, yet it almost always is. You are suggesting that for decades people have paid for music that isn't scarce, like idiots.

    Music and movies are only "non scarce" because people are pirating them. Otherwise, they would be as scarce as always. It is pretty insane to base a business model on widespread piracy, no?

    Would you care to explain to the class what econ 101 says when your retail price is below your average unit cost? What happens to companies who sell their products below their average unit cost?

    Why would anyone knowingly continue to produce a product at a loss? You certainly cannot point a the current circumstances of the movie or music businesses, because that is the old system. Take that old system away, what is the new system doing? Nothing. Under the new system, nobody could afford to produce the content. Don't forget too that your "scarce goods" have costs, and take time, effort, and money to manage and distribute.

    The scarce goods as a supplement concept only appears to work when there is a vibrant existing system to sponge off of, or as your sample band of the week showed, a system to aspire to be part of. Without it, would the new system be truly functional, or would a new version of the old system reappear, because it is a more vibrant system, one that focuses on the product the people truly value, as opposed to the products most of them don't?

    As for my business, well, I repeat again, 14 years in the same business, no failures, no bankruptcy, no nothing. Sorry to disappoint you, I would have to say your comments appear to be intended to smear me more than anything.

    I would say you are down to attacking me personally as opposed to ideas, which is never a good sign.

     

    reply to this | link to this | view in thread ]

  50.  
    identicon
    Mark Ryder, Feb 10th, 2010 @ 3:52am

    AAAARRRRRR!!!

    suits suits suits suits.. What a load of utter cr*P

    Where is the music gone? Is all this rubbish sales man talk? Music please and FU&K all the other income revenue streams based of a year per dumb with slice of a pie chat! ARRR..

    Get real music is the value and music is the experience the rest is for sales men and number crunchers!!

    Support the artist = buy the music!! End of

    Go to a fashion designer for a t-shirt or coffee mug that’s not music that’s something totally not music

     

    reply to this | link to this | view in thread ]

  51.  
    icon
    The Anti-Mike (profile), Feb 10th, 2010 @ 4:05am

    Re: Re: Re: Re: Re: so what thre saying is the people they look at aren't smart yet

    ... and you get nothing for your deep and meaningful contributions to the discussion.

     

    reply to this | link to this | view in thread ]

  52.  
    icon
    The Anti-Mike (profile), Feb 10th, 2010 @ 4:36am

    Re: Re: Re: The most ironic thing.....

    Prove a negative?

    Back to bed with you... does your mommy know you are up so late?

     

    reply to this | link to this | view in thread ]

  53.  
    identicon
    Anonymous Coward, Feb 10th, 2010 @ 8:58am

    Re: Re: Re: Re: so what thre saying is the people they look at aren't smart yet

    To be practical, TAM, why not just move those up front costs over to the advertising line on your ledger? What are you advertising, you might ask? Well, in the most simplistic sense, you're advertising your talent, and getting more and more eyeballs on your talent is the first step in recouping your costs. The next step, of course, is providing potential buyers with a reason to buy...oh but we've already covered that above.

    The bottom line stays the same, obviously, but changing how you think about those costs might help it make sense to you.

     

    reply to this | link to this | view in thread ]

  54.  
    icon
    DocMenach (profile), Feb 10th, 2010 @ 10:16am

    No response from TAM makes me a sad panda

    Ahh Tammy, you seem so flustered. You clearly try to miss the point on purpose, you pull bogus numbers out of the air to "prove" your point (7500 copies? Jill Sobule will probably distribute at least a million copies), and you view fans as freeloaders and muggers.

    My favorite line you wrote is probably this gem:
    Music and movies are only "non scarce" because people are pirating them. Otherwise, they would be as scarce as always. It is pretty insane to base a business model on widespread piracy, no?

    This line shows how you really don't understand what "scarce" vs "non-scarce" means. Scarcity is an inherent property. Anything that can be digitally encoded (and therefore easily copied for practically no marginal cost) is by definition a non-scarce good. You can't take a non-scarce good and make it scarce. Though you can use that non-scarce good to sell scarce goods. The scarce and non-scarce good compliment each other to give more value to the customer, and encourages them to buy. Distributing that non-scarce good widely gives you much more opportunity to sell scarce goods.

    It's not about basing your business model on widespread piracy, it's about taking advantage of the fact that digital distribution allows for easy and cheap distribution on a level that was unheard of before. Until you can understand this very basic point, you will continue to fail at this.

     

    reply to this | link to this | view in thread ]

  55.  
    icon
    Mike Masnick (profile), Feb 10th, 2010 @ 11:01am

    Re: Re: Re: Re: Re: Re: Re: Re: Re:

    it's why I can disagree with you for a long time Mike. You didn't answer the question in econ terms, you answered it in Mike terms. It is how you see things working in the future, not how the real world works.

    Sorry, but the real world has proven me right, and you wrong, over and over and over again. Learn to deal with it.

    You make the basic assumption that something is not scarce, yet it almost always is. You are suggesting that for decades people have paid for music that isn't scarce, like idiots.


    Again, you are stunningly, amazingly, blindingly wrong. Definition of scarce is quite clear: what is the marginal cost? Is it $0? Then it's a non-scarce good. You keep trying to redefine it, by mixing up markets. We've had this discussion a dozen times. You choose to remain ignorant. That is your choice, but it does not make you right.

    Yes, of course people have bought music in the past, and no it's not because they're idiots. But for years music *was* scarce, because it was only available via a tangible product (a product with a non-zero marginal cost). Nowadays, when people buy digital music, they are paying for convenience (a scarce good), not the music files themselves.

    And, yes, *some* people will always pay above marginal cost, but you have to understand the basic pricing pressure.

    Would you care to explain to the class what econ 101 says when your retail price is below your average unit cost? What happens to companies who sell their products below their average unit cost?

    Well, if you can (to use your favorite phrase) think beyond the end of your nose and maybe pick up an econ text book, it's not at all hard to figure out how that works. In fact, I EXPLAINED IT TO YOU in the very last comment. If you BUNDLE the non-scarce goods with scarce goods that you can profit off of, then you can exceed the average cost in the overall selling proposition, and you very much stay in business.

    It is only economically illiterates like yourself who don't seem to understand bundling as an economic concept.

    Why would anyone knowingly continue to produce a product at a loss?

    Because it helps them sell MORE OF SOMETHING ELSE THAT THEY PROFIT FROM.

    That's the whole point.

    Honestly. You are making a total fool of yourself. Again.

     

    reply to this | link to this | view in thread ]

  56.  
    identicon
    Ex local music promoter geek, Feb 10th, 2010 @ 4:17pm

    My opinion on music, art and making a living

    The marketing for music creates desire. Desire for an artist, an emotion, to belong... many different levels. Ever seen those ads saying 'The must have albumn' toting performers as 'The greatest artist of our time', it's all building desire. What fulfills desire? Satisfaction.

    And the satisfaction is what people are going to pay for. Years ago, the only satisfaction you could get was purchasing a disk. Now that particular satisfaction can be acquired immediately via a digital download, IMO most people will choose instant satisfaction. People with pots of money will pay for the convenience of getting that download instantly and easily, not so wealthy people will prefer to spend the time to search for something free.

    But the key is the satisfaction. The greater the desire for the music or artist, the more people will be willing to spend money on satisfying that desire.

    If the marketing idolizes the performer, then I'd probably want personal contact. If the artist purveys an image, maybe I'll desire a t-shirt or poster to associate myself with that image, or more likely, want their image for myself (hair cuts, makeup, clothing etc.). If the artist is reasonable and approachable, I'll probably want to satisfy my desire to help support them in continuing to make more music.

    And there's satisfaction in obtaining scarcities from artists. There's satisfaction in personal contact with somebody you idolize. Satisfaction in seeing a unique live show. Satisfaction in supporting a proficient artist with their life's work.

    IMHO music is about expressing and fulfilling needs. That's the realm of the artist. The internet is killing music as an industry and re-birthing music as an art. And thankfully, it's never too late.

     

    reply to this | link to this | view in thread ]

  57.  
    icon
    Suzanne Lainson (profile), Feb 10th, 2010 @ 4:56pm

    Re: My opinion on music, art and making a living

    If the marketing idolizes the performer, then I'd probably want personal contact. If the artist purveys an image, maybe I'll desire a t-shirt or poster to associate myself with that image, or more likely, want their image for myself (hair cuts, makeup, clothing etc.). If the artist is reasonable and approachable, I'll probably want to satisfy my desire to help support them in continuing to make more music.

    I've been speculating that perhaps in this day and age, when technology and the Internet make music more accessible for everyone, if the "rock star as idol" might be changing.

    Here's something I just posted yesterday.

    Participatory Art Is Revolutionary

     

    reply to this | link to this | view in thread ]

  58.  
    identicon
    Ian, Feb 16th, 2010 @ 1:15am

    Re: Re: Re:

    Um, Diamonds are plentiful and effectively valueless. It is only the artifical scarcity that gives them any value. Why shouldn't it be the same for music?

     

    reply to this | link to this | view in thread ]

  59.  
    identicon
    Ian, Feb 16th, 2010 @ 1:26am

    I didn't read every comment, but I'm pretty sure that no-one mentioned that if you build a massive following by allowing your music to be distributed for free, many more than the 1 in 10 who pay for other tangible goods will come to see you play live.

    Pretty Lights anyone? Massive free downloads = touring the world to large sold out theatres.

    That is simple economics and nobody can disagree with the facts.

    In the old model he would have struggled to sell a few club records and get anywhere. Now, he is known to all the people he should be reaching and is making a great living - far more than he could have done under a traditional old school deal.

     

    reply to this | link to this | view in thread ]

  60.  
    icon
    Chris (profile), Apr 11th, 2010 @ 7:10am

    Re: Re: Re: Re:

    Anonymous Coward and Anti-Mike, I have enjoyed your banter here and would like to make one comment of fact. Price is literally a fact and value is literally an opinion, and in the instance in which it is used in your remarks, it appears you are both dancing with market value. There is also "value to a specific user" which can be different from both price (a fact such as cost) and market value (opinion by a large segment of the market as a whole). The great thing is that all of these numbers can be different. There are many more types of value but and price (or cost) can be greater, less than, or equal to market value as well as the many other types of value. Just remember price is a fact and value is an opinion. Cheers!

     

    reply to this | link to this | view in thread ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here
Get Techdirt’s Daily Email
Save me a cookie
  • Note: A CRLF will be replaced by a break tag (<br>), all other allowable HTML will remain intact
  • Allowed HTML Tags: <b> <i> <a> <em> <br> <strong> <blockquote> <hr> <tt>
Follow Techdirt
A word from our sponsors...
Essential Reading
Techdirt Reading List
Techdirt Insider Chat
A word from our sponsors...
Recent Stories
A word from our sponsors...

Close

Email This