On Content, Promotions, Basic Economics... And Loutish Statements

from the content-and-advertising dept

Last week, I wrote a post that kicked off an interesting discussion on the fact that all advertising is content... and that all content is advertising. The discussion only convinced me I hadn't clearly explained myself on the subject. I'm thinking of maybe doing another short series of posts to discuss this concept further. And, what better way to kick it off than to point out more faulty logic from Nick Carr. Just yesterday we had discussed how incorrect Carr was in his assessment of Billy Bragg's equally incorrect op-ed piece in the NY Times. Mike Arrington over at TechCrunch chimed in as well, making many of the same points that we make around here, and have made for years. Oddly, Nick Carr then responded to one particular sentence from Arrington, calling it: "the saddest, stupidest sentence I've ever read." Carr also called Arrington's explanation "loutish." What deserved such a claim?

"Recorded music is nothing but marketing material to drive awareness of an artist."

Now, I'm not going to speak for Arrington, but I will speak for myself, and note that I've been saying similar things for nearly a decade. So I'll defend my own statements and explain exactly how it fits into the point last week about all content being advertising -- and all advertising being content. First off, I don't think that recorded music only drives awareness of the artist. I think it helps drive awareness of a whole host of other scarce goods related to the artist. But awareness is the biggest and most important in implementing a useful business model. So I find it hard to see how it's either sad or stupid, considering that it's actually quite accurate and a fundamental understanding of economics would show how it's true. Besides, if that's really the saddest or stupidest (or both!) sentence Carr has ever read, he doesn't read much.

So why is Arrington right and Carr incorrect? Because Carr still doesn't seem to understand the difference between scarce and abundant (or infinite goods). He doesn't seem to understand externalities. And he doesn't seem to recognize basic econ 101 points, such as price being set at the intersection of supply and demand, or price being equal to marginal cost (two ways of saying the same thing). Finally, he doesn't understand that non-monetary value is equally as important as monetary exchange (and that non-monetary value can be turned into money). For someone who is apparently (is he really?) a well respected economic commentator, these are odd omissions to his education. With an infinite good, the price gets pushed to zero over time. Map out the supply and demand curves and you see that, and you can confirm it when you see that the marginal cost is zero. But this doesn't mean that all is lost. In fact, it's a benefit, because that infinite good now becomes a resource that makes any scarce good it touches much more valuable. In other words, it acts as "promotion" or "marketing material" or "advertising" for those scarce goods. But, you've heard this before.

This is also why all content is advertising. Content is an infinite good. All content advertises something and makes something scarce more valuable. Nick Carr's blog, for example, helps advertise him and convinces people to buy his book (a scarce good) or hire him for consulting (which is buying his time -- another scarce good). Billy Bragg's music acts as advertising for Billy Bragg. It helps him sell more concert tickets at a higher price, or better yet, embrace newer more interesting business models like Trent Reznor, Jill Sobule or Maria Schneider. All of whom are examples of using their content to sell something scarce. It's that content that makes the scarce item valuable, but the content itself, once it exists, is an infinite resource. Once you think of it that way, it's a promotional good that can be given to everyone for free, making every other scarce good you possess more valuable. It's hard to think of why you wouldn't want to promote that way.

And that leads us to Carr's mocking of Arrington with the following paragraph, showing how little he understands the difference between scarce and infinite goods:

"As a printed poem, one assumes, is nothing but marketing material to drive awareness of a poet. As a sculpture is nothing but marketing material to drive awareness of a sculptor. As a film is nothing but marketing material to drive awareness of a director."

As for the first example, yes, a poem is marketing material to drive awareness of a poet. And that allows the poet to sell many scarce goods, including books of poems, the ability to write a new poem, the ability to perform the poetry or even to get a job (say, as a poet laureate or a poetry teacher). None of those things are possible if the poems are not known. A sculpture is not an infinite good, so the statement doesn't quite fit. But an image of a past sculpture absolutely does help promote the sculptor and get them additional work in creating new sculptures (scarce goods!). As for the film, we've discussed this in great detail in the past. It is marketing material to drive people to buy scarce goods: seats in a theater. Even the great theater owner Marcus Loew recognized that: "We sell tickets to theaters, not movies." The movie is the content. It "advertises" the seats. It makes those scarce seats valuable. The content, you see, is advertising. That's not loutish, sad or stupid. It's just a basic economic truth.

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Other posts in this series:

• Advertising Is Content; Content Is Advertising
• On Content, Promotions, Basic Economics... And Loutish Statements
• Content Is Advertising... In The Newspaper Industry
• Content Is Advertising... On TV
• Newspaper Content Is Advertising For More News Content

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It's Not Exploitation If You Chose To Take Part

from the repeat-after-me dept

Well, the buzz of the weekend seems to be around a New York Times op-ed by musician Billy Bragg upset about the sale of Bebo to AOL earlier this month. Bragg's complaint is an old one that we've heard before: Because musicians chose to put their music on Bebo and that helped attract users, don't they deserve some of the $850 million that Bebo got from AOL. Not surprisingly, Nick Carr, who has been pushing this obviously false notion that "user-generated content" is exploitation, comes to Bragg's defense with his usual technique: sound smart, make some interesting points, and then wrap it up with a conclusion that is in absolutely no way supported by the facts.

Let's break this down. The first complaint is that somehow Bebo was "using" this music for "free." This is false. There was a fair trade in an open marketplace that made this happen. Bebo offered musicians a chance to promote themselves (for free) to its community. Musicians accepted this offer, and in exchange, provided their music for free. No one was forced into it. No one was compelled to do it. If either party felt the other was unfair they could choose not to engage in the trade -- and they could also vocally complain. In fact, Bragg did just that when he felt MySpace's terms were unfair, and they changed them. So by choosing to accept Bebo's terms, clearly they were perfectly acceptable. It was a fair trade.

Bragg goes on to assert: "The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend." Actually, they're very different from investors. Investors made a very different trade. They traded money for equity. Again, it was the fair and open market that allowed that. If Bragg had wanted to trade music for equity, he should have discussed it before... not after. You can be sure that any investors in Bebo didn't ask to change the terms of the deal after the buyout went through.

Complaining after the fact about what happened is like selling a bunch of wood to a builder for a few thousand dollars, and then complaining when he turns that into a million dollar house. Was the wood seller exploited? No. He made the fair trade, and the builder was then free to do what he wanted.

Nick Carr's response to all of this is especially wrong. He writes: "When challenged in this way, the plantation owners counter that they are doing musicians a favor by providing them with a place to promote their work." That is incorrect in so many ways it would take another whole post to get through them all. But let's take the simple point: no one is saying they are doing musicians "a favor." They are saying that there's a fair trade. You give music, we give promotion. No favors at all.

Carr and Bragg go on to use radio as an example, noting that it pays royalties, so why shouldn't social networking sites. This is incorrect for a variety of reasons. First, in the US at least, radios do not pay musicians royalties. This was a decision made by the government that since musicians benefit from airplay, no royalties are needed for the musicians (other royalties are paid for composers and publishers). However, much more to the point was that for most of the history of popular music, those royalties have been meaningless -- as record labels went through all sorts of contortions to have the money go in the other direction. What's sometimes called "payola" has gone on for years, with the record labels effectively bribing radio stations to get music on the air -- recognizing that the promotional value greatly outweighed the royalties coming in.

In other words, a free market will let the benefits to both sides balance out. If payment needs to even up one side, then the market will determine that. But, many musicians made a fair trade decision to take up the offer that Bebo made. It's their own fault if they feel they got the short end of the stick, but they clearly were happy to go along with the deal originally. Buyer's remorse and sour grapes are no excuse. If anything, this sounds quite similar to Doug Morris' ridiculous belief that no one else can make money.

To understand this most simply, it goes back to the psychological explanation we discussed earlier this year, where relevancies matter. People dislike seeing someone else made much better off, even if they are better off themselves. These musicians felt they were better off by using Bebo, but they're now upset that Bebo's founders are relatively better off than they are at the end of the deal. It's a weird world when someone would prefer to be worse off, rather than seeing someone else be even better off. In the meantime, if you'd like to read an ongoing debate between Billy Bragg, myself, Tim Lee and Joe Weisenthal, check out the post on Joe's blog where we all discuss this in the comments.

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Google's Real Innovation: Recognizing The Power Of Complementary Goods

from the the-nicholas-carr-enigma dept

Of business pundits these days, I think the one I enjoy reading the most is Nicholas Carr -- and it's not because I agree with him, but because he's the most challenging to understand when I think he's wrong. Carr is amazingly smart, often sifting through a lot of hype to pull out some really key and important insights and making them clear and easy to understand. What's amazing, however, is that all too often, he takes all of those really great insights and jumps to a totally ridiculous and unsupported conclusion. As I've pointed out before, as you read what he says, you agree with all those really smart insights, and if you're not careful, you can accidentally agree with the conclusion he draws -- even if it's not supported by all those insights. His latest is an article where he argues that Google is not a company worth emulating when it comes to innovation because it has a unique business model that is really based on providing complementary goods (basically almost any use of the internet) to encourage more sales for its key good (ads). The fact that Google uses complementary goods to help make its core business bigger is a key insight that too few people have expressed clearly, so it's great to see Carr call that out.

However, where he goes off track is in suggesting that this is somehow a unique situation and there isn't much to learn from it. Instead, he should be pointing out that this is the key insight that plenty of companies should be paying attention to -- as the key to building sustainable competitive businesses in the digital age is understanding the economics around complementary goods. Almost every successful business recognizes this and learns to exploit it. Intel always did a great job of this, building up businesses that seemed unrelated, but were always about driving more advanced uses of computing to increase the demand for more chips. As we've discussed at great length, the entertainment business has always been about using content to sell complementary goods, whether it's movies to sell admission tickets or DVDs or music to sell concerts and CDs. The newspaper business has always been about that too. Using "the news" as a complementary good to sell eyeballs to advertisers. In fact, Techdirt's own business is based on this core concept as well -- though, I'll leave it as an exercise to the reader to figure out how (and, no, it has nothing to do with advertising).

Carr, unfortunately, leads people astray by suggesting that understanding complementary goods isn't important unless you're Google. He is right to point out that this is a key point to Google's on-going success (rather than the silly things the press often talks about, such as its free food and "20% time"), but he's way off in suggesting that there aren't important lessons that others can learn from this recognition of basic economics concerning complementary goods.

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