From Infinite To Scarce: xkcd Goes The Book Route

from the the-way-things-work-these-days dept

A bunch of folks have been sending in the NY Times story about how the online comic xkcd is going to be putting out a book, and that it's being done avoiding the traditional book publishing process. There are some key quotes in there, including:

In fact, the xkcd story previews the much more likely future of books in which they are prized as artifacts, not as mechanisms for delivering written material to readers. This is print book as vinyl record -- admired for its look and feel, its cover art, and relative permanence -- but not so much for convenience.

And then there's the more important point about Randall Munroe not worrying about copying of the content -- and instead focusing on the other direction:

Publishing a book is an extension of the selling of items like T-shirts and posters, which pays the bills, he said, to a "free culture" mind-set about the cartoons themselves. "We have been encouraging people to share things, saying that it is a good business decision," he said....

One trick in transferring the material from online to print has been how to recreate the "title text" that comments on the strip when your cursor hovers over it.

"It's not supposed to be a punch line, but hopefully if you didn't laugh, you'll laugh at this," he said. The title text will appear where the tiny copyright notice would appear on a traditional strip.

Does that mean that the book won't carry a traditional copyright and instead take its lead from the online comic strip itself, which Mr. Munroe licenses under Creative Commons, allowing noncommercial re-use as long as credit is given?

"To anyone who wants to photocopy, bind, and give a copy of the book to their loved one -- more power to them," he said. "He/She will likely be disappointed that you're so cheap, though."

It's been clear from pretty much the beginning that Munroe understands that getting more widely known is a lot more important than worrying about "piracy," and it's great to see him take that attitude even further.

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Blizzard Adds Another Scarcity To Sell Around World Of Warcraft: 3D Figurines

from the it's-the-little-things dept

We're always looking for interesting examples of companies using infinite goods to sell scarcities, and George Johnston points us to one side business that Blizzard Entertainment seems to have gotten into to make more money from World of Warcraft. The company already gives out its basic software for free, but sells the (scarce) service of connecting to its game servers to play (even though there are "free" servers out there, many end up paying for the official one, because it's better, more stable, and has many more players). However, Johnston noticed that Blizzard has also done a deal with a 3D printing company (usually used for things like rapid prototyping) to allow game players to buy 3D models of their players. This is unlikely to ever become a really big business, but it highlights, yet again, that there are numerous different scarcities around any particular product -- and a good business is one that goes out and explores that wide variety of options to figure out what they can sell.

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Scarcity Is A Bad Thing, So Why Would You Want To Artificially Add Scarcity?

from the think-this-through dept

If there were no such thing as scarcity in the world, there wouldn't be a need for property rights, because there would be no borders to worry about. The entire reason why we worry about property and ownership and borders and allocation is because these things are scarce and we're concerned about the most efficient way to split up those scarce resources, without having too many arguments over who controls what scarce bit. If there were no scarcity, everyone could have whatever they wanted, and there would be no reason to worry about the rest. That's why I've never quite understood the rush to create artificial scarcity, as in the scarcity created by intellectual property laws.

It's a situation where you have the opposite of scarcity. You have abundance, such that there need not be any argument over ownership, because everyone can have what they want... and suddenly people want to take away the good thing (abundance!) and replace it with limits and a situation that is worse for everyone. Why would you ever do that, unless you either don't understand economics or you dislike mankind and would prefer that the world have fewer resources and more arguments over ownership.

Apparently, some others feel the same way. Derek Reed points to an amusing quote in a post by Tycho over at Penny Arcade concerning Sony's Playstation Home:

"Chief among these bizarre maneuvers is the idea that, when manufacturing their flimsy dystopia, they actually ported the pernicious notion of scarcity from our world into their digital one. This is like having the ability to shape being from non-being at the subatomic level, and the first thing you decide to make is AIDS."

While an extreme quote, he's making an important point. If you are creating a new world, where unfortunate and damaging resource limitations of other worlds wouldn't be necessary, why would you arbitrarily add those limitations back in? Why would you arbitrarily shrink the resource pool?

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And What If Tangible Goods Become More Abundant?

from the a-thought-experiment dept

Over the years, I've written plenty about the economics of infinite vs. scarce goods. Too often (and I do this on occasion as well) people default into thinking of "tangible" goods as being the scarce ones, and digital goods or information goods as being the infinite ones. But the definitions can certainly expand beyond that -- and there's also the possibility that material, tangible goods could one day lose much of their scarcity. Economist Arnold Kling, riffing on a post by Will Wilkinson about why energy isn't really scarce points out that, if energy isn't scarce, matter isn't scarce either.

In theory, as you solve "the energy problem" and figure out how to create energy cheaply, then you can make any material you want as it's needed cheaply as well. Then you're in a bit of the Star Trek replicator universe where even tangible products become much more abundant. We're still a ways off from that point, but it's worth thinking about as a thought experiment (especially as 3D printer technology improves rapidly). Indeed, Chris Anderson is also thinking along these lines, noting that technology is likely to solve both of the big "shortage" problems we're facing these days: energy and food -- if only government regulations would let them.

For those who think that copyright holders should try to artificially maintain scarcity, this may be a scary situation. After all, then the same "problem" facing copyright holders, will also face makers of tangible goods. But the truth is even if you switch tangible goods from scarce to abundant, it doesn't mean that you run out of scarcities to sell. Music is more abundant thanks to digital technologies, and there are still plenty of scarcities to sell for the music industry. There are always scarcities -- it's just that they're no longer tangible goods. Instead, business models will start to revolve around those non-tangible scarcities as well, such as time, attention and reputation. But these changes could create a rather radical shift in how economies function. So, even if it's pretty far out, it's worth considering the possibilities already.

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NBC Seems To Have Learned The Wrong Lesson About Scarcity

from the an-olympic-gold-in-misunderstanding dept

Of the various television companies, NBC Universal has always had the most trouble grasping the basic economics of scarcity and abundance, so perhaps it's no surprise that it's still misinterpreting the data that shows its mistake in trying to stop anyone from watching any of the major Olympic events live online. Instead, it forced people to wait until it was aired, hours later, on TV. This is leading to massive frustration, as people hear about various events, but can't see them for a while. Stunningly, NBC Universal boss Jeff Zucker seems to think this is a good thing, claiming:

"There's no question we did the right thing in holding the opening ceremony to air in prime time on NBC that night. The excitement that built out of word of mouth that the opening ceremony was the most spectacular thing that people had seen, that China had wanted to make a statement and they made a statement and people wanted to see that."

Read that a few times and spot the logical inconsistency. He's basically saying that by forbidding people from seeing the content and frustrating them, it built up word of mouth excitement. Apparently, it hasn't occurred to him (despite what his own data suggests) that another way to have built up word of mouth about the events would be to show them so that people could watch them live and tell their friends about it getting them to go see it when it gets rebroadcast again in prime time.

At the link above, Chris Matyszczyk, lays on the satire in responding to this view that forced deprivation breeds word of mouth demand:

So one assumes, given that this strategy has been so successful, the next time NBC's cameras exclusively witness, say, an assassination or a politician saying or doing something nutty, they will keep it to themselves until prime time comes along. You know, just to build up the excitement.

Let's hold NBC to this standard, shall we?

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Musician Talks About Success In Getting Fans To Pay For The Album Before Its Created

from the another-good-example dept

Whenever we talk about business models involving giving away "infinite" goods and charging for "scarce" goods, one of the points that we try to emphasize (though it doesn't always come across) is that some of the best business models are ones where you get paid for the creation of content, rather than copies of existing content. When it comes to music, we've suggested a variety of options, and pointed to stories like Jill Sobule and Maria Schneider, who have set up models where fans chip in to pay for the production of the album itself -- and, in return get lots of extras back in return (including access to the musician, early releases, credits, etc.).

Mathew Ingram points us to a blog post by Mark Kelly, the keyboard player with the band Marillion, who have actually been using just such a method of producing their albums for almost a decade:

In 1999 we released our final contracted album for Castle Records and, in anticipation of the way we planned to do business in the future, called it Marillion.com. We had already collected the email addresses of more than 20,000 fans through free CDs, downloads, etc. and by asking these fans to order and pay for the upcoming CD in advance, we were able to finance the writing and recording.

We maximised the profit from the pre-order by cutting out the record companies, distributors and retailers, manufacturing and shipping direct. We also released the album in the shops through an independent distributor to reach the fans not on the internet.

We released three more albums between 2001 and 2007 using this business model and despite continuing falls in CD sales worldwide we have managed to shield ourselves from the worst by continuing to build our database of email addresses, currently more than 65,000, and by offering special edition pre-order CDs with 128-page hardcover books containing beautiful artwork.

I'm sure many people still download our music illegally but the real hardcore fans want the special editions and are willing to pay £25 or more for them.

This is another fantastic example of the business model in action: focusing on connecting with your true fans, focusing on selling scarce goods (remember, the creation of content is a scarcity -- existing content is not) and giving people a real reason to buy (such as "special edition pre-order CDs with 128-page hardcover books containing beautiful artwork").

Unfortunately, after describing this great business model, Kelly veers off on a tangent that doesn't seem to fit with the point he makes in the first half. Even though his band has figured out how to profit without having to worry about "piracy," he seems to support the idea that ISPs should be responsible for file sharing, and he doesn't seem to recognize how promoting file sharing himself would help create more fans to add to that 65,000-strong email list. But, still, even though the end of the post doesn't quite match with the first half, it's great to see another band find success with this sort of business model.

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Bad Ideas: Instituting Artificial Scarcity To Annoy Fans Into Buying Now

from the economics-of-destroying-value dept

The more you look at the economics of abundance, you realize how ridiculous it is to ever artificially create scarcity. It only serves to shrink a market and leave open huge opportunities for competitors to wipe you out. Most of the time, though, we're talking about things like copyrights and patents -- which many people (who haven't considered the matter thoroughly) don't think of as artificial scarcity. However, it's quite rare to see someone be totally open in defending artificial scarcity as a smart business model option. Reader Mart writes in to point to just such an editorial, over at Gamasutra, where Matt Matthews tries to make the case for why video game makers should create artificial scarcity in an attempt to have more control over their markets.

Specifically, he suggests that games should only be released and available for limited times before being pulled, with the idea being that this artificial scarcity would cause people to rush to buy now. This is part of the common misconception about artificial scarcity. It assumes a somewhat static market, where all the scarcity does is make the same number of people want to buy in a smaller window. That's simply untrue, and plenty of economic research in the space has shown that to be false. It's not difficult to understand why either. A purchase decision involves a variety of different factors, and if one of those factors is that the company selling the product is toying with you by putting extremely annoying limitations on the product, that's going to turn a lot of people off. It also opens up much wider opportunities for competing companies who don't toy with their customers and offers a product to whoever wants -- embracing the wider opportunities of the long tail, rather than shutting them off. The whole point of the long tail is that it expands your market -- whereas Matthews seems to want to destroy that expanded market in favor of additional control over a smaller market.

What seems to really get Matthews are two things, which he notes as being the core of the problem: "An infinitely long tail gluts the market, confounds the consumer, and commoditizes developers." As for "gluts" the market -- that's not a problem that you solve by artificial scarcity (limiting choice), it's a problem you solve by having better filters and better recommendation systems. As for commodtizing developers, that's shorthand for "I don't want to compete." But, of course, the second you do something so silly as limiting the timeframe in which your fans can buy your games, the faster you hurt your own business by letting your competitor get their business. That seems a lot worse than having to actually compete.

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Can Someone Teach The New Malthusians About Infinite Goods?

from the well-here-we-go dept

When we talk about economics and business models concerning "infinite goods" it may seem like we focus almost entirely on the entertainment industry. However, the reason for doing so isn't an infatuation with that particular industry, but simply the fact that it's the best "natural experiment" for showing how these infinite goods work to grow a market. But "infinite goods" impact every market and help them grow. Yet, every time there's some sort of larger financial crisis, people spring up and deny that economic growth can occur any more. It dates back to Malthus' incorrect belief that people were growing exponentially while food supplies grew linearly -- meaning we'd run out of food. The problem, of course, was that he failed to take into account economic growth. That economic growth came from new ideas and new technologies (infinite goods) that made the production of food much more efficient.

The Wall Street Journal at least admits that every previous "Malthusian" has been proved wrong (other than very limited, pre-technology societies) before diving headlong into a discussion of whether or not the latest generation of Malthusians might just have a point this time. The article includes lots of fear mongering about various resources running out -- but those were the same fears that proved overblown in past Malthusian outbursts. My favorite example of this is William Stanley Jevons, who predicted the end of British economic growth thanks to coal running out (four years before oil was discovered) and when he died, his study was found filled stacked high with scrap paper -- since he believed that the country was running out.

That isn't to say things just "work out," but that it's these new ideas and new technologies -- these "infinite goods" -- that help to solve the problems. But they can only do so if they aren't locked down and artificially limited. Every time we lock down these ideas, we cause more problems and actually limit growth. If you could invent a solution to creating drinkable water (which the article frets about, but which Dean Kamen believes he's done), you could patent it and make it expensive. Or you could give it away, and recognize how you've just created a booming market for goods in places previously decimated by drought and disease. Rather than selling the water cleaning device, I would think there's a much bigger market in giving it away free to trouble spots and then helping to sell everything else that a healthy population would then want. Unfortunately, it's not clear that this is what Kamen will do. He is, after all, one of the folks protesting against any kind of patent reform in Congress.

So, again, this isn't to brush off the concerns of the Wall Street Journal piece. The environmental and resource challenges described are real challenges. But resource constraints can be solved through growth, and that growth is supplied by new ideas (new infinite goods) that increase the pie by creating resources that are infinite, and which make other scarce goods more valuable. We've pointed to Paul Romer's excellent explanation of economic growth before, but it bears repeating:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.

Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding. Possibilities do not add up. They multiply.

So, when we're discussing infinite goods, and using the entertainment industry as a model, it's not just about entertainment. It's about dealing with all kinds of challenges that the world faces, and doing so through spreading infinite goods that multiply and make existing resources more valuable.

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Can You Create A Market For Privacy? Would Anyone Care If You Did?

from the artificial-scarcity-isn't-a-business-model dept

David writes in to point us to Jim Manzi's guest post at Andrew Sullivan's Daily Dish suggesting that a way to deal with privacy issues is to create a market for private info. This is not a new idea, though it's not clear if Manzi knows about those who have tried it before. Root Markets has been trying to do this for years without getting that much traction. Manzi's idea is that right now people are lax with transaction data because they really have no choice: "When the choices are (1) opt out of modern life, or (2) implicitly surrender all of this info, pretty much everybody picks door #2." His description of the solution, however, should immediately ring some bells on an analogy that shows why his plan will almost certainly never work:

"But what if I had the practical ability to charge commercial entities for access to or use of information of this sort? It would, first, go from a free good to a scarcer resource, and second, I could protect those parts of my transaction history that I feel to be most sensitive. In effect, we need a functioning market into which I can sell my transaction history."

Yes, he's basically saying that we should take an infinite resource (data about our transactions) and forcibly create artificial scarcity, and then create a market around that artificial scarcity. It sounds nice in theory, but given how just about every market that's based on artificial scarcity is disintegrating as we speak, it seems unlikely to get very far. If there's one lesson that we've learned from watching the entertainment industry implode over the last decade, it should be that artificial scarcity doesn't last. Basing a business model on artificial scarcity is incredibly risky.

Given how little attention Root Markets has received from users, Manzi may not be correct in estimating where consumers' feelings lie on this matter. As they've shown time and time again, it's not that people want to keep their transaction data private and just don't have the means to do so -- it's that very few really seem to care at all.

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Abundance And Scarcity In The Insight Market

from the it-all-fits-together dept

Last week, after I wrote about some of the theory behind the Insight Community and the Smart Dossiers offering (which is a subset of the Insight Community), someone asked how my writings on economics fit into the equation. It's rather straightforward: In any market there are likely to be various scarcities and various abundances. You should always look at the scarcities as problems that need to be solved and the abundances as the resources you can use to solve those problems.

So, as we were building out Techdirt's business, working with various Fortune 500 companies to better understand various technology trends, we again began to notice an interesting set of scarcities and abundances. On the scarcity side, companies were really hungry for useful and actionable insight about their biggest challenges. At best, they could hire a big analyst firm or a big consulting firm, which would be excessively expensive, and often wouldn't give particularly useful information. In fact, it was a huge risk, since they would only receive a single answer, as if handed down from a wise man on the mountain, with no idea if it was accurate or not. At worst, they could have internal people try to do the analysis, often passing it off to a junior person to handle the work. Again, this would result in a single opinion (often from someone not very experienced) providing an important analysis that was also biased by coming from inside the company, rather than with an outsider's perspective.

At the same time, we were discovering an immense abundance in the ability to find and communicate with smart, knowledgeable passionate experts, many of whom we got to know via their participation on Techdirt itself, or via their own websites and blogs. At first we began to tap that group informally, to help us with the work we were doing with existing clients -- but we realized it was better to formalize the system, which is how we came up with the Insight Community, helping to eliminate the middle man and solve the scarcity (relevant, timely insight) with the abundance (lots of knowledgeable folks). The trick was coming up with a system that allowed the best, most useful insights to bubble to the top. In other words, figuring out not just how to connect companies to smart people, but to make sure that those companies could get the best, most relevant and insightful analysis out of the most qualified folks in that group of experts. To do that, we put in place a competitive system, that allowed experts in the community to compete to show they could provide the best insight. The end result has worked quite well, making it incredibly easy for companies, both big and small, to tap into this network of experts in order to get the best, most relevant insights into the challenges they face, gaining multiple expert opinions -- and doing so at a price the company gets to set.

Of course, while the "name your own price" model works well in some cases, it doesn't work for all. It can sometimes be an impediment for a company that knows they want something specific and isn't sure how much to bid for it. So, to help with those situations, we wanted to focus on common types of cases that the Insight Community was being used for and start to launch more packaged solutions -- the first of which is Smart Dossiers. Many of the customers using the Insight Community, had used it to get a straight analysis of a company. Sometimes of themselves (to get a quick snapshot of multiple outsider expert viewpoints), but more often of other companies they were dealing with: customers, competitors, partners, investments and investors. For example, we had one company use the Insight Community to create detailed "dossiers" on the company's top customer targets, so that its sales people could be better informed while calling on them. Another firm needed a competitive landscape of a new market it was about to enter, and was able to get a bunch of experts to all weigh in on the competitors in just over a week.

So, yes, we are putting into practice the economics that get discussed here all the time. It's all about taking an abundance and helping them "solve" a scarcity that companies desperately are looking for help solving.

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Another Business Model That Leverages 'Free'

from the having-someone-else-pay-for-it dept

When I first heard about TrialPay, I thought it was a bit gimmicky. However, in reading through a NY Times article about the company, I'm realizing it's actually yet another example of how to use "free" in a business model. The service is mainly used by software providers (who, remember, are offering an infinite good, which will face pricing pressures towards a zero price). The software developers officially offer their software for a price, but then also offer it for free if you agree to buy someone else's product. For example, you can get free anti-virus software if you also agree to get a subscription to Netflix. Note what's happening here (and how it sounds familiar). Software providers are giving away their (infinite) product, but they're attaching it to the sale of a totally unrelated (scarce) good, and are then profiting from the referral fees associated with those other goods. In other words, even if not explicitly, they've realized that their software products act as a promotional good for those other products. What's most interesting here is that those scarce goods are totally unrelated to the software that's for sale, other than through TrialPay's service. Effectively, TrialPay has helped makers of infinite goods tie up their products with other scarce goods that people would have thought were unrelated. So, the next time someone insists that there can't be a scarce good attached to certain infinite goods, remember this example.

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Kevin Kelly's Eight Key Scarcities

from the business-models-for-the-next-century dept

One of the coolest things in writing out my own economic theories on new business models has been seeing some other, much smarter, folks coming up with similar thoughts at the same time. Chris Anderson, editor-in-chief of Wired Magazine and the author of "The Long Tail" is working on a book about "free." He'll be showing how it's not such a crazy idea to price things at free -- and it's actually been done for ages. It should go well with the books on the number zero that inspired some of my thinking. Chris and I have had a few talks about these theories, and I can think of no one better suited to chronicle the history of "free" as it fits into the economic realm. On top of that, it appears that former Wired editor-in-chief Kevin Kelly is now working on another book that touches on the space, and he revealed some of the thinking behind it last week, noting:

"When copies are super abundant, they become worthless. When copies are super abundant, stuff which can't be copied becomes scarce and valuable. When copies are free, you need to sell things which can not be copied."

Hopefully that sounds familiar, just much more eloquently stated than I could put it. While I noted that, even beyond tangible goods, there are always scarcities associated with digital goods, Kelly has put together a fantastic list of eight categories of scarce goods associated with digital goods, noting that each one is "better than free." It's a list worth memorizing, because combinations of those eight things represent the key to a bunch of new business models: Immediacy, Personalization, Interpretation, Authenticity, Accessibility, Embodiment, Patronage and Findability.

It's fantastic to see these ideas getting more and more serious study -- and it also highlights how ideas and concepts spread. All three of us (and quite a few others as well) all came to these ideas through a combination of factors -- mostly independently, I'd imagine. Some interacting with each other. Some through interacting with others. I know that much of my thinking was driven by certain professors I worked with and other books that I read -- combining the different ideas I learned about into this understanding.

If you truly believed in the importance of artificial scarcity, we would all be hoarding our ideas or keeping them secret. Yet that would limit all of us. Seeing Chris and Kevin independently writing and speaking eloquently on these topics helps me both better understand the concepts myself, while also giving me an opportunity to build on their works, to incorporate their thoughts into my own writings, and to hopefully take those thoughts (combined with my own) into new and different areas as well. I can't see how anyone could consider the idea of building on someone else's thoughts "stealing." It appears to be a lot more like "learning" to me. It's the same thing that I see happening here every day as well. While there continue to be people who challenge us in the comments (often helping me to better understand my own arguments as well), I'm also constantly amazed at others who take my own arguments in the comments and make them better. We're all building on the work done by each other, making all of us better off in the long run. It's really quite an eye-opening experience.

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Losers Relish Scarcity, Winners Leverage Scale

from the yeah,-what-he-said dept

For quite some time now, we've been trying to convince many folks in a variety of industries, but especially the recording industry, to recognize why their rush to create and embrace business models that rely on artificial scarcity was not sustainable. What's been most amazing is how the folks in the industry themselves turn a blind eye to it (or falsely seem to accuse us of just promoting "theft.") However, with the recording industry continuing to struggle, it looks like insiders are finally starting to hear the message. Mathew Ingram points us to a talk given by Yahoo!'s Ian Rogers to a music industry conference last month with the title: Losers Relish Scarcity, Winners Leverage Scale. He goes on to discuss the "physics" of media, which is nothing more than basic economics. However, using the word "physics" makes sense here. For whatever reason (and economists may be at fault here), too many people still assume that economics are what people want to happen or what should happen, rather than recognizing that it describes forces that actually are happening. Talking about economics as "physics" helps get that point across. It's a good pitch, though my experience suggests that the important people won't listen (or, rather won't "hear" what's being said). While much of the industry is figuring this out, the big bosses of the record labels are still a long way from waking up to the reality they face.

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Edgar Bronfman Rewrites History, Has A Pretend Epiphany

from the not-quite-there-yet,-cuz dept

My distant cousin Edgar Bronfman Jr., the head of Warner Music, is getting some attention today for his remarks at the GSMA Mobile Asia Congress in Macau, where he seemed to be admitting to past mistakes in how the recording industry treated customers. However, when you look at the details, there's a bit of revisionist history, and not a full realization of what's going on. In saying "we were wrong," Bronfman concludes: "By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won." This sounds nice and plenty of folks will want to believe it, but it's totally wrong, and Bronfman knows it. After all, it was Edgar Bronfman Jr. himself who very actively declared war on consumers who were file trading in the summer of 2000. As the head (at the time) of Universal Music, Bronfman Jr. announced that he was preparing to send "an army of lawyers" after file sharers. That's not "standing still or moving at a glacial pace." The "war" wasn't inadvertent. It was an active decision by Bronfman Jr., which kicked off the entire RIAA war against consumers.

As for the rest of his "epiphany," don't buy it. About the only thing he seems to have realized (way too late) is that Apple isn't the enemy. He does say, repeatedly, that they need to offer a better customer experience, but he's said that before. And he's talking about the mobile industry, which he's talked up before, without realizing that the troubles it faced were coming from the ridiculous requirements (pricing, DRM, bundles) that he required them to have. Just a couple months ago, Bronfman was going on and on about why the record labels need to come up with new ways to make ubiquitous content more scarce, and the only reason he's so focused on the mobile platform is because he (incorrectly) thinks it allows the record labels to have more control. So, while it's nice that he finally (sorta) realizes that going to war with consumers is a bad idea, he doesn't seem to actually understand what happened or how to really fix things. Of course, we're more than willing to help him sort out the problems and come up with a better model. I'll even provide a discount for being family.

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Hip Hop Stars Understand The Real Business Models For The Music Industry

from the making-all-the-scarce-goods-valuable dept

It's funny every time we hear someone say that the music industry is in trouble. There's very little evidence that's true. More music is being produced today than ever before -- and plenty of people are still making a ton of money in the music business. What's actually in trouble is the traditional recording industry, which is quite different than the music industry. When we point out business models for musicians, we seem to get a lot of pushback, but there's more and more evidence that artists are successfully embracing the model we've put forth -- and they're raking in the cash doing so. Forbes just came out with a report about how much money the top hip hop artists are making, and they're doing quite well. However, it's not because of just the music, but how they've used the music to sell all sorts of other things.

It's exactly the model we described (though, many could probably do even better if they further embraced freeing their music). The music itself is an infinite good and can be used to the musician's advantage to make scarce goods much more valuable. As Lea Goldman, the associate editor at Forbes who put together the story notes: "they are smart enough to know that it's not just about selling albums. That'll keep you going for maybe two, three years tops. It's about building an empire and plowing those earnings into lasting businesses that will generate income long after the music stops selling." For some artists, that means branching out into totally different businesses. When people attack the business model we've described, they snicker at "selling t-shirts." However, the article notes that hip hop artists are creating full lines of clothing that sell well and sell for a premium because of their association with the artist. Also, the successful hiphop stars all seem to recognize one of the key "scarce" resources they can sell: an association with themselves. Many of these musicians took in millions by doing sponsorships, by producing other musicians albums or simply by appearing on other musicians' recordings. So, can we now set aside the myth that the music industry is in trouble? It's only in trouble if you're solely in the business of selling plastic discs -- and that's because those discs are increasingly obsolete.

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Edgar Bronfman Got The Wrong Message About Scarcity

from the time-to-repeat-that-lesson dept

Warner Music Group's chairman Edgar Bronfman is no stranger to failing to see the big picture when it comes to online music. After all, back in the summer of 2000 (when he owned Universal Music), Bronfman was the first music exec to rant and rave about Napster and say he was preparing an army of lawyers to start suing people for downloading music. In retrospect, many now admit that Bronfman's declaration of war on Napster kicked off the recording industry's problems. It was clear then that Bronfman simply did not understand the economics of digital goods, and in the eight intervening years, it appears he hasn't learned very much. While he's dabbled in digital music, the strategies always come back to him trying to control how the music is used, providing less value for music fans. Amusingly, he then complains that downloadable music isn't easy enough. Of course, the only reason that's true is because of the restrictions he insists must be included. In discussing Warner Music's latest earnings, Bronfman complains about the ubiquitous nature of music, and insists that the strategic response is to create additional artificial scarcity. This is exactly the opposite of what he should be doing. All that does is shrink the market, piss off potential customers and create wide open opportunities for competitors to better serve the market. Ubiquity isn't a problem -- it's an opportunity. There are plenty of ways that Bronfman and Warner Music could embrace that ubiquity, expand the market, increase the value and profit handsomely from it. But, instead, Bronfman seems stuck on his failed plan from the summer of 2000, and yet another opportunity will be squandered. Update: Then again, news is coming out that Universal Music will at least experiment with DRM-free music "for a limited time." That's a step in the right direction, just 8 years too late.

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