Perhaps It's Not The Entertainment Industry's Business Model That's Outdated

from the just-its-understanding dept

After last week’s post in my ongoing series about the economics of non-scarce goods, where I discussed the ridiculousness (economically speaking) of saying you can’t compete with free, a friend emailed me to make an interesting point. He suggested that despite the common wisdom many of us have suggested, the entertainment industry’s business models aren’t actually obsolete. What is obsolete is what people think the industry’s business model is. And, the worst thing is that the people most guilty of this are the industry execs themselves.

A few weeks back, one of the posts in this series was about recognizing what market you’re really in. I used the example of horse-drawn carriage makers, who mistakenly believed they were in the horse-drawn carriage market, rather than the personal transportation market — leading to troubles once the automobile came around. There’s an important hidden lesson in that. You can actually be succeeding in a market you don’t think you’re in.

When it comes to the entertainment industry, that may be exactly the case. We’ve been arguing that there are plenty of business models that don’t involve actually selling the content, but involve selling other, related products that are made valuable by the content. In fact, that’s what both the music and the movie industry already do. Everyone may think that you’re buying “music” or “movies” but that’s very rarely what you’re actually buying. You’re buying the experience of going to the movies. Or the ability to have the convenience of a DVD. Or the convenience of being able to listen to a song on your iPod. And, in many cases, it’s not just one thing, but a bundle of things: the convenience of being able to hear a song in any CD player, combined with a nice set of liner notes and the opportunity to hear a set of songs the way a band wants you to hear. It can be any number of different “benefits” that people are buying, but it’s not the “movie” or the “music” itself that anyone is buying.

So the problem isn’t that the industry’s basic business model is obsolete — it’s just that everyone thinks they’re actually selling music or movies, and that leads them to do stupid things like put DRM on the music to take away many of those benefits, or making the movie-going experience that much worse by treating everyone like criminals. What they’re doing, and why it’s hurting them, is that they’re actually taking away the features that they used to be selling — and missing out on opportunities to sell other benefits as well. So while we may still point out that the basic business model is obsolete, it may be more accurate to simply say that it’s the understanding of the business model that’s really out of date.


If you’re looking to catch up on the posts in the series, I’ve listed them out below:

Economics Of Abundance Getting Some Well Deserved Attention
The Importance Of Zero In Destroying The Scarcity Myth Of Economics
The Economics Of Abundance Is Not A Moral Issue
A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
Why The Lack Of Scarcity In Economics Is Getting More Important Now
History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
Infinity Is Your Friend In Economics
Step One To Embracing A Lack Of Scarcity: Recognize What Market You’re Really In
Why I Hope The RIAA Succeeds
Saying You Can’t Compete With Free Is Saying You Can’t Compete Period

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Comments on “Perhaps It's Not The Entertainment Industry's Business Model That's Outdated”

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16 Comments
Beefcake says:

Consumer Innovation

We as the little people have a lot of nerve trying to tell big, important music and movie executives that they are out of date. It’s us. We are so used to consuming entertainment media as if it belonged to us, we reject any new business models which tell us otherwise.

I suppose we’d better innovate the way we expect to use these products so the executives can quit suing us and get back to hosting hot-tub parties.

(Great, now I have to spend the rest of the day pulling my tongue out of my cheek.)

Chris Maresca (user link) says:

It's an old concept...

… called the ‘entertainment dollar’. A lot of industries have evolved the same concept.

For example, Steve Cahillane, the Chief Marketing Officer of InBev, once described the act of buying an alcoholic beverage as an ‘occasion’. And he wanted to make sure that his beer brands were the choice for ‘occasions’. He used that strategy to build a number of basic beers into ‘branded occasions’, including Stella Artois, Hoegraaden and Leffe, by making them interesting (branded pouring ritual, branded glasses, brand specific color and customer presentation).

I’m quite sure the music industry is very aware that the are competing with other forms of entertainment and distraction, they just won’t say it publicly. Besides, whatever money they are spending on piracy enforcement, lobbying, suing people, etc. is money well spent if it keeps the cash flowing a little longer. The alternative is a long-term change that their boards and shareholders don’t have any appetite for, a common problem in US public companies.

Chris.

Mike says:

Agree / Disagree

Excellent series of articles.

I tend to agree, but I think for the entertainment industry to genuinely have the model you describe, it has to be coming out in practice. While what you describe is how it should be (and in a meta sense, always will be) it’s not how it is.

The current model exists to create hit singles and straight to platinum artists, (and the infrastructure needed to support world class, money making talent) it doesn’t exist to enhance lives or provide a life experience.

I just started ranting along these lines here.

Steve says:

Bad Title

The content is right on, but that doesn’t change the fact that the entertainment industry has an outdated business model.

Business Model != Market

If my business model in the personal transportation market is to sell horse carriages, I have an outdated business model.

The entertainment industry is in the same market it’s always been in, it’s just that the market has changed.

TO says:

Many ways to skin a cat

Mike,
Imaging you are a song writer, singer, producer, engineer of that CD. A lot of bucks go in to making that CD, not to mention the creativity and the artistry. Now the music exec sells your CD using the ‘free’ business model. The CD is packaged with ads, promotions, media technologies, etc and sold as an entertainment experience which happens to have some music. Just like Google sell ads attached to free searches. The exec certainly do get paid. But only for the package because the value of the music is nil. The music production guys get perhaps a 1% ‘overhead’ leftover.

I suspect you won’t want to be in that 1% group. You will instead say that it is NOT the music that’s broken – that music is valued by the public as zero. Rather, it is the entertainment business model as practiced by the business exec that left you dry. So you have three choices:

1) Leave the music creation business altogether and be a burger flipper. It pays minimum wage, which is a lot better than zero.

2) Subscribe to the ‘zero music value’ business model, let the music exec laugh all the way to be bank with his entertainment packages, and you keep your day job as burger flipper. But if this business model is correct, the exec won’t need you anyway.

3) You invent a new business model. In this new model, there is intrinsic value to music and the consumers will agree. Importantly, it will employ distribution technology that correctly assigns value to both music and the technical quality of that music. All technologies that are so defective that they zero out these values will not be used. Sounds impossible? No. Just go to your book store and take a look at what the book publishing and visual arts businesses managed to deliver. They get handsomely paid for the artistry instead of the paper. I don’t remember seeing the buying public complaining too much about the paper being not enough of an ‘experience’ to justify the price. And I haven’t heard any fuss about putting DRM into a pile of book paper or painter’s canvas.

Mike (profile) says:

Re: Many ways to skin a cat

But only for the package because the value of the music is nil. The music production guys get perhaps a 1% ‘overhead’ leftover.

I think you’re missing the point here. This is how things are already. What we’re discussing here opens up many MORE opportunities for the actual musicians to get paid, because it focuses on ways to get them paid, rather than just the labels…

ScytheNoire (profile) says:

nothing new

there is nothing new here, whenever there is new technology, the music and movie industry fight against it. the new technology here is internet distribution, and it’s something many industries have fought against.

but many are learning that you can’t fight it. we do most of our shopping online now. we socialize online. we play games online. and we want our streaming live content from online. we want to get the latest movies and tv shows and music online, when it comes out.

so while they try to infect content with DRM, and offer lesser quality content, the consumer will continue to look elsewhere until the content they want is offered. offer the content the consumer wants, they will pay for it.

i want my content distributed online, without infectious DRM and lowered quality. i don’t want to go to a theatre. i don’t want to have stacks of CD’s. and i don’t want to pay the RIAA when i can directly pay the artists.

those companies that learn to work with and use technology are the one’s who will be making all the money. there are companies that are proving this, and those old companies are fighting against it, but it’s a losing battle. you cannot fight technology and consumer demand forever. you will lose.

Andrew D. Todd (user link) says:

Another Model

Before the era of mechanical reproduction of creative works, artists often tried to “own the venue.” Here’s an example. Boxers are not strictly artists, but they are performers. Very well, successful nineteenth century boxers commonly owned their own saloons. One exceptional boxer, John “Gentleman” Jackson, managed to go a step further, and open a fashionable gymnasium over which he presided. Boxing was a bit more upscale then, maybe about like karate now. Wealthy young men would pay to be taught to box. I don’t think that, say, Mike Tyson, could have made a go of running a saloon. Muhammad Ali, on the other hand, probably could have done so.

A musician could open up his own coffeehouse, perform in it, and give away recorded music as advertising. Note that I say a coffeehouse, not a club. A liquor license is probably more trouble than it is worth, in terms of drunks and police problems.

To: T.O. (post 7): The problem with being a burger flipper is that McDonalds owns the grill, and you don’t, and McDonalds appropriates your surplus value. If you can get people into your own place, you can make quite a decent living at burger flipping. That’s where the music comes in.

=================================================================

http://www.georgianindex.net/Sport/Boxing/boxing.html
http://en.wikipedia.org/wiki/John_Jackson_(boxer)
http://www.findagrave.com/cgi-bin/fg.cgi?page=gr&GRid=12452
http://www.ibhof.com/jjackson.htm

http://www.gutenberg.org/etext/8901

http://www.cyberboxingzone.com/boxing/hazlitt.html

Anonymous Coward says:

I run an art house theatre and I love hearing complaints, criticism, suggestions and even the occasional compliment.

The chain theatre I ran, complaints went nowhere, unless it was something I could do. Even then, what I did was “on the sly” because the corporation couldn’t care less and they’d just say “no” because that was the easiest short-term solution. The best thing to get a corporate complaint heard is to find the names of the highest people you can, and complain to them.

I run an independent place now, and it’s great being able to respond to complaints in a timely manner. Plus there’s no MPAA “we hate customers” warning posters around, and I’m not required to check the customers for cameras (a part of my job that somehow I “forgot” about and had my theatres marked down during audits for that).

My wanting to make the theatre a nice place to be wasn’t good in a corporate environment, but it attracted the attention of local theatre owners, so I left.

Carl says:

What Business are we in?

Mike,

Your comments about the horse-drawn carriage industry not recognizing exactly what business they are in are right on. There’s a blog on Media 3.0 that makes a similar point — about the television industry adapting to advanced media. Shelly Palmer (the blogger at Media 3.0) draws the same “carriage” analogy (but
using the railroad industry versus the airline industry
).

– Carl

Dean Procter says:

Entertainment industry dinosaurs dying in the digi

I have a little first hand knowledge of the entertainment companies at the dawn of the digital age. I foresaw the dilemma they would be faced with by the internet and set about to offer a solution in he mid 90’s. It was:
Give the customer what they want.

I offered to enhance every CD (no DVD’s yet then) with full screen video and web links to the record company/band website and make it easy to ‘connect’ the consumer to the artist.

It was the first full screen video on music CD’s playable on 486 PC’s so it was a bit of a novelty at the time and was incentive to put the music CD in your PC, whereby it became even easier to subscribe to the artist, order more product and interact.

The product would consist of digital downloads, custom CD’s and custom mixes of your chosen artists.

I offered the record companies more money than they were making, the artists more money, and the consumer lower prices and more convenience.

The response was interesting. Dreamworks, Geffen, Universal all loved the idea with Paul Kreiger of Universal championing it. Sony tried a couple and decided they could do it themselves (wrongly), BMG wanted me to do it just for them(Germans of course).

I made a lot of money quickly doing interactive CD’s and websites but the companies just didn’t get it.
I had everything covered, – DRM (of a sort – ie if you copied your album and sold it – we would catch you), the artist would get paid for their work – quickly, and the consumer would get what they wanted easily.

In the end the entertainment companies just wouldn’t get on board, and I honestly believe it was because they were ripping off the artists so much that they couldn’t let it go.

At the last boardroom meeting with the entertainment company execs I told them that if they didn’t do it with me it would be ‘done to them’ for free and they’d lose billions. 3 months later there were 300,000 shared tracks on the college networks and the rest is history.

There is no going back, they are in decline. The only chance they had was to make it easier and cheaper for consumers, instead they made it impossible and expensive while the pirates and people just plain sharing made it easy and free and sent them to the wall.

New artists realise the opportunity that the internet provides and they don’t need the entertainment companies to make a good living.

There is room for one big player to win the whole prize but it’s name isn’t SonyBMG, Nokia, Apple or any of the existing players. Just like last time – the new way will leave them far behind – and there is a new way coming – which will make it easier for consumers, to get quality, not proprietary, the consumer won’t be the enemy and the artists will get paid quickly (instantly).

You just can’t beat easier – except sometimes free can for a short while. That business model isn’t open to the dinosaur entertainment companies and neither is the new way coming.
As for the consumer – just give them what they want and make it easy and they’ll happily pay.

Mark my words.

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