Those Who Don't Understand The Value Of Free Information Are Doomed To Fail

from the creative-destruction,-romer-style dept

I've obviously been writing quite a bit about both the music industry and the news industry lately -- as there are tremendous similarities between the two industries -- a point highlighted by Tim Lee, who (at the same time) notes that the one difference is that "piracy" isn't a problem for the news business (though, those who incorrectly blame Google for the downfall of journalism might argue otherwise). Tim's point (and it's one I agree with) is that the basic factors hitting both industries are really the same, and the "piracy" excuse is something of a near total red herring. It's actually the overall dynamics of a changing market when the main output becomes digital.

Lee's piece is a response to James DeLong's article decrying the death of newspapers which pins it on all of us fools who claim that "information wants to be free." DeLong, you may recall, was a bigshot at the Progress & Freedom Foundation -- a DC think tank that has long advocated ever more draconian copyright measures. And, he's effectively doing the same thing here: saying that newspapers will only survive if they charge for every little thing. This is, once again, the same incredibly wrong advice that he spewed out to the entertainment industry for years -- and look where that got them?

The similarities actually remind me of the one time that I actually got to meet DeLong, nearly three years ago, at a Cato Institute symposium on copyright, where I first laid out the details of why "free" isn't a problem in economics, and how it should be a part of the business model, if you follow through on the basic economics. It was actually on the flight to that event, reading a book about the history of the number zero that I realized just how difficult it was for many to get past the zero. It was as if, the second they came across zero, their brain popped out an error and they stopped thinking. It leads to ridiculous claims like "if I give it away for free, I won't make any money!" That's not true if you look at the larger economic ecosystem, understand the economics of information or infinite goods, and recognize how they can play into the overall economic model.

While DeLong was there that day and heard me speak on this, it's pretty clear that he didn't get the message. Instead, he's continuing to focus on how to implement artificial scarcity, believing that markets only work when everything has its price -- and that price isn't zero. But this is a huge mistake from a business perspective. If you understand where the zero fits into the business model, then there are plenty of business models that work great. The problem with the recording industry is that they've never believed the zero fit anywhere. The problem with the newspaper industry is that it recognized the zero, but forgot to figure out where the rest of the business model fit. Instead of figuring that out, reactionaries like DeLong are moving backwards and trying to just ignore the zero again. Unfortunately that's what breaks the model even worse. Ignoring the reality of where a zero fits into a business model is a simple recipe for failure as it tries to go against fundamental economics.

No one has ever said that "everything must be free" (though, angry copyright system defenders repeatedly pretend that's what we are saying). All we've said all along is that it's important to recognize that in the information economy, it makes plenty of economic sense for certain things (i.e., "infinite goods") to be free (that's where the zero goes) and then the scarce goods are what you charge for. The trick is enabling a business model where the infinite goods make the scarce goods you control more valuable. This is absolutely possible for any business -- and, in fact, failing to understand how you do this will most likely doom your overall business.

We'll be talking about this and much more at the Free! Summit in a couple months, and we hope you can join us. However, we have to admit that early interest in the event has been overwhelming, so we've already had to shut down the open registration and opened up a waiting list. We're working hard to see if there are ways we can accommodate a much larger audience (if you have any ideas, let us know -- or if you're interested in sponsoring a live web feed, please let us know), but if you were thinking of going, at least get on the waiting list early.


Reader Comments (rss)

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  1.  
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    Ima Fish, Mar 5th, 2009 @ 11:05am

    "it's pretty clear that he didn't get the message"

    James DeLong got and completely understands the message. It's simply that the message does not play his bills like the copyright industry does.

     

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    ChurchHatesTucker (profile), Mar 5th, 2009 @ 11:36am

    Hrm.

    It leads to ridiculous claims like "if I give it away for free, I won't make any money!"

    Well, that explains how the public domain has been increasingly fenced in, despite the obvious loss to the public.

     

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    Rich Fat Porcine™ (© 2009 Rich Fat Porcine Inc., Mar 5th, 2009 @ 11:39am

    As a Rich Fat Porcine™ (© 2009 Rich Fat Porcine Inc. All Rights Reserved in Perpetuity), I must disagree with your assessment there Masnick. It is my divine right, sent from Our Lord on High, to extract every dollar from every atom of content we ever produce.

    Remember Masnick, Pirates are the 2009 version of Pinko Communist Leftists™ who are hell bent on destroying the American Way of Life, which is to say, it's mine, it's all mine, and you can't have it. Nya, nya, nya, nya, nya.

     

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    Yosi, Mar 5th, 2009 @ 11:43am

    Lot of words, but message is wrong

    Piracy are not the problem exactly because of it's illegal nature. Any decent company caught with piracy will be hit by huge fines, which makes unauthorized copying very stupid thing to do.
    Remove copyright (or any other construct which makes possible to sell software) - and this model is gone. Support contracts are bullshit in 80% of cases (if not in 99%) - software supposed to be bug-free and not require support per se.

     

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    Easily Amused, Mar 5th, 2009 @ 11:46am

    Re:

    I dunno, these guys remind me of the kids on the playground who plug their ears and scream "lalalalalalalalalalalala" to avoid hearing someone talking to them.

    My cynicism about extreme corporate greed and my utter belief in the rampant idiocy of the general populace are fighting over who's right about this one.

     

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    Weird Harold, Mar 5th, 2009 @ 11:52am

    ..and you would think I wouldn't comment on this one?

    The question of "FREE!" is the question of net bottom line: If you kill a 10 billion dollar a year industry (music) to sell more concert tickets, how much more does each concert ticket have to cost to make it break even? It explains why in part that ticket prices for a 2 hour concert now often well exceed $100 per seat or more - someone is trying to make up on the back end what isn't made up on the front end.

    Where "FREE!" fails is when enough people stop overpaying the back end to support the freeloading on the front. It becomes a question of lost potential. Further, when the music is used not to sell concert tickets for the band but used to sell books, or travel, or online gaming (examples) the music industry loses twice, not only do they not make a sale of music, but they also have the intrinsic value of their product reduced to zero and corrupted to make someone else money. That once again pushes up ticket prices, getting us closer and closer to the failure point where the general public is not longer interested in paying super high ticket prices. All marketing is goal oriented, and when you stop hitting the goal, the marketing is no longer working.

    It is most interesting to watch as we get into the true meat of the current recession to see what will happen. It would seem that people have less and less money to spend on big ticket items (like overpriced concerts, trips to Vegas, etc) and are more likely to stay home and watch a movie. If they didn't have to pay for that movie (because they downloaded it from a P2P site) who is actually paying to have that movie made?

     

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    Mike (profile), Mar 5th, 2009 @ 11:58am

    Re:

    The question of "FREE!" is the question of net bottom line: If you kill a 10 billion dollar a year industry (music) to sell more concert tickets, how much more does each concert ticket have to cost to make it break even? It explains why in part that ticket prices for a 2 hour concert now often well exceed $100 per seat or more - someone is trying to make up on the back end what isn't made up on the front end.

    Heh. Harold, we explained this to you 3 days ago. Apparently for all the commenting you do, you don't bother to read.

    You assume (wrong again!) that the audience is a fixed size. It's not. Giving away the music for free (if the music is good) has been shown to *massively* increase the size of your audience.

    Corey Smith is proof of this. He has a huge follower base now, and he still sells concert tickets for $5.

    Ooops. Harold's been proven wrong again.

    I've yet to see a single comment where he's gotten the facts right. Scary.

     

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    David Feldman, Mar 5th, 2009 @ 12:03pm

    What about capital formation?

    I've been following the "economics of free" conversation for quite a while. I think TechDirt is focusing too much on "hey! the marginal cost is nearly zero!" in its microeconomic analysis. That's just one of several factors to consider. Markets can and do clear above marginal production cost, and TechDirt's analysis doesn't consider capital formation (i.e. investment).

    Just because the marginal cost of distributing information approaches zero doesn't mean that it "should" be free. It just means that zero is one possible market clearing price. The market clearing price will be somewhere between the marginal cost of production and the marginal utility of consumption. If TechDirt wants to give business advice that all information markets should clear at zero and be funded by other scarce goods, that's fine (and, for a variety of markets, it's excellent advice) but don't claim it's an iron law of microeconomics.

    From the investment side, it's quite possible that the economics of producing and selling scarce information-related goods (live music concerts, for example) may not support nearly the same level of investment as a market in the underlying information. In that case, we'll have underinvestment in information goods. TechDirt's repeated blithe assertions to the contrary have never been accompanied by any attempt at justification (that I've seen posted - please point me there if I missed it).

    I see two extremist positions, each with a major flaw in their arguments.

    RIAA/MPAA/Etc: "Let's implement a police state to enforce an ever-expanding definition of copyright." The drawbacks to this approach are amply documented.

    Techdirt: "Give away all information, because the economics of related scarce goods will make up for the loss in margin you might have earned from information goods." There are great reasons to have markets for information goods, and have their prices clear above marginal cost. And if the laws of physics don't help, we can and should have laws that enable productive markets in information goods.

     

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    Ima Fish, Mar 5th, 2009 @ 12:05pm

    Re:

    "If you kill a 10 billion dollar a year industry"

    Maybe you can explain why the government should give a monopoly to support a 10 billion dollar a year industry. Why shouldn't the government step out of the way and let the market sort it out?

    "the music industry loses twice, not only do they not make a sale of music, but they also have the intrinsic value of their product reduced to zero and corrupted to make someone else money."

    Where it written that anyone has a right to make money or to have an intrinsic value on their product enforced by government fiat?!

    I'll answer that, it's copyright and patent law. Once again get rid of those and let the market sort it out.

    "If they didn't have to pay for that movie (because they downloaded it from a P2P site) who is actually paying to have that movie made?"

    First, as the economy is declining, the movie industry's sales are increasing.

    But more importantly, where is written than any person selling a product has a right to paying costumers? If people are not willing to pay, then the market fails. It's happened plenty of times in the past and will happen plenty of times in the future.

     

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    Free Willy, Mar 5th, 2009 @ 12:16pm

    @Weird Harold

    Wow. Rarely does one who attempts to rebut Mike's thesis so completely and succinctly do exactly the opposite. W.H. you do not get an atom of what Mike is saying. You do not understand zero or free at all, or even cause and effect. Concert tickets cost $100 because they are increasingly expensive to produce, and BECAUSE PEOPLE WILL PAY IT. People will gladly pay for attendance at a show because they like the act, they've heard and like the music, they want to participate in a social event etc. People who don't pay for music are not freeloaders. That would imply that they have TAKEN something of VALUE. They have not. They have TAKEN ADVANTAGE of the greatest promotion, distribution, information sharing medium thus far invented. Once a digital copy of a piece of music (or any other information) is made, it becomes free. Free to be distributed to the entire planet without cost. If the record companies die, it will be because they see themselves as only that - record (plastic disc) companies.
    Don't try to comment on things you don't understand.

     

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    mobiGeek, Mar 5th, 2009 @ 12:21pm

    Re: Lot of words, but message is wrong

    The majority of software today is not sold after the fact. It is created under contract. That means that the creation of the product is already paid for. Any further services (customizations, support, training) is a way to profit beyond that initial contract.

    Where people get caught up is that they compare themselves to the Microsofts and the Oracles of the world. They are trying to determine how to make multi-billion dollar companies out of a copyright-free model.

    The answer is: you don't.

    I'm not saying you can't. I'm saying you shouldn't be starting off with the premise that your initial model has to make ridiculous returns on your measured, finite investment. Once you get beyond that, you can easily see how adding services and selling your scarce resources will be quite profitable.

     

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    mobiGeek, Mar 5th, 2009 @ 12:29pm

    Re: What about capital formation?

    You miss one major point to the "techdirt" angle: no one is saying that the creation of the infinite resource should be done for free or at a loss.

    As with almost every other industry out there: get someone to pay for your work as you do it. Get a contract (time-and-materials, fixed cost, profit sharing, whatever) so that your costs are covered, and if you are smart you have made a small profit, simply from the creation of the work.

    Then you give that work, which costs ZERO to reproduce, away for free. You sell other scarce products (i.e. non-zero cost) around the free.

     

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    Travis, Mar 5th, 2009 @ 12:33pm

    @Weird Harold

    Concert prices increase because of supply and demand. There is a finite number of seats available, and as the demand for them increases so will the price.

     

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    Crosbie Fitch (profile), Mar 5th, 2009 @ 12:33pm

    Re: What about capital formation?

    I agree David. I'm also still not convinced Mike's arrived at the 'true path to enlightenment', but is only coincidentally arriving at some of its tenets.

    Copies may well have insignificant cost, but this doesn't mean the production of the art so copied has insignificant cost. Indeed, whilst a business in selling copies may now be doomed (copyright notwithstanding) a business in selling intellectual work (in the production of art) seems to remain undaunted, even if as yet we have little facility to support it.

    It seems to me the future of the IP business can be best understood if one imagines a future without copyright, i.e. the restoration of all citizens' liberty. It's not primarily about copies being free of charge, but artists and their published art being free of encumbrance. The Internet simply makes reproduction and distribution cheaper (diverting the savings to the emancipated audiences' and artists' pockets instead of the publishers').

    But hey, we're all beating paths through the jungle and we're not out of the woods yet. At least Mike seems to be heading in a similar direction, even if we only occasionally spot each other across a clearing. ;-)

     

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    R. Miles, Mar 5th, 2009 @ 12:33pm

    Re:

    ...and you would think I wouldn't reply to your ignorance?

    Where "FREE!" fails is when enough people stop overpaying the back end to support the freeloading on the front.
    Any business that stops producing goods people want will fail. This is a given (unless the government throws you money /jab).

    You seem to be under the impression there are only "X" customers. The number of customers is the population of earth. Your goal, as a business, is to get each one as a customer.

    To do this, you need to market your business and provide to these people a reason to buy your product. You do this with many means, including FREE ITEMS, whether it be business cards, music, video, books, or art.

    You're goal is to ENTICE them to buy scarce items. These SCARCE ITEMS make up the cost of the FREE ITEMS.

    Do you really think every business that gives away business cards gets the receiver as a client? Of course not. So who pays for the business cards, Harold?

    That once again pushes up ticket prices.
    No, it doesn't. In fact, concert tickets today are no more expensive than they were in the 80s IF you remove inflation costs.

    Let's do some math, shall we (assuming the average ticket price is $30).
    20,000 fans x $30 x 200 concert venues = $120,000,000

    20,000 fans x ($1 per song - record label fees of .80) * 1 download = $4,000

    Tell me again how giving away music is going to hurt the bottom line? So far, you are failing to establish your defense against "free".

    MATH QUIZ!!!!
    How many songs will it take for the artist to make $120,000,000?

    Sorry, Harold, but you have lost this battle.

    See you at the next one. :)

     

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    Anonymous Coward, Mar 5th, 2009 @ 12:42pm

    Re: Re:

    Really, Harold, you're making it too easy to debunk every word of your comments. Why do you bother?

     

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    mobiGeek, Mar 5th, 2009 @ 12:43pm

    Re: Re: What about capital formation?

    I have worked for a (proprietary) software company. We never released any software, at all, that wasn't directly tied to a contract.

    Yes, we had "per seat" licensing that we charged to everyone post-release, but the initial release itself was scoped and paid for prior to any major investment in that upcoming (there was some initial development investment in the sales cycle to get buy-in for the upcoming release).

    If we never sold another copy after a release, we had at least covered all of our costs for that release. But of course, we did sell further licenses (all profit), support (decent profit margins), custom services (very decent profit margins).

     

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  18.  
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    Matt, Mar 5th, 2009 @ 12:45pm

    Re:

    its not that we think you wouldn't comment, we know you don't understand anything. Please troll elsewhere.

    Free has nothing to do with freeloading. Why do you put free and freeloading together? No amount of marketing will make up for a shitty product. However, having something free to tie in can certainly create interest in the product and drive sales. The music is worth nothing, and thats what giving it away free shows. However, the music has a promotional value, and if we can't hear your music, then how are we going to like your artist? duh. You need to learn to serve your fans, your fans don't serve you.

    Since when do consumers have to subsidize any industry? We support what we choose. We write your paycheck. If you don't treat us right, you don't get a paycheck.

    Here's a quote from Ghandi that sums up what you miss:
    "A customer is the most important visitor on our premises.
    He is not dependent on us. We are dependent on him.
    He is not an interruption in our work - he is the purpose of it.
    We are not doing him a favour by serving him. He is doing us a favour by giving us the opportunity to serve him."

     

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    Anonymous Coward, Mar 5th, 2009 @ 12:46pm

    Re:

    Porcine is an adjective, not a noun. I suggest "Rich Fat Porcine Ungulate." Feel free to copyright that.

     

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  20.  
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    R. Miles, Mar 5th, 2009 @ 12:55pm

    Re: Re: What about capital formation?

    Copies may well have insignificant cost, but this doesn't mean the production of the art so copied has insignificant cost.
    You're absolutely right. However, show me a business in which production wasn't paid for before customers existed?

    Want to make buggy whips? You need capital investment. Who pays this? Investors, of course, or business owners themselves.

    New business starts up by marketing to the potential customers. Would you pay for a product that doesn't exist?
    If you do, you're now called an investor.

    There's a garage band right now, producing songs for free. They're playing for free.

    And they'll be tomorrow's big name stars if customers demand they be, making money from the very creation they gave away for free.

    Do you know of any musician who didn't start out this way?

    I've yet to meet any musician who started with a drove of customers willing to pay $1 per song.

    Or an artist who never painted before selling their art.

    Or an author who had a best selling book without ever having written before.

    Each of these examples proves free = new business.

     

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    pwb, Mar 5th, 2009 @ 1:12pm

    David Feldman is wrong.

    It's not that "information" wants to be free. It's that *anything* with a "zero marginal cost to deliver" wants to be free. The only obstacle to such being free are artificial barriers.

     

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    Crosbie Fitch (profile), Mar 5th, 2009 @ 1:19pm

    Re: Re: Re: What about capital formation?

    Promotion/Discovery always existed as an issue too.

    Promotion: The vendor needing to communicate their existence and wares to potential customers.
    Discovery: The customer needing to discover potential vendors that might meet their needs.

    I don't really disagree with your points.

    When you are convinced you have found a master craftsman you may commission them to produce work for money. Who is suggesting blind faith?

    When a musician has a large and convinced audience, they may begin to receive commissions.

    Previously the label (convinced by A&R) commissioned the musician in expectation of selling copies.

    Today the market for copies has ended. Instead of the label, we will have the audience commissioning the musician. Who needs a monopoly on the sale of copies?

     

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    mobiGeek, Mar 5th, 2009 @ 1:36pm

    Re: Re: Re: Re: What about capital formation?

    Previously the label (convinced by A&R) commissioned the musician in expectation of selling copies.

    Well, no, not exactly. The artists were given loans (er..."advances" that were guaranteed to be repaid in full) to pay for the production and promotion of their recordings. Once the (artists small portions of the)returns on the recordings surpassed that of the loan...PROFIT for the artists!!

    However, if the artist didn't hit that magic level of return, they were financially liable to the record company.

     

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    Anonymous Coward, Mar 5th, 2009 @ 1:44pm

    Air is free, but you can make a good living off of it.

    Air is free. Can you make money off of air? Sure.

    Compress it. Filter it. Separate it into its constituent gasses. Chill it enough so that the carbon dioxide forms dry ice. Chill it some more and make liquid nitrogen and liquid oxygen. Sell humidifiers. Sell dehumidifiers.

    All of those things add value to the air. You really are not making money from the free air, you are making money off the value you add to the free air.

     

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    Anonymous Coward, Mar 5th, 2009 @ 1:46pm

    All those things sound like work. Maybe it would better if the BIAA (Breathing Industry Association of America) just required all retail establishments to charge customers for the right to breath in their establishments and then pass on the revenues to the BIAA.

     

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    Crosbie Fitch (profile), Mar 5th, 2009 @ 1:55pm

    Re: Re: Re: Re: Re: What about capital formation?

    Well, there are session musicians and contracted musicians, and god knows how contracts have quickly mutated over the years from almost fair deals to indentured servitude with guaranteed bankruptcy resulting from any exit clauses.

    Perhaps, I should have said that the label 'supposedly' commissioned the musician?

    Thank you for your clarification. It is most informative and helpful.

     

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    Weird Harold, Mar 5th, 2009 @ 3:52pm

    Re: Re:

    R Miles, you are thinking that everything is an all or nothing proposition. Also, your math skills are a little lacking:

    "Let's do some math, shall we (assuming the average ticket price is $30).
    20,000 fans x $30 x 200 concert venues = $120,000,000

    20,000 fans x ($1 per song - record label fees of .80) * 1 download = $4,000"

    First off, assume the same 20k fans from each city buy the music. So now your little $4000 became $800,000. Now, step further, the concerts are not lost as a result, however, the band is often lucky to touch 25% of the total of a concert, and that is often net and not gross. So divide your 120,000,000 by 5 or 6 (somewhere between 18 and 20% net) and you are looking more like 20,000,000. Then you can take off their manager's commission, their travel expenses, and all those other things... you can guess what the numbers really are.

    Now, net $X million looks bigger than 800k, but the 800k doesn't include airplay, residuals, and 101 other uses for music that will continue in perpetuity for the song writer and artist. I am not current on the number, but larger bands (ie, ones that could pull 20k people to a concert in 200 cities) would also run into the millions each year.

    MATH QUIZ! How many concerts would it take for the average band to make 120,000,000 net? Hint: Madonna won't even make that for her current overpriced tour. The gross might be higher, but the net to the artist sure won't be.

    You have to compare apples to apples. Stacking the math to make your argument look good just makes it look weak.

     

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    lavi d (profile), Mar 5th, 2009 @ 4:06pm

    Fervent Plea

    "Those Who Don't Understand The Value Of Free Information Are Doomed To Fail"

    For the love of God, let's hope so!

    It can't come soon enough.

     

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  29.  
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    Mike (profile), Mar 5th, 2009 @ 4:50pm

    Re: What about capital formation?

    I've been following the "economics of free" conversation for quite a while. I think TechDirt is focusing too much on "hey! the marginal cost is nearly zero!" in its microeconomic analysis. That's just one of several factors to consider. Markets can and do clear above marginal production cost, and TechDirt's analysis doesn't consider capital formation (i.e. investment).

    Actually, we've discussed both in great detail. Yes, markets can and do clear above marginal production cost -- but not if the product is infinitely available.

    And we don't ignore capital formation at all. We've discussion it a ton: the *creation* of an infinite good is a scarce product, and you can absolutely get paid for that.

    Just because the marginal cost of distributing information approaches zero doesn't mean that it "should" be free.

    We didn't say should. We said *will*. Should is a moral statement. Will is a predictive.

    It just means that zero is one possible market clearing price. The market clearing price will be somewhere between the marginal cost of production and the marginal utility of consumption. If TechDirt wants to give business advice that all information markets should clear at zero and be funded by other scarce goods, that's fine (and, for a variety of markets, it's excellent advice) but don't claim it's an iron law of microeconomics.

    Uh. It is an iron law of microeconomics if the market is competitive, and if the supply is infinite well then, hot damn, you've got yourself a competitive market. Have fun with it.

    From the investment side, it's quite possible that the economics of producing and selling scarce information-related goods (live music concerts, for example) may not support nearly the same level of investment as a market in the underlying information.

    Possible... but highly unlikely, if you look at the research on economic growth. Injecting *more* infinite goods into a market is how a market grows. So the more infinite goods, the larger the market. The challenge is capturing the piece of that larger market. So, you could make an argument that it's more difficult to capture piece of that market, but by Coasian thought, you know that someone's going to capture those larger pieces, and it will then be in their best interests to fund the investment.

    Techdirt: "Give away all information, because the economics of related scarce goods will make up for the loss in margin you might have earned from information goods." There are great reasons to have markets for information goods, and have their prices clear above marginal cost. And if the laws of physics don't help, we can and should have laws that enable productive markets in information goods.,

    I've yet to see any good reason to artificially limit a resource that helps a market grow. Do you have any evidence at all?

     

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    Scott Atkinson, Mar 5th, 2009 @ 5:07pm

    Re: What about capital formation?

    D. Feldman captures - a lot better than I did a few topics back - some of the complexities underlying the matter of 'free.'

    He's especially right about extremist positions - many of the posters here write as though they've discovered a simple, profound truth and they're *amazed* or angry or scornful when it's questioned, even in good faith.

    As a reporter for the last 30 years, I've learned to be skeptical, especially of ideas i've fallen in love with.

    Of course, a lot of this "one true way/us against them" is fueled by the stupidity and greed of the movie/music/media industry. But those folks look more and more like paper tigers, albeit ones who can still do damage.

    I know that people like Mike will say they're not preaching the one true way, that they're trying to a.) be realistic and b.) expand your quiver of ways to sell intellectual property.

    The problem is the way the fairly nuanced argument degenerates into 'you suck.'

    Scott A.

     

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  31.  
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    Scott Atkinson, Mar 5th, 2009 @ 5:17pm

    one other thing

    For any poster who doesn't already know this, the 'information wants to be free' meme is extracted from a larger, ambivalent quote from Stewart Brand.

    "On the one hand information wants to be expensive, because it's so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other."

    s.

     

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  32.  
    identicon
    R. Miles, Mar 6th, 2009 @ 6:13am

    Re: Re: Re:

    You have to compare apples to apples.
    Then why the hell aren't you doing this?

    While I admit 200 venues is excessive, this still doesn't excuse the fact more money is made from concerts than of selling individual songs for $1.

    First off, assume the same 20k fans from each city buy the music. So now your little $4000 became $800,000.
    Okay, you skipped the entire point of the math lesson, which I expected.

    Did you not see the 200 vs. the 1? There's a reason it was done this way. For the artist to make the same amount of cash per $1 song, each of those 20,000 fans would have to buy 200 songs!

    I don't get why you can't see this. By adding an additional 20,000 to the equation, all you did was inflate the numbers to justify your argument. Fine, I can do that too!
    "Assume the same 20k fans from each city buy concert tickets". Wow, that comes out to $2,400,000,000,000.00!!!

    That $120,000,000 isn't pure profit and I understand this, but it's quite safe to assume, after costs, it's still significantly higher than the mere .20 per song the artist gets per download, and that twenty cents is being generous.

    MATH QUIZ! How many concerts would it take for the average band to make 120,000,000 net? Hint: Madonna won't even make that for her current overpriced tour. The gross might be higher, but the net to the artist sure won't be.
    Assuming Madonna plays 200 venues this year, she most certainly will make more.

    Gross is always higher, just as $1 per song is gross. For you to even think you're going to convince me concert revenue is short of per song download is laughable.

    What you're trying to say is the artist is losing some profits to give away its music. This is not true at all and this is the point you're missing.

    Why you can't get this is anybody's guess.

     

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  33.  
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    Anonymous Coward, Mar 6th, 2009 @ 10:17am

    Re: Re: Re:

    You're neglecting the legal costs of suing fans, the PR costs of suing fans, the added expense of promoting yourself when you charge fees on your biggest promotional resource...

    A band that gives it's music away for free gets free publicity, free promotion, free marketing, free PR... free labor from all your fans trying to make everyone else they know a fan, too. it's a lot easier for your best friend to get you into a new band than it is for that new band to sway you with teasing little half-clips (because if they give away the full songs what are they going to sell?).

     

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  34.  
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    SomeGuy, Mar 6th, 2009 @ 10:21am

    Re: Re:

    I disagree, actually. There will be freeloaders, because not every fan can afford to pay all the time. College kids will take the free music, but they won't all go to the concert (they can't, which is kind of the point; you want to have more fans than a stadium can hold). That's not a problem.

    Also, the music has LOADS of value, but value doesn't equal price. Air is incredibly valuable, but no one pays for it.

     

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  35.  
    identicon
    David Feldman, Mar 6th, 2009 @ 11:51am

    Mike: Actually, we've discussed both in great detail. Yes, markets can and do clear above marginal production cost -- but not if the product is infinitely available.

    Isn't that a self-sealing argument? Those who sell information (say, DRM-free songs on Amazon or iTunes) explicitly don't make their product infinitely available. We both agree that if you give your information good away, it's free, and infinitely available. And that vice versa is true as well. But what if you don't choose to permit that?

    And we don't ignore capital formation at all. We've discussion it a ton: the *creation* of an infinite good is a scarce product, and you can absolutely get paid for that.

    Work for hire is the model for creative output? How else does one get paid for that in the 'infinitely available' world? Scarce items only?

    Me: Just because the marginal cost of distributing information approaches zero doesn't mean that it "should" be free.

    Mike: We didn't say should. We said *will*. Should is a moral statement. Will is a predictive.


    Good point.

    Me: It just means that zero is one possible market clearing price. The market clearing price will be somewhere between the marginal cost of production and the marginal utility of consumption. If TechDirt wants to give business advice that all information markets should clear at zero and be funded by other scarce goods, that's fine (and, for a variety of markets, it's excellent advice) but don't claim it's an iron law of microeconomics.

    Mike: Uh. It is an iron law of microeconomics if the market is competitive, and if the supply is infinite well then, hot damn, you've got yourself a competitive market. Have fun with it.


    I guess we're stuck on whether the supply of information goods has to be infinite now that it's possible for it to be so.

    Let's make an equation: If you sell your information, you lose significant benefits of promotion, discoverability, and collaboration. But you might get paid, if your customers see marginal value in getting it. If you give your information away, you get all of those "benefits of free" but you need to find a scarce good to charge for.

    I'll be the first to agree that for many information providers, the "benefits of free" will drive margin on scarce things to exceed the margin on the information.

    The global market for info has lots of providers now, so the competition is pretty intense. But the Wall St. Journal's paywall's value exceeds its costs because the WSJ's primary reporting on business is simply not available anywhere else, in as deep and timely manner. And since the information does reach a wide audience despite the paywall, the WSJ gets many of the promotional benefits w.r.t. scarce things too.

     

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  36.  
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    Mike (profile), Mar 6th, 2009 @ 1:33pm

    Re:

    Isn't that a self-sealing argument? Those who sell information (say, DRM-free songs on Amazon or iTunes) explicitly don't make their product infinitely available. We both agree that if you give your information good away, it's free, and infinitely available. And that vice versa is true as well. But what if you don't choose to permit that?

    I'm talking about the fundamental nature of the good. Information is infinitely available. You can't "not permit it" no matter how hard you might try.

    Work for hire is the model for creative output? How else does one get paid for that in the 'infinitely available' world? Scarce items only?

    Oh come on. We've discussed probably 50 different models. Maybe more. You can read the site. I'm not going to repeat them all.

    I guess we're stuck on whether the supply of information goods has to be infinite now that it's possible for it to be so.

    Yup. I don't think you can cay that it's not infinite. I think if you look online you'll discover that.

    The global market for info has lots of providers now, so the competition is pretty intense. But the Wall St. Journal's paywall's value exceeds its costs because the WSJ's primary reporting on business is simply not available anywhere else, in as deep and timely manner. And since the information does reach a wide audience despite the paywall, the WSJ gets many of the promotional benefits w.r.t. scarce things too.

    Perhaps. I don't think it will last though. We shall see.

     

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  37.  
    identicon
    Jane Now, Mar 6th, 2009 @ 6:16pm

    listen--it's free

    JVD, the author of the post you are purporting to critique, graduated magna cum laude from Harvard Law School back when that meant something. The likelihood that he is an idiot is quite small. So is the likelihood that he is motivated by money. If he wanted that, he'd have made plenty by now.

    Think. Are there other red flags that you're missing something? One is, you're being rude and strident. A sure sign of insecurity. Two, you're using marginal cost in a way that if you poked around a bit in economic methodology, you would note is considered problematic (Coase, Demsetz, Baumol...)...

    The funny thing is, the intellectual distance between you and JVD is really quite small. You're probably in agreement on 95 percent of tech policy issues. It is only on this one little area where you disagree: Is the question of whether we are better off without enforceable statutory copyright sufficiently difficult to be interesting? To put it another way, do we know a priori that given a choice between two futures, one with and one without some reconfiguring to enforce copyright at some level, we would like the one without better? JVD calls for caution, and you think that is wrong, but surely it is a question in which one chooses one's position with some care.

    One might also ponder the difference between those who respect what we can learn from those who disagree with us--and those who call names and crow like bullies among their friends, so long as they need not meet their target face to face. Granted, it's all pretty tame by Internet standards, but most of it doesn't purport to be professional advocacy. This kind of raving dooms the most thoughtful advocates for liberty to be dismissed as if all of us were 14 year old boys. Really, is this self-indulgent abusive stuff the sort of thing you would want to have reproduced on your tombstone, free or otherwise? Would your mom respond positively if her boss talked like that to her? Would you like it if a teacher or your classmate used that tone with your child? One of the concepts underlying liberty is reciprocity. Do ponder it.

     

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  38.  
    identicon
    nzgeek, Mar 8th, 2009 @ 9:51pm

    Re: Re: Re:

    @Weird Harold (March 5th @ 3:52pm)

    Let's have a look at the maths again, this time without wonky assumptions.

    For the concert situation, let's assume that the band's net profit from ticket sales is $5 per seat per show. For an 80 show tour, averaging 20,000 seats per venue, that's $8 million in net profit.

    Now we'll look at song sales. Let's assume that the song sells for $1, and the artist (who's also the composer) gets a generous 25% for their cut. That's $0.25 per song.

    At that rate, the artist needs to sell 32 million copies of their songs to make as much money as a the concert tour. This number doesn't take into account the profits from merchandising that can be sold during the tour.

    I'm not forgetting any royalties that would be made from radio play. If someone's music is being used to generate profit for a 3rd party, that party should be required to pay a reasonable licensing fee. That money will be made whether or not songs are sold or given away for free, so doesn't count in any equations.

     

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  39.  
    icon
    Mike (profile), Mar 9th, 2009 @ 3:56am

    Re: listen--it's free

    JVD, the author of the post you are purporting to critique, graduated magna cum laude from Harvard Law School back when that meant something.

    I love people who insist that we must listen to someone based on some degree they got. I'll stack up my academic background against DeLong's any day of the week.

    The likelihood that he is an idiot is quite small. So is the likelihood that he is motivated by money. If he wanted that, he'd have made plenty by now.

    I never said either thing -- but I did say that he seems to be among those (and there are many) who's brain stops the second they come across zero. That doesn't mean they're not smart or are shilling (though, at times, with DeLong he has in fact been paid to promote positions). I think he honestly believes it based on some faulty assumptions.

    One is, you're being rude and strident.

    I have read my post over again and it does not appear that I am either. I'm curious why you think I am both?

    Two, you're using marginal cost in a way that if you poked around a bit in economic methodology, you would note is considered problematic (Coase, Demsetz, Baumol...)...

    I disagree wholeheartedly. I believe you are misreading their research as well as my position on it.

    To put it another way, do we know a priori that given a choice between two futures, one with and one without some reconfiguring to enforce copyright at some level, we would like the one without better? JVD calls for caution, and you think that is wrong, but surely it is a question in which one chooses one's position with some care.


    Indeed. But when all of the actual evidence points in one direction, and folks like Mr. DeLong keep pointing in the other... you really have to wonder, don't you?

    One might also ponder the difference between those who respect what we can learn from those who disagree with us--and those who call names and crow like bullies among their friends, so long as they need not meet their target face to face. Granted, it's all pretty tame by Internet standards, but most of it doesn't purport to be professional advocacy. This kind of raving dooms the most thoughtful advocates for liberty to be dismissed as if all of us were 14 year old boys. Really, is this self-indulgent abusive stuff the sort of thing you would want to have reproduced on your tombstone, free or otherwise? Would your mom respond positively if her boss talked like that to her? Would you like it if a teacher or your classmate used that tone with your child? One of the concepts underlying liberty is reciprocity. Do ponder it.

    Hahaha. You must be a lawyer. The above represents the standard laywerly response to a situation where they are wrong and have no evidence. Obliquely insult others for having insulted your intelligence because you are unable to come up with actual arguments.

    Speaking of which, this entire comment does not once dispute the points I raised or provide any evidence to the contrary. Instead, it says we should listen to one guy who's got a LONG history of being very, very wrong on this subject because he graduated from Harvard.

    And then spends the rest complaining about the way I argue.

    Not very convincing.

     

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  40.  
    icon
    Crosbie Fitch (profile), Mar 12th, 2009 @ 12:05pm

    Re: listen--it's free

    Reciprocity is an epiphenomenon of liberty and arises because people are free to seek equity in their exchanges.

    It is not that people are obliged to give something equal to what they have received, but that should (at their liberty) they agree an exchange it is on the basis it is equitable.

    So, reciprocity does not underlie liberty.

     

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