Real Scarcity Is An Important Part Of A Business Model; Artificial Scarcity Is A Terrible Business Model

from the business-modeling-for-fun-and-for-profit dept

Partly in response to Rupert Murdoch whining about how it's too risky to make films if Congress doesn't set up protectionist plans that lock down the internet, venture capitalist Fred Wilson has a great post about how "scarcity is a shitty busines model." He focuses, mainly, on the windowing aspect of movie releases these days, and how many in the industry still insist that locking up content rather than making it widely available is the key to profiting. But Fred points out (as many people have for years), that this makes no sense:
Denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. It leads to piracy, as we have discussed here many times, but more importantly it also leads to the loss of a transaction to a competing form of entertainment.

[....]

I've argued this point many times with film executives. They insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn't make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can't see how they wouldn't make more money.
He points out that this certainly will disrupt some players -- but for the studios, it will undoubtedly increase the pie. It may hurt the gatekeepers, but it helps pretty much everyone else.

The one quibble I'd have with Fred's post is he keeps saying that scarcity is a bad business model. I think he's overstating his case a bit. Scarcity remains, and scarcity is still a key part of a smart business model these days. What is a bad business model is relying on artificial scarcities -- scarcities that are created by choice and by fiction -- rather than market realities. A seat in a movie theater is a real scarcity. Fred's attention is a real scarcity. Those are important parts of a real business model. Pretending an infinitely copyable video is not... is an artificial scarcity and it's a bad business model.


Reader Comments (rss)

(Flattened / Threaded)

  •  
    icon
    blaktron (profile), Feb 23rd, 2012 @ 1:23pm

    I think a better way to put it is: "On the supply/demand curve, the studios are trying to restrict supply instead of increase demand."

     

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

  •  
    identicon
    Anonymous Coward, Feb 23rd, 2012 @ 1:32pm

    This line right here:

    I've argued this point many times with film executives. They insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market.


    Got that? You ain't consumers to them, you ain't citizens with rights, you're just the market, nothing but produce, fruit if you will, something to be squeezed until you dry up completely. I knew one more person who thought that way, his name was Al Capone.

     

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

  •  
    icon
    TasMot (profile), Feb 23rd, 2012 @ 1:46pm

    But it saves me a lot of money

    I think I am pretty normal. I have a wife and two young kids so I can't just run to the theater for every movie I think I want to see. Many times, the commercials make a movie sound good (some of them get beaten to death by Comcast on Demand though). But, I can't run out to the theater to see them. Just not enough time in the year. I could sit down at home and watch them, but they aren't available when I'm seeing the commercials. I can't go to the store and buy it, or go to Redbox and rent it either. That movie I'm seeing the commercials for is only available in the theaters. Its because, you know, EVERYBODY can escape their life and run to the theater whenever a new movie is being advertised. When the movie shows up On Demand, I don't know about it, no commercials, so I end up not watching it at all.

    I guess they don't want people like me watching movies is all. But, it does save me a lot of money on movies that's for sure. I used to watch a movie every week at the theater when I was young, employed and single. The ones I really liked, I would go buy the DVD. Now I don't do either one of those even though I make a lot more money now. By the time its available to watch, I've forgotten about it or I have to go through all of the PAINFULLY slow lists in Comcast to see if a movie is there in Comcast On Demand. I don't do that much, I have better things to do with my life.

    The good thing is that I have a lot more money for other things though (like saving for college for the kids). Well, maybe I should be happy about that or at least the kids will when they get to college.

     

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

  •  
    icon
    jupiterkansas (profile), Feb 23rd, 2012 @ 1:47pm

    I don't understand how someone can turn on Netflix and not find something to watch. Do most people really only limit their viewing options to things made in the last six months? If so then Hollywood deserves to take all their money.

    The problem I'm facing is choosing from the hundreds of things I'm interested in seeing. This is the biggest problem the internet has brought me. I'm swimming in a sea of media, everything available to me at the click of a button. I don't ask my friends what to watch anymore. I ask them what not to watch, so I can focus more on worthwhile films.

    The problem with windows is if they're not offering what I want to see the way I want to see it, I will simply watch something else. Their movies will get ignored. I could care less if Hollywood made another movie for the rest of the year. I'm drowning in movies. It's awesome, but I'm drowning, and NOTHING Hollywood is making is going to get me to change my habits and go to the theater, or pay for cable, or buy DVDs.

     

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

    •  
      icon
      :Lobo Santo (profile), Feb 23rd, 2012 @ 1:51pm

      Re: Netflix

      I know what ya mean--I've been trying to watch one full anime series a week on Netflix and there's still a number near 100 in my queue to be watched still.

      I could care less when it's in the theatre, I've not the time or money. Don't care when it's showing on cable--I cut that cord long ago.

      To make a long story short: If it doesn't appear in front of me the way I want to view it--screw it. I'll watch something else.

       

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

      •  
        icon
        Greevar (profile), Feb 23rd, 2012 @ 8:39pm

        Re: Re: Netflix

        You're right, the industry really has to provide instant gratification for their customers if they want to remain relevant. Putting up barriers just pisses people off.

         

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

      •  
        identicon
        Anonymous Coward, Feb 24th, 2012 @ 10:01am

        Re: Re: Netflix

        "To make a long story short: If it doesn't appear in front of me the way I want to view it--screw it. I'll watch something else."

        Are you willing to pay what it would really cost to give it to you in the manner you want? Or are you also expecting to get this wonderful service and potentially kill their initial, higher priced market at a low price point to keep you happy?

        Would you like them to clean your house too?

         

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

        •  
          icon
          jupiterkansas (profile), Feb 24th, 2012 @ 10:54am

          Re: Re: Re: Netflix

          Um, we are getting this wonderful service and paying for it.

          They don't have to put their movies there if they don't think it will make them enough money, but what we're saying is the chances of me using another service or method of watching the movie that makes them more money is pretty slim because we're very happy with this great service. We will simply watch something else.

          Aside from maybe the Hobbit, I don't intend to go to a movie theatre once this year.

           

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

        •  
          icon
          Brendan (profile), Feb 26th, 2012 @ 12:48pm

          Re: Re: Re: Netflix

          You seem to be missing the point. They have two choices:
          1) Put their content on modern services at or near release for a reasonable price (my guidelines are 25c for TV episode, $3-5 for a movie, $2 for a music album). People will happily pay these price to get the content. They make money.

          2) They don't put the content on these services (or at such a stupid price, or with stupid delyas, or with stupid limitations that its ignored) and people get the content anyways to enjoy, but do so without paying the publishers a red cent.

          To me the smart choice is obvious.

           

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

    •  
      icon
      PaulT (profile), Feb 23rd, 2012 @ 2:42pm

      Re:

      "I don't understand how someone can turn on Netflix"

      Thanks to windowing, etc., some of us don't even have that choice ;)

       

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

  •  
    identicon
    Mike Bentley, Feb 23rd, 2012 @ 1:52pm

    East India Company

    They constrain content availability so that any new content gets the lion's share of eyetracks.

    They also constrain new content to specific venues.

    To their point of view, they just have to fix the internet to plug up all the distracting uncontrolled sources of illegally provided content. There's a finite amount of money available from the public to pay for entertainment, the content folks want to funnel it all to new releases playing at movie houses first, because that maximizes the revenues for new titles.

    If it weren't for that meddling iCEO, music would be using the same success formula today.

     

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

    •  
      icon
      jupiterkansas (profile), Feb 24th, 2012 @ 7:02am

      Re: East India Company

      Of course the mainstream media is happy to oblige them and treat everything happening in Hollywood as news. The number of Oscar pumping articles I seen in my local newspaper is appalling. The mass media machine it completely geared to getting people to salivate over the latest and greatest, and most people fall for it.

       

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

  •  
    identicon
    Anonymous Coward, Feb 23rd, 2012 @ 1:58pm

    I cannot disagree with this more.

    "Denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. It leads to piracy, as we have discussed here many times, but more importantly it also leads to the loss of a transaction to a competing form of entertainment. "

    What Fred (and others) seem to ignore is the income per transaction and that expanding the market is not an unlimited thing. Quite simply, the number of people willing to pay for a movie, no matter the format, no matter the price point, is always limited.

    If you have average $7.50 movie tickets, or $2 downloads... you need 4 downloads to generate the same net as a single movie ticket. Moreover, the 4 downloads would likely hurt your movie ticket sales, as 4 downloads is very likely to reach an audience of at least twice that size. (when I say download, you can substitute PPV or rental or netflix... and just average the price out to be nice).

    Since the number of potential customers is not infinite, the difference between theater tickets and download income has to be considered carefully. Would Avatar have generated 1,391,137,586 PAID downloads? It's an important question, based on the income the movie made.

    Bottom line, the online world still isn't showing enough promise to make it worth giving up the other models. The infinite distribution doesn't hold any of the charm or marketing zest that exists in theatrical release. Bottom line, it's just not a business model that is anywhere near as profitable as the current one, even with rampant piracy (which wouldn't go away anyway).

     

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

    •  
      icon
      silverscarcat (profile), Feb 23rd, 2012 @ 2:04pm

      Re:

      I dunno...

      I'd be willing to DL 4 movies for 2 bucks each than go to the theater and pay 7.50 for one movie.

      Hmm...

       

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

    •  
      icon
      Chosen Reject (profile), Feb 23rd, 2012 @ 2:09pm

      Re:

      marketing zest that exists in theatrical release
      Don't forget the marketing zest a few months later for the DVD payperview release. And the marketing zest a bit after that for the DVD release. Never mind that the marketing zest could have all been put into one much bigger zest and cost a lot less.

      As for piracy, I guess the studies that show that piracy goes down in countries where Spotify shows up aren't enough to convince you yet that when you give people what they want, they come to you first.

       

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 2:10pm

      Re:


      The infinite distribution doesn't hold any of the charm or marketing zest that exists in theatrical release.


      If you completely ignore the consumer's perspective, I would agree. Oh wait...


      Bottom line, it's just not a business model that is anywhere near as profitable as the current one, even with rampant piracy (which wouldn't go away anyway).


      How do you know? Doesnt seem like anyone's really trying to use the business models suggested. And those that do (Spotify, NetFlix, etc) try to get run out of town.

       

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

    •  
      icon
      Josef Anvil (profile), Feb 23rd, 2012 @ 2:24pm

      Re:

      Aonther AC that doesn't understand math. A $2 download has no costs other than hosting on a server its almost pure profit. And where do you get the idea that Hollywood is selling downloads for $2, when its more like $15 on iTunes. A $7.50 movie ticket has to be shared with the theater. A $16 DVD has manufacturing and distribution costs associated with it.

      So let's see, you need 2 movie tickets to net the same as one download, but you're the math wizard; or maybe you're confusing downloading with streaming on a service. I know all this tech stuff can be confusing.

      While I agree that the number of people willing to pay for a movie is limited, that is true with or without a release window. People who download a movie and like it are much more likely to go to the theater to see that movie, thus paying for it twice.


      I think your argument is more along the lines of.... but if Hollywood releases crappy movies, their revenues will fall because of the maximum for things they don't like. Release windows just make consumers choose to spend their money elsewhere and wait for the content to hit the market through a less expensive channel.

       

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

      •  
        identicon
        Lord Binky, Feb 23rd, 2012 @ 2:43pm

        Re: Re:

        Releasing the movie simultaniously worldwide through multiple means, I would expect sales* to be better for crappy movies before word gets out that it sucks, and if it is a good movie, better sales because the customer can pick different experiences and/or multiple viewings while the movie is relevant to them, removing the risk from the consumer on sinking money into a crappy movie can increase sales.

        *sales, being total number of viewings/purchases, total dollar amounts would be different +/-, but the due to cut the studio gets differing by distribution method.

         

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

      •  
        identicon
        Anonymous Coward, Feb 23rd, 2012 @ 6:15pm

        Re: Re:

        You need to learn a little about the economics of theater releases. The $7.50 ticket is essentially ALL to the movie company, at least for the first week, and sliding scale after that. Theater operators don't make their money on tickets, they are in the upsell to popcorn business (which explains the large sizes).

        Your $2 download has plenty of overhead to it. The cost per transaction (from credit card charge to back office accounting and customer service) all goes against it.

        I put up numbers that are relative to try to make the point. If the theater makes them 4 times as much money per sale, and is limited to a single person, the potential market is much larger and pays much better.

        Put another way: if 1 in 100 people see a movie in a theater, you have to show the same movie to 1 in 12 other people to break even just on gross (assuming on average that every download is seen by two people in the household). The chance of that sort of sales conversion is effectively nil.

        "People who download a movie and like it are much more likely to go to the theater to see that movie, thus paying for it twice. "

        I just don't see this being a big business - see the movie and upsell you to paying 4 times the price to see it again. I am sure some people do it, but I cannot picture it as much of a business model.

        "I think your argument is more along the lines of.... but if Hollywood releases crappy movies, their revenues will fall because of the maximum for things they don't like."

        No, that is horse crap. I guess I shouldn't have taken your other points seriously!

         

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

    •  
      icon
      Josh in CharlotteNC (profile), Feb 23rd, 2012 @ 2:38pm

      Re:

      Bottom line, the online world still isn't showing enough promise to make it worth giving up the other models.

      Because you keep trying to kill, strangle, or buy then destroy every promising service that emerges.

      Because you keep passing horrible laws to stop promising services from even appearing.

      Because you treat your customers and target audiences as criminals, or at best a wallet to squeeze every penny out of.

      You have no one but yourself to blame. You are chasing weekly or quarterly pennies at the expense of long term piles of money. You cannot see the forest, I doubt if you can even see the tree, and you're clutching at a dead twig.

       

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

    •  
      icon
      Natai (profile), Feb 23rd, 2012 @ 3:19pm

      Re:

      While this argument is logical and lucid, you seem to be making two poor assumptions:
      1) You assume that making the movie available online will only make a marginal difference in the size of your market, which may not be true at all. Of course the size of the market is not unlimited, but I suspect it can be expanded significantly.
      2) You assume that downloads or PPV would have to be far cheaper than actual movie tickets, which is flat out false. You can easily charge $5-6 for a PPV movie. Plus, while people often complain about the price of movie tickets, many would be fine paying the same (or more) to see a PPV movie at home the day it's released in theaters.

      You should also consider the changing home entertainment market in general. The simple fact is that, as prices of large HD TVs and surround sound system make these products more available, a larger portion of the market can get as good a movie experience at home as they could at the theater (if not better).

      My wife and I have spent less than $4000 over the past 3 years or so on our TV, receiver and speakers. We used to see a movie in the theater once or twice per week. Then we had kids and it dropped to once or twice per month. Now, even when we have the opportunity we prefer to watch movies at home. The experience is just better.
      The only reason we would consider going to the theater is because we want to see a newly released move, but as we don't have the chance it rarely happens. As TasMot mentioned, by the time its available on PPV or disc we've forgotten about it, and you never see our money.

      Simply put:
      1) Make PPV (and maybe even discs) available opening week, you can charge the same as a movie ticket.
      2) Lower DVD/Blu-Ray prices by $2-5 dollars, I'll buy far more Blu-Rays.

      Do that, and you will get far more money out of my little portion of the market.

       

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

      •  
        identicon
        Anonymous Coward, Feb 23rd, 2012 @ 9:22pm

        Re: Re:

        1) the total market is significantly limited, by the number of total people, by the number of hours they have for entertainment, by the numbers who have the ability to receive the movie in other formats than theater, and of course, by the number of people who pirate it rather than buy it. All are factors that serve to limit the full potential audience.

        2) "You can easily charge $5-6 for a PPV movie." The easiest way to shut that down is the question of how many people watch that PPV together at the same time. If you have two people, they paid $2.50 - $3. Family of 4? $1.25 each.

        Moreover, the potential price of a PPV movie is greatly limited by the market it competes in. There is not an endless upside on price.

        Basically, the math remains the same: How many $7.50 tickets can you sell, versus the net lower per person alternatives if you go the other direction?

        You need a marketplace anywhere from 2 to 10 times larger to bring in the same sort of net money. I just don't think there is that much market out there.

         

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

        •  
          identicon
          Prisoner 201, Feb 24th, 2012 @ 12:12am

          Re: Re: Re:

          There are over six billion people on this planet. Of those, how many have a card or paypal account and would pay $2 for PPV of the latest movies on day one of release?

          My estimate is "ohmygodFUCKthatsalotofpeople".

          Wrap your PPV site in a great portal with all the "we think you would also like...", forums, reviews, top 10's etc and all that community jazz, and the studios would be swimming in cash.

          But nooo, there is more cash in windowing and regional-locked DVD sales that everyone fucking hates...

           

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

          •  
            identicon
            Anonymous Coward, Feb 24th, 2012 @ 8:03am

            Re: Re: Re: Re:

            Actually the funny part is out of the 6 billion, probably less than 1 billion have any true ability to buy online or the economic power to afford it. Then you have to figure language, distribution, payment methods... now your market gets smaller and smaller. Then how many really want your product as a paid download rather than the free download pirate version? Oh look, your market just went "poof" and disappeared!

            Megaupload is the perfect example. They did all that you suggest and more, and made 150 million in 5 years. Avatar made that in the theaters on the first night.

            Your math is seriously lacking.

             

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

            •  
              icon
              PaulT (profile), Feb 25th, 2012 @ 1:34am

              Re: Re: Re: Re: Re:

              "Megaupload is the perfect example. They did all that you suggest and more, and made 150 million in 5 years. Avatar made that in the theaters on the first night."

              So, you're saying that any business model is irrelevant as long as it fails to make as much money as the single highest-grossing movie in history? By your logic, every other movie ever made is a failure. Hmmm...

              Oh, and here we learn that $26 million (Avatar's actual opening night gross) is the same as $150 million. No wonder your logic sucks if you're out by a factor of 6 on everything...

              "Your math is seriously lacking."

              Snerk...

               

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 7:04pm

      Re:

      I love your constant contradiction.

      "Piracy is DESTROYING THE COPYRIGHT INDUSTRIES!!!!"

      "Well, here's how you can drastically reduce piracy."

      "No! We're making plenty of money right now!"

       

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

      •  
        identicon
        Anonymous Coward, Feb 23rd, 2012 @ 8:23pm

        Re: Re:

        Well, every illegal download represents ten lost sales, that's just basic mathematics, and I should know because I am a Hollywood accountant.

         

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

    •  
      icon
      TtfnJohn (profile), Feb 23rd, 2012 @ 11:59pm

      Re:

      Your pricing comparison doesn't work. That's where your argument falls flat on it's face.

      Once you've taken out the duplication onto film or video what was, in 99% of cases now, shot in digital to start with for the limited number of theatres that will get the new release, shipping, insurance and other costs, add promotion, advertising on television, print, radio and the Internet(!!!) Then there's the theatre's cut. Not that much I admit but not all that much.

      So, while the ticket at retail is $7,50 I'd guess the studio is getting, oh, shall we say, $2.50 per ticket sold. Now just just need something more that 1 and a quarter downloads for the studio the get back what they would have gotten from the theatrical release version of the film and not your mythic 4.

      While theatrical release may still gave marketing zest, at least in larger markets, I'd also argue that the charm of actually going to a theatre to watch a film died out years ago. So you're left with marketing zest which can always be redirected and done so with some ease.

      Bottom line is really that the online world hasn't been marketed to sufficiently to demonstrate whether or not there is promise there. In fact it's barely been marketed to at all by the majors. So no one knows what the profit might be if the studios actually marketed in a user friendly fashion on the Web.

      Would some piracy continue. Yes, it would. But not for the reason that the film is unavailable any other way. The mere fact of piracy (or a black market to put it another way) demonstrates that there IS a demand there and enough of one that it scares the bejeezus out of the MPAA. Even if the MPAA and RIAA exaggerate the effect on their bottom lines of the black market they, largely, created.

      Oh, and one more time, your math sucks.

       

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

  •  
    identicon
    bob, Feb 23rd, 2012 @ 2:03pm

    An artificial distinction between scarcities

    There's no reason why they can't show the films on the big screen at Cowboy Stadium in Dallas. The seats aren't scarce. Heck, in most movies I've seen recently, there have been more than 50% empty seats. They could easily let in freeriders and your scarcity model breaks down there. If the seat is going to go unfilled, the artificial scarcity rationalization from the pirates insists that there's nothing wrong with sneaking into the theater because it's being made artificially scarce.

    The same goes for unsold train/plane/bus seats, hotel rooms, paper newspapers, unsold bakery goods, etc. Practically every business uses a bit of artificial scarcity to deny the extra scraps to customers.

    Fred Wilson certainly doesn't understand the meaning of scarcity. He's still relying on what Mike would call an "artificial scarcity" to extract that $5. If he was really against scarcity, he would easily upload a film to YouTube or PirateBay and be done with it. He's just arguing against tiered pricing.

    The scarcity model is pretty much worthless because it doesn't deal with development costs.

     

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 2:07pm

      Re: An artificial distinction between scarcities

      "The scarcity model is pretty much worthless"

      Considering thats the only real model they're using, I'd say you don't comprehend what you're even talking about.

       

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 2:13pm

      Re: An artificial distinction between scarcities


      The scarcity model is pretty much worthless because it doesn't deal with development costs.


      And when Big Media ignore the suggestions to streamline costs, make themselves more efficient and increase sales - who's fault is that?

      Pirates!

       

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

    •  
      icon
      Chosen Reject (profile), Feb 23rd, 2012 @ 2:16pm

      Re: An artificial distinction between scarcities

      No, those seats aren't artificially scarce. They may be in more abundance than necessary, but they aren't artificially scarce. The most obvious example that you gave is in Hotel rooms. It's true an rented room is not gaining any money, but cleaning it after someone sleeps in it costs money. Empty plane seats might not be bringing in revenue, but flying around extra passengers and their luggage does use fuel, which costs money. Unsold newspapers can be recycled and you can make a profit from it. Unsold bakery goods, from my understanding, are required by law to be thrown away.

      However, given all of that, sometimes you can get a cheaper room or plane ticket if you wait until the last minute. Sometimes. Sometimes they'll think you are desperate and charge you accordingly, but if you really truly aren't, or at least make them think that, you can get good deals at the last minute.

       

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

    •  
      icon
      :Lobo Santo (profile), Feb 23rd, 2012 @ 2:22pm

      Re: An artificial distinction between scarcities

      I know, right??

      It's a good thing there's that patent exclusion thing, or nobody would have ever invented anything ever.

      It's a known fact nothing was invented before the invention of the patent office.

      Also, prior to money. Nothing was invented prior to money and the patent office.

      And, never has anybody ever invented something in the name of pure self interest or the betterment of mankind. Nope, not ever!

       

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

      •  
        icon
        :Lobo Santo (profile), Feb 23rd, 2012 @ 2:24pm

        Re: Re: An artificial distinction between scarcities

        I guess I'm saying: It's a good thing the premise of your argument isn't debunked easily by the entire history of humans.

         

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

    •  
      icon
      PaulT (profile), Feb 23rd, 2012 @ 2:46pm

      Re: An artificial distinction between scarcities

      Thanks, yet again, for demonstrating you don't understand even the most basic arguments being made.

      "The scarcity model is pretty much worthless because it doesn't deal with development costs."

      What's the "scarcity model"? The traditional physical model or the stupid, unworkable thing the corporations are trying to enforce? I'd agree the latter is ridiculous, but not for the reasons you seem to think.

       

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

      •  
        identicon
        Anonymous Coward, Feb 24th, 2012 @ 10:00am

        Re: Re: An artificial distinction between scarcities

        Paul, what he is addressing is the same point I have made in the past: Supply and demand pricing is only functional when the costs of starting up something (or initial production of) are not the majority of the actual costs in delivering the product.

        Basically, if you have a movie that cost 100 million, you need to recoup those costs. The theoretical infinite distribution says that supply is unlimited, so price is zero. Now something here isn't working out. Reality gets in the way.

        We don't have perfect competition here, nor do we have a simple product where the majority of the costs are in the reproduction. Rather, we have business models where the high costs are incurred before the first sale, and must be recouped during the selling process, regardless of what supply and demand curves would try to dictate.

        In other words, if there is no way within supply and demand to make not only a profit over marginal costs, but also a profit over fixed or initial costs, then nobody enters the market.

        You cannot blindly apply supply and demand to all situations. Mike tries hard, but his degree tells me that he should know the shortfalls of the model.

        Now, as for the "scarcity model", let's consider this: When Mike made the techdirt hoodies, and chose to only make 100 instead of 1000, was that a true scarcity, or an artificial one? Clearly there are companies out there capable of making more hoodies, but Mike chose not to. Is this any different from a movie company that chooses to distribute a film only in limited seating movie theaters, instead of online in an infinite distribution? Clearly, Mike knows that the market price of a hoodie in a market of millions wouldn't be anywhere near as high as a "limited edition special give the movie companies the finger" hoodie.

        Understand that, it makes it much harder to take Mike's points of view seriously, because he seems to think it is perfectly alright for his business to create scarcity, but absolutely horrible when anyone else does.

         

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

        •  
          icon
          jupiterkansas (profile), Feb 24th, 2012 @ 10:50am

          Re: Re: Re: An artificial distinction between scarcities

          If you have a movie that costs $100 million and you think you're not going to make $100 million, your other option is to make a cheaper movie.

          And you're comparing the scarcity of tangible goods with the scarcity of infinite goods. They don't compare.

           

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

        •  
          icon
          PaulT (profile), Feb 27th, 2012 @ 1:14am

          Re: Re: Re: An artificial distinction between scarcities

          Again, you're attacking a strawman. Please try to understand the actual arguments, they're made here often enough.

          "Reality gets in the way."

          ...of every one of the arguments you try to make, yes.

          "Basically, if you have a movie that cost 100 million, you need to recoup those costs"

          You should start by working out why that movies costs $100 million. If it could have been made for $50 million and been profitable at that price point, there's the start of your problem. if you feel you can only make money by restricting huge numbers of people and trying to rip them off as much as possible, there's another problem.

          "In other words, if there is no way within supply and demand to make not only a profit over marginal costs, but also a profit over fixed or initial costs, then nobody enters the market."

          True. that will be why we're experiencing a huge upsurge in the number of movies, games, music, etc. being produced, then won't it? The chances of recouping costs is better than ever before, because the barriers to entry are so low. You don't NEED to spend obscene amounts of money any more, thsat's why your masters are scared. Stop addressing fantasy "what if" scenarios, try the real world for a change.

          "When Mike made the techdirt hoodies, and chose to only make 100 instead of 1000, was that a true scarcity, or an artificial one?"

          As true as anything in any other physical industry. He addressed supply and demand with a physical product. He created a scarce run of a product, rather than making, say, 1000 and only selling 150. Are you now saying that anybody who produces limited numbers of physical goods (i.e. everyone who produces physical goods) is applying artificial scarcities now?

          Trying to attach the same logic to infinite digital goods is stupidity. Something you're well versed in, as can be seen buy your industry's failures.

          "Understand that, it makes it much harder to take Mike's points of view seriously, because he seems to think it is perfectly alright for his business to create scarcity, but absolutely horrible when anyone else does."

          Only in your fantasy world where you try to pretend that the same rules are applicable in the digital and physical world. Stop trying to twist arguments outside of reality, it's rather silly.

           

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

  •  
    identicon
    Jim, Feb 23rd, 2012 @ 2:08pm

    Piracy

    Maybe I am missing something, but stealing has never been okay, and never will be. Problem is, enforcing any laws that are put in place for this kind of thing, right?

     

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

    •  
      icon
      ChrisB (profile), Feb 24th, 2012 @ 4:31am

      Re: Piracy

      We are talking about copyright infringement. Piracy and stealing are two different things, and neither are infringement.

      We already have word for things. Stop making up your own.

       

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

    •  
      identicon
      Anonymous Coward, Mar 7th, 2013 @ 4:49pm

      Re: Piracy

      It's true that "stealing has never been okay". That is because if you steal property from me, I no longer have it and must purchase another one (if it's even available). Think of stealing something from a museum; the reason museum articles are so valuable is that they're one (or very few) of a kind.

      With digital stuff, unless you're cutting and pasting the content around, you're necessarily making more copies when you share it. If I let you "steal" music from my computer through file-sharing, I still have my copy and can enjoy it and so can you. It's definitely not the same as stealing.

      But it doesn't necessarily follow that because file-sharing is not analogous to theft, that sharing movies that were developed for $300 million dollars for profit purposes is not a bad thing. These are complicated, subtle issues that need a proper discussion and my post is already long enough.

       

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

  •  
    identicon
    rubberpants, Feb 23rd, 2012 @ 2:25pm

    Scarcity

    It's too bad capitalism works well only when there isn't enough of something.

     

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

  •  
    icon
    PaulT (profile), Feb 23rd, 2012 @ 2:56pm

    This is actually one of the points I've been trying to get across all along. Most people were OK to a degree with natural scarcity. Yeah, it was still annoying, but people understood why an NTSC VHS won't sell in the UK, why a special edition Japanese CD with an exclusive track is necessary or why a book only has a limited printing run. Fans were still annoyed, but it took them enough time and effort to source the product, they understood why it wasn't available to them naturally.

    The problem is, none of those reasons actually exist in the digital world. As the pirates show, any package can be sold anywhere in the world in any format with no restrictions. When I can go to a "pirate" site, download copies that are better, more portable, more usable than legal versions, in any format, language or quality I wish, I'm less likely to accept the bullshit that people push to try and "maximise" their profit.

    That's the difference. People recognise blatant cash grabs, and so refuse to support them with their own money. Enough do that, and IP owners start losing more money than they would have made by meeting demand.

     

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 9:17pm

      Re:

      "The problem is, none of those reasons actually exist in the digital world. As the pirates show, any package can be sold anywhere in the world in any format with no restrictions. "

      Incorrect.

      What you are seeing is that piracy usurps all local, regional, and national laws of each country of the world. Your local, state, provincial, or federal governements may have any number of regulations regarding the distribution of movies. That may require certain packaging, certain warnings, labels, etc. Movies may be required to pass a review or rating panel. They may be required to be published in the local language. Movies may be required to be edited to block out foul language, nudity, or other things that are against local laws.

      Almost every country in the world gets a custom version of a DVD based on their local laws.

      You have to understand that piracy doesn't just distribute the content for free, it also entirely ignores the laws of every country in the world.

      Sorry to burst your bubble!

       

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

      •  
        identicon
        Anonymous Coward, Feb 24th, 2012 @ 1:42am

        Re: Re:

        So, from artificial scarcity we go to artificial hurdles:

        - Certain packaging

        What exactly is the digital equivalent to physical packaging?

        - Certain warnings

        Strange enough, if I watch a certain DVD I first have to choose a country - depending on that, I'll get an FBI-warning (USA) or a spot which shows that copying a digital movie=stealing a physical movie in a shop (Germany) or a spot of a mother with three kids in front of a prison wishing her husband happy birthday and 'see you in five years' because he's in for copying movies (Switzerland). I usually choose Finnland, because on this DVD if I choose Finnland the movie's menu pops up right away...

        "Certain warnings" should just be abolished right away, because they are absolutely meaningless.

        - Review / Rating Panel

        To buy something on the net you require to be an adult (or have an adults consent to do so). The rating is nothing but a mere suggestion - it's the adult that decides / is ultimately responsible for what the kids may watch or not.

        - Local language

        The only hurdle which isn't artificial. AND the only component which is not artificial scarcity. If a movie has not been translated from english to german then it just simply doesn't exist in german - online or elsewhere.

        Reality shows that a lot of potential customers would accept that to watch the latest show (for example Terra Nova) before it is released in german (Terra Nova will start here on the 29th of february) they have to watch it in english. Dedicated potential customers spend their time creating SUBTITLES for these shows which they share with others. The time to do this can take from one day to a week - and that's people doing it as a hobby!

        You can see, there is a potential market, but artificial scarcity and artificial hurdles make it seem like an unreachable goal...

         

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

        •  
          icon
          PaulT (profile), Feb 24th, 2012 @ 3:43am

          Re: Re: Re:

          "- Local language

          The only hurdle which isn't artificial. AND the only component which is not artificial scarcity."

          I would add here - how many countries *actually* have laws restricting the languages a film is released in? Of those, how many insist on dubbing rather than accepting subtitles as a possibility? My feeling is very few, and subtitles can easily be crowd sourced free of charge for most films. Unless you strictly need a high quality localised dub, the point is irrelevant, or at least trivial.

          This is again, an excuse to try and avoid the modern world. Why allow, say, Finland to download the US version of the film when you can use the language excuse to delay the release, then charge double the price for a version with Finnish language options? The problem in this example is that Finns know they are being ripped off...

          This also exposes a regular failing of the industry - they assume that a country's official languages are all that a nation is interested in. I'm in Spain but the local release of the DVD doesn't include the V.O. (original language) version of the film (often so they can use cheaper discs)? I'm blocked from importing the original release due to region coding? Congrats, another pirate copy is born, whereas you could have just included the original option - no law will stop you. Especially regarding digital content, there's very little reason not to offer a version to someone in whatever language they require if it exists, even if that means packaging another language as a legal requirement. If that person is simply blocked because they're in the "wrong" region, well the pirates will give them what they're asking for instead...

           

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

          •  
            identicon
            Anonymous Coward, Feb 24th, 2012 @ 10:08am

            Re: Re: Re: Re:

            Paul, it is actually VERY common.

            Let me give you a nice, local, North American issue. QUEBEC.

            French language laws, strict enforcement, and various restrictions on releases and such:

            http://www.rcq.gouv.qc.ca/mission.asp

            There is more in french than in english, so don't skip to the english side, you will miss most of it.

            Before a movie can be sold, it has to be rated. The ratings are done in Quebec.

            Only a certain number of releases can be made without making a French language version available.

            ...and so on.

            "This also exposes a regular failing of the industry - they assume that a country's official languages are all that a nation is interested in. I'm in Spain but the local release of the DVD doesn't include the V.O. (original language) version of the film (often so they can use cheaper discs)? I'm blocked from importing the original release due to region coding? Congrats, another pirate copy is born,"

            But are you truly willing to pay for that benefit? Are you saying that every other Spanish citizen should pay more for a DVD just to satisfy your need for an English version? Arrogant, aren't you?

             

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

      •  
        icon
        PaulT (profile), Feb 24th, 2012 @ 3:18am

        Re: Re:

        Ah yes, when you can't actually debate my points, deliberately misinterpret them and burn that strawman!

        Here, we see that you can't address my actual point (artificial restrictions can no longer be applied purely for the profit of a corporation), and start blathering on about laws and packaging that don't apply to the digital world. Why would local laws mean that you don't release that Japanese tracklist in the US? It might change the cover, but prevent you from offing the same songs? Bullshit.

        I'll repeat again, since you seem to be incapable of understanding this: your industry cannot keep applying restrictions and other things purely for their own profit. Nothing I mentioned above has anything to do with legal sanctions, only your beloved industry's own follies to try and grab more profit. End of story.

        "Movies may be required to be edited to block out foul language, nudity, or other things that are against local laws."

        None of which the movie industry would be blamed for. I'm attacking their self-imposed actions here, not your irrelevant distractions.

        "Almost every country in the world gets a custom version of a DVD based on their local laws."

        If only that were true, half of this discussion wouldn't be happening. Guess what?

        "You have to understand that piracy doesn't just distribute the content for free, it also entirely ignores the laws of every country in the world."

        Which has absolutely fuck all to do with region coding, release windowing, DRM, lack of subtitles, delivering incomplete or inferior product to certain regions (e.g. extras missing to try to save disk space so that 23 languages can be put on a UK disc instead), etc., etc.

        Try addressing my actual points, it will help.

         

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

      •  
        icon
        jupiterkansas (profile), Feb 24th, 2012 @ 7:10am

        Re: Re:

        From an American point of view, where all of the things you mention are optional for movies - warnings, ratings, language, packaging - I have trouble seeing how world-wide digital distribution usurping local laws is a bad thing.

         

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

      •  
        identicon
        mikey4001, Feb 24th, 2012 @ 11:03am

        Re: Re:

        What you are seeing is that piracy usurps all local, regional, and national laws of each country of the world. Your local, state, provincial, or federal governements may have any number of regulations regarding the distribution of movies.

        Alright, let's say that's truly a huge hurdle. Benefit of the doubt:

        Instead of spending a billion dollars lobbying the free world for overly invasive and counter-productive laws that are intended to turn the internet into a one-way communication medium (such as with radio and TV), why not expend the same effort to have some of those older legal requirements eased? Why not facilitate change to outdated laws, rather than writing new ones that are even worse? Then we can all move forward together, and everybody wins (stupid idea, I know).

         

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

      •  
        identicon
        DC, Feb 24th, 2012 @ 11:14am

        Re: Re:

        And you think all of those restrictions are good things?

         

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

  •  
    identicon
    Anonymous Coward, Feb 23rd, 2012 @ 3:23pm

    But at one time this was a real scarcity. Items couldn't be released to everyone's homes, the possibility wasn't there. Now it is. So scarcity was a bad business model.

    Perhaps "scarcity without the ability to move your ass and change your business model when the market demands it." is a better name for it? Too wordy though.

     

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

  •  
    icon
    Rapnel (profile), Feb 23rd, 2012 @ 3:29pm

    AS as BM

    I'm scared because my scarcity is like a scared kitty and it's frightening me, I'm scared silly, I can't relate because I'm late and it's dark in this scary city and all my friends have gone home because they get scared when I get shitty and Scarlet and Shelia and Lucy they're all pretty but they're scared and now my leg is gone, a real scarcity, a travesty, a brand new income for the brothel down the street they're not scared of me.

     

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

  •  
    icon
    Hephaestus (profile), Feb 23rd, 2012 @ 4:42pm

    Mike

    Changing the economics of the current "Content Industry" is not just about a business model. It is a combination of the business model and expectations. The expectation being, if someone skips a movie in theaters they can see it through pay per view in a couple months, then see it on RedBox a little later, then see it on TV.

    If Hollywood were to experiment and suddenly release in all formats at once, these expectations would still exist and their sales would go down. Proving to them that this business model does not work. Retraining peoples habits to this new way of doing things will take years. More than likely ten or more. If they had started working towards reducing windowing ten years back, they would be in a golden age now.

    With all the technologies that are about to occur and make movie making easier and cheaper. They are in a serious bind, that no amount of laws or artificial scarcity will protect them from.

    David

     

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

    •  
      identicon
      Anonymous Coward, Feb 23rd, 2012 @ 6:23pm

      Re:

      http://souciant.com/2012/02/hollywood-counter-reformation/

      Thereís a reason those film canisters look exactly the same as the ones sent out to movie theaters to this day. Until the advent of digital projection, the distribution of films was by far the most conservative element of the business. Now, though, it represents the area where change is happening fastest.

      In a sense, Valentinís self-destructive act stands for the contemporary film industryís ambivalent response to the digital era. By trying to make a profit off the desire for amateurism, executives have compromised both the artistic and financial integrity of their enterprise. Now, though, like the passť silent film star, they are having second thoughts.

      What better way to express these reservations than to heap accolades on a picture that self-reflexively explores the fate of professionalism in a society that fears it?

       

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

  •  
    icon
    DigitalDao (profile), Feb 23rd, 2012 @ 9:39pm

    I think some realities are being overlooked.

    If you can control distribution well enough to price discriminate (by generating artificial scarcity) then that is an awesome business model. You can't get much better than that without reading consumers' minds and charging them exactly the maximum they're willing to pay for your products. IMO, the posters pointing out why the labels/studios prefer to play that game aren't wrong.

    The problem for the labels/studios is that copying digital goods is so easy that they can't play that game as well as they used to. People can just route around their clumsy attempts at price discrimination (and I cannot stress enough how knowing how they are trying to milk my wallet makes me give not one single fuck about doing this) so the labels/studios lose some sales they could have made had they just come out at a lower price point.

    But that doesn't imply they'd make more money doing that. A persistent theme here on Techdirt is that piracy very seldom represents a lost sale and that certainly squares with my experience. If that's the case then lowering prices or changing release windows or whatever to try to pick those potential customers up is almost certainly a losing proposition.

    The best play for the labels/studios, tbh, is probably to continue as they have been for new content and privately accept that a certain amount of non-commercial infringement is going to be an unavoidable consequence of trying to split markets. For older content, they could create a subscription service (or just license it all to Netflix) and turn those properties into a modest but predictable revenue stream for which piracy is almost a non-issue.

     

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

    •  
      icon
      ChrisB (profile), Feb 24th, 2012 @ 4:39am

      Re:

      > piracy very seldom represents a lost sale

      > then lowering prices ... is almost certainly a losing proposition

      These don't add up. You almost got it, when you talked about price discrimination. The problem is copyright infringement very seldom represents a lost sale, at the current going price of the media. So if DVDs are $20, then the guy who downloads the movie is unlikely to have bought it for $20. However, he would probably buy it for some price, say $2. So if distributors simultaneously had a download available for $2, they would not only have some people buy DVDs, but the guy who would never buy a DVD at $20 may buy a digital file for $2.

       

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

      •  
        identicon
        Anonymous Coward, Feb 24th, 2012 @ 8:05am

        Re: Re:

        Yes, but a guy who would buy a $20 DVD that instead buys a $2 download is a net loss of $18. Moving the market price for something way down is rarely a positive way to boost your bottom line.

        There is no proof out there that people would shift greatly from piracy to paid download at almost any reasonable price. Most people here think that reasonable is pennies, not dollars. That pretty much kills any argument for downloads as a replacement for higher price theater tickets or shiny plastic discs.

         

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

      •  
        icon
        DigitalDao (profile), Feb 24th, 2012 @ 9:12am

        Re: Re:

        You'd need almost 10x the market to make the same gross on $2 downloads as on $20 DVDs, assuming (probably correctly, because that's a 90% savings) that most of those DVD sales would convert to downloads. Might you make that up? Yeah...maybe...but it seems like pretty long odds and your net take on each sale is going to be lower, too.

        The ACs below both have it right. The studios are being rational, but they should also quit bitching about piracy.

         

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

  •  
    identicon
    blahblah, Feb 24th, 2012 @ 2:15am

    Artificial Scarcity

    I don't know how no-one has mentioned the diamond market here.

    Diamonds can be made easily for not much cost, and yet when you compare this to the actual vendor price for diamonds... Its off the scale.

    It may be a *terrible* business model, but that hasn't stopped people making millions out of it.

    If you want to take on film studios for artificial scarcity, then you must do the same for the diamond market.

     

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

    •  
      icon
      PaulT (profile), Feb 24th, 2012 @ 3:46am

      Re: Artificial Scarcity

      I don't really know that much about the diamond market, but are you sure about that? Real diamonds are undoubtedly scarce, and the skill required to cut them correctly is also scarce. A flawless real diamond of a reasonable size will be very valuable, and that's due to the scarcities. Perhaps fake diamonds can be produced quite easily and cheaply, I'm not sure, but I'll take a guess that the real thing is much more valuable - and naturally scarce.

      However, I will address my criticisms to the industry I'm actually familiar with - and even fake mass produced diamonds would be far more naturally scarce than any digital file.

       

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

  •  
    icon
    DeVo (profile), Feb 27th, 2012 @ 2:43pm

    Scarcity is a bad business model in 2thousand future

    I agree that a company or Film industry Company, should refrain from scarcity. Flooding the markets is a wash too. The balance is to get one hands dirty and know what the consumer wants and how they recieve the product. Balance is success and profitable work ethic.

    We have way more people with way more access and now there is the interenet.

    I am 32 and have scene television litearally disappear in some regions, let alone going to the movies. Gaming has increased its legitamcy for hobbie, and there are plenty of events to just watch these new graphics and story lines "played out" on big screen.

    The value of the product comes from the balance.

    If X product is only know and used by a few, then the Company can control. However, it wants national or international expectations. Once it has established its presence, and gained a position as a staple then it can from within the product expectation limit access and increase value;retread the consumers spending to achieve certain status or ammenties with certain levels.

    Film on the otherhand. has a hard road to travel. Across the nation going to the movies isn't what it has meant for the consumer, and now it is better to stay at home. The industry will have get back in touch with the audience experience. Otherwise, they will remain vulnerable to piracy and new habits to when and where their consumers chose to view films.

     

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


Add Your Comment

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

Close

Email This