Monday, April 14, 2008

The Free World

Chris Anderson's Wired Article about Free has really sparked many debates and discussions. This weekend I heard more than one viewpoint about free. It's time for a few quick points about it and my view:
[Right now the argument really surrounds music and the proliferation of music piracy.]

  • With so many iPods sold and only 3 billion songs sold on iTunes - there must be another way that 20 GB hard drives are being filled.
  • I've learned that a long time ago there was a "tape tax" that helped to subsidize the music industry everytime you recorded a song off the radio (will that translate into an iPod tax?)
  • The Internet / Bit Torrent / even email has made it easier to "share" files.
  • Most kids/users don't believe its stealing. (The analogy of sneaking into a movie theater versus getting caught shoplifting.) If you're not taking something physical you're just sharing information, and that's free right?
  • Ad supported music? Look at what's happening with radio.

You get the picture as to the gloom that is happening with music.

Opponents argue that the music industry has been "ripping us off" for years with $20 CD's (will this happen to software? some argue that it has already).
Do 360 deals make sense to record labels? [this is when the label acts as manager and takes a cut of all entertainment related deals, including when the musician becomes an actor, sells t-shirts, etc] Look at P. Diddy and his Bad Boy outfit. I think only 20-30% of Bad Boy's revenues came from music. The rest was from Sean John, his vodka line, his TV show, etc. P. Diddy is selling a lifestyle and the music is his entree into showcasing it.
Label executives would argue that this works for the Radioheads of the world but what about unknowns? Would an Amie Street model work? Probably not for the labels (at least not now since whether you are a hit or not, you still have to eat). I've heard of the argument that the free period has conditioned us to see the computer as an entertainment center.

So these are the positions and the arguments from proponents on both sides. Will all digital media become free? There's no way. Hank Williams from Why Does Everything Suck blog made a good point. If you take MSFTs revenue and get rid of that, then figure out how to support all of that software with ads, you'll never be able to make up the difference. Never. Ever. Yet, we are conditioning ourselves to believe that digital media should be free. Why? Supply and demand. There's more supply than ever. Look at the hundreds of millions of posts on YouTube. The hundreds of cable channels out there.

To me, I think that this is more a question of psychology rather than economics. I remember what Strauss Zelnick once said about his consumption habits. To paraphrase: If I did it when I was 17 years old, I'm probably doing it now. College kids are ripping music off now, and when they're in that prime spending age, they'll still be doing it. Hank has a further point that companies like Google and VC's are helping to perpetrate this trend right now for land grab. Sure, some sites like Facebook should be free ....

Take a look at the current operating situation for cable. HBO charges you for content. But many people are happy to pay. Sure, you can probably get a bootleg version of Entourage off of Bit Torrent or something, but you've been getting a cable bill for x number of years. And that's a habit. Paid for email? Never!

Media as a broker of other goods and services? If this is the case, is media only good to try to sell you something physical? Do you watch "Lost" only to buy the Toyota that they'll sell you in the fourth ad block? Do you listen to Jay Z only to buy the Roc A Wear shirt he's wearing in the music video? Is that what its come to?
If so, we are in deep trouble.

Has radio and television conditioned us as the consumer to be "cheap?" Take an average feature film. $12 bucks to see it when it first comes out. Wait 2 months and get it on Netflix. Wait another 18 months and see it on pay cable. Another 18 months and get it on network for .... FREE!

Again its conditioning. This is how we grew up and this is what we are used to. Contrast this to things that people will pay for online.

  • A digital teddy bear on Facebook - $1
  • The right to customize your penguin on Club Penguin - $5.95 / month
  • Organize a meetup through - $18
  • Meet your soulmate through a number of dating sites - ~$25/month
  • Sell one of a kind items that you probably don't want on eBay - $0.01 - $100's

And the list goes on and on. Why is this relevant? Look at all of these things. They are all new forms of consumption. Why is this smart? Because this is the beginning of conditioning. If we're conditioned to pay for something, we're happy to do so. And if not, then we won't. (the whole, I got it for free before, why would i pay now?)

So, traditional media, unless you can change the mass psychology of millions, we're kind of - let's put in nicely - in a very bad place.

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