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 Meetup.com - $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.
Lonely Girl on Amie Street
The ever popular webisode LonelyGirl15 will now be featuring music from AmieStreet. LonelyGirl15 is the extremely popular breakout hit on YouTube that featured a video blog about a girl, her problems, and her friends. An extremely popular hit on YouTube it racked up hundreds of thousands of hits before it was outed that the girl was actually a Jessica Rose in Santa Monica and that the content was scripted. However, it was too late, LonelyGirl15 was a hit and to date still averages hundreds of thousands of views. Enter AmieStreet. We spoke about AmieStreet a while ago as the ultimate in supply and demand economics. Users purchase music and the price goes up. Up to 98 cents (1 cent cheaper than Apple's iTunes). Now the popular video blog is teaming up with AmieStreet's artists to try and push music through to its users as a way to further monetize this medium.
Interesting concept, as AmieStreet features many unsigned and unknown artists that would love the exposure on LG15. Is there a way for users to know that the songs are available at AmieStreet? How will they track sales? Obviously if this concept works we will see a spike in the featured artists on LG15, but is it that simple?
I think that this is a great idea since music and the moving image have always gone hand in hand, and some shows have even made hits (The Rembrandts and Friends). I think the challenge here is to let the user know that the songs are available for purchase and if the song is from one of AmieStreet's more popular artists to have a special link that let's the producers know where the lead came from.
Music Industry Growing eMarketer's report today talks about growth in the music industry (yes, believe it or not, GROWTH). Revenues last year (2006) were $60.7 billion and by 2011 will be $67.6 billion (about a 2% annual growth rate). The report states the obvious that CD sales will continue to plummet and digital continue to grow, however, digital sales will never make up for the loss from CD's. Thus, the growth will come from other innovative ways to exploit the music such as online and mobile, concerts, licensing deals with TV, films, video games, and tie in with various products (the report states U2 and iPod and Bob Dylan and Victoria's Secret). I think that the record labels have definitely enjoyed a monopoly on this business for a while, however, in order for good music to continue to be put out, there needs to be a way to monetize this business. Apple recently put announced that 100 million iPods were sold and about 2.5 billion songs sold via iTunes, which puts each iPod on average with 25 legally downloaded songs, a far cry from the thousands of songs that you can put on it. So where is the other music coming from? I wonder....Regardless, some very interesting models have come out, one of them I talked about before called AmieStreet which is a true supply and demand model. However, with sites like MySpace offering streaming music how would a band make money from them? The answer: Poptopus. Poptopus (reviewed by Mashable), is a widget (we talked about these yesterday) that you can embed on your site and revenue is shared by the artist and the publisher. Advertisements play in the video portion of the player and are paid on a per listen basis. It's actually a radio type model but uses the visual portion of the Internet to play the commercial while you are enjoying the music. I think its a great way to utilize the single servingness of the Web with a business model that could be sustainable. And since everyone makes money, or gets eyeballs, everyone should be happy....the one downside I see is that if a popular band doesn't want to be associated with a certain advertiser (but I think those are few and far between).
Regardless, its a good time for the music business as they've finally embraced the Internet as opposed to fighting it and it turns out that artists as a whole will be making more money than ever and some artists will actually be able to call themselves full time musicians because of this long tail phenomenon. We'll keep track of the music space as it continues to innovate....perhaps Sirius XM can take a lesson here? (i.e. Give away your units and advertise on your proprietary hardware?)
DRM Free at Last EMI's announcement today to make their music DRM free may change the entire consumer landscape of music. EMI will sell their new DRM free tracks through Apple's iTunes at an exclusive price of $1.29 (30 cents above the normal track), but they claim to have twice the sound quality of existing tracks. Without DRM (and their CD's do not have DRM), their MP3's will be able to be copied to other players, discs and other forms seamlessly. Will this expand the music business or will it further shrink it?
In my opinion, the removal of DRM from EMI's tracks will actually expand their listening base. Prior users of iTunes who were reluctant to purchase may now purchase more since the tracks can now be played not only on their iPods but on their home stereo systems. They'll be able to share tracks more easily with friends who may be enticed to purchase other tracks by the same artist.
As for the pirates? I think its fairly well known that to get around the DRM you can burn the tracks to a disc and then re-rip them to get rid of the DRM. Pirates that did this before now have to go through one less step. But pirates will always be pirates and even so, pirates will always find a way to crack any type of DRM while true consumers will be the ones that pay the price.
The record labels? The Long Tail is in effect here. Record labels are going to have to find more acts to sign to bring visibility to in order to satisfy their entire spectrum of listeners. They're monopoly is over, its going to be like finding the hidden Microsoft amongst all of the bulletin board stocks out there. Like finding the next lonely girl amongst every YouTube video out there. Like finding the next OK Go amongst every track on iTunes.....
