Is free equal to zero worth?

Dragon asks an important question, and I'll try to respond here with some of the thoughts I've been wrestling with in the past few weeks.

For someone like me who makes a living by producing content, this offers a tough dilemma. I am like many of the arguments that P2P advocates have, and yet I also need to make a living. If all the products I’ve done in past 11 years would be available free of charge, I very much doubt I could have ever put any bread on my table. I also believe that Youtube-style snipped videos truly help the popularity of music, games, movies etc, as does the fansubbing of Anime series that I love. Products that you simply cannot buy in the area you live in, I have myself downloaded in the past. Indeed responsible fansites take such torrents down once the product gets licensed in their home country. And I always buy them when I can if I enjoyed them. This my conscience can live with. The trouble is, I think I am part of a tiny minority.

If someone can explain to me how I am supposed to make a living if the worth of my work is 0 (as apparently many people believe since they keep downloading stuff I’ve made even though it is available to them in a shop around the corner) then I might be more inclined to defend these boys.

Well, radio is free, but that does not mean that it's worth zero. And the people who work for it are getting paid.

Skype is free, yet the people working for it are getting paid.

Lots of open source is free, yet people are getting paid (though most of them aren't, but some of them are).

What I'm trying to get at is that free does not equal that it would be worthless. If it's worthless, it's (usually) free, yes, but the equation does not apply the other way.

The key difference is that most of the copyright industry is concerned about selling "units of consumption" to users at a price per unit (CD, theatre ticket, DVD). Therefore, they perceive that free is value zero. However, when you start to think that the entertainment industry is more like a service than furniture industry and start comparing it with other services like radio, TV, cell phone, electricity, gas, and water, you realize three things:

  • Everything tends to go towards flat rate (unless it's a consumable, which digital goods ain't)
  • Everything that is flat rate will become cheaper over time due to competition
  • P2P is a free service. Because it has almost no overhead or distribution costs, there are no employee costs, and it's not paying the originators (making it an illegal, but still free), it can afford to be free. Which makes it very, very difficult to compete with, since bringing anything else to the market is like saying that "we have this better radio, but you have to pay to use it". Now, this works with pay TV, so maybe it'll work with music and movies, too.

What's the tiny bit of difference then between copyright industry and the rest of the service industry? That's right - copyright itself. Because copyright is a government-granted monopoly, and the current business model is such that distributors own the copyrights, not the artists themselves, there cannot be proper competition. And that's because unlike gas, it does matter who makes the music. No matter how many Britney-clones there are out there, they're still not Britney. And because the industry is really mostly concerned with hits, they're what matters, and the system is built so that the profits from the hits can be maximized - even though a more liberal system would probably work better for the mid- and low tiers.

Some time ago, I speculated that in twenty years, assuming that current trends continue, we'll have an $500 iPod that can fit all the music ever created. I asked John Buckman, CEO of Magnatune about this, and he mentioned that we can assume that that is actually available in ten years, thanks to streaming, at least in home environments.

OK. So, if all the music ever made will be available at the touch of a button, won't that make it just like a service? And, if there were a multitude of service providers to choose from, wouldn't that then encourage competition? And wouldn't that eventually drive the price down to zero, just like radio?

And wouldn't DRM then become totally irrelevant, because you can have all the music from any provider anyway, so there is no need to make copies?

(I know this wasn't exactly an answer, but it sort of juggled my thoughts. I've been talking about music, but it seems to me that that the computer game industry is moving towards service model as well with things like XBox live. So maybe the service model is applicable to other things as well. It's left as an exercise to the reader to figure out how the service model gets funded. If you can't figure it out in 30 minutes watching TV, you're not gonna get it :-)




Comments

Good post, although I think you didn't give enough emphasis to making money *because of* something, not just *with* something.

For example: - Google makes money *because of* search, *with* advertising. - many bloggers make money *because of* their blogging, *with* advertising, consulting/speaking fees, book publishing, etc. - some artists make money *because of* their free music/art, *with* something else

Not feasible always, I admit, but worth thinking.

I learned this powerful concept a couple of weeks ago from here (not the original source): http://confusedofcalcutta.com/2006/09/21/the-because-effect-and-the-future-of-marketing-and-ipr-and-maybe-even-the-net/

--Tommi Vilkamo, 30-Oct-2006


I will write my thoughts on this great response from the other side of the fence today...

In general, I just would not like to have my whole life depend on advertising revenue.

--Dragon, 30-Oct-2006


Tommi, you're right. But I wouldn't say that it's because of *free* art, it's because of their art. It's just that the business model they have chosen does not rely on shipping pieces of plastic to people.

Dragon, maybe I emphasized ad revenue too much, but there are other ways, too. E.g. BBC and YLE rely on public funding. Doesn't work for everyone, but it does work for some. The game industry is adopting the subscription model for some games. It's not really that much of a stretch to imagine more.

--JanneJalkanen, 31-Oct-2006


A few disparate comments...

Arguably all content has value. So if you forget about money only and think in terms of broader value exchange, the 'free goods' disappear.

Let's take commercial radio as an example: Radio is free for listeners, who get value in form of music. More listeners make a radio station more desirable to advertisers, in effect providing value for the station. The radio station exchanges this value of distribution (or the aural equivalent of visibility?) for money from the advertisers. But to close the circle, the station must acquire the music they play. They're providing value to the listeners and that value does not appear from thin air. Therefore they exchange money (gained from advertising) for the right to play music.

Aren't electricity (produced using current means) and gas consumables? ;)

P2P is a problem, because the creators are cut from the cycle of value. What comes to competing with P2P, price is only one way to compete. You could compete with availability, selection, findability (combination of the previous two?), reproduction quality, source authenticity... and you can still keep it free for the end user, provided that you can come up with a value cycle (aka business model) that draws value from the users in a different way or draws value from other sources and provides value for end users as a by-product. My hunch says the latter is less efficient.

--Niko, 01-Nov-2006


I actually have a feeling that P2P is a problem because it cuts distributors out of the value chain altogether. The creators are always there - even if they're not getting paid. But it's really the distributors who are afraid of the P2P model because a legal P2P system would be a real problem to their business. But this is cynical semantics :)

Gas and electricity are consumables, yes. But digital goods are not, and therefore they could have a zero price. Especially if it's data which is created automatically, like your surfing habits. Wouldn't be worthless, but the price of creation would be zero or near-zero.

--JanneJalkanen, 01-Nov-2006


You're right on distributors. Then again, it's not only P2P that is freaking out distributors, it's everything digital. If I were a big music (cd) distributor, I would think long and hard if I want to be in the business of logistics for physical goods (ditch music cds, find a new product), or in the music business (ditch warehouses and trucks, become like IODA, Orchard, etc).

I actually forgot to point out that at least in music the distributors do not own copyrights. There are record companies that ask you to sign away your copyrights, more in America than in Europe, but no one in their right mind does that. Then again, if you're on the verge of popularity and you're offered millions, you might not be in your right mind at all... But mostly artists license parts of their copyrights to various companies in the music business in hopes of greater returns on the value of the copyright. It's always a choice...

--Niko, 02-Nov-2006


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