Content Industry Could Learn From eBay Seller Turning A Profit With Public Domain Content

from the competing-with-free dept

Fri, Jan 4th 2008 7:15am — Timothy Lee

Last year, Mike made the point that saying you can't compete with free is saying you can't compete, period. Every business makes a profit by adding value so that customers will be willing to pay above marginal cost for its products. The fact that the marginal cost of content (once it's been created) is zero doesn't change that principle. You can add value to free content just like you can add value to any other product. The New York Times Bits blog nicely illustrates this with a post about the market for public domain content on eBay. Apparently, there are a number of people who make a living by finding obscure, copyright-free content on the Internet, burning it on a DVD or other convenient format, and selling it on eBay. Despite the fact that every one of those customers could have tracked down the video for themselves and watched it on their computers, a lot of people are apparently willing to pay for a DVD version.

This business model actually illustrates two good ways to add value to free content. First is convenience. A lot of people don't have a high-speed Internet connection, don't like watching videos on their computer monitors, or want to be able to take their content with them in a compact format. For those users, a DVD is a much nicer format than a file on their computer's hard drive. DVDs are also a much more convenient format for giving gifts: you can wrap a DVD and put it under the Christmas tree, something that's harder to do with a video on YouTube. Second is filtering and organization. There's way more content out there than any one person could possibly watch. So there's a lot of value in helping people separate the wheat from the chaff. That's a big part of the value we provide here at Techdirt: a lot of the information you'll find on our blog comes from other sites, but we try to highlight only the best and most relevant information, helping our readers to keep up with news in the technology world more easily. By the same token, people who sell public domain content on the Internet create value by filtering and organizing the information so it's easier for others to quickly and easily find what they're looking for.

I won't belabor the implications for traditional content industries. Like it or not, their content is available for free on peer-to-peer sites, and if they want to make a profit they're going to have to find ways to make their content more valuable than what you can get with BitTorrent. Two important principles for doing that are: use formats that convenient and versatile and make sure content is organized in a way that makes it easy for users to find what they're looking for. That means, for example, that you probably shouldn't cripple your products with DRM or sue companies that help people find your content.

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Filed Under: adding value, competing with free, ebay, public domain

20 Comments

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Anonymous Coward, 4 Jan 2008 @ 7:24am

Tim, the " convenience" link is broken in the article.
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BillGod, 4 Jan 2008 @ 7:39am

DVD Copy 123
There was a "program" several years ago that my friend bought. I think it was DVD copy 123. It was software to copy any DVD. Once he got the software. He had me come over. It was all freeware apps bundled into 1 package. This was a ligit company on the web selling the application. They made a business model out of this years ago.
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DCX2, 4 Jan 2008 @ 7:48am

Broken link
Tim, the convenience link is not quite broken; you forgot to put a " before the closing bracket of your link code. There's about two or three sentences that got eaten until the next link's closing bracket.
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Mr. Magoo, 4 Jan 2008 @ 7:51am

eBay?
What does ebay have to do with this? The only time it's mentioned is in the article title.
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Anonymous Coward, 4 Jan 2008 @ 7:55am

Convenience Link
For Your Convenience :)
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gnoma, 4 Jan 2008 @ 8:18am

compliments
nice post..
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Paul, 4 Jan 2008 @ 9:10am

@Mr. Magoo
The subject matter - DVDs - are being sold on eBay.
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Mike (profile), 4 Jan 2008 @ 9:26am

Re:
Whoops. Fixed.
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Mr. Magoo, 4 Jan 2008 @ 9:30am

Ah, thanks
Makes more sense now.

I would like to point out that when I made my first post, the eBay mentions in the first paragraph weren't there.
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Vincent Clement, 4 Jan 2008 @ 10:48am

There are people selling wall hangers for Guitar Hero guitars. The wall hangers consist of the red vinyl coated hangers you can buy in any hardware store that are screwed into a square piece of wood.

Despite all the free music available, the iTunes store continues to sell music.

People will pay a premium for convenience.
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Thom, 4 Jan 2008 @ 10:51am

Good
Except for the fact that a lot of this information being sold as copyright free is in fact under copyright and being reproduced without permission.

Personally I don't have a problem with this because the vast majority of the content is orphaned anyway or the copyright owners have zero interest in making it available.

What a shame there isn't a requirement that content be continuously available for copyright to extend past 5-10 yrs. Not worth it to you to keep your content available at a fair market price then you automatically give up copyright... no more orphaned works, no more lost knowledge.
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chris (profile), 4 Jan 2008 @ 10:56am

that's what i'm talking about
i use emusic to download stuff i can't find on BT. i get 50 songs a month in high quality MP3 format with no DRM for $15. each month i bottom my allotment out in an hour because it's so easy to find stuff and the downloads are super fast. i wish i could get all my music that way.

with BT, the content is free, but you have to find something, wait days for it to download, scan it for infection, unrar it, organize it... it's a total pain. PLUS, it's hard to find older music that may not be as popular, like the old punk, ska, goth, and techno i grew up listening to. it's not in used CD stores, it's not always on BT.

i would fully pay a reasonable price (not a dollar a track, more like 25-50 cents each) to use a system that let me instantly locate and instantly download tracks that are easy to use as i see fit. i'd do the same for movies and maybe even books.

if i could just pick from a menu and get my own custom made, professionally mastered CD in the mail, i'd be in heaven if the price was right. you could make lists of tracks (virtual mix tapes) so others can view and order it as well... like the recommendation system on netflix or the published shopping cart feature on newegg.

if you ask me the music industry brought this on themselves. they produce acts that target the lowest common denominator and saturate radio and TV with them. so everyone in the world only listens to a few acts, which are easily gotten on BT. good job guys, you put yourselves out of business.

the future of downloadable music is specificity. it's about reaching millions of tiny markets where media may not be shared as easily. a perfect example is dualcore (http://www.dualcoremusic.com) i heard about these guys on penny-arcade and heard snippets of their music and it sounds like it was made specifically for me (hiphop about computer hacking). the only way to get the music was to buy it, since no one i know is in to nerdcore and they weren't popular enough to be on BT.

i have purchased both of their CD's AND i am building up a catalog of old punk albums with emusic. thru emusic i also discovered the vitamin string quartet, they make string quartet covers of just about every song ever made. between old punk tracks, and vitamin strung versions of stuff i already have, i can download a monthly ration of 50 songs in less than 50 minutes.
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anonymous as always, 4 Jan 2008 @ 11:15am

missing the point
I have been down this road before with Mike, and it has been largely unproductive, but I just can't let this assertion go unchallenged.

This example of a successful business model for selling PD materials is useless as a model for the successful creation and sale of new works.

The packager of PD works has no investment to recoup in creation of the works themselves. Therefore, he can make a profit at a price competitive with even those who simply copy his product and value-added services.

On the other hand, the creator of a new movie/song/software application/book often has a huge investment in creation of the original work. Therefore, to turn a profit, the creator has to charge a price that enables recoupment of that investment. This puts the creator at a competitive disadvantage to competitors who can offer the same product and value-added services without having to recoup an investment in initial creation.

In this world, the economically rational decision would not be to invest in creation, but simply to free ride on the creativity of others.
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chris (profile), 4 Jan 2008 @ 11:34am

Re: missing the point
This example of a successful business model for selling PD materials is useless as a model for the successful creation and sale of new works.

i agree. like you, i want to sit on my fat ass and watch the money from my sales pile up. this article makes it sound like i might have to do some work and apply some business sense if i want to make money and i don't like that at all.

i am not interested in business sense or hard work, that's why i went into music in the first place.
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Mike (profile), 4 Jan 2008 @ 11:56am

Re: missing the point
This example of a successful business model for selling PD materials is useless as a model for the successful creation and sale of new works.

If, and only if, you think the business model is simply the direct sale of those new works. Once you get rid of that assumption, the rest of your argument falls apart.

The packager of PD works has no investment to recoup in creation of the works themselves. Therefore, he can make a profit at a price competitive with even those who simply copy his product and value-added services.

Yes, but the packager also has incentive to get new works created so that he can continue to expand his inventory. Thus, both he and the creators have incentive to come up with a favorable business model (see the Coase theorem...).

On the other hand, the creator of a new movie/song/software application/book often has a huge investment in creation of the original work. Therefore, to turn a profit, the creator has to charge a price that enables recoupment of that investment. This puts the creator at a competitive disadvantage to competitors who can offer the same product and value-added services without having to recoup an investment in initial creation.

You should learn about sunk costs... If you are only focused on recouping your investment, you're going to fail no matter what. Instead, focus on finding something to sell that has more value and can be differentiated and you can more than recoup the investment costs.

In this world, the economically rational decision would not be to invest in creation, but simply to free ride on the creativity of others.

This is simply, factually and historically incorrect. It is, again, based on the assumption that the only model is selling the content over and over again directly. Yet, if you look historically at the creation of new works, that's very rarely been the economic model of choice. There are many other economic models, many of which are more efficient (and potentially more profitable). So, the economically rational decision would actually be to move away from the crutch of the "easy" business model, to better business models.
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Nick (profile), 4 Jan 2008 @ 12:47pm

I think this is the same guy (or at least he is using the same idea) that published the free e-book "Everyones An Expert" that Seth Godin mistakenly licensed under Creative Commons without the Non-commercial aspect last year. When I saw it on eBay I saw all of the other items that the seller was selling and recognized the titles to be some of the same audio books being offered by the Librivox community (a community that makes free audio books out of public domain writing). I rushed over to the Librivox forums to report this and they said that it is fine with them that someone is doing this. I'll admit, even then the copyright industry mindset still had me thinking their way. Very interesting.
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4-80-sicks, 4 Jan 2008 @ 2:11pm

Re: Good
Except for the fact that a lot of this information being sold as copyright free is in fact under copyright and being reproduced without permission.

Could you please point to an example? I'm curious about what kind of things this is happening to.
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Charlotte-Anne Lucas, 4 Jan 2008 @ 2:35pm

selling the free stuff
"I won't belabor the implications for traditional content industries."
I think this kind of thing does have implications for traditional content folks -- if they listen ...
More on that here http://charlotteanne.wordpress.com/2008/01/04/selling-the-free-stuff-for-1499/
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Tim Lee, 4 Jan 2008 @ 3:33pm

Re: missing the point
I think you're hung up on zero-sum thinking here. The point is that it's clearly possible to turn a profit on creative works without an exclusive monopoly on reproduction of those works. And once you've found a way to profit from creative works, you've got an incentive to fund the creation of more of them so you can increase your profits. The fact that other people might "free ride" on your creativity isn't a problem unless their free-riding pushes down the price of the creative work so much that creating the work is no longer profitable. I'm definitely saying that never happens. But the "you can't compete with free" contention is that it always happens, which is obviously nonsense. Competition puts downward pressure on prices, but it doesn't cause them to go to zero instantaneously, or foreclose you from finding new ways of differentiating your product from the knock-offs.
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Celes, 4 Jan 2008 @ 5:32pm

Re: Re: missing the point
"I'm definitely saying that never happens."

Tim, did you mean "I'm definitely not saying", or some variation thereof? Otherwise I'm confused...
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