Lawyers Discussing Business Models
from the dancing-about-architecture dept
Doug Lichtman's latest "IP Colloquium" podcast is on the question of whether or not "content can survive online." Specifically, it's a discussion about "online content business models." Oddly, though, rather than having business model experts, it's a conversation with four lawyers, starting with Doug, and including Brad Smith, General Counsel, Microsoft; Scott Martin, Executive Vice President, Intellectual Property, Paramount Pictures; and Dan Cooper, Vice President, Legal & Business Affairs, MySpace. Lichtman starts it off, oddly, by stating -- as if fact -- that talking about business models online is depressing because there's just not much in the way of business models online for content. I think that's damning things a bit early in the process -- something that comes up again later.While I realize that the podcast is a legal podcast, it still strikes me as odd to bring together four lawyers to have them discuss business models, when their expertise is not in business at all, but in the law.
The podcast starts out with a discussion on the Google Book search and settlement, but oddly no one even seems to give any credit to the fair use question. But, again, since these are lawyers we're talking about, there really isn't much of a discussion on business models around Google Book Search, but on legal questions -- including a hope that Congress steps in to solve it. Amusingly, Microsoft's Smith early on suggests that it's a question Congress could solve "if the industry got behind it; if copyright holders got behind it." Striking, huh? He basically admits how copyright law works in this country. It's not about what's best for the overall society or economy. It's not about the politicians fixing things where they see a problem. It's not about consumers. It'll happen if the industry gets behind it. Welcome to the way things work in DC. The rest of this part of the discussion is interesting -- and it's one (rare) case where I mostly agree with Lichtman, that as a resource, Google's Book search is incredibly useful, and we should figure out some way for it to happen.
From there, the discussion moves on to other business models, and quickly seems to head off in directions that I don't think are accurate from a business model standpoint. It starts off with two premises set forth by Lichtman, each of which I think is suspect. First, he claims that piracy is a problem because "you can't compete with free." Frankly, I'm sick of this argument because it makes no sense economically or from a business standpoint. Economically, saying that you "can't compete with free" is the same thing as saying you can't compete -- period. It assumes, falsely, that the only way to compete is on price, but the history of the economy shows that's not true. You compete on price or you compete on benefits, and competing on price is often a losing battle anyway. Saying "you can't compete with free" just means you only know how to compete on price. If that's the case, you shouldn't be in business.
And, to make that point clear, tons of companies compete on benefits, and allow other companies to offer lower priced offerings. The popular example, of course, is "water," whereby it's free (or near free) to drink out of the tap, but the bottled water business is a multi-billion dollar business. Why? It tries to compete on other factors -- such as convenience, quality or safety (though, there are arguments that many of these benefits are perceived rather than real). But it's true in just about any other business as well. In the automobile business, a BMW costs more than an entry level Ford, and that's because BMW is seen to have a lot more scarce value. Ford could "copy" BMW, but BMW has its reputation and some amount of prestige that Ford simply can't copy.
Anyone who's in business recognizes that you don't just compete on price. So why is it that so many seem to assume that the only way to compete in the content market is on price?
Lichtman's second premise is that online business models don't work. He says that Hulu hasn't been a success because it doesn't make as much as TV, and that if Hulu displaces TV we "won't have the money to pay for" expensive TV show production. He claims that even if Hulu is really successful, it'll never make enough money to pay for the production of a show like Battlestar Galactica. First off, huh? How does he know that? If Hulu is successful, it absolutely could pay for such production. Already, we're seeing that some of the online ad rates are higher than TV ad rates. Hulu's barely been around for two years at this point. I'd be willing to bet that Hulu's revenue today greatly exceeds the revenue of television two years after it was invented. Give it time, Doug!
He then jumps on Redbox -- sarcastically saying "we're renting movies at a dollar per day?" Suggesting that this will never sustain the development of movies. Really? I always find it amusing when people insist that problems in the DVD market will mean the death of Hollywood. It really was just 25 years ago that Hollywood insisted that the VCR would kill the industry (Boston Strangler, anyone?). Now they finally get their "original" wish, and find that putting movies on recordable media is going away, and it's the worst thing in the world?
Either way, the economic fallacy that Doug seems to be relying on here is twofold. First, he assumes that early business model experiments are set in place and no further innovation will occur that allows them to flourish. He assumes that the markets won't grow, and some of these experiments won't click and get much bigger. Second, he seems to assume that the old revenue numbers for these industries need to be sustained. He doesn't consider that the old revenue numbers may have been a result of monopoly rents, limited competition or technological limits. Markets change all the time, and usually what comes out in the end is much better (subjective, I know, but I'm a believer that the world is a better place today than it was 25 years ago -- and that it will be even better 25 years from now).
But, of course, no one challenges him on this. Scott Martin at Paramount, of course, worries quite a bit about piracy of movies. While he admits (finally!) that he's just the lawyer, rather than the business guy, he discusses it in the terms of adding more windows to movie releases, rather than any discussion of adding more value to the product, or giving people reasons to buy beyond just the content. Then Martin repeats the myth that you can't compete with free, but leads in with a different myth -- claiming that the "copyleft" people say that piracy would go away if they just priced their movies better. That's a strawman argument. Perhaps someone out there made that argument, but it's hardly common. Then he says that "the idea that if we charged $2 a download instead of $10 a download, we'd get rid of piracy is a myth." Sure, it's a myth, but no one said that. You can't get rid of piracy. No one thinks you can get rid of piracy. No one suggested anything you do would "get rid of piracy." What many of us are suggesting is that you can build business models where that piracy isn't a problem. Even the people suggesting you just charge $2 instead of $10 aren't saying it would "get rid of piracy," but that at $2, enough people would pay for it that it would increase profits beyond what the $10 DRM'd version gets you.
Anyway, the discussion goes on from there, including a discussion of the DMCA that again doesn't make much sense to me, but the business/economic analysis throughout doesn't strike me as accurate at all. It's still an interesting discussion, but frustrating because I wish there were at least someone on the panel who would challenge a lot of the "accepted wisdom," put forth by everyone, that doesn't seem to be accurate. Brad Smith, at one point, does point out that this is all a "revenue" problem, and does a pretty good job describing the revenue problem... but then falls into the trap of saying the law needs to "fix the piracy problem" because without that, business models can't be built up.
The last analysis I'll talk about that is again faulty from an economics standpoint again comes from Scott Martin at Paramount, where he tries to defend the importance of DRM, noting that if he flies into JFK he has various price options on transportation: he can buy a car, rent a car, take a cab or take a train. So there are price differentials. He says that without DRM, content is like saying his only option is to buy a car. That is, if he had DRM, they could offer different "rental options" for content, with "one day pricing or one week pricing." But that's totally wrong again. There's a reason for the differential pricing in the transportation options: it's related to the marginal cost of each option and the competitiveness of the market. That's what sets the prices. But with content, the marginal costs are zero, so what he's doing is trying to set up an artificial barrier to pretend the markets are the same.
While I like listening to these discussions, I just find the economic fallacies frustrating.
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Filed Under: brad smith, business models, content, dan cooper, doug lichtman, lawyers, scott martin
Companies: microsoft, myspace, paramount
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it was all hubbub
They should all be embarrassed, but likely got a set of talking points before they went on air and just went with that.
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I sometimes forget, but wasn't the old head of the MPAA a lawyer, just like the new head?
Like I said I sometimes forget, but isn't the same true for RIAA, slash, IFPI?
Worked out ever so well, didn't it?
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worse than accountants
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Re: worse than accountants
Second, I do have to agree that most lawyers are not business executives in the ordinary sense of that term. They are counselors at law, and their role is not to tell the executives how to run the business, but to discuss how various business proposals intergrate with the current set of laws on the books.
It is a rare lawyer indeed who has such a level of understanding of how a business operates at all levels within all functional groups that are able to say with authority "That approach is illegal. That approach is within legal boundaries. Notwithstanding the approach that is within the boundaries and thus lawful, have you considered...?" Such a lawyer is a rarity, but by having a broad understanding of the business from the bottom up they are able to provide value added service that may very well change the direction of how a company has initially desired to proceed.
Finally, the discussion at the ipcolloquium pertains almost solely to how the law affects these various approaches for new business models. As a legal discussion it is not intended to deal with economic theory divorced from existing law. Thus criticism for a lack of understanding economic theory misses the point because that is not the purpose or focus of these discussions.
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Pole turtles. :)
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Re: it was all hubbub
thg
fhfjgjg
gjjgjjgjasefefghhtrg
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The funny thing is, people already do this to some extent. I'm not sure what it's like in the US, but retailers in the UK like HMV and online retails such as Play seem to have perpetual "sales" offering large discounts on older stock. Because of this, I almost never buy new releases - I wait 6-12 months for the price to dip close to £5 before I buy the DVD. I'd be willing to bet that if this was not the case, "piracy" would be much higher.
Also, I *NEVER* buy DRMed media, and refuse to buy movies through iTunes because the prices are ridiculously expensive (often more than £10 for a decades-old movie you can get on DVD for £3). The "protections" that these lawyers insist upon often damage their own profits more than they'll ever realise.
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So it isn't just a $2 to $10 issue, on the back side it's a $9 to $1 issue. They would have to push nine times as much product to make the same amount of money.
If 50% of sales are lost to piracy, they still make more money on a $10 DVD than they would on a $2 DVD. You have to pretty much wipe piracy out before that business model even starts to break even, which makes it meaningless.
Now, if you reduce piracy through other means by 10% (and indictations are that torrent traffic is down 20%, as per report on Techdirt), the bottom line upside for $10 DVDs is amazing. Even a slight bump in sales (10%) would have the same bottom line effect as a 100% increase in $2 sales.
Paul, what you are doing is trading time (waiting, not buying when it's new) for price. It's the financial long tail, as it were. Dropping the initial price down to the place you would pay to buy it likely wouldn't make bottom line sense for their business. So they don't mind if you wait :)
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If these companies have become accustomed to a 900% markup then its time they learned to live in the real world.....
Also if you cut the price to $2 then the retailer will cut his margin in proportion - he can do this because the cost of financing his stock will be lower.
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Retail at any level is subject to markups along the way. The manufacture to the wholesaler, the wholesaler to the regional distributor, the regional distributor to the store, the store to the client.
Each level needs to overall in their businesses make a profit which is higher than the rates returned by 100% safe government placements (bonds, example), otherwise they would be better just buying bonds. So if the average bond rate is 5%, it is safe to say that a company wants to make something in the 8 - 10% range to make it worth the effort of working.
So the product that is sold initially at $1 is marked up along the way, transport is paid, package materials, all the like.
The most important part? Retail markup is often in the 30%-50% range ( http://www.winnipegsun.com/entertainment/books/2009/10/16/11428131.html for a good example on books). SO if you want to bitch about markup, complain to your retail store, not to the manufacture, who is probably making the product for about $1-$2 per unit.
The other part of the game is "return per square foot" on a retail store, or "sales per square foot(gross)". If you cut the retail price by 50%, you need to move a lot more product (way more than 50% more) to turn the same types of net profits. So a store like WalMart isn't interested in taking a huge cut in it's own markup in the long run. Perhaps short term, but not long term.
Low sale prices on remnants (those bins with the DVDs nobody buys) is just to cut losses and get the money back into circulation stocking products people will buy at a profitable rate. It isn't the price they will sell things at every day.
So when you get mad about markup, get mad at the retailers, they are the pigs in the game, not the producers.
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I'm in the UK and we have plenty of "everything £1" shops - which on your analysis couldn't possibly exist.
DVDs are given away on the fronts of $2 newspapers and breakfast cereal packets. The marginal cost of production is close to zero.
The current prices represent an overhang from a former time when the cost of production was much higher. The overhang can only exist because of the cartel-like operation of the industry.
I remember the industry complaining when newspapers first gave DVDs away that they were undermining the "perceived value" of the product - that $10 is an illusion that the industry is determined to maintain in order to sustain an extravagant internal structure.
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Don't get caught up in the price as a number, think of it in relative terms. Consider how the product gets from the producer to you, the steps involved, the holding time, and all the other stuff that goes onto the cost side. Then get back to us and explain to the class what you found.
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Sorry this has to be codswallop.
A "printed" CD/DVD is actually cheaper to manufacture (in quantity) per unit than a rewritable BLANK CD/DVD - it's a simpler thing. The physical distribution cost is the same and all the "margins" are the same.
On your logic blank DVDs should cost $10.
They don't. Even in a "full price" store.
Checkmate
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blank media has no up front costs, no content, limited packaging (when was the last time you bought commercial DVDs on a spindle?), and just as importantly, shelf life. Blanks don't go stale.
As I said "Consider how the product gets from the producer to you, the steps involved, the holding time, and all the other stuff that goes onto the cost side."
You need to consider how everything ends up in what we call here a "dollar" store. End of lines, left overs, end of stock, unsold stock, etc. The price that it is sold to these stores / chains is often a fraction of it's real cost, just to stop losing money holding the product.
A video store selling a used, out of date ex-rental DVD for a few dollars is only doing so to liquidate it's position and to take it's final income. If you looked only at the cost of the product and their sale price, they are taking a huge bath. But that would not be considering all the other things that go into the cost and the positioning.
It is really basic retail economics.
I guess in the end, you must be a lawyer ;)
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blank media has no up front costs, no content, limited packaging (when was the last time you bought commercial DVDs on a spindle?), and just as importantly, shelf life. Blanks don't go stale.
Well you can still get individual blank DVDs in jewel cases where I shop - they don't cost $10.
They do also go stale as the price falls and capacities increase.
We are discussing marginal costs here so the upfront cost of content is not part of the equation. It's a fixed cost - and hence easier to cover from a smaller margin if you sell more.
Heh? I don't follow you in the slighest.
nuff said
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You are failing to see the forest, but damn, that tree looks nice, don't it?
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No, what you are doing by including fixed costs at some percentage as if they were marginal costs is wrong because it builds in an assumption about sales volume before you even start doing the analysis.
The way the equation works is that you work out how your sales would vary against price, given the marginal costs of production and distribution as the minimum. You can then work out the price point that gives you the maximum return (sales x margin). That will give you the total return available to fund fixed costs and profit. Then and only then you can work out how much you can afford to pay for actors, musicians, engineers, writers etc etc.
Factoring fixed costs into the calculation at too early a stage is a recipe for disaster - you will either miss out on an opportunity through pricing too high or end up making a loss by spending more on your fixed costs than the market will bear (think millenium dome...).
Fixed costs are a variable in this equation - treating them as a constant is stupid.
When trying to predict how your volume of sales against price you need to bear in mind what the public regards as a fair profit margin. The public accepts the 30-50% profit margins of retailers - they know people have to make a living - but when they see a pre-recorded DVD at $10 next to a blank DVD at 50c then they will think that they are being ripped off.
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You have to look at movies and music in the same way you might look at bread. The value is highest when it is fresh and new, and over time, the value disappears. Soon enough, the only people buying will give you only a couple of cents to make bird food out of it or whatever. In the end, the value is almost all in the plastic bag it comes in ;)
When you are buying movies in an "everything £1", you are buying last weeks bread, which they picked up way cheaper than the going price for bread. The movies being sold are out of date, overstocks, left overs, whatever - they paid way less than the costs associated with the product because the selling has likely recouped all those costs somewhere else. If the big chain store bought 500 copies at $5 each, and sold 400 of them for $10, their $2500 turned into $4000 already. Rather than hold the remaining copies for the next 12 months trying to find buyers, they sell the 100 remains to a cheap shop for $1 a piece. They turned $2500 into $4100, and they can restock with "fresh bread" to do it all again. The cheap shop now has inventory they can sell for $2 profitably, even though the cost price from the wholesaler is actually $5.
Retail can be a little complicated. You cannot take "Cheap Shop" prices and expect them to accurately reflect product costs. You are missing the whole lifecycle that makes it possible, which is why I said you need to step back to see the whole system, not just narrowly looking at the piece right in front of you.
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In other words don't use logic just accept what I say. Sorry this is meant to be economic analysis not revealed religion.
The disc with content only has more value than a blank if people are prepared to pay for it. Of course different people will be prepared to pay different amounts.
It is part of the marketing job to work out where to set that price to optimise the return. The point is you have to do this without making unjustified assumptions about what the value is. That way you can allow for all possible price values when you do the calculation.
You have to look at movies and music in the same way you might look at bread. The value is highest when it is fresh and new, and over time, the value disappears. Soon enough, the only people buying will give you only a couple of cents to make bird food out of it or whatever. In the end, the value is almost all in the plastic bag it comes in ;)
I worked out a long time ago that bread was also a rip off. So now I buy flour (blank discs) and use a bread machine (DVD burner) to make my own.
Seriously though the arguments you give about going stale only really applies to crappy populist content that relies on heavy marketing to sell at all. Beethoven doesn't go stale.
Even taken at face value your analogy is deeply flawed. Bread goes stale because of a physical process. Content goes stale because of familiarity, because the public realises that it was never that good to start with or maybe because going stale was designed into the marketing strategy.
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Actually, it went stale so long ago, you don't realize.
Again, you are trying to change things to suit your work view, and not reality. Yes, populist material goes stale faster than other stuff, but that is the nature of it's economic reality.
You are an exception, not the majority. Trying to apply your POV to other people is making you more than slightly blind to what is really going on.
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I swear sometimes you got your degree out of a cracker jack box. It's insane to watch you go.
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If they run their business correctly then they simply won't make stuff that can't be sold profitably at a price the public is prepared to pay.
Just like the EU farmers who now have to face reality since government guaranteed prices have been withdrawn they must learn that just because you make something the consumer is not under any obligation to buy it at a price that keeps you in business.
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There is nothing to solve. If it ain't broken don't fix it. Books on Google's book search are there with the voluntary permission of the copyright holders and they're only there to the extent that the copyright holders allow. So what's broken about that? Nothing.
To me this is just more evidence of the true motives of intellectual property maximists. Google did nothing against the will of copyright holders and yet intellectual property maximists are upset, not because the lack of Intellectual property somehow works against the will of authors and musicians and artists (because in the case of Google it did not, Google did not do anything against the will of copyright holders). So then what's the problem? The problem is that Google books offers writers a venue to easily distribute their work without giving someone else (ie: publishing companies / intellectual property maximists) control of the work of others and allowing them to disproportionally benefit from the work of others. and that needs to be solved, because intellectual property maximists want to be able to disproportionally benefit from the work of others and they want to force others who want their work distributed to allow them to disproportionally benefit and allow intellectual property maximists unearned control over the work of other writers.
The problem is the definition that these people consider to be broken. The problem is that they want a corrupt system but their corrupt system is broken so they want congress to solve this problem by putting in place regulations that once again bring back their corrupt system.
They consider a system that allows them to exploit the public with unfair laws to be a good system. A system before open communication where important news was effectively censored from the public (because of the corporate controlled mainstream media thanks to government intervention) and the important topics discussed on the Internet (that get censored from mainstream media) are censored from the public. The government/FCC was responsible for "fixing" the system by making laws that make it impractical for people to communicate with each other and making it impractical for people to write books, make songs, etc... and distribute them to the public without going through publishers and RIAA executives and others who will exploit you out of every penny they can and monopolize your work while censoring any messages they disagree with. Now, thanks to open communication, their corrupt system is broken and has been replaced with a less corrupt system. Now they want congress to fix their corrupt system just like the FCC and congress did before the Internet offered more open communication. That way they can once again exploit artists and authors and censor them if they don't like their message and if they do like their work they can force them to sign completely unfair contracts to have their work distributed.
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The Truth
It's all about sounding convincing and playing the game.
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"fix the piracy problem"
I somewhat agree with this statement, but not in the way they do. As long as content companies look at the "piracy problem" as a legal problem, something the government must come in and fix, they WONT build new business models. As long as they keep on thinking the government is going to keep on artificially sustaining their old business models, they wont bother coming out with new ones. Especially when they can't imagine them being as lucrative as the old ones.
Governments think they are helping when they expand copyright law and enforce it with ridiculous stuff like "3 strikes", but they are truly not. They are just standing in the way of the future entrepreneurs by giving tools to the old lazy businesspeople that want to keep everything the way it was.
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Re: "fix the piracy problem"
The problem was that the old business models were based on an unfair regulatory structure (thanks to the FCC, FDA, et al) that gave large corporations an unethical unlevel playing field that made them lucrative profits from the work of others. The Internet comes along and ruins their unethical level playing field and now they want the government to continue to give them an unethical level playing field by once again passing more laws that creates income inequality in their favor while the poor does all the work and the lazy rich people reap all the benefits.
America is advance in a sense that the rich have advanced their ability to control the government and to coerce the government into giving them their undivided attention to the point where the government almost completely ignores the will of the masses and to the point where the government almost completely ignores what's best for the people and acts almost uniformly in the best interest of the rich and the powerful at public expense no matter how much the masses disagree.
You know what's amazing. Techdirt has shown how the Streisand Effect effect, thanks to the Internet, actually has an impact on how governments in some other nations behave. However, America is so advanced in its ability to exploit the poor that despite huge public disagreement on many laws those laws simply do not get overturned. The masses simply get ignored and taxi cab drivers continue to have their monopoly, intellectual property continues to last for excessively long periods of time (and intellectual property laws continue to be one sided), the FCC et al continue to regulate cableco/telco infrastructure and the airwaves in the sole benefit of corporations at public expense, Red Yeast rice naturally containing more than trace amounts of lovastatin continues to be banned in favor of more expensive, patented, dangerous pharmaceuticals, etc... But at least to some degree things are changing for the better, but slowly and these corporations are trying very hard to deny the people the ability to have any meaningful influence over the government.
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Yikes. You really need to learn some basic economics, because every time you opine on this stuff you just look more and more uneducated.
No one says you sell below cost. In fact, quite the opposite. But the point is that you make build decisions based on profitability, not price decisions. You're suggesting that people build first and price later. That's an incredibly bad strategy.
You seem to think that the company gets to set the price and the consumer just accepts it. That's wrong.
You seem to not realize that when competition comes, fixed costs are meaningless in pricing. That's wrong.
I know we've told you this repeatedly, but you really ought to learn at least a little basic economics. I got my degree at a top institution, but any business school would teach you how wrong you are. Any.
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the discussion was kind of poorly premised and strange in that the participants all had such similar (and similarly backwards, imo) viewpoints, but i was mostly disappointed that my friends and i never had a chance to get involved in the discussion ourselves. it's not unreasonable to expect the participants on a panel like that to take the views they did, so i figured that the only real challenges would come when the students got to talk. unfortunately there wasn't enough time for us to speak.
i've had quite a few opportunities so far to have discussions with higher-ups in the entertainment industry on both the legal and business sides, and in no case so far have i come away encouraged. this week rio caraeff from universal's vevo project is gonna come speak, and i'm hoping his take will be a little more reasonable.
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The idea that somehow lawyers know and properly apply business models is disingenuous at best, and criminal at worst.
Even Edison said "We need fewer lawyers in the boardroom."
We need more people willing to meet the needs of the customer. Even if we get it wrong, people will forgive us. They'll understand if we say it's a work in progress.
We need to make the customer the center of everything we do, not the law. Bringing out the legal dogs only creates animosity.
But only outside of legalism can we answer the questions of "What can we do right now? What can we create? What can we build?" This is what makes America great. We can do, build, create anything we want, unless we let others stop us.
Recently, I had someone who I thought was a real close friend send a message that said something real close to the likes of 'I'm over with you, I gave you blah blah' which, I laughed at and still asked something along the lines of 'What do you need.' Still waiting for a response.
The point is, sometimes people get wrapped around doing the wrong things with the wrong reasons in mind.
I enjoy the idea that at times Microsoft says things they included were actually Microsoft innovations instead of growing on Linux or Apple innovations. In fact, they sometimes portray them as innovations which others saw, because others were listening to them.
But it seems Microsoft's marketing arm decided to make multiple ads saying that features saying their users came up with an idea. But anyone who has OSX understands that Exposé or Ubuntu Window Manager throws "Snap" under the bus.
New Microsoft 7 ads:
http://www.youtube.com/watch?v=n6snFq-lHvY
http://www.youtube.com/watch?v=rmiPzMY4nuE
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That's how the mainstream media works and it's our corrupt government that has created a regulatory environment that censors dissenting viewpoints in favor of viewpoints that propose tyrannical policies to the benefit of the rich and the powerful at public expense.
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Excellent. Rio is almost certainly likely to be more reasonable. I've seen him speak and he seems like one of the guys within the industry who really recognizes where things are headed. Interesting guy.
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I lost my monopoly and can't compete with free!
Like many, I too have become angrier and angrier at how the industry has been treating consumers. Some pirates, the ones who feel most burned by the industry in particular, will tell you that they won't pay ever again. However, being a so called pirate myself, I think most folks actually would. I've mentioned before about how I'm still waiting for an entire genre, DRM free and in a lossless format, to become available. I would love to be able to buy every movie soundtrack ever recorded, but only if the price was right. That's just for starters too. Until that happens, I will just keep on pirating. Remember, tech-savvy blog reading people aren't the only ones who download either and the window of success for a new business model is only going to shrink as generations comes and go.
The entertainment industry has to stop worrying about all the tiny little bread crumbs that have been escaping through the cracks. Some loss is to be expected in any industry and can be mitigated by simply adjusting your business model accordingly. Take car production for example. It takes a lot of different parts to build a car. Despite rigorous testing, there is absolutely no guarantee all of them will work perfectly off the assembly line 100% of the time. You would think this to be a costly drain considering how many cars are built every year, but thanks to a proper business model such costs can be estimated and absorbed. The entertainment industry needs to do the same and stop obsessing so much over things they will never be able to fully control.
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Mike, sorry, but you guys went a little far down the wrong road on this one. My entire point was that the price he was paying at the dollar show is entirely UNRELATED to fixed or marginal costs, rather it is an end of line, being sold at (horrors!) what the market supports for a stale movie that hasn't quite made it to the level of a classic.
The rules of supply and demand always work to set the prices, this is true, but the starting / floor / bottom price (the third line in the graph) is the cost per unit (with all the items thrown in) that says "You cannot sell it below this cost". In reality, that line is slightly higher to allow for the concept that remnants will be sold off at below cost to dollar stores.
When supply is artificially gamed by piracy and mass file trading, it is very difficult to continue to apply the "supply demand" price system to the whole market, you have to apply it only to the part of the market which is buying. For them, there is still a question of supply and demand, and the retail price (which is paid) is reflective of that.
Further, it is important to remember that supply is controlled by rarity, and the true rarity in the discussion are the actual movies themselves. Generally, we are talking about less than a couple of hundred movies a year that have any serious name recognition in the general market, and probably fewer than 100 are "popular". Those are the rare products, and distribution isn't going to change the rarity.
Sorry Mike, but I understand your very myopic view of infinite distribution, but it is very much dependant on piracy, which isn't a very good business model.
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Again, I am being entirely serious here. If you are serious about engaging in conversations like this one, you will be well served to take at least a basic economics class. Because you are wrong again. Marginal costs *always* come into play. In the case of the dollar store, you are correct that those are end of line, but the products are already made. The acquiring company (not the original manufacturer or retailer) is selling them, and the $1 represents a price somewhat above the marginal cost *of the $1 store* to get them.
Again, please, try to understand basic economics. The *reason* the dollar store can sell stuff at a $1 is because of ITS marginal cost in acquiring the items.
The rules of supply and demand always work to set the prices, this is true, but the starting / floor / bottom price (the third line in the graph) is the cost per unit (with all the items thrown in) that says "You cannot sell it below this cost". In reality, that line is slightly higher to allow for the concept that remnants will be sold off at below cost to dollar stores.
Honestly, I can't even begin to tell you how wrong this is. Please, for the sake of intelligent conversation, go take an economics class. The total cost/average cost DO NOT show up in the basic supply/demand curve. Do not. Period.
When supply is artificially gamed by piracy and mass file trading, it is very difficult to continue to apply the "supply demand" price system to the whole market, you have to apply it only to the part of the market which is buying. For them, there is still a question of supply and demand, and the retail price (which is paid) is reflective of that.
Again, for the love of basic intelligence, take an economics class. You do not "apply the supply demand price system." It's HOW THE MARKET WORKS. You don't apply it. It just exists.
Further, it is important to remember that supply is controlled by rarity, and the true rarity in the discussion are the actual movies themselves. Generally, we are talking about less than a couple of hundred movies a year that have any serious name recognition in the general market, and probably fewer than 100 are "popular". Those are the rare products, and distribution isn't going to change the rarity.
Ugh. We just discussed this with you. There is a difference between the supply of "movies" and the supply of "a movie." Again, this is the sort of thing you would learn in a basic economics class.
Sorry Mike, but I understand your very myopic view of infinite distribution, but it is very much dependant on piracy, which isn't a very good business model.
Sorry, you are wrong and entirely ignorant of basic economics. Which we have told you specifically at least 100 times in the last year. I recognize that you have some basic intelligence. I am entirely serious that you would be much more interesting to talk about this with if you didn't make such basic errors in economics. This is really, really basic stuff that you are fundamentally clueless on.
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Ummm. What kind of training would you suggest Mike get to prepare himself, if not an MBA with an Economics background and extensive experience in high tech?
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You are basically saying I am wrong because I don't buy your theories and your points of view. Quite simply put, you are correct in theory, in a narrow window, and in a "classroom conditions" sort of way. But in the real world, your sort of spinning in empty air.
The total cost/average cost DO NOT show up in the basic supply/demand curve. Do not. Period.
You are correct, if you are talking basic (ie, classroom exercise). In the real world, the cost price is one of the most important parts of the decision to producer / manufacture / stock for resale / whatever. If the supply demand curve price falls below your cost , then there is no money to make. Graphical representations of this make it much easier to explain the concept in marketing meetings with those pesky marketing people.
Ugh. We just discussed this with you. There is a difference between the supply of "movies" and the supply of "a movie." Again, this is the sort of thing you would learn in a basic economics class.
UGH! Again, you are correct if you are playing a classroom game. You are wrong in the real world, because "movie" feeds "movies". No "movie", no "movies". If you have nothing to distribute, you have infinite nothing.
Anyway, all I can say is that while you get on my case to learn "basic economics", all I can see is that you appear to only have learned "basic economics" and missing the rest of the courses. There is so much more to the real world that you are apparently either missing or willfully ignoring. But it's okay. That would sort of destroy the techdirt theories of infinite and free.
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You need a refresher. A big one.
You are correct, if you are talking basic (ie, classroom exercise). In the real world, the cost price is one of the most important parts of the decision to producer / manufacture / stock for resale / whatever. If the supply demand curve price falls below your cost , then there is no money to make. Graphical representations of this make it much easier to explain the concept in marketing meetings with those pesky marketing people.
No, this is wrong. And no, I'm not talking about "classroom exercise economics." I've got over a dozen years of business experience myself and you don't know what you're talking about when it comes to understanding supply and demand curve. Supply and demand curves don't "fall below your cost" That makes no sense.
Again, you are correct if you are playing a classroom game.
I'm not. I'm talking about real businesses. This isn't a classroom exercise. This is how the economy works.
You are wrong in the real world, because "movie" feeds "movies". No "movie", no "movies". If you have nothing to distribute, you have infinite nothing.
Again, you're simply not making any sense. There are things to distribute. They're called movies. Your statement is meaningless.
Anyway, all I can say is that while you get on my case to learn "basic economics", all I can see is that you appear to only have learned "basic economics" and missing the rest of the courses.
Heh. Nice try, but not so. I did quite well in all sorts of course sand have since done fine for myself in the business world, while helping lots of other companies as well.
As far as I can tell, your business experience has been running a scraper blog that gets no traffic. How's that working for ya?
There is so much more to the real world that you are apparently either missing or willfully ignoring. But it's okay. That would sort of destroy the techdirt theories of infinite and free.
Heh. Funny, since nearly everything we talk about are real world examples of how this works -- not to mention proving it ourselves.
Reality is a funny thing. You should try to experience it sometime.
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i don't know how much info about vevo is public and how much of what he mentioned was intended to stay in the room, but i think it's fairly well out that it's about using music videos as premium content in order to get advertisers to pay big bucks to advertise in and around them. it's apparently going to be very interactive, although he didn't elaborate much on that. it'll allow for some user-made videos, leave other user-made vids alone elsewhere, and let bands and labels etc upload their own vids. he said he has no intention of trying to change users' behaviors regarding music and how they interact with it. instead, he wants to harness those behaviors in a way that can make money, and he thinks he can do so even though something like vevo will still be very porous and user-driven. so yeah, much more reasonable.
that said, i think he massively overestimates how "premium" music videos are. he used the fact that a gigantic percentage of all hits on youtube are of music videos as evidence of how much people love watching them, but i think he mistakes navigating to music videos for watching them. i know that for myself, when i "watch" a music video on yt what i'm really doing is going there, minimizing that tab, and listening to the music while doing something else because it's such an easy way to listen to exactly what i want at any time. i asked a bunch of friends online if they do the same, and they do. not exactly a scientific study, but if many people interact with vevo like that, it might be hard to convince advertisers to spend big money when their potential customers can effectively ignore their ads.
i think rio intends for the interactivity part of vevo to keep viewers a little more engaged, but not knowing how that interactivity works makes it hard to judge how well it'll keep people's eyes on the vevo tab. and after all, youtube already allows for comments and video responses and user-made videos and the like, but that kind of interactivity doesn't mean we actually watch the whole music video.
so it sounds like an interesting project that could be worthy of support. i have my doubts about how effective it will be at making significant ad money, but it's great to see someone with rio's perspective working with the record companies to try something new.
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