Rethinking Music Selling Incentives: Can A Pyramid Scheme Help Save Music Sales?
from the it's-creative,-but... dept
Capitalist Lion Tamer points us to an interesting post by Chris Holmes, a musician, who has come up with a thought-provoking idea for a different kind of business model for music, which he calls the Privateer System (named after the British attempt to "legitimize" piracy on the high seas). The post is pretty long, but the basic idea is this:1) An artist/label sells its record directly to the public through a The Privateer System website for $10.00.He notes that the prices and profit sharing margins are examples only, and can be changed by a participating musician/label. It's definitely a creative and different idea that got me thinking, but I'm not convinced it would really work. It certainly might be worth a shot, and it's nice that it seeks to do a better job aligning certain incentives. However, in the end, this still looks like a typical kind of multi-level marketing deal, better known as a pyramid scheme. Those tend not to work very well in the long-term, for a variety of reasons. I think this does improve slightly on the classic pyramid scheme, in at least there's some level of price differential between levels, which creates an interesting conundrum for potential "buyers." Do you pay a higher price thinking you can sell more and get more?
2) Any party that buys the record directly from the artist/label we will call a "primary buyer." The primary buyer receives a license and a Java widget with their purchase, enabling them to sell digital copies of the record for $7.50; $5.00 of that sale price goes to the artist/label, while $2.50 is profit for the primary buyer.
3) A party that buys the record directly from the primary buyer we will call a "secondary buyer." The secondary buyer receives a sublicense with their purchase to sell digital copies of the record for $6.75. $5.25 of that sale price goes to the artist/label, with $0.75 as profit for the secondary buyer, while the primary buyer sees $0.75 of profit. (The party that buys the record from a secondary seller we will call a tertiary buyer.)
In the end, I could definitely see this working in some instances, but I'm not sure it would really work on a wider scale basis, and still seems very focused on the idea that the music has to be paid for, rather than looking for better ways to leverage the infinite nature of digital works. So while it's intriguing, it still seems like ultimately it would be limiting. Still, I'm curious to hear what others think.
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Filed Under: business models, music, privateer system, pyramid scheme
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The formal scheme is interesting but
The first one you sell will be for a very high price. This ensures that the first buyers will also sell for a highish price initially (probably via some kind of one-off auction). The buyers are incentivised not to give it away (at first) by the price that they paid. The dynamic is that the price will fall over time - rather than by "selling generation". You don't need to place any downstream restictions the initial buyers will regulate themselves - since it is in their interest to do so.
Under the scheme in the post it is hard to see how the primary sellers will compete with the secondary or tertiary ones.
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**THIS MESSAGE WAS GENERATED USING : ChillCommGenerator ©RIAA **
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Re: The formal scheme is interesting but
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DRM everywhere ? srsly, guys !
Each and every idea based on the fact that the initial good (here "music") cannot be reproduced freely is likely to fail, since files can be copied at no cost (almost).
Or are you still telling us about drm-restricted files ? : This has already failed ;)
conclusion : guys from the finance business, please don't put your hands in the music business anymore, musicians don't needs your horrible ideas ...
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Re: DRM everywhere ? srsly, guys !
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Pondered
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Even if the distributed files aren't DRM-encumbered...
This scheme may in fact result in an outcome totally opposite to that of the classic pyramid scheme - original purchasers may barely make their money back, while thousands of people at the 'bottom' of the pyramid get free copies.
It's good to see people trying to come up with alternate business models, but I don't think this one will be saving any livelihoods.
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It would never work...
In any sort of pyramid system, the people that buy in first are the winners and everybody else gets scraps at best. Since the label would know exactly when the album would be made available, they would easily have time to set up the requisite 50+ shell companies to become top level purchasers so that they could recoup as much profit as possible from all sales. If you doubt, take a second to consider "Hollywood accounting" and you'll realize I'm right. Ultimately, the major media companies will never ever play "fair" if there's even a single penny of profit to be made.
This is a big part of what makes me believe that the only "model" that will work is musicians being directly supported by the fans. The major labels will eventually fall to "service for hire" companies:
- Need marketing to go with that new album? Hire UMG with our proven track record of getting your name out there!!!
- Had enough of the local bar scene and think it's time to go on a national tour? Take a look at the Vivendi Total Concert Package deal we've got this month!!!
- Think your bands website needs a little work? Contact the Sony Web Platform team for a free analysis and suggestions on how we can help take it to the next level!!!
These companies have a ton of talent in back office operations which can't be pirated, copied or shared via P2P. Dump the "music as a product" mindset and start selling services already. Heck, if nothing else, the profit margin is far better on services than it is on goods... lol.
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stolen ideas
It mostly comes down to marketing and SEO for which reseller level gets the small business googling "cheap web hosting" and offers the most "features"
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Still the old model...
This model also reminds me of the "mobile phone woman" service that was popularized by Grameen Bank's microlending. When cell phones were scarce resources, the mobile phone woman would buy a phone (with credit from Grameen) and lend it out to customers who paid a per min fee. Customers could benefit from low investment (didn't have to buy the phone) and still get access to a cell phone. The mobile phone women did well and became well off by local standards. This led to a rush of other women trying to replicate the success. The flood of new entrants drove down the price and eventually none of the women were making any money on the service.
I see parallels here. The first entrants (like in any good pyramid scheme) stand to benefit the most. Once there are lots and lots of secondary and tertiary buyers, the per song rates will be driven down to a point where the players at the bottom of the pyramid will drop out and the prices of music will rise leading to more piracy. Wash, rinse, repeat.
His model also grossly inflates the sales levels of primary and secondary sales. Let's assume Techdirt is a popular blog - could you really sell 10,000 copies of a song? Could a secondary seller really sell 25,000 copies? I doubt it. The figures he uses need to be spread across a wide group. So instead of 1 guy making $330K as a primary seller, it's more likely he's making $3,330 as one of 100 primary sellers. The secondary guys are likely to make only $135 as 1 of 1000 secondary sellers. Seems a lot less lucrative now.
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Forgetting piracy and other such stuff, it's still a pyramid scheme, and there's a good reason those never work.
And then account for piracy, and this doesn't have a chance in the world.
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Similar an maybe better scheme
Each buyer should be offered the choice to simply download the music (for free) or to pay for a 'sponsor token'.
The buyer will distribute the music together with 'his sponsor token'.
Somebody who got music from the primary buyer can pay for
his own 'sponsor token'. When paying for that token the buyer can present the 'sponsor token' of the primary buyer and in that case the primary buyer will get some renumeration.
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Re: stolen ideas
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Re: Even if the distributed files aren't DRM-encumbered...
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One could sell other people's music and keep all the money. All they have to do is modify/rewrite a java app to send all the money to themselves.
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Gotta look at the bigger picture
As a result he/she probably has to offer a very high initial price - maybe $10,000 - to make it worth the effort.
The problem is, no-one is going to pay an unknown artist $10,000 for anything - he is going to have to establish a reputation first. Assuming he doesn't opt for the traditional record contract, he is going to have to do this by giving away one or more albums for free before he can start selling under this Privateer system.
In practice that means that anyone wanting to use this system will be competing against all the free albums being produced by other up and coming artists. Something tells me that finding a buyer who is prepared to stump up 10K in this environment when they could just go and try another free album by a new artist instead is going to be a big ask.
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LOL...pyramid "scheme"
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Why be so complicated? Music in a music store. You want it, you buy it. If you don't want to pay for it, don't pirate it.
How freaking complicated do we have to make it?
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Can it work?
The problem with the pyramid occurs at the secondary and lower levels, in order to be effective against "piracy" the pyramid model would need to rely on high sales volume and low pricing which would not be as lucrative as record labels want, but then something is better than nothing.
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Re: LOL...pyramid "scheme"
Please. Amway has made a great deal of money....for the people at the top. And they achieve this by riding on the backs of the people at the bottom, who they take advantage of with their cult-like gatherings and "business as religion" nonsense. Amway is a travesty of capitalism and perhaps one of the grossest examples of why getting into MLM is almost always a bad idea from a business standpoint. Any busines that REQUIRES most people at the bottom to fail is a shitty business.
Some MLM can be okay if taken with the right approach. The best ones are those that are hobbies, not serious business attempts. Lia Sophia is one of those, w/their jewelry business. Are you going to make any serious money working for them? Unlikely. Can women who like jewelry end up putting together the collections of jewelry they want while spending less money because they're working in the company's MLM structure? Sure they can. And those are the ones most happy with the arrangement....
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Analysis: Are Musicians Losing the Incentive to Create?
The last decade's drop in music sales is correlated to a drop in the number of professional musicians in the U.S., according to some number crunching by the RIAA, possibly meaning that musicians are motivated by expected earnings from recorded music.
The trade group took issue with a recent study that concluded that file-sharing has not reduced artists? incentive to create. In their latest paper, researchers Felix Oberholzer-Gee (Harvard Business School) and Koleman Strumpf (University of Kansas) concluded that an increase in new musical works has benefited society in the time that recorded music sales have fallen.
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Analysis: Are Musicians Losing the Incentive to Create?
The last decade's drop in music sales is correlated to a drop in the number of professional musicians in the U.S., according to some number crunching by the RIAA, possibly meaning that musicians are motivated by expected earnings from recorded music.
The trade group took issue with a recent study that concluded that file-sharing has not reduced artists? incentive to create. In their latest paper, researchers Felix Oberholzer-Gee (Harvard Business School) and Koleman Strumpf (University of Kansas) concluded that an increase in new musical works has benefited society in the time that recorded music sales have fallen.
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"Sell AVON today!"
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Missing something?
I'm really curious to see how society would respond to a Star Trek replicator. "We can end world hunger!" "But..but..food piracy!!"
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Re: The formal scheme is interesting but
In theory, the benefit of this scheme is that they wouldn't have to. By taking a portion of the resellers' net, the resellers become partners rather than competitors.
Of course, that doesn't mean it's a good idea. It is indeed a pyramid scheme, and like all pyramid schemes, it leaves out the people on whom sales depends: the customers.
The result would be that your primary market is resellers. 99% of people who buy music have zero interest in reselling it. It's those customers who will be underserved, making the product itself that much less valuable to them. Why pay for a license you'll never use?
And if he's trying to monetize music sharing, that's a fail. People who share don't do it for the business model. In fact, the taint of commercialism will make their recommendations less valuable.
Plus, this system will make it a nightmare for things like synch rights - using music in TV shows, for example. If you license music from a reseller, can the original seller sue? Would any TV show risk that?
The result will be the same as all pyramid schemes: the initial sellers will make a lot of money by promising income to those underneath them, nobody else will make much if anything, and people who aren't resellers will avoid that music like the plague.
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Re: Similar an maybe better scheme
What you're describing is basically a "non-exclusive license." Those have existed for a long time. Not that I think it's a bad idea, of course.
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Re:
How freaking complicated do we have to make it?
Yeah, that's working out great so far, isn't it?
He's listening to labels' bitching about "piracy losses," and trying to come up with a solution that actually works.
His solution won't work, IMHO. But at least he's trying.
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Re:
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More Compelling
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Re: Re: The formal scheme is interesting but
also, to note, tv shows wouldn't have a problem because they license from the label, not the privateer site.
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Re: It would never work...
And you're right, the traditional record companies, (or, in a different context, publishers), can still make lots of profit from being middlemen. They just have to get their heads around the idea of being a different KIND of middleman, offering expertise and organization instead of plastic discs. (It's really ironic - they're sitting on a vast wealth of expertise, contacts, assets and experience that are truly scarce and valuable, and they're wasting time and money on a losing battle to create artficial scarcity).
Unfortunately, it's all about control for the dinosaurs at the helms of these industries. They will spend, waste, and lose scads of money just to maintain the illusion that they're still in the drivers' seat.
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Re: Re:
he isn't trying to come up with a solution, he's just blowing hot air. He knows it wouldn't work either. It's the sort of idea that people come up with at the campus pub on the 8th beer of the evening.
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Re: Analysis: Are Musicians Losing the Incentive to Create?
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Re:
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Re:
And you have the temerity to say Mike spreads bullshit.
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Re: Re: Re:
And without drugs we'd need less prisons. Wish in one hand and crap in the other, as the saying goes. How's that war on drugs going again? Come back when you're done playing in your fantasy world.
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Re:
Of course you're a troll. Only "trolls" comment with outright BS that doesn't fool anyone.
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Re: Re: The formal scheme is interesting but
It suggests that actually something like this scheme could work - but without any of the formal rules and restrictions. The point is that the value of having a copy of a work is inversely proportional to the number of people that have a copy - so the pyramid mechanism sort of describes what happens - but you don't have to have any rules or enforce anything - you just sell a non-exclusive licences that confer all the rights that you (as the original copyright holder) have without giving up yours.
The result looks like the pyramid scheme in action - but doesn't have any of the formalities or restrictions. If you acquire a copy then you automatically acquire the right to do anything you like with it.
What Boldrin and Levine have show with their Maths is that the original creator still makes money even without any artificial restrictions.
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Re: Re: LOL...pyramid "scheme"
What I think makes them legal is that some of these MLMs allow someone who comes into the game late to move somewhat towards the middle of the pyramid. It also might allow people to replace others who leave (who perhaps don't fulfill a high standard for their position -- yeah right). And the payment scheme probably in theory allows for the tiny group at the top to get no money from a few folks at the bottom.
However, these appear to me to preserve much of the hierarchy that exists in traditional firms in that, if it succeeds, there some people who will make a lot of money due to the exponential growth effect of the multiple tiers ("off the backs of others" as you said) and by necessity only a small percentage will be in that position.
Like I said, the tier connections are a bit flexible in some MLMs, and flexibility greatly helps more become wealthy; however, the key to large numbers is that the product selection be decent or even very good.
This business rewards the best salespeople since it's a business composed entirely of salespeople. Many MANY folks who partake will never be among the best salespeople. These people will do the bulk of the work yet make considerably less than they'd make wiping floors. For some, that will be failure, but for those who view themselves as "customers" rather than as "independent agents", they will have the products they like and maybe a fair discount now and then.
As for the mathematics, I expect that many of these have the parameters and rules tuned to anticipate the capacity of the full market so that if in theory the top folks might all fall out of scope for a new entrant, in practice, they probably hardly ever do, and the bottom workers do the vast majority of the work (not individually but accumulatively) for very modest "pay", enough to end up with a good discount on your "groceries" and maybe a full refund and a little more if you really work it.
What I think MLMs trade off is that, while there is likely a core company with employees and other normal trimmings, *the MLM side* may enable (A1) more top salespeople to make very decent money than might be normal and (A2) some "customers" to get decent discounts; in exchange for (a1) most worker bees making worse than they could anywhere else and (a2) no real very wealthy investor at the top making a lot of money.
Some of these present interesting products, but success depends on a bunch of people failing this as a business; yes, it definitely "REQUIRES most people at the bottom to fail" as a business endeavor, but not everyone will see this as a business. Those who value the product at cost value will gain as ordinary consumers.
If you can't stomach that success depends on selling the business op aspect to others and that most who try that will fail, then this is not for you. On the other hand, an MLM can be a decent experience in making you aware of some products and business aspects. For any of the vast majority, it can also be worthwhile if the person isn't trying to make a living but likes the social aspect or tips s/he might learn.
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Re: Re: Re: Re:
So we criminalize the repetition that comes from what might be an innocent mistake coupled with a physical-psychological dependency that is difficult to break no matter that you want to harm no one.
We need to focus on ending the damage as smartly as possible. Tossing human beings into the inferno pit as a way to keep the influence and damage contained is rather uncivil and likely to backfire.
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Re: Re: Re:
There's actually no evidence whatsoever that this is true. But why let evidence get in the way of a good lynching?
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Re: Re: Analysis: Are Musicians Losing the Incentive to Create?
How, exactly, do you explain the resurgence in music profits around 2004? Filesharing did not decrease in that time period.
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Re: Re: Re: Analysis: Are Musicians Losing the Incentive to Create?
Apologies. I should have said "the resurgence in profits generated from the sales of recorded music." If you include live show income, merch sales, and whatnot, "music profits" have been increasing for about twenty years.
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Re: DRM everywhere ? srsly, guys !
Not to agree with the trolls, but I also thing you're mistaken.
Artists are not businessmen. It's a different skill set altogether. There is no reason whatsoever to ignore the advice of all "guys from the finance business."
They just have to listen to the right guys.
At the moment, those are guys from the tech industries, not the music business. As a musician, I should trust Google more than I trust Universal.
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Re: Re: Re: The formal scheme is interesting but
Yeah, that's pretty much the point at which I decided it was utopian. Nobody is ever willing to give up "rules and restrictions" unless it directly benefits them in the short-term. That's unfortunate, but true.
Even assuming it's not:
The point is that the value of having a copy of a work is inversely proportional to the number of people that have a copy
The number of people that have a copy is inversely proportional to the value of having a copy. In other words, the more it's shared, the more worthless it becomes, purely in an economic sense. That's hardly a way to run a business; and it's actually not true of music right now. Why make it so?
If you acquire a copy then you automatically acquire the right to do anything you like with it.
I obviously (I hope) like this idea. I just think it's a mistake to place a specific dollar value on it. I think it's better to automatically grant this right, within reason. "Within reason" is certainly a subjective value, but you'd be surprised at how much the populace (including artists) agrees on what it should be.
Frankly, Creative Commons already has a system set up for this kind of thing, that is more specific, more legally robust, and less subject to vague interpretations. So, fuck with it?
The answer to that last question, unfortunately, is "because content creators want to make more money." I eluded to this before: this is only a solution for music distributors. It does not solve any problem, or even any inconvenience, that consumers face.
That is never a good thing, and even if this would not be a pyramid scheme, that is the reason this will fail. It is solving a "problem" that consumers simply don't face.
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Re: Re: Re: Re: The formal scheme is interesting but
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Re: Re: Re: Re: The formal scheme is interesting but
Sorry - I should have been more clear with my words - I meant price - not value - and I meant the price of an individual copy - niot the overall value of the work. The point is that as the number of copies goes up so the price of an individual copues goes down - but the overall value of the work (total copies*price of one copy) actually goes UP.
The point they are making is that if you abandon all copyright protections and DRM and t's and c's you can STILL make money from music - and the effect would look somewhat similar to the pyramid scheme but would not have all the awkward infrastructure of that scheme.
B&L's idea isn't really a scehme - it is , in a sense, the absence of a scheme.
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Re: Re: Re: Re: The formal scheme is interesting but
Not quite true. People can learn to do things that don't intuitively seem to work. Otherwise no-one would be able to swim, skydive or ride a bicycle.
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Take Out the Pyramid from the Pyramid Scheme
We would be essentially incentivized to do what we would would normally do (sharing music) while also "engaging" with our chosen music as entrepreneurs, while being enabled to do so without being iTunes. As far as "consumers" go, they might gain better discovery/guidance/curatorial service by buying songs from the reseller they most trust than by plowing through libraries of 10 million songs or by torrenting 200 Frank Zappa albums overnight. Heck, those consumers could then provide their own services to everyone else: everyone would be a consumer and provider, much as people are increasingly becoming both content consumer and content generator.
In short, take the pyramid out of the pyramid scheme. Would the plan then become more viable?
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Re: Re:
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Re: Re: Re: Re: Re: The formal scheme is interesting but
Yeah, that's actually what I meant too. In this particular model, the more people buy, the more the cost goes down. The more the cost goes down, the less value (economically) it has to any one seller or reseller.
The point they are making is that if you abandon all copyright protections and DRM and t's and c's you can STILL make money from music
On this I (mostly) agree. I just don't think it would even look like a pyramid scheme. More like an ecosystem of competing, non-exclusive licenses (in appearance I mean).
Still, if they try it and it works - hey, good for them.
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Re: Similar an maybe better scheme
his own 'sponsor token'.
Forgot to mention - for a similar idea, you should take a look at the Creator-Endorsed Mark.
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Re: The formal scheme is interesting but
Under either scheme, it is hard to see how any of them will compete with free any better than they're doing now. They don't offer the people at the bottom of the pyramid any additional reason to pay. Unless the price gets really cheap, but the labels could just reduce their prices and be done with it, so what's the point of the resellers?
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Re: Still the old model...
It's much worse than that, because if there's $3,300 to be made, there won't be 100 people going for it, there will be 100,000. And then it will only be $33 per person. Unless there's a limited number of primary reseller licenses, in which case we're already seen how well artificial scarcity of infinite goods is working.
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You show your ignorance
A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.[1][2]
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Re: You show your ignorance
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