B&N Removes Magazine From Nook Store Due To Feature Article On 'Hacking'

Nobody Cares About The Fixed Costs Of Your Book, Movie, Whatever

from the this-is-economics dept

Fri, May 4th 2012 5:28am — Mike Masnick

We recently pointed out that book publishers are fooling themselves by thinking that they must charge super high prices on ebooks. That post seemed to set off some angry folks inside the publishing industry who did the standard thing: talking about all of the overhead that goes into publishing a book. We hear this all the time. But it's meaningless. It's cost-based accounting, rather than value-based accounting.

The consumer doesn't care how much it cost you to make the original.

Nor should they. They only care about the value to them of the single copy they get. And this makes sense for a variety of reasons, both economically and psychologically. This is the point that economists have been making for ages, trying to get people to understand the difference between fixed costs and marginal costs. Fixed costs don't impact pricing. Maginal costs (the cost to produce the copy) do. That's not to say that the fixed costs aren't important -- they are -- but they don't factor into the pricing decision, they factor into the investment decision. That is, you don't take on a project if you don't think you can create a business model that will give a total return on investment over the fixed and marginal costs. But the pricing on the individual item is entirely about the marginal costs. And this is actually a good thing. If you did pricing based on the average cost, including fixed costs, you actually lose the incentive to be more efficient and lower your fixed costs, since you get to just bake them into the price. But the public doesn't care about how much you spent. As far as they're concerned, you may have spent stupidly and inefficiently. They only care about the marginal benefit they get from the copy.

In many ways this is reminiscent of the stupid debate we've had for years, where a lobbyist from NBC Universal kept challenging me to explain how he could keep making $200 million movies. But that's stupid. If you start from the assumption of a high cost, you're not building value, you're just spending budget. All we should care about is how people can make profitable offerings, and there are lots of ways to do that at a variety of price points -- but you should never set the pricing decisions on the fixed costs, because the buyer simply doesn't care.

Even if the industry is having trouble figuring that out, it does appear that more and more individuals are. Mathew Ingram has a post over at GigaOm making this point for books based on an equally interesting discussion by author Chuck Wendig:

An e-book is a digital good. Ephemeral and intangible. Sometimes we don’t even have access to the e-book itself in the form of a file — in the case of Amazon, we’re just “renting” the e-book the same way you rent Taco Bell food. You bought it. It’s inside your device. But if Amazon decides you don’t need it anymore, one snap of the wizard’s fingers and the e-books are poof, gone, siphoned from your reader like gas from a gas-tank. E-books have no supply — if I buy one, it doesn’t reduce how many remain, because theoretically infinite copies remain. No cost to reprint. No cost to remake. It just… sits out there, attempting to be the very embodiment of the Long Tail.

This is what the audience sees and believes.

It matters little what the e-book actually costs.

It only matters what the audience thinks they should cost.

Your costs don't determine the price. The market determines the price, and ignoring what the market thinks is a big mistake.

And, of course, this applies to all sorts of content. As I was writing this, I came across a similar discussion, but on the movie side of things. It's a post by Stacey Parks at the Independent Filmblog, which notes that nobody cares what you spent on your film. She's not talking about end consumers per se (though it applies to them as well), but distributors who buy films. And this actually drives home the overall point: in a functioning market, no buyer -- whether a middleman/wholesaler or an end user -- cares one bit what the total cost of production was. They only care about the marginal benefit to them in relation to the supply. This is just classic economics -- and those who seek to price it outside of what economics suggests is reasonable will discover that people just don't pay. It's not because they don't understand how much money you put into fixed costs. It's because you spending so much on fixed costs is your problem, not the buyer's.

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Filed Under: ebooks, fixed cost, pricing, publishing

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Anonymous Coward, 4 May 2012 @ 5:34am

"The consumer doesn't care how much it cost you to make the original. "

Wow.

Of course they don't care Mike, not in any direct way. But they will care when, if they are only willing to pay a few cents to see it, that the quality has to change.

Can you imagine Avatar made for $50? Or perhaps Star wars for a few thousand?

You are once again attempting to frame something backwards, and make it sound like it's the producers fault for making the product the consumer wanted.

It just proves that you really don't get it at all. If they don't like the product at the price offered, then DON'T BUY IT. It doesn't give you the right to pirate it, it just gives you the right to say yes or no. Vote with your wallet - and your time. Watch the movies you feel are priced right.

When you stop trying to blame everyone else and start looking at consumer actions with the same critical eye, you might get a grasp on reality.
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Christoph Wagner (profile), 4 May 2012 @ 5:45am

Concerning books
I agree, especially for eBook novels. I'm not going to pay more than 5-6� for those.

Hardcovers now are something different. If they look great (and not like one of those 08/15 vampire/fantasy/scifi books) I'm happy to pay 15-20� easily for something like Patrick Rothfuss - The Wise Man's Fear (And after the series is done I'll rebuy the first part as hardcover just to have all 3 in their glory^^).

Now books with a niche appeal are something else. A week ago I bought an eCookBook for 19$ (or rather 4 ebooks varying from 5-90 pages). I know that not many people will buy this or even be interested in it so I can understand the higher prize.
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John Doe, 4 May 2012 @ 5:46am

Now this is funny!
in the case of Amazon, we�re just �renting� the e-book the same way you rent Taco Bell food

This is the best statement I have seen quoted here. :)

But to quibble with the quote, you can technically "own" the ebook, all you have to do is break the DRM which is quite easy. I am no pirate, but I do break the DRM on the ebooks I buy. I do it for a couple reasons, first off so that Amazon cannot take it back from me and secondly so I can share with my wife without dealing with that whole 2 week loan thing.
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Anonymous Coward, 4 May 2012 @ 5:47am

If something is costing $200 milllion dollars to make, something is going wrong. Shouldnt companies try to be more efficient, driving the costs down.
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Rikuo (profile), 4 May 2012 @ 5:49am

Re:
"You are once again attempting to frame something backwards, and make it sound like it's the producers fault for making the product the consumer wanted. "

No, its the producer's fault for not offering the product in the way the consumer wanted. It's not enough these days to just make an awesome movie or an awesome book. You also have to offer it in a way the consumer wants - in this case, we want it DRM free, able to be read/played on any device and without the threat of a lawsuit hanging over our heads.
Piracy doesn't cost them money.
In your ideal world, the one you envision, the consumers would look at the legal options, find them lacking and not get the content, legally or illegally. That means no income for the producers/copyright holders.
In the real world, the one we all live in, the consumers look at the legal options, find them lacking, and then get the content anyway. The copyright holders spend their own capital fighting this, burning what little good reputation they have. In the end, they still lose income, but through their own actions.

I, the consumer, don't care that you have the copyright nor will I ever care. I don't care how you intend your content to be distributed. If I want it, I will get it. If I find some sort of value in giving you money, I will, but if you dare threaten us with lawsuits or attempt to ram through harmful bills through the political system, I will stop supporting you completely.
The days of selling copies of art is almost over. Now you have to find something else to sell, as the old market is quickly vanishing.
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STStone, 4 May 2012 @ 5:51am

Re:
Paranormal Activity

Production Budget: $15,000
Box Office Earnings: $193,355,800

Do you think everyone who went to see the film cared how much it cost the filmmakers to make it?
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Anonymous Coward, 4 May 2012 @ 5:52am

Re:
Mike is right, I don't care how much it cost to make.

I care about how much I enjoyed the movie or TV show. If it cost a lot or little, I will never really know. The fact is, I did or did not enjoy it.

I am willing to pay what I see as a reasonable price for my entertainment. Once the producer of the content and I agree on what I am willing to pay, regardless of the production costs, then I pony up the agreed upon price for me to enjoy (I hope.) the content.

E-Books for example, once the books format, editing and other costs are accomplished, should never be more than the printed book (I know, the publisher does not want to see E-books.) cost. However, being somewhat savvy of how these things work, for the life of me, I will never understand why an E-Book costs more than $1 to purchase. And if it has DRM, I am very likely to just skip it. DRM is only punishment for the honest consumer. Nobody else is bothered by DRM.

So keep your little rant to yourself, grow a pair and be a big boy in your line of work. If you want to sell something to me and the millions of people like me, learn something from others, like Mike. He's not the final authority on the subject by any means but, he does a damn fine job of making his point. Just because you don't agree and can't see past your self imposed blinders, doesn't mean that Milke is wrong.
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That Anonymous Coward (profile), 4 May 2012 @ 5:53am

Re: Now this is funny!
except bypassing DRM makes you EVIL EVIL EVIL EVIL!
You will only do this so you can somehow cost them more money!!!! BLARGH!

Oh and they are also sad you loan your wife a copy rather than buy her duplicates of everything.

It is thinking like this, that is hurting their business....
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The eejit (profile), 4 May 2012 @ 5:54am

Re:
No, this is basic economics in action. Oversupply does not mean that you can overcharge to make up the difference. Nor can you undersupply and overcharge to make up the difference.

The consumers shouldn't have to care about the price point: if this were an even moderately healthy market, then the costs would have been driven down considerably by now. But monopolies, at their most fundamental, stop market forces from exerting their pressure in the short-term, financially speaking. Long-term, it warps the ceconomy of a product, eventually leading to a destructive market.

For an example of this, see sub-prime mortgages (or for the inverse, see Minecraft).
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Rikuo (profile), 4 May 2012 @ 5:57am

Re:
Out_of_the_blue...why must you spend $200 million dollars on a movie?

Sorry! Couldn't resist! God I loved doing that to him, he never did come up with a satisfactory answer ^^
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John Doe, 4 May 2012 @ 5:57am

It all boils down to jealousy
Since the movie, music and book industries are thriving, I think it is obvious that piracy is not hurting any of these industries. So to me, the whole piracy issue is that content creators are acting irrationally at the thought that someone got to view their content for free. It doesn't matter that they would not have paid for it anyway, just the fact they consumed it for free sends them into a tizzy. I could understand it if they were being deprived of a physical good, but since it did not, it is basically an irrational, emotional response. Simply put, our rights and freedoms should not be taken away based on irrational responses.
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Dave Nelson (profile), 4 May 2012 @ 6:00am

The Buyer Is King
In a free market, the value of a particular good (and therefore it's ultimate street price) is determined by the purchaser, not the seller. If the seller's price is too high, few will sell. Likewise, if the price is too low, the buyer will see it as "cheap" and few will sell. There's a market-determined "sweet spot" that results in maximum sales. Finding that point, of course, is the trick. Ultimately, the buyer doesn't give a hoot WHAT your costs are. He wouldn't care if you lost money on each sale, only that he bought it at a price he likes, and that you stick around long enough to support him if he needs it. Such is business.
And no, it's not up to the courts or Congress to prop up antiquated business models (see Buggy-Whip Mfrs V Auto Industry).
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Ninja (profile), 4 May 2012 @ 6:03am

Re:
Actually, it's true. I don't care if they spent billions or 1 dollar to make, all I care is that it fulfills the following criteria (in order of relevance):

1- It fits my budget
2- the price is fair (for me at least)
3- It's easily and broadly available (DRM free, format I want, bla bla bla)

So, for instance, I won't buy a movie if you try to sell it for more than $20 with very few exceptions (hey, I'm a fan, I have my unreasonable moments with stuff I really love but then again this just sets what I perceive as fair price at a much higher step *HINT*).

If they don't like the product at the price offered, then DON'T BUY IT.

Exactly, go and download at TPB =)
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Blatant Coward (profile), 4 May 2012 @ 6:04am

Re:
Avatar for 50$-Done as Pocahontas as a school play enjoyed it much more with no 3D headache, and having helped Captain Smith practice his lines. Enjoyed it immensely especially the pot luck after with no 20$ popcorn, but real food.

Star Wars for a few thousand-Here's the thing, Hamlet, and other tales by Shakespeare, The Seven Samurai and the like have been done by live performance and kids waving sticks in the back yard for hundreds of years. The only people that think special effects 'make' the movie are the people that produce movies for a living.

By hollywood thinking if I have a business selling apples delivered tree fresh to you by lear jet, then you can get apples no where else. Nuts to that.
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VMax, 4 May 2012 @ 6:06am

Re:
First off, nothing in the article even suggested that the content should be pirated. Second, you are equating cost to quality. Consumers pay for quality, regardless of the cost to the producer. Once the producer understands that the consumer doesn't care about what was made to create the content, they focus on getting the best quality for the least cost. It's been my experience that the people who claim "But they'll just steal it!" are the ones who would do the same. Fortunately there aren't as many of those people as Hollywood presumes.
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Anonymous Coward, 4 May 2012 @ 6:10am

People do care
If people didn't care about the cost of the creation of the product, then why do we get comment after comment (and article after article) complaining about how expensive ebooks are since they don't cost anything to distribute. Back when CDs started out, people would complain that since CDs are cheaper to make than cassette tapes, they should cost less. Of course, they cost more.

People tend to ignore increased costs when deciding whether something is a good value, but if they even get a whiff of decreased costs, suddenly there should be investigations and people thrown in prison for "price gouging." Just look at Australian game prices. These are the same prices they've been paying for years. But now that the USD has become so weak against the AUD, they suddenly thing they're being ripped off. Is it no surprise that when content producers face increased costs that they may want to point that out when people complain about pricing?
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Rich, 4 May 2012 @ 6:17am

Re: People do care
We complained about CDs costing more because the music industry promised us that, if we adopted the CD and repurchased our tape collections, the price would drop below that of the cassette. It never did.
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Anonymous Coward, 4 May 2012 @ 6:19am

Re:
"I failed microeconomics 101"

FTFY
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Anonymous Coward, 4 May 2012 @ 6:23am

Re: People do care
"complaining about how expensive ebooks are since they don't cost anything to distribute. "

That's precisely the point. If I, the consumer, know that all it takes is a bit of hard drive space and a few clicks of a mouse to get the ebook, then I know that you charging me $10+ for the copy of the file of that ebook is a complete and utter ripoff.
And no, as I've said before, I don't care about the development costs of that ebook. I didn't see the development, I didn't take part in it etc etc.
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Anonymous Coward, 4 May 2012 @ 6:23am

Re:
Who says an increase in the number of dollars spent on a movie increases its quality?

Oh right, only the people who want the bigger budgets, not that it will actually increase anything but the cost of the movie.

The only time a consumer cares what it costs to make is when its being FORCE FED to them by MSM that some blockbuster movie failed at the boxoffice. As if they think it will garner them pity, all it does is make the rest of the world facepalm.
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Rikuo (profile), 4 May 2012 @ 6:24am

Re: Re: People do care
Oops, the above is me, Rikuo, but I'm not gonna sign in here, using a public terminal in a net cafe. Just so people know ^^
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Dave Nelson (profile), 4 May 2012 @ 6:25am

eBooks
The process of producing an eBook, IMHO, is a followup to the print layout process. The publisher has to lay out and typeset the original manuscript to get a printable product. Nowadays, instead of a box full of foolscap or a hand-written original, the publisher likely gets a file, partially or entirely formatted to his requirements. He usually has little to do, other than producing printer plates (which is done by computer now anyway). The task of converting that original file into eBook format is likewise probably entirely automatic. Even if the publisher has to scan an original volume to make the file, this, too, is automatic. I don't see much additional cost, over setting up a print book. Once that's done, the eBook file is mostly finished. Distribution is essentially free. They just have to store that one file somewhere and give controlled access to millions of copies of it.
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The Logician (profile), 4 May 2012 @ 6:27am

Re: People do care
People do not care about the fixed costs, AC 16. From an end-user perspective, they are irrelevant. The cost you refer to when speaking of reproducing and distributing ebooks is marginal cost, not fixed cost. And even that is only brought up to highlight the excessive pricing which many ebook publishers still insist upon. It does not mean that we care about the fixed costs of what we might buy. We do not.
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gorehound (profile), 4 May 2012 @ 6:28am

Re: Concerning books
I won't even waste a dime on an ebook since I collect real Books made of paper.
If I had to get an ebook as it didnot come out in paper and has important Historical WW2 Info I would not bother to pay more than $3 - $% US Dollars. WHY ?
Because it is not printed on anything
Because I do not even own the book I bought
Because I can never resell it
Because I just have no care what so ever to have to own a "Book" that will never be seen in my awesome lifetime of collecting Library.
I own roughly 1500 Books and 303 Vintage Pre 1949 Scifi Pulps.
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Anonymous Coward, 4 May 2012 @ 6:30am

Re: The Buyer Is King
That's not entirely accurate. The "market-determined "sweet spot"" is an intersection of buyer AND seller behavior. That's what 'the market' is: the intersection of both behaviors.
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Anonymous Coward, 4 May 2012 @ 6:30am

I personally DO care about the cost of *making* something, and I value quality over price. Of course, I am not the market.

But in the entertainment industries, they lump cost of creation and cost of promotion together. And I personally don't care about the latter and certainly don't want to pay for it. Promotion may be necessary for some things, and I realize it can cost money, but *that* is and investor->roi, not a creation->price relation. And of course they various industries do their best to illegalize any form of free promotion, which is beyond insane.
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Anonymous Coward, 4 May 2012 @ 6:48am

walk through any flea market and you'll find people standing in line to buy ripped dvd's for $5 or 4 for $15. now this IS a lost sale to the movie com. some one IS selling there property because that's the price point that the market will bare. million of lost sales due to movie companies too high prices. some yoyo with a dvd burner IS making this money because he reaches a market that is not served.
i do not condone this nor do i buy these mainly because i find nothing to really interest me. however i do see the other folks buying and after overhearing most of them have seen this movie in a theater.
soooo lost sale, lost profit and a culture with little respect for the movie industry.
ebooks will be next if there are no changes in the publishers mindset.

every one loses when respect for others property is lost and we as a culture don't care about a law that has lost it's meaning.
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E. Zachary Knight (profile), 4 May 2012 @ 6:50am

Re: Re: People do care
Thank you. I was about to say the same.
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BentFranklin (profile), 4 May 2012 @ 6:51am

Demanding to have one's costs covered is classic monopolist talk.
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Anonymous Coward, 4 May 2012 @ 6:53am

Re:
Lets try giving you a basic economics lesson on what's going on here:

1) Companies put out a product at a price point.
2) People have a demand for that product.
3) The price is set at a high enough price where many people don't demand the product at that price, but are still clamoring for the product at what they perceive is a fair price.
4) A system is in place to effectively block new entry into the market, so new competitors can't easily enter the market with a competitive product at a lower price point (access to movie theaters, giant bloated budgets, etc.)
5) Underground ways to access that product at a more fair price pop up all over as there's value the big players are leaving on the table.

It's basic economics: put out a product the market demands at a price point the market is willing to pay, and you succeed. Put out a product the market demands at a price point the market is not willing to pay, and other players will enter the market to provide the value you're not providing.

And the funny part is, just like how the gov't tries to regulate the monopolies, so they're not acting like them, yet they still do since that's natural market forces, no matter what rules you come up with, no matter what hissy fits you throw, as long as you're ignoring natural market forces, the market will win. It always does.
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Dave Nelson (profile), 4 May 2012 @ 6:56am

Re: Re: The Buyer Is King
AC24: You're entirely correct. I failed to mention that the "sweet spot" is a moving target and is dependent on many factors, including time, the perceptions of the buyer, the actions of the seller, and even public opinion and reviews.
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Stig Rudeholm (profile), 4 May 2012 @ 6:56am

It took you two years? That's interesting...
On a related note:

I've been saying this same thing for years when talking to authors. One of the most common argument for higher ebook prices I've come across is "but it took me two years to write this book, three bucks is too cheap! My time is worth more than that!"

If you want to charge $10 for a book that took you a year to write, should I charge $50 for a book I spent five years writing? It took me five times as long, so I need five times as much money per copy! Ridiculous....

You can't charge the customer for the time it took you to write the book!
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Anonymous Coward, 4 May 2012 @ 6:56am

Re: Re: Concerning books
You're that same guy who wrote a giant tirade a while back about how great your collection and how much eBooks are beneath you, right?

How've you been, I'm the guy who wrote the long reply to you, laying out exactly why eBooks are valuable, even to someone like you, which everyone then agreed with, and you....kinda shutting up at that point.

So can we pretend I copy/pasted that same argument and move on?
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Anonymous Coward, 4 May 2012 @ 6:59am

Re:
"Can you imagine Avatar made for $50? Or perhaps Star wars for a few thousand?"

Star Wars was made in 1976 for $11 million.
In 2012 dollars that's $40 million!
Both John Carter and The Avengers cost over $225 million...each.

So, comparatively-speaking Star Wars WAS made for "a few thousand", boy.
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Anonymous Coward, 4 May 2012 @ 7:06am

Re:
Ooh! Ooh! I came up with a real-world example of how no one gives a fuck about your costs: video games.

What is the highest-selling console of this generation? The Wii. What was the lowest-selling console of this generation? The PS3.

What was the cheapest-to-produce console of this generation and the only console of the 3 which actually made a profit on every sale? The Wii. What is the most expensive-to-produce console and lost the most money per sale? The PS3.

Notice how the one that sold the best sold at a price where the company makes the highest profit? And notice how the one which sold the worst sold at a price where the company makes the least profit?

Now notice how no one gives a flying fuck about what profit the company makes, only what value is provided to the consumer?
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Bengie, 4 May 2012 @ 7:08am

Re:
"if they are only willing to pay a few cents to see it"

Sorry, I value my time too high to care about anything worth a few cents.

If someone was trying to sell a movie for $1, I probably wouldn't even waste my time. I would automatically assume it is a low quality movie. Now a $5 movie, I would probably watch. A $10 movie would have to be a high quality movie, so I would look up reviews before spending that much.

People don't want free, because that means it's "worthless", and we only have so much time to be alive, so why waste our limited time?

"Can you imagine Avatar made for $50? Or perhaps Star wars for a few thousand?"

Water is bad for, don't believe the lies. Ever see someone drink 20 gallons? They'll die!
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Anonymous Coward, 4 May 2012 @ 7:08am

Re: People do care
"If people didn't care about the cost of the creation of the product, then why do we get comment after comment (and article after article) complaining about how expensive ebooks are"

Stop right there. You're putting 2 things together which don't go together. People are complaining about how expensive eBooks are, not what the cost is. NO ONE CARES WHAT THE COST IS. Just the final cost to the consumer.
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jupiterkansas (profile), 4 May 2012 @ 7:18am

Re: Re:
Actually the only reason I would see it is because of how much it cost to make, but that's just me, and I still haven't seen it, nor do I intend to.

However, on average Hollywood spends more money on its movies than any other country in the world. China is currently making giant war epics, but none of them cost more than $100 million. Hollywood can make cheaper films, and they're going to have to.
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Anonymous Coward, 4 May 2012 @ 7:18am

Re: Re:
What they are really complaining about with the $200 million dollar movie is the 'slush'....

In a typical $200 Million dollar movie, 34% of the money goes to 'non producing entities'.... Managers, Organizers, Brokers, Producers (yes... most Producers are NPE and are in name only), etc. These middle men who do no actual work, but only 'arrange' or 'book' others doing work get a big chunk of that $200 Million.... they probably make more from one 'movie' than most of us make in a year of 'regular work'.

This is the entire reason to keep increasing the 'cost' of the movies being produced, so that they can support more leeches and parasites (I mean managers, brokers, and lawyers obviously), and they can continue to get fat off the work of others.

Obviously Paranormal Activity didn't make any middlemen 'fat' so by their definitions, it was not a success (for them)...
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Dannie blaze (profile), 4 May 2012 @ 7:22am

The upshot of this is very simple:

If, one the one hand someone is making a movie/book/comic/album with a budget of, say, �1,000. He or she decides to charge charging �1 per digital copy and �5 for a physical copy. Say he or she sells 2,000 digital copies and 100 physical copies. That's still a profit of �1,500.

On the other hand, there is someone who is making a movie/book/comic/album with a budget of �2,000,000. He or she charges �15 for a digital copy and �40 for a physical copy. He or she sells 10,000 digital copies and 5,000 physical copies. That only makes them 350,000, far short of their budget. They sold far more, but made far less.

The solution? well, if you're Hollywood, apparently the answer is 'put the guy with a budget of �1,000 out of business'.

But if you have the ability to do simple mathematics, the answer is obviously 'Reduce the f***ing budget, moron'.

Hollywood - Bad at Maths.
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:Lobo Santo (profile), 4 May 2012 @ 7:24am

Re: Re: ♥
"If I want it, I will get it."
Ah, the mantra of the human race. If only those in power would realize the truth of these words...

Of course, that would first require the ability to make reason based decisions; and I'm pretty sure politicians have that part of their brain secretly removed after being elected to a sufficiently elevated governmental office--how else does one explain career politicians?
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fairusefriendly (profile), 4 May 2012 @ 7:24am

Re:
so if i spend 90% of the budget on hookers and blow

somehow that waste of money justifies destroy the competing distribution model.
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Anonymous Coward, 4 May 2012 @ 7:25am

Re: It took you two years? That's interesting...
I wrote this book one paragraph a month for the last 30 years... so my book should sell for $300 per copy, right?

This CopyMath is hard...
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:Lobo Santo (profile), 4 May 2012 @ 7:26am

Re: Re: ??
What's the competing distribution model for hookers & blow?!?
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Jerry, 4 May 2012 @ 7:29am

Re: Now this is funny!
You're exactly right, and that's also why I opt-out of putting DRM on my books. As a reader, I'm outraged by the prices of eBooks because they are NOT a physical item and they should NOT be priced in the same range of a paper book. As an author, I'm not at all happy about the artificially inflated price the big publisher put on my novel, and have subsequently begun publishing without them, pricing the book at a fair price. ($2.99) Guess which one makes me more money? The $2.99 books.
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Josh in CharlotteNC (profile), 4 May 2012 @ 7:29am

Re: Re:
Who says an increase in the number of dollars spent on a movie increases its quality?

But it worked for Waterworld!
/s
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Anonymous Coward, 4 May 2012 @ 7:29am

Re:
When you stop trying to blame everyone else and start looking at consumer actions with the same critical eye, you might get a grasp on reality.

And this reality you speak of is where you blame the consumers for being stupid of how movies get made, evil pirates, or suckers who actually pay for things.

The industry wants our money more than we want their content.
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rangda (profile), 4 May 2012 @ 7:29am

Re: Re: Now this is funny!
Incorrect sir, you are "EVIL EVIL EVIL EVIL!" because you are a customer not because you bypass DRM. Actually breaking DRM only confirms your EVIL status.
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Capt ICE Enforcer, 4 May 2012 @ 7:31am

I Care
I just want everyone to know. That I Care... I care about how much hollywood has to spend to make a movie. How much the farmers who grow corn have to spend so we can have popcorn. How much the screen maker has to spend so we can watch it on large screens. I care how much the clothing people spend so I can wear a nice shirt. I CARE.

I care about the websites that I have to go to in order to watch shows that the companies who make them don't want to offer in a flexible way. I care about the children of those who I help feed by donating my money to those who seek to make my life a little easier. I care that someone wants me to spend over a hundred dollars to watch one or two shows because they won't let me just purchase a single episode. I care that a few are trying to ruin it for the rest of us. I care that the system is broken and ruining the lives of countless others around the globe.

I am Capt ICE Enforcer,
&
I DO CARE...

*Brought to you by the ad campain for Capt Ice Enforcer. President 2016.
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Rapnel (profile), 4 May 2012 @ 7:36am

Re: Re: Re: Concerning books
"So can we pretend I copy/pasted that same argument and move on?"

No, fuck no. What's so valuable about an ebook that renders slimepuppy's "because" statements not entirely valid? Much less renders any ebook of equal or (the fuck?) higher cost/value than a pbook (paper)?
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Blatant Coward (profile), 4 May 2012 @ 7:42am

Re: Re: Concerning books
Do you actually read the books, or just sit there and count how many books you have?

I've got a CD with about a thousand books on it, each one either free legally or purchased for about 3-6 US Dollars. Maybe I should print them out on Tshirts. Then you can wear a book while looking at your books!
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Josh in CharlotteNC (profile), 4 May 2012 @ 7:44am

Re:
walk through any flea market and you'll find people standing in line to buy ripped dvd's for $5 or 4 for $15. now this IS a lost sale to the movie com.

Is it really a lost sale?

Was the studio currently offering that movie for legal sale?
Was the price of the legal sale the same as the guy at the flea market?
Was the studio offering the same convenience (example, lack of 5 minutes of unskippable trailers and scary warnings)?

If all those answers are yes, then I have no problems calling it a lost sale. If any are no, then it is not a lost sale, but a failure to meet the demand.

every one loses when respect for others property

Culture is not property. Ideas are not property. Infinitely copyable bits are not scarce and there should be no enforced monopolies on them.
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gorehound (profile), 4 May 2012 @ 7:46am

Re: Re: Re: Concerning books
You may have read my post earlier.Yes I have been called a "Dinosaur" because I do not support ebooks.
Why Should I ? If I owned what I was buying and if at some point I might even be able to "Resell" it and if the price was cheap enough like in the area of $3 - $5 I would buy it.I read for research as well as enjoyment.If a new book came out on Stalingrad, Kursk, Unknown to you guys Battles on the Eastern Front WW2, ETC and is only available as an ebook I would have to seriously consider buying it.
Butwhy do I even use the term "BUY or BUYING" as all I am doing is "kind of renting" something.I paid money for it yet I still do not really own the book.
At least what I have bought I really really own and can do with as I please in any way.
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Anonymous Coward, 4 May 2012 @ 7:51am

Yo quiero a Taco Bell Device
I had no idea that I could rent Taco Bell food.Where do I get one of those devices...I am so behind the times.
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igbert, 4 May 2012 @ 8:13am

I'm sorry, as written I don't see where this is anything but semantics. Everyone everywhere, every business everywhere, includes fixed costs in the price. Saying that they don't or shouldn't, in the non-specific manner I read you saying it, is just ridiculous.

The difference, as I see it, and I don't see this stated in your article is how the creator should go about including the fixed costs in the price.

The way publishers want to do it is spend the money first then demand a price that recoups the costs and brings a substantial profits even if that price is way out of line with the market. If this doesn't work they cry foul.

The proper way to do it is determine what price the market will bear, more specifically what price will maximize profits, and then create the product only if you can develop, produce, and distribute it somewhere around that price point.
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fairusefriendly (profile), 4 May 2012 @ 8:20am

Re: Re: Re: ??
your left hand and concussion

but the competing distribution model is the competition to the theater distribution

which is "piracy" sites like the pirate bay.
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PaulT (profile), 4 May 2012 @ 8:23am

Re:
Straight out of the gate, what a surprise...

"Of course they don't care Mike, not in any direct way. But they will care when, if they are only willing to pay a few cents to see it, that the quality has to change."

Bullshit.

Off the top of my head, I own movies of a greatly differing production budget on DVD. Primer cost $7000. Let me In cost $20 million. Super 8 cost $50 million. Iron Man cost $140 million. All of these DVDs I bought for about the same price (around �7 / $10), IIRC.

They're all worth that to me. Is Iron Man a significantly better film than Primer because it cost more? No. Is the DVD worth a huge amount more? No. If Marvel decided that the DVD of Iron Man needed to cost �40 to recoup their budget, would I have even considered buying it? Hell no.

What matter to me is quality and value. I don't give a crap what Avatrar cost, it's a mediocre if visually impressive film and the DVD's not worth more than �10 to me. I'll never buy Transformers 2 no matter what it cost, 'cause it's crap. I know it's crap because I saw it for free (legally). Your failure here is quality control - I won't buy a turd just because you blew $200 million on it instead of $50 million, and I won't pay a premium to subsidise your poor business decision.

So, what can you do to make me part with cash for films I didn't hate? Easy. Make it valuable to me. This might mean extra discs stuffed with commentaries and documentaries. It might mean nice packaging. It might mean a lower price. It might mean an extra value-making feature I've not thought of yet. It might mean making the digital copy cheaper than the DVD. I've paid much, MUCH more on a movie than I normally would - sometimes one I already own - due to the extra value offered.

What DON'T you do to make me buy the film? You don't attack me, restrict me, make the product less valuable by stopping me from playing it when where and how I wish.

This is simple, yet you fail to understand even these simple concepts coming from someone who already pays close to their budget every month on entertainment. You attack the people addressing these problems and call them names. You can't accept that people have legitimate problems with your beloved system, and you won't reach customers who currently pay with that attitude, let alone the boogeymen pirates.

"reality" - you don't know what the word means...
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The Mighty Buzzard (profile), 4 May 2012 @ 8:30am

Re: Re: Re: ♥
Capitalism. They're in the business of selling laws.
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RD, 4 May 2012 @ 8:39am

Re: People do care
"Back when CDs started out, people would complain that since CDs are cheaper to make than cassette tapes, they should cost less. Of course, they cost more."

Except when CDs came out, they were much more expensive than tape or LP, and the excuse was "its a new tech. if its successful, once economies of scale kick in, we will see prices drop to a few dollars a CD." They justified it with the promise of lower prices later, if its successful. CD's went on to become the fastest growing consumer product in history, until recently, and the prices never came down much (or at all). I have that article from 1983 and I pull it out every time someone blathers on about costs of these things. The music industry broke their promise, because they never intended to keep it. They cost more because of pure greed at the consumers expense, period.
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SamP (profile), 4 May 2012 @ 8:48am

Yup -- I don't care...
If I purchased the physical copy of the book I could lend it to whomever I please. To me that increases the value of my purchase and gets the author and book out there.

However, I WILL NOT pay a ridiculusly high price for an e-book. The e-book should cost less, there's no printing, shipping, storage and considerably less waste and use of resources. Publishers just aren't getting it. Most self-published authors are and with a bit of effort they can get as much publicity on an e-book site as most publishers would give them.

I almost expect a little less when the price is low and tend to be more willing to give a decent book a higher rating and review if it is a good value.

As for movies -- if you spend 200 mil to make a movie it had better be a blockbuster or you deserve to be busted. Can anyone say Tarzan in Space (John Carter?)

Publishers and producers need to get a clue. The consumers are now the critics and reviewers. A book or movie will succeed or bomb based on the response from the consumer. Twitter, Facebook and other social media will make you or break you. Try not to alienate the consumer with your greed.
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Michial Thompson, 4 May 2012 @ 8:53am

Costs
You are correct that the Market should and does control the pricing of the products, but at the same time if the producer of the goods does not take into account the cost of development when pricing their product then they will not remain in business for long.

I have had this debate for years too, I own a software company and sell a few of my software programs. I have a pricepoint that I will not drop below for anyone because I do have the cost of development spread over a projected number of sales over time.

Most of my companies revenue comes from Service and Support and Hosting which is reoccuring costs to the customer, but my initial Licensing Fees MUST take into account the cost of development otherwise I would be forced to increase the reoccuring costs considerably.

Granted I am also in a Niche Market, and there is competition but all of the competition will also experience the same approximate development times and costs to develop a similar product which leaves them in the same area as I am. We rarely ever are in a situation where we are competing sole based on pricing, we are almost always competing based on Service and Quality.
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Dave Nelson (profile), 4 May 2012 @ 8:55am

Re:
Most of the (at least) hardware world DOES include fixed and R&D costs in the unit price, at least initially. Intel is famous for this. Their first run of almost any chip is very expensive. My first 8085 chip cost over $100. Later, when the production bugs are worked out, and quantities go up, the price drops considerably, like $5 in the 8085 case. Hollywood, on the other hand, has never used this model. Films (and music) are "invested in" by the studios (the "budget") then they hope the market will reimburse them, which it usually does - sometimes in spectacular fashion. Occasionally they lose, but not often.

The electronic industry, and most others, get their reimbursement up front in the initial sales. The idea for Hollywood would be a high price for the first few showings with a gradual decline as the product ages.

The real difference is that the costs to Hollywood are one-time, during production. Once a film is complete, and the distribution masters are done and sold to the distributor, the studio's costs drop to zero and the distributor pays the distribution and promotion costs. The studios just collect a percentage, which justifies their model. The studios have no ongoing material and parts costs like almost any manufacturer does. They take one hard hit then the rest is gravy. No wonder they don't want to let go.

It's kinda like the VC business - one large initial investment, then collect a percentage forever (assuming the investment was wise, of course).
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Anonymous Coward, 4 May 2012 @ 8:56am

Re: The Buyer Is King
Along with what the other AC pointed out, I just wanted to correct one other bit in what I think is otherwise really nicely stated.

Buyers won't buy less of something if they think it's "cheap" because it's priced too low. That would only be true for the rare subset of luxury goods. Otherwise, the value they are receiving is much higher than the cost, and that's classic consumer surplus. So, the same good, priced lower, results in a higher amount purchased, with more of those purchasers receiving consumer surplus in the transaction.
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E. Zachary Knight (profile), 4 May 2012 @ 9:07am

Re: Yo quiero a Taco Bell Device
Oh, you can rent Taco Bell food with no additional equipment needed. Unfortunately, the rental term is very short (30 minutes or so) and the termination clause is gut wrenching.
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terry (profile), 4 May 2012 @ 9:14am

Re: Re:
"People don't want free, because that means it's "worthless", and we only have so much time to be alive, so why waste our limited time?"

No, you have it backwards. The word "Free" is constantly used in advertising and promotion and not because people don't want free. People *want* free, but they don't want worthless and sometimes free is an indicator of worthless.

Your not the guy who goes out and buys the $6000.00 pen because it has to be a better pen than all the cheap $20 ones are you?

In the end intelligent people buy based on *value* not price. Both the cheapest and most expensive items are often terrible values. However sometimes the most expensive item is the only acceptable one. Also there are times when the free products have been the best products available beating out expensive ones, especially true in the software world.
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Lord Binky, 4 May 2012 @ 9:16am

Re: Re: People do care
One point as to why the cassette vs CD thing is a severely different scenario, CD's had additional value over cassette. With additional audio quality you had additional value in the CD.

Noone would have bought CD's if they just took the audio from a cassette and placed it on the CD and charged more. That's essentially what's happening with Ebooks.You don't get higher quality imagination or improved writing just because the book is being sold as Ebook. Either format, the object of interest which are the words, are exactly the same. Hell, Ebooks are often missing any kinds of illustrations, so they actually contain less than your physical books. Even if people don't realize exactly why they think it's wrong, their brain has already calculated it.
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Anonymous Coward, 4 May 2012 @ 9:21am

Re: Re: Yo quiero a Taco Bell Device
I believe that a device may be necessary for the consumer to tell the difference between new or returned rental units.
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Nick Dynice (profile), 4 May 2012 @ 9:23am

I think the same can be said of the housing market. A buyer does not care how underwater the previous owner is on their mortgage. They may be sympathetic, but that is not going to effect the price the buyer is willing to pay.

Or a start-up pitching investors. The potential investor is not going to base their decision or amount invested based on the start-ups sunk costs or how much time they put into the business. The investor only cares about a potential return.
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Dave Nelson (profile), 4 May 2012 @ 9:23am

Re: Re: Re: Yo quiero a Taco Bell Device
The device in question is the nose.
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Ben (profile), 4 May 2012 @ 9:35am

Re:
The proper way to do it is determine what price the market will bear, more specifically what price will maximize profits, and then create the product only if you can develop, produce, and distribute it somewhere around that price point.

That is exactly the point the article makes.
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Anonymous Coward, 4 May 2012 @ 9:36am

Re:
In the end, this is just an extension of Mike's bullshit about "marginal costs" - where he looks only at marginal costs and ignores the fixed costs required.

He applies the marginal cost concept to movies and music as if the reproduction is the high end cost of the product - and it isn't. But each unit has to help to pay off the fixed costs, the "nut" as it were, that you need to make in order to break even.

No matter how hard he tries, Mike is unable to explain why we should ignore the fixed or up front costs as it related to the retail price of a CD, DVD, or digital download.

His economics only work in the land of fairy dust, where nobody actually wants to get paid to work, and where everything magically appears from nothing. Even the Star Trek replicator has a raw material cost!
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Bengie, 4 May 2012 @ 9:37am

Re: Re: Re:
" Both the cheapest and most expensive items are often terrible values."

Thanks for clarifying what I was trying to say.

I guess I was trying to say that price is many times an indicator of value, and a middle-of-the-road expected price indicates possible wanted value.
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Stephen, 4 May 2012 @ 9:41am

an actual editor on how book prices are decided
I don't disagree with your argument at all, Mike, but it's based on a faulty premise. You write: "Fixed costs don't impact pricing. Maginal costs (the cost to produce the copy) do." While I've made the counterargument here for why ebooks cost as much as they do, that is, why they aren't priced at zero, I've never addressed the more fundamental issue of how a publisher comes up with the price for a book. And that has nothing to do with either fixed or marginal costs.

It's simple: when I suggest a price for a project I want to acquire, I look at the price of other books for the same consumer and price my book the same because that's what the consumer has shown he's willing to pay. Sometimes the price might go up a dollar or two to make up for a more lavish presentation, sometimes I might raise the price because the book won't be out for several years and prices will be higher then, sometimes the price might go down a dollar or two if other books have prices probably elevated to make up for a big advance, but that's the starting point: other books on the market. You want to know why mass market books are nearly $10 now? Blame Grisham. He pretty much pioneered the $7, $8, $9 and $10 prices to make up for his huge advances, and the rest of the publishers followed.

For gifty books we might price a book, say, under $20 to get on B&N's Under $20 gift table or because $20 is likely the budget for the giftbuyer, but those are special cases.

And discounting trade hardcovers doesn't work (and it's been tried) because it suggests diminished worth. This is exactly what scotch manufacturers found in Japan decades ago: bottles sold better at higher prices because they were considered better gifts.

This doesn't hold true for trade reference titles, though. For those books, you want the thickest book at the smallest price. That's what makes the best impression: cost per pound.
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Malor (profile), 4 May 2012 @ 9:42am

Fundamentally, as an e-book author, you are 'selling' numbers. That's all an e-book is, a very large number. And every possible customer for your work has an incredibly sophisticated machine, one of the most complex ever created by mankind, which has the specific purpose of copying large numbers quickly. There are hundreds of millions of these machines on the market. You aren't just selling numbers, you're selling numbers into a market of number factories.

You are no longer in charge of this relationship. In capitalism, the people with the money and the factories generally control how the economy works, and for digital media, that's the end-user. They define the relationship, not you.

For many years, the relationship has been defined by the people publishing the books, because they had the money and the control over the factories that made them. Both the authors and the customers were inherently subservient to the people who had the printing plants. They functioned sort of like venture capitalists, funding authors to write books, generating content to create in their printing plants, and then returning a small fraction of the proceeds to the author. They were never as abusive as the RIAA, but the authors nonetheless did not get a very high cut of the take. I can see two ways to frame this. One the one hand, you could claim that the publishers were doing good in the world, by diverting money from successful authors to create many books that might never have existed otherwise. But on the other hand, you could simply observe that they were very bad venture capitalists, because they took such a huge percentage of the profits from a book, and are terribly threatened by the idea of lower prices.

The need for printing plants is rapidly disappearing, along with the power of publishers to dictate terms. They're used to getting paid for making copies, but in a digital world, that has almost no value -- pennies, not dollars. So publishers are trying to use the guns of the government to preserve their obsolete business model, rather than give up their dominant position. People don't like to give up power and money, and they are doing their damndest to stop it from happening, by painting all the people with number factories as 'thieves'.

As an author, the value you add to the world is in creating the number in the first place, not duplicating it. All of your customers can do that, themselves, for free. The inherent relationship has changed, and customers now dictate terms under which they'll give someone money. They will clearly do so; in fact, it's quite obvious that customers want to support authors they like.

I'm not sure what the new relationship needs to look like, but I suspect it will end up looking vaguely like Kickstarter. People will mostly swap books and music and movies freely, and will pay authors they like. This is what they already do; anyone who buys a book or an MP3 or a movie is doing so out of either kindness or ignorance, not necessity.

The alternative, trying to go down the path of defining the ways in which people are allowed to use their number factories, and then trying to police every use of them, will be immensely destructive on an economic basis. This would do far more damage than simply letting every publisher and all of Hollywood go out of business tomorrow. Even if every content company in America evaporated right this second, it would do far less economic damage to us than trying to invade the homes of every American, telling them that These Bits Are Special, and You May Not Copy Them.

A War on Piracy would be easily ten times as destructive as a War on Drugs, and just as successful. Trying to enforce these laws is like having the authors standing on the shore, spitting into the ocean, and then demanding that the ocean track every molecule of their spit, forever, and change itself so that their water molecules don't mix with the ocean.

In a sea of bits, no bits are special, and trying to make them that way will be immensely destructive to the fabric of the Internet.
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Anonymous Coward, 4 May 2012 @ 9:42am

Re: Re: Re: Re: Yo quiero a Taco Bell Device
Perhaps.However, my nose is hard pressed to tell the difference sometimes.Maybe there's an APP for that...
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John Fenderson (profile), 4 May 2012 @ 9:54am

Re:
I personally DO care about the cost of *making* something, and I value quality over price.

You've combined two different things here: cost of production, and quality. Do you really care about cost of production? Why does it matter to you?

I suspect that what you care about, really, is the quality of the product rather than the cost of production. If you're like most people, you only have the vaguest idea (at best) what the cost of production of any given thing is.
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gordon brown, 4 May 2012 @ 9:57am

Cannot argue with imbasiels
They are fruitcakes and you cannot have a decent discussion with them, they ignore facts and try to confuse the facts we all know to be true.
I have paid for movies that should never have been released and they did not care that i wasted my time and my money , i don't care any more i will not support them as there are other paths for me to take to get the entertainment i want.
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John Fenderson (profile), 4 May 2012 @ 10:02am

Re: Re:
No matter how hard he tries, Mike is unable to explain why we should ignore the fixed or up front costs as it related to the retail price of a CD, DVD, or digital download.

Perhaps he can't explain this because it's not something he's asserting. He even overtly states that the fixed cost is important and shouldn't be ignored.

His assertion is that the mistake is in determining the price of the good based on the fixed cost. It's not that the fixed cost is unimportant, but that it should be treated more like a budget: "The market is willing to pay $x per unit, I can sell y units, and so my fixed costs must be below $z to profit within the time frame I want," as opposed to "I need $z to make this, therefore the price must be $x per unit."
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Almost Anonymous (profile), 4 May 2012 @ 10:05am

Re:
You know I'm getting really tired of that stupid argument. "No more bajillion dollar movies, all movies are gonna be teh sux!" Many of us are checking out movies that are made for much MUCH less money, with fantastic special effects, and we're beginning to wonder:

How much of that bajillion dollars it cost to make Transformer IIX went to hookers and blow?
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STStone, 4 May 2012 @ 10:07am

Re: Re: Re:
Actually the only reason I would see it is because of how much it cost to make

Do production budgets always play a role in helping you decide what films you want to watch, or do they only play a role when the film doesn't come from a major studio?
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Anonymous Coward, 4 May 2012 @ 10:09am

Re: Re:
VMax, I agree 100% with one minor change.

I feel "consumers pay for Value" - of which Quality is part.

Personally, if I'm interested in something. Movie, eBook, etc. And the content is of enough Value to me:
1) At an acceptable Cost
2) Available in my area
3) No DRM. Or a DRM I can break for my own use.

Then I'll purchase it. Otherwise, I'll forget it.

If I'm really interested, then I'll search for alternate sources.
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Anonymous Coward, 4 May 2012 @ 10:19am

What I find funny is this. You can look at an "App" price on someplace like Itunes or the Android market, and see that people are buying them right and left to the tune of billions. Hardly anyone thinks twice about spending $1 or even $5 for an app that they want, so that price point is successful. However, they look at digital movies and see $20 or even $15 and the cost to the consumer becomes unappealing.

The movie industry needs to create impulse buying by setting a price point that's attractive to the consumer. Most people would buy hundreds of digital movies if they were between $1 and $3. Volume sales would bring substantial profit to the industry, just like it does for who make apps, by those who like to collect apps...because their affordable.

A movie may cost millions to make, but that can be made back up in volume if it becomes impulse, rather than investment.
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PaulT (profile), 4 May 2012 @ 10:23am

Re: Re: Re: People do care
"You don't get higher quality imagination or improved writing just because the book is being sold as Ebook."

Actually, you always get less with an eBook. Physical books contain inherent values that are missing from eBooks - the look of it on a shelf, the resale value (which can range from slight to extremely valuable in the case of 1st editions), the ability to lend, the ability to donate to charity or simply pass on when you've finished.

In return, eBooks contain just one added feature - convenience. But even this is restricted thanks to DRM, etc. When you've finished with it, it's literally disposable - you can give it to someone or sell it, you eBook reader looks the same no matter which book you're reading.

Some people intellectually know this, but most others know it instinctively. An eBook is less valuable, period. If they were priced accordingly, this wouldn't be a problem, but publishers want everything it seems. They won't pass on the marginal savings costs to readers, and so try to offer a less valuable product for a higher price. this will always fail, not matter what the product is.

The average consumer will continue to do what they always have - vote with their wallet. If a product is overpriced, it won't sell, no matter how much the publisher thinks it should sell for.
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Dave Nelson (profile), 4 May 2012 @ 10:24am

Re:
Malor:
"A War on Piracy would be easily ten times as destructive as a War on Drugs, and just as successful. Trying to enforce these laws is like having the authors standing on the shore, spitting into the ocean, and then demanding that the ocean track every molecule of their spit, forever, and change itself so that their water molecules don't mix with the ocean.

In a sea of bits, no bits are special, and trying to make them that way will be immensely destructive to the fabric of the Internet."

Excellent simile, and exactly on point. The other thing to remember is that ANY use of ANY content on our bit factories, creates a copy in memory and on the hard disk of portions or the entirety of that content. Such copies, while legitimately obtained, are preserved on the disk and are ultimately retrievable by the tech savvy. Videos, web pages, pdf files, viewed on the internet end up in the browser's cache, as files that can be copied elsewhere, very easily.

I don't see a way to browse the web without the local copies, unless we went back to the mainframe/terminal concept where no local processing occurred. Kinda like enforced Remote Desktop. That ain't likely to happen.

The same applies to music, by the way. Usually the entire song ends up stored locally during play. That cache is also available for copying.

Regarding videos, the time bar across the bottom of the player has two functions. First it tells you how far into the video you have progressed. Second, there is another color bar behind the time bar that tells you how much of the file has been downloaded. Once that gets all the way to the end the download is complete and the file is stored in the cache. You could conceivably disconnect to internet at that point and still watch the entire video, repeatedly.

The only way to prevent this copy from being made is to send the file in small chunks as the viewing progresses and erase them from the cache as they are used. Youtube and most streaming services do this for larger files, but small videos and songs, files with lengths under 5 or 6 minutes of playtime are almost always stored complete in the cache.

Hollyweird must HATE that. All those nasty COPIES floating around. We're ALL pirates, all 100 million of us!
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iambinarymind (profile), 4 May 2012 @ 10:24am

Digital Media = No Scarcity
Thank you for elaborating on the economics of the situation Mike.

The price mechanism is everything, originating from the relation between subjective value and objective money prices.

For a great primer on so called "intellectual property", here are two great free to read books that I feel are extremely illuminating on the subject:

"Against Intellecetual Monopoly" by Michele Boldrin and David K. Levine

"Against Intellectual Property" by Stephan Kinsella
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PaulT (profile), 4 May 2012 @ 10:34am

Re: Re: Re: Re:
"Do production budgets always play a role in helping you decide what films you want to watch"

I can't speak for JK, but for me it does in some ways, but it's not the overriding factor.

When a film is pitched as being particularly notable for its low budget (Paranormal Activity, El Mariachi, Primer, Colin, and so on), that's a selling point. As someone who's interested in the craft of cinema, it fascinates me. Similarly with foreign movies, it's astounding how much they can get out of their budgets sometimes (The Good The Bad The Weird cost just $10 million - try telling me that Hollywood could do that!).

On the other side, I am fascinated by the waste in Hollywood. Some films (Avatar) are justified by the budgets put into developing new tech to make sequences possible. That's fine. But, it can also backfire. If Michael Bay complains about the new Transformers not doing so well, my thoughts about the budget are more like "well maybe you should have written a decent script instead of making the film 50 minutes too long and creating action sequences expensive CGI robot piss".

Overall, it doesn't make any difference to me with the average film. I might question how the Dragon Tattoo remake could possibly have cost so much more than the original, but a film's a film and the budget ultimately doesn't matter. That Super 8 cost 1/5 as much as John Carter but was much more entertaining doesn't really have anything to do with the budget. Nor do I shed any tears when overblown failures die a death because they spent far too much on their fixed costs...
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E. Zachary Knight (profile), 4 May 2012 @ 10:43am

Re: Re: Re: Re: People do care
Ebooks offer a lot of added value over a physical book. Granted, most of that added value comes via the device you are reading from, but it is built into the book as well. Additionally, some of that can be taken away by the publisher as well.

For example:

Ebooks offer far better and more convenient annotation abilities over physical. You can simply highlight a passage, and link that passage to your notes about it.

Ebooks have the ability to build both the readable and audio versions of the book together via text to speech programs.

Ebooks offer tremendous convenience over physical books. The ability to carry your entire library of books with you, buy new books mostly on the fly, and much more.

That is just a short list. A lot of the stuff you listed as the value of physical books don't really matter to some people. Some people don't really care about displays and such.
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Dan Meadows, 4 May 2012 @ 10:58am

costs of production
I've never bought into the argument that just because someone makes something, they're entitled to get paid what they want for it. The whole point of a free market is that producers have to get consumers to willingly pay them for their goods. Nobody really cares what it costs a publisher to produce a book, and if their particular cost structure is too high for the prices the market will bear, then they have two choices: stop making them or figure out how to lower their internal costs. Forcing consumers to pay outside what the market wants doesn't work because people simply won't buy it. It's not like we're talking about life saving medicines or anything, this is a market based on disposable entertainment income. As such, the buyer has all the leverage in the transaction because they can and do walk away with little repercussions to them.

I read a comment somewhere yesterday that argued the problem for publishers isn't that ebook prices are too low, its that print book prices are too high. I hadn't thought of it in those terms, but consider, print prices have risen due to decades of monopoly-like cartel behavior on the part of publishers creating an expensive, inefficient production chain that actually benefitted them in keeping competition out of their controlled world. Ebooks have shown exactly how inefficient a system that is, and prices are settling into a much lower area that reflects the new efficiencies. Publishers entire justification for high ebook prices is based on defending what quite possibly is an artificially inflated print cost structure. This is actually a quite simple argument: publishers are either going to figure out how to be profitable at much lower prices or they're going to go out of business and be replaced by those who have figured it out.
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AdamF (profile), 4 May 2012 @ 11:01am

Re: Re:
He applies the marginal cost concept to movies and music as if the reproduction is the high end cost of the product - and it isn't. But each unit has to help to pay off the fixed costs, the "nut" as it were, that you need to make in order to break even.

No matter how hard he tries, Mike is unable to explain why we should ignore the fixed or up front costs as it related to the retail price of a CD, DVD, or digital download.

There are two distinct steps in this business you need to understand. First, you need to create a product. This takes money called fixed cost, which represents your investment into the project.

Second, you try to sell copies of the product to generate income. Each copy is sold for a price and carries with it some marginal cost, the sum of money it takes to produce the copy and to get it to the customer. The net income per copy is then the difference between the price and the marginal cost. Remember, you are trying to maximize your net income, not the number of copies sold.

Only once both steps are over can you go back and compare your net income to your initial fixed costs. If you earned enough to cover your costs, good for you. If not, you made an unwise investment and should try to do better next time around.

As you can see, once you are selling a finished product, the fixed costs matter only to the accounting department. They are what they are and you can't change them. It is only the net income that matters.
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bowerbird, 4 May 2012 @ 11:07am

the problem is even worse with corporate book publishers,
because they've jacked up their "overhead" unnecessarily,
in order to soak up the excessive profit from bestsellers...
(this is why you'll never get 'em to reveal that overhead.)

in the business of publishing, _most_ books don't sell well,
but the very few that do end up having _enormous_ profits.

and thus, if any specific book isn't gonna be a runaway hit,
they actually would _prefer_ that it _lose_ money instead,
because that will help "even out the financial ledger" and
minimize their tax bill. their accountants can explain this.

so they jack up the "overhead" that every book must bear
(a.k.a., its fixed cost), to ensure that it will lose money,
unless it happens to be one of the bestselling exceptions.

and the thing is, when you're trying to inflate your costs,
and burn excess profit, you find that it's very easy to do.
you get yourself lavish digs in the heart of new york city,
hire a bunch of friends and relatives as "vice-presidents",
and pay (at the top, anyway) exorbitant salaries, because
y'all must be able to mingle with the celebrities, athletes,
and politicians who you will be signing to book contracts...

and so you get used to a high-end lifestyle, and when it all
comes crashing down because of digital disintermediation...

well, let's just say you're not ready for it, not quite yet.

-bowerbird
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Ken Hymes, 4 May 2012 @ 11:36am

Culture vs. Property
As a musician and author, I find the argument depressing, but not because I am concerned with financial return. I do it for love and communication of ideas, I'm fortunate to not need the money, even more so not to want it. Some have pointed out that authorship as a trade is possibly an aberration of the modern age. Others have spoken of the waste in the production and promotion process (Bruce Campbell said recently that if he had 200 million, he could make 200 movies and get the same return as Hollywood gets from one). I'm more interested in the corrosive effect on our culture and intellects as we increasingly see all culture as national or even global, neglecting the local. Essentially we are not tending the garden that creates the produce, in my view. We have been seduced into accepting acts of bullying as if they were authentic culture. I suggest a wary distance from NYC and LA and Brentwood, combined with an increased support of local developments, for all our sakes. Peace all.
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susan, 4 May 2012 @ 11:40am

how does this differ from perscription drugs
It doesn't cost much to manufacture a pill but some cost a lot of money. We are paying for the research and development. Just as we do for the books and movies and anything else.
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Ken Hymes, 4 May 2012 @ 11:42am

Re: Culture vs. Property
By the way, I sell my stuff on amazon, but give it away to anyone who asks for it. Has to be a a word doc to be free, unless you pay me for paper and ink. I see myself as a fruit seller. I don't expect to be a big deal, because I'm not. I know I have good fruit, and I get to hear firsthand of the enjoyment of the meal. It is actually extremely satisfying.
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varagix, 4 May 2012 @ 11:48am

Re: Re: Re: Re: People do care
Generally speaking thats all correct, though there's one or two other added values in ebooks, at least in specific cases.

For purposes of reference, such as in nonfiction books and manuals, ebooks can be easier to browse and search for specific information.

additionally, in situations where you need printouts for personal use, ebooks can save you the trouble of using/renting a copier and provide better quality results.

I only bring this up because of personal experience, as a gamer (both 'traditional' and 'video/computer'). Though generally speaking, gamers have had it better than others when it comes to ebooks. $10 tends to be the -most- they ask for, with $5 already being about average, and more often than not online retailers will toss in free or discounted pdfs with any hardcover purchase.

Generally speaking, I tend to appreciate both ebooks and hardcopies equally. I prefer the books for general reading, but ebooks for reference; I like having both when I can.
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Anonymous Coward, 4 May 2012 @ 11:56am

Re: Culture vs. Property
I don't really understand you're post.

As a musician and author, I find the argument depressing

Which argument? You find basic economics depressing?

I do it for love and communication of ideas

Then I'm doubly confused why you are depressed. There has never been a better time to easily get your ideas out than now.

I'm more interested in the corrosive effect on our culture and intellects as we increasingly see all culture as national or even global, neglecting the local.

This argument seems like provincial thinking. My culture good. Their culture bad. How can being exposed to more and more culture be bad?

Essentially we are not tending the garden that creates the produce, in my view

Yet all facts point otherwise. Because it is so much easier to get culture out there. More and more people are doing it. Isn't this a good thing for other like you that do it for the love of communicating ideas?
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Anonymous Coward, 4 May 2012 @ 12:00pm

Re: how does this differ from perscription drugs
Lack of alternatives? If you're on your death bed you need certain select medicines.

If I want to be entertained...I have near infinite alternatives these days.
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DanZee (profile), 4 May 2012 @ 12:11pm

Scribner's
All this whining about fixed costs comes in because of the corporatization of media companies. Back when the Scribner family ran Scribner's, for example, they could publish works by Hemenway, F. Scott Fitzgerald, Kurt Vonnegut, and so on because they only had to make enough money to keep the family-run publishing business going. They didn't even have to make a profit as long as the family members could pay themselves a salary. After being purchased by Macmillan and then Simon & Shuster, which was then bought by CBS, the company is expected to bring in huge profits which then get swallowed up by its parent company to support their corporate overhead. (It has several layers of overhead to support.) That's why traditional publishers CAN'T price e-books below a certain amount.

The entire publishing business needs to be torn down and rebuilt, and companies like Amazon and Google can do it. Look at Amanda Hocking. She became a millionaire selling her own books through Amazon, B&N, etc. She keeps 70% of the selling price instead of getting the traditional 5%-10% royalty traditional publishers pay. The 65% the traditional writer gets screwed out of is paying for the fixed corporate overhead costs!
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ya know, 4 May 2012 @ 12:38pm

Re:
you guys REALLY need to think of new arguments
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Joe Publius (profile), 4 May 2012 @ 12:50pm

Re: Re: Re: Re: Re: People do care
As someone who loves books as a physical artifact, I still like and buy ebooks for the reasons you mentioned. I only have so much room for stuff in my house, and I'm pretty sure my wife would smother me in my sleep if I ran out of shelf space in the computer room (I'm about 75% capacity on my 6 ft bookcases) and insisted on being able to start putting books in other rooms of the house just because I think they look impressive on the shelf.

ebooks let me create two tiers of value on books that's helpful in my daily life:
The bibliophile in me can buy the physical copies of the books I genuinely intend to keep because they're great repeat reads, they look pretty, etc.

The reader in me can get ebooks to have easy access to public domain titles, and books I'm willing to pay for to read, but don't want to have to worry about the space taken up by one.more.paperback.
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Anonymous Coward, 4 May 2012 @ 1:06pm

Re: People do care
If people didn't care about the cost of the creation of the product, then why do we get comment after comment (and article after article) complaining about how expensive ebooks are since they don't cost anything to distribute.

Sorry - what?!?!?

You are attempting to argue that people care about fixed cost by holding up examples of people complaining about marginal costs?

You obviously didn't read even the *title* of the essay - why are you posting here?

Do yourself a favour: read the article before you comment. You will look like much less of an idiot.
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trrll (profile), 4 May 2012 @ 1:10pm

I like physical books, but in practice, e-books are worth more to me. I'm willing to pay less for a hardback than a paperback, and less for a paperback than an e-book. With a physical book, I have to find space on my shelf, I have to keep my bookshelves organized, and (since I mostly read on the go) I must carry its weight around with me. On more than one occasion, I've bought e-book copies of books I already own, because I wanted to re-read the book, and I didn't want to carry it around. Yes, there are disadvantages: they are not as loanable (although I have a "loaner" e-reader), they cannot be resold, and the e-dealer might abruptly go out of business and take my library (or at least the part that I don't have backed up) with it (but then, physical books can burn). But on balance, e-books have greater value to me.
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V (profile), 4 May 2012 @ 1:16pm

So true...
Under such a idiotic argument, the cost of the new Marvel Avengers movie should be $50, because it costs $220 million vs some other movie that only costs $10 because the budget was $60 million.

Really? Think movie goers would take that? No... the $50 ticket movies would TANK... plus they'd be pirated and distributed because people do not perceive the value to be as much as it is. In laymen's terms... people don't like to be cheated... and they don't like to feel like they're being cheated.

eBooks are the publishers way of cheating customers. They take virtually NO money to convert and virtually no money to distribute. I know... I've published both hardcopy books and eBooks.

I price the eBooks MUCH lower because they don't get anything they can physically hold in their hands AND, it doesn't deplete the stock at all nor cause me to need to do another run of books.

It's just used car salesmen trying to put one over on you... yup... a little ole lady only read this eBook on Sundays...
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Anonymous Coward, 4 May 2012 @ 1:42pm

Huh? Why all the talk about marginal costs? When we're talking about cheap monopoly goods, the main issue is elasticity of demand, not marginal cost. And elasticity of demand for a given book is determined largely by consumer perceptions on book prices (and to some much lesser extent by competition with the prices of other books and other entertainment.

Thus the publishers are in some sense quite right to want higher ebook prices: in the short run, publishers could probably maximize revenue (and profit) by selling ebooks much more cheaply than the ebooks of their competitors, but in the long run it would be better to convince consumers that high ebook prices are "reasonable", which requires them to keep prices high now. Thus their high ebook prices are quite understandable: they're trying to reshape the demand curve of the future.

The problem though for the publishers (aside from the fact that setting prices above revenue-maximizing levels for this reason may represent illegal collusion) is that their customers' past willingness to consider hardcover prices "reasonable" was based on widespread ignorance of the marginal costs of producing and distributing hardcover books. This ignorance is unlikely to transfer well to ebooks.
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nasch (profile), 4 May 2012 @ 1:44pm

Re: Re:
all I care is that it fulfills the following criteria (in order of relevance):

1- It fits my budget
2- the price is fair (for me at least)
3- It's easily and broadly available (DRM free, format I want, bla bla bla)

Doesn't "entertaining" fit in there somewhere? ;-)
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Stephen, 4 May 2012 @ 1:46pm

Re: costs of production
Actually, adjusting for inflation, trade book prices are lower than they were 20 years ago.
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Stephen, 4 May 2012 @ 1:48pm

Re high-end lifestyle
If you think publishing can earn you a high-end lifestyle, if you think a publishing house has lavish digs rather than garden-variety cubes and officles, then you know zero about publishing. The only benefit to being an editor is lunches, and those are getting fewer and farther between.
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Reuben, 4 May 2012 @ 1:59pm

No one cares about variable costs, either
Great post, and I'll even go a step further. No one cares about your costs-- fixed or variable.

They just care about the value.

Obviously publishers can't use variable costs to justify prices for digital goods, so they fall back on fixed costs, but none of it actually matters.
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Almost Anonymous (profile), 4 May 2012 @ 2:27pm

Re: Re: Re: Re: Re: Yo quiero a Taco Bell Device
However, my nose is hard pressed to tell the difference sometimes.
Maybe you're not pressing your nose hard enough?
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John Fenderson (profile), 4 May 2012 @ 2:28pm

Re: Re: Re: Concerning books
He said that he collects nice hardcover books. There's nothing wrong with that -- it's a hobby, no better or worse than any other.

Asking if he reads them is a little like asking a stamp collector if he ever actually mails anything with his stamps.
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John Fenderson (profile), 4 May 2012 @ 2:36pm

Re: Costs
You are correct that the Market should and does control the pricing of the products, but at the same time if the producer of the goods does not take into account the cost of development when pricing their product then they will not remain in business for long.

Absolutely true, and this article doesn't contradict that.

It's a matter of how you factor these costs into pricing. The wrong way is to start with the cost of development then determine a list price based on that. The right way is to determine the proper price point based on the nature of the market and constrain your development costs accordingly.

If it's impossible to develop a product at that price point, then the product needs to be rethought.

This is all business 101.
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illuminaut (profile), 4 May 2012 @ 2:39pm

Re: an actual editor on how book prices are decided
"I look at the price of other books for the same consumer and price my book the same because that's what the consumer has shown he's willing to pay."

Right, but that's an incomplete equation and it's a very volatile assumption. There are a multitude of reasons why consumers are willing to pay a certain price, and none of them have anything to do with the fixed costs of producing the product, which was the point of the article. You are right that the price of similar books play a role in the perceived value of a book, so it's an obvious starting point in setting the price, but it's also not the only factor.

Consumers are aware of the marginal costs of digital copies so that lowers the perceived value of an e-book. Also, DRM lowers the perceived value of an e-book, so one book may sell better at the same price as another simply because one may be DRM-free and the other isn't.

The reason looking at the price of competing products kind of works is that someone else already did the work for you of figuring out what the market will bear, but it's still a shortcut and it may or may not work to copy that. Then there's the whole issue of monopolies and price fixing in the publishing industry which makes it very hard to gauge the perceived value consumers are putting on a product, so you run the risk that there's such a large disparity between price and perceived value that eventually a large number of consumers not only look to piracy as an alternative but feel justified in doing so. That's a trend you need to factor in when pricing an e-book. If you just keep the prices high because everybody else does you're undermining consumer trust and in the long term you're shooting yourself in the foot.
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John Fenderson (profile), 4 May 2012 @ 2:44pm

Re: how does this differ from perscription drugs
We are paying for the research and development.

Mostly, we're paying for the marketing. The R&D costs, while significant, are not the main reason for high drug prices. Plus, when we're talking about drugs which have the greatest health impact (antibiotics, etc.), the R&D money spent by drug companies is relatively tiny. They put their money into things that they can dramatically overcharge for: penis pills, baldness treatments, etc.

There's a reason that drug manufacturers are among the most profitable companies in the world.
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RadialSkid (profile), 4 May 2012 @ 2:59pm

Re:
It just proves that you really don't get it at all. If they don't like the product at the price offered, then DON'T BUY IT.

And you think that the public ceasing to pay to see movies will somehow POSITIVELY effect your "more expensive means better" model?

You and I are not so different. Both of us want potential customers to NOT pay Hollywood.
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Ophelia Millais (profile), 4 May 2012 @ 3:58pm

Re: Re:
#3 can be summarized as "It's convenient."

I would also add something along the lines of "Purchasing or listening to it doesn't violate my privacy," but that's just me. Lots of consumers don't care about that.
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Anonymous Coward, 4 May 2012 @ 4:40pm

Re:
Ironic that you tell the author to face reality. The reality is that people are going to continue pirating movies if they are priced too high. We don't care about the costs to make the movie. But it's not about lowering the fixed costs to make it. It's about charging the marginal cost.

If I spend $200 million making a movie, and get $250 million back in ticket sales, why not sell another 100 million copies of the movie for $3? It's not like it's going to cost more to sell as digital downloads.
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Overcast (profile), 4 May 2012 @ 6:01pm

If I spend $200 million making a movie, and get $250 million back in ticket sales, why not sell another 100 million copies of the movie for $3? It's not like it's going to cost more to sell as digital downloads.

That's what I can't figure out either.

So - ok, $15.00 on the average for a CD worth of digital music? Uhh no, why? Often, I can pay less for physical media.

So I buy physical media, which cuts into their profit more - more cost less profit.

With the advent of digital media, the 'cost' can be lessened to production costs + maintaining a data center with bandwidth.

I know it beats buying the plastic jewel cases, buying the CD's, buying the inserts, maintaining the supply chain and all that.

Why not charge a quarter a song and sell massive amounts of single songs. The data center is going to consume the same amount of resources if there are 50,000 downloads a day or 500,000 downloads a day, assuming bandwidth can provide that.

But the cost of extra bandwidth would seem to be a no-brainer if you could sell 500,000 songs at 25 cents each as opposed to 50,000 songs at a dollar each. The production costs still remain the same, but the supply chain costs drop dramatically. Sure, still make physical disks - I still prefer to buy those, even if digital media might be a bit cheaper, but that's just me.

The whole thing is - this can be argued if the cheaper cost will result in a larger net profit, but why not test it?

A dollar a song isn't too terrible I guess if you are 'sniping' what you want, but for a whole CD (15 songs or so) it's too much for digital.

And heck, most people, if they think something is 'cheap enough' will buy more than they need anyway.
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Karl (profile), 4 May 2012 @ 6:18pm

Re:
It doesn't give you the right to pirate it

You know how many times Mike has said it did?

Zero.

You know how many times piracy was mentioned at all in this article?

Zero.

You know what has absolutely nothing whatsoever to do with the subject of this article?

Piracy.
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AC Cobra, 4 May 2012 @ 6:24pm

Re: Re: Re:
"However, on average Hollywood spends more money on its movies than any other country in the world. China is currently making giant war epics, but none of them cost more than $100 million. Hollywood can make cheaper films, and they're going to have to."

Chinese film workers, like most Chinese blue-collar workers, make very low wages, poverty level by U.S. standards. While the exporting of much of our film production business to China in order to cut costs and increase corporate profits may yet happen, as it has in so many other industries, I fail to see this as a good thing.
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TtfnJohn (profile), 4 May 2012 @ 6:35pm

Re:
Can I remind you of something before going on?

Thanks for your permission.

Now lets keep in mind that that, by and large, quality and Hollywood movies are polar opposites most of the time. James Cameron had a track record dating back before Titanic of directing and/or producing hits and even his less well received films made money rather than losing it. That translates into it was easier for Cameron and the studio to raise the money and, more importantly to you, spend the money that went into Avatar. Result? Megahit that by anyone's standard and measurement repaid what went into it very early in it's release. You'll notice that fixed costs had nothing whatever to do with it.

MPAA members may be dumber than a bag of hammers when it comes to understanding how the Internet works but they're not stupid enough to use their own money to make movies. They rely on loans, investors and so on. In the time honoured tradition they use other people's money. Cameron's reputation made it easy to raise the money for the film. Keep in mind that the amount was enough to keep the bean counters from sleeping while it was being made but it's Cameron's reputation that allowed the studio to raise the money needed to make it.

George Lucas had a reputation for creating hits and making money prior to Star Wars which, similarly, made it easier for the studio to raise the money needed to make the film "using other people's money" than it would have otherwise. Certainly easier that it would ever have been if the film had been in the hands of Anonymous Cowards, such as yourself to raise it. And like Avatar it recovered every penny spent early into its general North American release.

For another example let's look at Lord of the Rings. Peter Jackson, another director with a sterling track record and an enormous built in, if hypercritical, audience For all that there's much to be critical about in LoTR Jackson came through with a freely flowing elegant film trilogy which introduced LoTR to the uninitiated and did much to keep those of us who are now into triple digit readings of the trilogy satisfied. Again, a film made with "other people's money" rather than the studio's.

The movie making world will continue to operate in this fashion whether or not someone, somewhere, wants to price into it the fixed costs of making it or not. Not every movie makes money. Some bomb spectacularly like Waterworld. Some have a long shelf life, others a very short one. Nowhere do the fixed costs have any influence or not on any of this. The market does. And, yes, the market does have the right to make these decisions. In short, consumers have the right to make the decision about whether or not a movie makes money. Or a recording makes money or a book makes money. The market never has and never will take the fixed costs of a movie, record or book into account. The market, not the producers, decides if the price is worth paying and acts accordingly. As individuals and the collective we call The Market.

Guarantees of fixed cost recovery in motion picture making, publishing or any other endeavour will remain what they are now which is zero. Unless you're in a price regulated business such as telecom or cable where regulators make sure the companies they regulate do recover their costs and then some.

Should the market decide that $10 is too much for a DRM encumbered ebook is too much that's what the market has decided. Publishers be damned. After all, they have no guarantee that their fixed price costs per unit can be recovered now in the physical book world so why should they get it in the ebook world.

Movies like Avatar, Star Wars and LoTR will continue to be made because there will still be avenues to raise funds as there are now. In short, movies will continue to be made with "other people's money". Producers may have more of an incentive to control what will end up as fixed costs and they may end up doing it. The movies will continue to be made.

And the market will continue to decide which ones do recover their fixed costs and more. It's called making a profit, last time I looked.

Less than zero of this has to do with infringement or "piracy". (Like it or not "piracy" is part of the market response to certain situations and will continue to exist while those conditions persist.)

Just why is it that some people react with such emotionalism to perceived changes to business models which aren't really changes but simply an underlining of what existed pre-Amazon, pre-Web, pre-Internet days is puzzling. It's not even an attack on copyright which was never a license to change whatever the hell a publisher wished but simply a publisher's right to copy the book and make copies of it. Copyright has never been about price fixing to recover fixed costs or any other costs related to a book, film, tv show or computer program.

I don't expect that you'll change your opinions on this irrational though they are. Though perhaps you could try to visit the real world for once instead of that rather odd one you seem to inhabit.
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Anonymous Coward, 4 May 2012 @ 8:17pm

Re: Concerning books
is this one of those goofy "artificial scarcity" conversations about fixed costs of production and marginal costs of distribution?

funny thing is, google's own chief economist hal a varian promotes the truth of fixed economic costs on information goods as a fact.

see here, it's in his book "information rules" and really is required reading. I mean, if you can't trust google's chief economist on the digital economy, who can you trust?

http://thetrichordist.wordpress.com/2012/05/01/effs-john-perry-barlow-is-wrong/#comments
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jupiterkansas (profile), 4 May 2012 @ 9:15pm

Re: Re: Re: Re:
In Paranormal Activity's case, the budget is the only thing that interests me about it. I would want to see what they did with so little money.

It's rare that I'll watch a movie based on its budget and I have no plans to ever see Paranormal Activity no matter what the cost.

For 99% of the movies, cost means nothing.
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techflaws.org (profile), 4 May 2012 @ 10:39pm

Re: Re: People do care
I have that article from 1983 and I pull it out every time someone blathers on about costs of these things.

Any version of this online? Thx.
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varagix, 4 May 2012 @ 10:46pm

Re: Re: how does this differ from perscription drugs
Not to mention that most R&D in medicine of late has been government-funded and done by academics, not by the companies themselves. The high prices come from being in a monopoly position after buying (and patenting, if it hasn't been already) the academics' research.

The only thing pushing prices down is the eventual expiration of patents (when companies can't get extensions based on minor 'improvements') and the development of generics, usually originating in less IP intensive countries like India.
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techflaws.org (profile), 4 May 2012 @ 11:01pm

Re:
It doesn't give you the right to pirate it

Nope but it doesn't change the outcome for you if they do cause you won't see any money either way.
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PaulT (profile), 4 May 2012 @ 11:30pm

Re: Culture vs. Property
"Bruce Campbell said recently that if he had 200 million, he could make 200 movies and get the same return as Hollywood gets from one"

I would love to live in a world where Bruce managed to get $200 million from his work...
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Trenchman, 5 May 2012 @ 2:01am

Re: Re: Re: Re: &hearts;
Don't confuse Capitalism and corruptions, they are very different.
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Trenchman, 5 May 2012 @ 2:20am

Re: Re: Re: Re: Concerning books
Well, I think we've found the solution then haven't we. If you don't like ebooks, then don't buy ebooks. You said yourself if it was the only method available you would have to consider it, but if a actual copy is available, then by all means purchase that instead. That's kind of the point of having options.

All we ask, is don't look down on ebooks in general. They may not be your cup of tea, but the relatively low cost and the convenience of having many books on one device and having a device that doesn't require a light source, due to backlighting, is valuable to some people. I don't look down on books, I have several hundred books myself, and my father has to have a few thousand, and I collect certain series of books that I really care for. I'm currently collecting hard covers of the Song of Ice and Fire series although they don't have matching covers for all of the released books yet, grrh! But I still read them on my eReader, for the convenience.
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Anonymous Coward, 5 May 2012 @ 6:50am

Re: Re: Culture vs. Property
"I would love to live in a world where Bruce managed to get $200 million from his work..."

You and me both PaulT.

Bruce Campbell may be a joke to some, but he's as hard working an actor as they come (and a generally nice guy). Whether it's B-movies, cameo parts in big hits, tv shows/movies, etc. He puts his all into it.

Heck, I would be one of those people willingly giving my money to help Bruce get the same return as one Hollywood film. Multiple times. And also pay for my friends to go too.

Heck, I think Bruce Campbell should be put on a podium for "how to make a movie on a shoestring budget and make it a hit". Evil Dead anyone? But no, let's keep giving Micheal freaking Bay hundreds of millions of dollars to make and film explosions (with some kind of movie thrown in because it's required). I'd rather, and have, spend $10 to go to a small theater showing the Evil Dead with friends than pay to go see Transformers 4 and 5 (which for those who don't know, they are making, and Michael Bay says he won't be a part of them at all, which is what he has previously said for Transformers 3, thus Michael Bay is a liar and a terrible one at that).
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Lord of the Files, 5 May 2012 @ 7:51am

Re: Re: Re: Re: Re: ♥
Indeed they are very different, just like a man and woman are. Doesn't stop them from prancing down the street together while holding hands though. :)
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nasch (profile), 5 May 2012 @ 10:11am

Re: Re: Concerning books
funny thing is, google's own chief economist hal a varian promotes the truth of fixed economic costs on information goods as a fact.

I haven't read the book, but the quote there says absolutely nothing about fixed vs. variable costs. Or any kind of costs at all, really.

I would question how much he's really paying attention when he says things like this: "Digital piracy... can be kept under control. All that is required is the political will to enforce intellectual property rights." Who is he suggesting is lacking this political will? It sure doesn't look like the executive or legislative branches to me. Is he saying the courts should be more willing to award enormous damages in copyright infringement suits, or what?
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nasch (profile), 5 May 2012 @ 10:16am

Re: Re: Concerning books
After looking into it more, I see it was published in 1998. Now, economic principles haven't changed since then, but think of how different the "content" market was 14 years ago. One must take care applying any insights from then to the current situation.
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PersianScribe (profile), 5 May 2012 @ 1:16pm

Re: It all boils down to jealousy
Mr. Doe. Yes, it seems the music, movie, and book INDUSTRIES are thriving. However, as a CONTENT CREATOR, I am not rolling in cash. My current book, Polar Bear in Parrot Jungle, took me two years of labor along with numerous trips to workshops, classes, conventions, etc. I would like to get reimbursed SOMETHING if you decide to acquire my book. My next effort, Escape from Clark's Creek has consumed over two years and hundreds of dollars in expenses acquiring historical data and schmoozing WWII veterans to get some insight and facts. You say that my demanding a payment for your use of my stories is an irrational response and violates your rights and freedoms. What right do you have to steal my property, or anyone elses? What freedom am I depriving you of by demanding payment for my product? You have the freedom of choice, i.e. purchase my books or not and I am not, nor any other content creator, depriving you of that choice. Here is my take on your irrational argument, "someone got to view their content for free. It doesn't matter that they would not have paid for it anyway." Your logic baffles me. I guess youu think it is okay to steal an apple because it would have just spoiled eventually. I doubt the eventuality of this, but someday you might produce something and decide it is worth being reimbursed for. IF that day comes, you will be touting a different set of "rights and freedoms."
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Anonymous Coward, 5 May 2012 @ 1:22pm

Re: Re: how does this differ from perscription drugs
There's a small difference when it comes to drugs. Some are for extremely rare disease's and aren't manufactured en masse because of the percentage of the population affected by those.

A teacher of mine once got infected with a really serious bacteria that damages the membrane that covers the brain, causing him pain, faints and seizures.

The medication to kill that bacteria costed around two thousand dollars per week of treatment because it's expensive as hell - luckly, he had full health insurance covering every cost of the treatment, otherwise he'd be good as dead.

He was the first case of the bacteria his health insurance had to cover in half a decade.
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Anonymous Coward, 5 May 2012 @ 3:30pm

Re: Digital Media = No Scarcity
"Digital Media = No Scarcity"

hahahahahahha...

phew... funny... cause Hal A Varian, Google's Chief Economist says you are wrong... and, uhm... john perry barlow too... and probably lessig too... but definitely barlow

http://thetrichordist.wordpress.com/2012/05/01/effs-john-perry-barlow-is-wrong/

wow, can't even get the chief economist at google to agree with you... hahahahahahahahah... phew... I"m out of breath...

big shoes, red nose, orange hair... no really, keep going... hahahahaahahahahaa
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Tom, 5 May 2012 @ 3:32pm

the critical issue
I agree that debates about property rights in the digital age are often distracted by faulty thinking about scarcity.

So let�s get the facts straight.

Unless a resource is scarce, assigning property rights to those who �produce� that resource is neither sensible nor harmful. After all, even if those who produce an "abundant" resource can exclude others from the portion of the abundant resource that they produce, the value of that right to exclude will be $0 absent scarcity.

But, as economists have long known, scarcity comes in two forms, ex ante, and ex post. Ex post scarcity means that a resource remains scarce even after it is produced and disseminated. Apples, wheat, and iPods exhibit ex post scarcity. Ex ante scarcity means that the resource is scarce until a means to produce and disseminate it is devised. Lighthouses and information goods (like innovations and expressive works) are examples of resources affected by ex ante scarcity.

Copyright and patent law respond to the problem of ex ante scarcity. Anyone who argues that information goods like innovations or expressive works are not "scarce" can validate their argument by producing the following:

-- copies of the films that will win Oscars in 2022,

-- a detailed description of a 100% effective cure for cancer,

and

-- a detailed description of a cheap, nonperishable malaria
vaccine.

In short, useful information is scarce, and it is expensive to create and produce, until the information in question is created and broadly disseminated.

So the problem with information goods is twofold.

First, we must convince someone to incur the expenses and risks involved in creating them.

Second, we must convince those who create valuable information goods that they should disseminate them broadly instead of carefully restricting access to those who are willing to pay (a lot) to obtain access.

An example may make this point more clearly. Dr. Stephen Covey studied business practices for many years and concluded that he could identify seven principles that would increase the odds that a businessperson would succeed.

For years, he profited from this information by acting as a consultant to Fortune 500 corporations and disclosing it only to the senior executives of corporations that paid his (very high) consulting fee.

Then, copyright laws convinced Covey that he could better exploit his hard-earned insights by publishing a book and making his insights available to anyone willing to pay $7 or visit a library. As a result, The Seven Principles of Highly Effective People was created and widely disseminated.

Saying that this particular work is no longer �scarce� because it has been created and widely disseminated dodges the real question: How do we encourage people like Covey to create information goods and broadly disseminate them?

For now, the best answer yet conceived to this question is �copyright�: We give authors like Covey an exclusive right to their expression of ideas so long as they are willing to allow the ideas expressed to pass immediately into the public domain. This bargain explains why you owe Covey nothing if you read a copy of his book at the library for free and then use his seven principles to build a multi-billion dollar business.

To oversimplify somewhat, copyrights are justified by the difference between the costs of creating an expressive work and the costs of copying an expressive work that has already been created, disseminated and become popular. The �abundance� of digital works that have been created and disseminated does not eliminate this justification. To the contrary, it strengthens it: As the marginal cost of reproducing a popular, disseminated work decreases, the justification for copyright increases.

So I agree: If humans already knew everything worth knowing and had already expressed everything worth saying, then it would make no sense to prevent zero-marginal-cost copying of innovations and works that had already been created and broadly disseminated.

But we don�t. That is why copyright and patent laws continue to make sense.

And that is why people who support those laws do understand �scarcity� in the digital age.

I hope this helps.
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Chargone (profile), 5 May 2012 @ 8:19pm

Re: Re: Re:
pretty sure 'has potential to be entertaining?' has to be a 'yes' to trigger this entire logic chain. if it's a 'no' then it's all academic and irrelevant anyway :P
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Chargone (profile), 5 May 2012 @ 9:02pm

Re: Re:
IIX?

this that a typo? because it's not a roman numeral :P

(disclaimer, the above bit of amusement in no way invalidates your point.)
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Chargone (profile), 5 May 2012 @ 9:16pm

Re: Re: Re: Re: Concerning books
well, except that reading a book doesn't detract from it's awesomeness in your collection (provided you're careful with it) while mailing something with your collected stamp takes it out of your possession.

basically a collection of books can have slightly more use than just Being a collection without detracting from it's... collection... ness...

which stamps can't.

I have a reasonable collection of books (closer t a couple of hundred than over a thousand, mind, and that's counting each volume of manga separately as well as the novels and non-fiction) all of them (almost, i have a pile i haven't got to yet) I've read at least once. most of them not more than that. most of them are paperback, though not all.

i, personally, Really don't like e-books. oh, i like their existence and usefulness and that people pay money for them and that authors get money out of it and such...

but given a choice between a paperback and an e-book, i'll always buy the paperback. between an e-book and nothing i'll simply never get around to getting it at all, even if i want it and intend to (such as the e-magazine version of the Granteville Gazette). that said, given a choice between a hardcover and a paperback i'll always buy the paperback because the hardcovers cost so much that i can never justify the expense. given a choice between hardcover and nothing i'll usually save my money.

... ... i lost where this was originally going.

point is, there's still a place for physical books and collections there of, though i've never quite grasped the point in collecting things just for the heck of it. (books? you read them. trading card games? you Play them. why on earth would you collect them just to store somewhere and never use? baseball/basketball cards? why the hell does anyone even Care? kinda beyond me.)
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Chargone (profile), 5 May 2012 @ 9:24pm

Re: eBooks
actually, there's apparently a fair bit of work to do for e-book publishing due to the various propitiatory formats for this platform or that platform and this retailer or that retailer all being rubbish... in different ways.

according to blog articles by someone trying to selfpublish, anyway.

it Shouldn't be like that, but it is, because, you know, DRM, walled guardens, blah blah blah.
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nasch (profile), 5 May 2012 @ 10:35pm

Re: Re: Digital Media = No Scarcity
As I mentioned before, that quote from the book says nothing about costs, so why do you keep pretending it does?
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nasch (profile), 5 May 2012 @ 10:35pm

Re: Re: Digital Media = No Scarcity
As I mentioned before, that quote from the book says nothing about costs, so why do you keep pretending it does?
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Anonymous Coward, 5 May 2012 @ 10:55pm

Re: Re: Re: Digital Media = No Scarcity
"As I mentioned before, that quote from the book says nothing about costs, so why do you keep pretending it does?"

the quote doesn't but the book does, maybe you should read it, you might learn something...
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Anonymous Coward, 5 May 2012 @ 10:58pm

Re: Re: Re: Digital Media = No Scarcity
"As I mentioned before, that quote from the book says nothing about costs, so why do you keep pretending it does?"

the quote doesn't but the book does, maybe you should read it, you might learn something...
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PaulT (profile), 6 May 2012 @ 5:35am

Re: Re: Digital Media = No Scarcity
You know what I love about recent actions from ACs? The fact that they post whatever random blog post they found on Google as "proof" that people here are "wrong", even if the linked blog is just someone else's opinion with little in the way of supporting facts other "look! Someone else agrees with me!". They honestly think this means that Mike's opinion is wrong, even without any actual evidence to support the opposing argument.

It would be laughable if it weren't so pathetic.
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nasch (profile), 6 May 2012 @ 1:37pm

Re: the critical issue
So I agree: If humans already knew everything worth knowing and had already expressed everything worth saying, then it would make no sense to prevent zero-marginal-cost copying of innovations and works that had already been created and broadly disseminated.

But we don�t. That is why copyright and patent laws continue to make sense.

If it were actually possible to control copying, maybe. But copies aren't just (virtually) free for the author to make infinitely, they're free for anyone to make infinitely. The amount of copying going on has nothing to do with how difficult copyright law makes it to copy things, because copyright law doesn't make it difficult. The only things curtailing copying are 1) respect for the principles of copyright law, which due to the ongoing abuse is waning, and 2) the availability of inexpensive and convenient legal content. Increase number 2, and the need for copyright law decreases, because people can make money producing content without it.
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nasch (profile), 6 May 2012 @ 1:40pm

Re: Re: Re: Re: Digital Media = No Scarcity
the quote doesn't but the book does, maybe you should read it, you might learn something...

I'm not spending $22 to read a 14 year old book about the digital economy. If you want to spend the time to post some quotes that actually discuss what you're talking about, I'll read those. But it does little good to just say "trust me, this guy agrees with me."
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Amy Van Court, 18 May 2012 @ 2:22pm

Bravo!!
Right on! You expressed what has needed to be said for quite some time. It seems many folks are still stuck in the industrial age where production cost is the starting point in calculating the price. Books are a value proposition based on quality of experience, not something that comes rolling off the assembly line.

While sticking my neck out here, I will also mix a metaphor and look through my crystal ball. I see a day when eBooks are priced HIGHER than paperbacks because there is tremendous value in getting what we want, when we want it, with the click of a button. When I buy a book, it's not the paper I'm buying. It's the experience the book gives me and the ease in which I was able to access that experience. The audience isn't buying the chairs in a movie theater or the metal rails on the roller coaster. The audience chooses to pay for the thrill, or the comfort, or the increased knowledge that the experience provides.
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Writer Person, 18 May 2012 @ 3:53pm

Re: It all boils down to jealousy
So, do you do your job for free? Because writing is a job (so is acting, so is making music, so is being a ballerina). We do it to make money, which pays the bills and feeds our kids. So when you don't like a copyright, and think it's okay to pirate, you're taking actual food out of the mouths of actual babies. Why should I produce something for you to consume for free? Tell you what: You hand over whatever work it is YOU do for free. I don't care if you're an accountant or a programmer or flip burgers. Hand over your goods and services for free.

Anybody remember the writers' strike a few years ago in Hollywood? No new episodes of your favorite TV shows. Which meant that not only were the writers losing money, but all the people they support were out of work as well; no one needs electricians or gaffers or craft services or film editors or anyone else if there's no story to record. If you want a landscape that is wall-to-wall sports and reality shows, stop paying the writers.
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Questioner, 18 May 2012 @ 9:19pm

Re: So true...
You say it costs almost nothing for you to produce an e-book. So, your time writing it is of no value? The time it takes you to format it and upload it has no value (and aren't there something like three or four different formats, each with its own quirks?) Did you pay a freelance editor, or did you take that on yourself? Do your own cover art? With free images? (Not pointing fingers, but I'm sure there are those here who think it's ok to steal a photographer's work as well). So, you're not even making minimum wage. In fact, until you sell bunches and BUNCHES of your e-books, you're operating in the red. So, how long DOES a small business survive operating in the red? (and self-publishing IS a small business. With requirements for tax reporting and everything. If you don't know your actual costs, how do you know if you're making a profit???)
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nasch (profile), 21 May 2012 @ 7:38am

Re:
The problem though for the publishers (aside from the fact that setting prices above revenue-maximizing levels for this reason may represent illegal collusion) is that their customers' past willingness to consider hardcover prices "reasonable" was based on widespread ignorance of the marginal costs of producing and distributing hardcover books. This ignorance is unlikely to transfer well to ebooks.

I think you just answered your question of why we're considering marginal costs.
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nasch (profile), 21 May 2012 @ 7:40am

Re: Re: So true...
So, your time writing it is of no value? The time it takes you to format it and upload it...

Did you read the article? Do you understand the difference between fixed costs and marginal costs? Because that is pretty central to this discussion, and you're either misunderstanding it or ignoring it.
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nasch (profile), 21 May 2012 @ 7:46am

Re: Re: It all boils down to jealousy
So when you don't like a copyright, and think it's okay to pirate, you're taking actual food out of the mouths of actual babies.

No, he's not taking away money you already had. You have the same amount of money before and after he downloads your book. Whether he has a copy of your book doesn't affect you. What affects you is whether he pays you. So rather than concentrating on stopping him from getting a copy, you should concentrate on convincing him to pay you.
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nasch (profile), 21 May 2012 @ 7:47am

Re: Re: It all boils down to jealousy
You say that my demanding a payment for your use of my stories is an irrational response and violates your rights and freedoms.

No, he said getting angry about piracy is an irrational response.
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nasch (profile), 21 May 2012 @ 7:48am

Re: Bravo!!
I see a day when eBooks are priced HIGHER than paperbacks

That is often the case already.
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Anonymous Coward, 22 May 2012 @ 11:27am

Re: Re:
To be fair, Paranormal Activity was, by ROI, one of, if not THE, most successful films ever made. I with your point, though.
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Anonymous Coward, 22 May 2012 @ 11:28am

Re: Re: Re:
That should have said "I agree with your comment." Typing fail.
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Anonymous Coward, 22 May 2012 @ 11:40am

Re: Re: Re:
I care about that.

I once tried to show a clip of Pirates of the Caribbean for an academic presentation, using my legally acquired copy. (Can you see where this is going?) Unfortunately, PotC is owned by Disney.

Disney has awful, terrible DRM.

I had to install some adware and a crappy movie player that I didn't want in order to show 30 seconds of film, covered under fair use, because I wanted to try and do "the right thing" in a classroom setting.

Unfortunately, even after installing all of Disney's adware, blah blah blah, it wanted me to register for an account or something and fill in personally identifying info, etc. and it STILL WOULDN'T PLAY.

Eventually, I had to fire up an old A/V tray with a DVD play and manually skip through the chapters to find the clips. It took me a couple more days to realize that Disney's DRM crapola had left unwanted programs that messed up my laptop even after I had told the PC to uninstall the movie player.

Next time, I will just download a pirate copy and not think twice.

Lesson learned. Thanks, Hollywood!
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Bottle of gin in the closet, 27 May 2012 @ 1:54am

Re: Re:
@ST Stone,
Stop living in a fantasy world. Stop making up crazy numbers & figures to suit you outlandish delusions. I don't know of any movie you can make on $15,000 today that will earn out almost $200 million. You are so fuucking stupid. And probably fat, bald, and ugly. Stop living in Lala Land, stop drinking, stop making crap up on here.
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My decision, 27 May 2012 @ 2:09am

Re: Re:
@Blatant Coward, I'm not paying one red cent to see "kids" wave sticks around for entertainment. Are you out of your fuuucking mind? This is your plan? I'd rather just pay the money for the movie ticket and call it a day. YOU go see kids waving sticks, I'll go enjoy a movie. Simple as that. But YOU don't decide how I spend MY money. And the same with ebooks. If I see a book I feel is worth $20, I'll just go ahead & spend it. You don't decide how I spend my money. Got that?
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A sandwich, 27 May 2012 @ 2:19am

Re: Re:
@Anonymous Coward, yopu said : "However, being somewhat savvy of how these things work, for the life of me, I will never understand why an E-Book costs more than $1 to purchase."

I write ebooks & the cover of the ebook I'm putting together right now cost $20. It looks great but I have to sell 20 ebooks just to recoup the cost of the damn cover. I'm really getting sick & tired of this arguing about ebook prices. All this work for a dollar? That means I make $.15 after taxes & retailer cut. Plus I've got to pay royalties to the photog who made the cover.

I'm considering moving to print & leaving ebook alone. There's no $ in it. I don't give a damn how much you paid for one. I will stop making content for your expensive devices. SO WHAT DO YOU THINK ABOUT THAT??
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Dang!, 27 May 2012 @ 1:09pm

Re: Re: Anonymous Coward, get a job!
@Anonymous Coward,
I think part of the problem as to why you can't afford more than $1 for ebooks is because you don't have a damn job. You've left about 50 comments on this 1 page alone. Any one you misguided folks can scour the net & find 50 comments per blog left by Anonymous Coward. Get a JOB, man & stop going around the net demanding people feed you your entertainment for buck.
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nasch (profile), 28 May 2012 @ 8:16am

Re: Re: Re: Anonymous Coward, get a job!
You've left about 50 comments on this 1 page alone. Any one you misguided folks can scour the net & find 50 comments per blog left by Anonymous Coward.

You know those Anonymous Cowards aren't all the same person, right?
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