Google Is Destroying The Economy Because It Believes In Efficiency?

from the at&t-deserves-more-for-their-money dept

Ron Rezendes was the first of a whole bunch of you to send over PC World's coverage of Scott Cleland's latest attack on Google, though, bizarrely, Tony Bradley at PC World, fails to (a) fill in the details on Cleland's history and current job or (b) challenge any of the many false assumptions Cleland makes. He does question the overall conclusions, noting (accurately) that the tech world is littered with "monopolies" that were killed off by upstarts, but there's a lot more worth questioning in Cleland's piece. Cleland, as we've discussed in the past, is known throughout DC policy circles as the official attack dog of every anti-Google company out there. He's literally paid to make up attacks on Google, no matter how ridiculous. Now, I'll be the first to admit that there are many things Google does that deserve further scrutiny or complaints. The company has been getting especially sloppy when it comes to privacy lately, and that's a huge concern. However, if the companies paying Cleland actually want bang for their buck, you'd think that they'd hire someone who actually makes credible claims -- rather than the easily debunked claims and notoriously laughable math that Cleland is famous for.

So what's this new report that Bradley insists is "seemingly well-researched"? It's one of the most laughable reports I've seen to date, claiming that Google isn't just a monopoly, but that it's destroying jobs and the economy (pdf). Get ready for Cleland's brand of ridiculously factless assertions combined with his notoriously bad math.

The report starts out by blaming the Justice Department for not blocking various Google acquisitions or filing antitrust charges against the company. Cleland seems to not realize that the purpose behind antitrust actions is to protect consumers, not just break up big companies for the hell of it (that's what Europe is for). The presentation then goes into all sorts of consultant-speak charts that don't say anything actually significant but scream "oh no, Google is evil," without actually providing anything to back that up.

There's an amusing slide where Cleland then takes a bunch of quotes out of context to actually suggest that efforts to make the web surfing experience better for users is somehow evil because it also benefits Google. In Cleland's world, apparently, all things are a zero sum game, and there's no way that something could be both good for users and Google at the same time. In fact, that seems to be the key to the entire presentation: what's good for Google must be bad for the world... because it's also good for Google. How else can you explain why Cleland highlights Hal Varian's comments about how a "fanatical" focus on customer service (along with scale, speed and data analysis) is somehow a bad thing?

Amusingly, Cleland then goes back to the debunked well by suggesting nefarious Google "human raters" push down links to competitors. This is one of Cleland's pet theories that he just discovered a couple months ago, and thought he was brilliant for it. The only problems is that it wasn't (as he claimed) a new admission from Google, nor was it what Cleland claimed it was. As Danny Sullivan pointed out all the way back in 2007, Google has been public about its "human raters" since 2004, and it's a standard QA job -- not some nefarious job of someone quashing the competition. If you run a search engine, wouldn't you have people on staff whose job it was to look at results and make sure they were actually good for users?

On the areas where Cleland is accurate -- that Google's real customers are advertisers and that the current workings of Google are something of a "black box," that just seems to me to be a huge opportunity for other companies to step in, rather than some dangerous situation that requires government intervention.

But where Cleland really goes off the deep end is his "economic" analysis of the situation, where he claims that Google is creating a deflationary spiral. It kicks off with an almost amusing font-based attack on the concept of "free" (highlighting each time the word is mentioned) as being some evil concept made up by those who seek to destroy the world. It's as if we're back in the ancient Greek civilization and Cleland has just come across the concept of "zero" and declared it to be heresy. And then there's this:

There's no net economic growth, job creation or property value creation in a "free" Internet sector model, only a deflationary price spiral; net negative growth, property devaluation, job losses, and monopolization.

No, really. Stop laughing. The above statement is about as economically clueless as they come. It suggests absolutely no knowledge of basic economics, the economics of growth, the economics of innovation, the basic concepts of complementary goods and market equilibrium. It assumes, like many in the entertainment industry -- despite massive evidence to the contrary -- that when the price of an information good is pushed to zero, that it somehow leads to less overall economic output, rather than more. Tragically for those who believe this, there is no evidence to support such a claim. That's because they never seem to take into account the ancillary markets that are aided by information reaching its equilibrium point.

Cleland then goes on to claim that Google "reduces employment." How?

"because Google views people as inherently inefficient relative to Internet automation, and because Google views customer service personnel as unnecessary, and most sales and marketing personnel as redundant."

Where to start? I think pretty much any company views automation as more efficient than people when that's the case. But, unlike what the Luddites predicted, automation actually resulted in more jobs. Perhaps Cleland should ask the telcos who pay him his salary about their views on automation. After all, AT&T used to employ tens of thousands of operators to physically connect lines when anyone wanted to make a phone call. And they automated that away -- obviously killing off so many jobs. Oh wait... actually, automated switching was so much more efficient that it created millions of new jobs, and entire new industries... including the internet.

As for Google's dislike of customer service, I've hit Google hard on that point multiple times, because I believe that it's a big Achilles' heel for Google, and a huge opportunity for others to woo folks away from Google. But just because Google doesn't like to hire customer service people, it seems like a massive stretch to suggest that this automatically means Google reduces employment. Furthermore, last I checked, Google's sales and marketing force is ridiculously large. It's hardly "redundant." In fact, I've often wondered why Google needed as large a sales force as it has. A year or so ago, I was on a panel discussion with some other bloggers in front of Google's sales and marketing team, and I'm pretty sure it's the largest audience I've spoken to -- and I've spoken to some pretty big audiences. Honestly, it feels like they could make a few more people "redundant."

And, um, why does Cleland ignore the tons of jobs that now exist in the world because of Google who are not actually employed by Google? There are entire industries who exist in large part because of Google. Cleland then accuses Google of "double and triple counting" its own economic impact, but this is especially laughable from the same guy who tried to count internet connections multiple times in one of his attacks on Google.

All in all, this "report" given away for free (oh wait, did Scott Cleland just devalue research and kill off jobs?!?) is just the latest in Cleland's self-debunking charade of ridiculous arguments. The thing is, there are plenty of legitimate complaints about Google, but wrapping them all up in such a ridiculous and easily debunked report actually does significantly more favors for Google than anything else. It suggests that the companies who pay Cleland can't come up with any serious arguments, so they have him come up with such laughable ones. This is really unfortunate. It would be good if more people actually held Google to account for its mistakes and problems with the way it's done business at times. But these exaggerations hide those real issues. Unfortunately, for whatever bizarre reason, Congress keeps calling on Cleland to present at various hearings -- and today, Cleland will be pitching this garbage to the House Judiciary Subcommittee on Courts and Competition Policy. DC politics as usual. You don't need facts, you just need to smear others louder and more ridiculously than anyone else.

Filed Under: economics, jobs, monopolies, scott cleland
Companies: google

Brazilian Technobrega Musicians Embracing Free Distribution Even More

from the good-to-see dept

Three years ago, we wrote about the phenomenon in Brazil of "technobrega" music, and how the musicians involved had embraced piracy to help spread their music, and then capitalize on other business models, including free. Since then, I had been wondering if more established "industry" types would move in and try to lock down the music. Thankfully, reader tuna sends over a more recent article about technobrega, and it appears that technbrega artists are embracing free to an even greater extent than before. Last time we wrote about it, the technobrega artists would rush copies of their (hastily burned) CDs down to street vendors, who would burn and sell copies of it (with none of the money going to the artist -- but they didn't care, because they wanted more people to hear). Now, they're even skipping that middleman and focusing on getting the music online quickly and spread as widely as possible. As Jose Roberto, who runs a technobrega website notes:

"If you don't have an official CD, then what is piracy?"

So why are the artists so eager to give away their content for free? Because the bigger your reputation, and the more people know who you are and like your songs, the more money you can make with live shows. Quite similar to the history of Jamaican music in the 1950s and 60s, the technobrega musicians and DJs have built up traveling soundsystems. Another way to make money is in dance classes. Apparently, learning the complicated dance steps is a big business. A researcher, Ronaldo Lemos, who has studied the technobrega business, notes that it's doing amazingly well by embracing technology and embracing file sharing:

"The crisis in the music industry is widely talked about... Tecno-brega is an industry that makes millions, but it is a completely different model of business. It doesn't see technology as an enemy but as an opportunity."

And yet, I'm sure, we'll soon hear from folks trying to explain why this could never work anywhere else.

Filed Under: brazil, business models, economics, free, technobrega

New Research Suggest Google Book Search Helps Publishers A Lot More Than It Hurts

from the nice-to-see-some-data dept

For years, we've suggested that the fears of various publishers, that Google's book scanning/book search project was somehow a bad thing, were way overblown. We'd seen reports noting that putting your books into Google's book search often helped increase sales, and some enlightened publishers have started to realize the same thing. Yet, to hear some publishers and Google critics talk about it, you would think that the Google book scanning offering was the worst thing ever -- with some comparing Google to the Taliban. Yet, if you take a step back, and realize just how powerful and useful a universal searchable library of books would be, it's difficult to see how that's a bad thing.

But, now we've got a bit more evidence. Michael Scott points us to a new research paper from law professor Hannibal Travis, that tries to look at the actual economic impact of Google's book scanning on publishers, and finds that the falling sky claims from publishers and critics simply isn't supported by the evidence:

First, it finds little support for the much-discussed hypothesis of the Association of American Publishers and Google's competitors that the mass digitization of major U.S. libraries will reduce the revenues and profits of the most-affected publishers. In fact, the revenues of the publishers who believe themselves to be most aggrieved by GBS, as measured by their willingness to file suit against Google for copyright infringement, increased at a faster rate after the project began, as compared to before its commencement. Their profits also increased significantly more on average from 2005 to 2008 than from 2001 to 2004. The increased rate of growth by publishers most affected by GBS does not disappear when one compares it to the growth of the U.S. economy or to the growth of retail sales. The continued rise in sales is remarkable when one considers the soaring sales and prices of other entertainment products that may compete with books.

Second, this Article finds some support for the view that mass digitization and expanded access to book previews may increase the revenues and profits of the most-affected publishers. The evidence for this proposition takes the form of large increases in revenues and profits for publishers affected by GBS who did not opt out of Google's publishing partner agreement for broader access to previews of works still in copyright.

Third, it seems that GBS may simultaneously vindicate the public interest in expanded access to the world's cultural heritage and the pecuniary interests of authors and publishers in recouping the substantial fixed costs of book and periodical production and distribution. Analyzing this virtuous circle can help us begin to theorize the relationship between the Internet industry, the producers of cultural products, and the wider public. This relationship is also visible with other advanced Internet services such as YouTube or DailyMotion, which may increase viewership of copyrighted works that they may infringe, such as television shows.

Obviously, this seems to go beyond just Google's book search, in showing that greater access can certainly lead to greater revenue and profits for those who embrace it. Definitely another worthwhile paper to read on the subject.

Filed Under: copyright, data, economics, google book search, publishers
Companies: google

Is Free Parking Costing Us Billions?

from the it-takes-733-pages-to-discuss? dept

Always interesting economist Tyler Cowen has a story in the NY Times discussing the "cost" of free parking. It's based on the book The High Cost of Free Parking, which spent an astounding 733 pages to delve into the subject. The book suggests that "free parking" cost people in the US at least $127 billion in 2002. I haven't read the book -- and at that page length I'm sure there's a detailed discussion on nearly every challenge -- but I do wonder if it takes into account the benefits to local businesses of free parking. The easier it is to park, the more likely people are to go to those businesses. I'm guessing that the response is that if this does make sense, it should be a per-business decision, rather than a government-mandated one, which is the main complaint. This isn't a subject I've thought much about, frankly, but I found Cowen's discussion of it interesting, and thought people around here might have some... enlightening comments on the subject.

Filed Under: economics, free parking

Why Openness Leads To Greater Innovation: The Friction Of The Hold Up Problem

from the the-hold-up-problem dept

There's an article over at GigaOm that's discussing some of the economics of open source software, specifically in relation to the development of Flash, and as a way to explain why Apple is so anti-Flash. But the key point of the article, a reminder of the so-called "hold-up problem" in economics, which basically shows the additional transaction costs associated with having to rely on another party:

The reason is based on what economists call "the hold up problem." When a business relies on assets owned by another party, it may become dependent on that party's cooperation in the future. In this situation, the party with ownership of a key resource may gain the ability to "hold up" its partner, demanding an unreasonably high price. Hold up becomes a problem especially when a business needs to make large capital investments that assume future cooperation from the owner of a complementary asset.

While the article goes on to explain why the problem is particularly an issue in IT, and why that explains why so many companies rely on open source software (to avoid the hold up problem), it actually is a good explanation for the friction and higher transaction costs involved in all sorts of innovation that relies on solutions that are locked up either via copyright or patents.

The biggest conceptual mistake that people have in thinking that copyright and patents lead to greater output or innovation is that they have trouble understanding the nature of dynamic creativity or innovation. It's tough to realize that innovation and creativity are both ongoing processes. There is no beginning, middle and end. They just keep going, and a single "flash of genius" is meaningless if it does not become a part of that dynamic flow. But the "hold up problem" described above gets in the way nearly every time if you have to rely on some other party -- such as a copyright holder or a patent holder -- to give their approval. It's why we so fear a permission-based culture that doesn't let such things move forward. Each time that it happens, it not only slows down both creativity and innovation, but adds additional wasteful transaction costs that are a dead weight loss to society.

These cases are the norm. Research has shown time and time again that it's the ongoing process that matters, not any particular element of it. And to make that ongoing process keep moving forward, you need less friction, not more. The hold-up problem shows how friction decreases a market from functioning properly, and in many, many cases, both patents and copyright serve to do one main thing: to add a hold-up problem where none need exist. In other words, they serve to add friction to the processes of creativity and innovation, rather than to take away friction. That should be seen as a serious problem.

Filed Under: copyright, economics, friction, hold up problem, innovation, open source, openness, patents

Abundance And Scarcity In Privacy

from the something-worth-thinking-about dept

As you know, we talk an awful lot about understanding abundance and scarcity around here, and how that's really important if you want to understand what the future holds for a variety of different businesses. Failing to understand abundance and scarcity is a recipe for disaster these days. And the more you look, the more you realize that technology is creating new abundances and new scarcities in all sorts of places. Tons of industries are either already experiencing this (entertainment, content, publishing, news, software, etc.) or are about to (energy, health care, finance, etc.). But it's also showing up in other realms as well, and Jeff Jarvis has a smart post about how it's impacting privacy. He summarizes it in a very catchy manner:

Once-abundant privacy is now scarce. Once-scarce publicness is now abundant.

The concept of "publicness" is one that's been getting greater attention lately (Jarvis is writing a book on the subject, apparently), but it's this recognition of the flipside of privacy. As Jarvis notes, it used to be really "scarce." It was very difficult to have large parts of your life public. It only happened for a very small number of people, and involved a lot of gatekeepers. That's no longer the case.

The economics of abundant publicness mean that the old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- overnight lost their power. That's why they're so upset. That's why they keep complaining about all these amateurs taking over their sacred turf -- because they are. What they thought was valuable -- their control -- now had no value. They can't sell their casting couches and presses on craigslist for nothin'. They are being beat by those who break up their control and hand it out for free (Google, craigslist, Facebook, YouTube, etc.).

Abundant publicness also creates new value. Google search is made up of that value. Twitter movie chatter predicting box-office success is that value. Annotations on maps, restaurant reviews, health trends, customer desires -- and on and on -- all find value in our publicness and so new companies are being built on that value. That is why it is in the interests of both companies and customers to be public and why privacy -- when it does compete, when it discourages publicness -- becomes a nuisance for them.

I don't totally agree with this. I think he takes the argument slightly too far in the name of simplicity. That is, I still think that many of the jobs carried out by those old gatekeepers -- editors, agents, producers, publishers, broadcasters, the entire media industry -- actually do still have tremendous value. But a lot of how it works has changed. The problem is when they focus solely on the gatekeeping function as the value (which is Jarvis' point -- many really hung their hat solely on the gatekeeping function), then it's difficult for them to adapt. Those who focused (and still do) on providing greater overall value beyond the gatekeeping still do have tremendous value. As proof that Jarvis believes that, just look at his post about that new book he's working on where he talks up his "brilliant editor" at publishing giant HarperCollins. There's value there, it's just not in gatekeeping.

The other point in all this, which Jarvis mentions more as an aside, is that this is really just looking at the economics of free from a different angle. That is, the reason that such "publicness" is so abundant is because it's so easy for people to spread their works (and share the works of others) for free. And that increases the value of other things that you might do.

Jarvis focuses on the "publicness" side of the equation, rather than the privacy part of it, but the idea that "once abundant privacy is now scarce," is also fascinating to think about as well, and certainly fits with various themes that have been communicated over and over again -- often as simply as Scott McNealy's famous: "You have zero privacy anyway. Get over it." I don't think we've quite reached the stage of the David Brin-style world where radical, extreme transparency replaces privacy, but if you want to extrapolate out some interesting scenarios, it's fun to at least pull the lever that far in thinking about what it would mean.

Instead, I actually think that it highlights the theme of the post we recently had about how everyone has something to hide. As privacy becomes more and more scarce, those things we have to hide actually become increasingly valuable as well. Being able to keep that privacy increases in value. And that is going to lead to some very interesting and controversial business models and situations over time.

It's all a very interesting subject that I'm sure we'll be talking about a lot around here over the next few years.

Filed Under: abundance, economics, privacy, publicness, scarcity

Sub Pop Leaning Towards Giving Away The Infinite And Charging For The Scarce

from the good-for-them! dept

If you like good music, you're almost certainly aware of the iconic indie label Sub Pop. Apparently, Sub Pop's creative juices aren't just focused on putting out great music these days, but they're considering how to adapt their business model to the changing music landscape, and I'm happy to see that they seem to have realized the key point that I've been making for years: infinite goods make scarce goods more valuable, so free the infinite and sell the scarce. Sub Pop is apparently considering starting to give away new music, while focusing on selling tangible goods related to the music (found via Hypebot):

"Although Sub Pop is primarily known for its many fine artists and their really very fine recordings (also grunge), we're not at all opposed to expanding into the fine world of t-shirts, hats, beer cozies, and key chains," Jaspers says. "We used to give many of these tchotchke items away for free in an effort to entice people to pay for the music, but we're considering flipping our strategy so that people pay for the toy and receive the music for free. Just a thought."

Basically, it's a recognition that people want the music, but they're also willing to pay for a physical good as something of a "souvenir" or additional scarce and valuable "art" that is made more valuable by the connection to the music. Sub Pop's art director, Jeff Kleinsmith, is apparently looking to go in creative directions with this:

Regardless of age, there's always going to be people who prefer to touch and make stuff that's like, physical. CDs may end up being little books. We've talked about this at work, where you might spend the time to do a cool package, it just doesn't have a disc in it. And instead of a disc, you've got a little piece of paper that says "go here for your download." So you're getting everything about it except for that plastic disc, you know. I would love to see that.

And that could be a magazine, it could be a shirt, it could be a sticker on a banana, it could be anything, really, that has that download. It could be a poster, a thing associated with this music.

Of course, we've seen some examples of this already. Earlier this year, we talked about a Swedish band that was releasing its latest album as a magazine. Last year, Mos Def tried releasing his latest album as a t-shirt with a download code. And, we just wrote about Kristin Hersh's latest album being released as a book. The idea, of course, is to give fans a real reason to buy beyond just the music -- which is effectively free for many people. But providing scarce value can really do amazing things.

Of course, considering it sounds like the Sub Pop folks are still thinking about this, they might want to consider that selling scarcities can also expand a bit beyond just selling tangible goods. There are intangible scarcities that go well with music as well -- including things like access and attention. Either way, it's great to see such an iconic label realizing that there could be serious value in embracing (rather than complaining) about "free" within a business model, and looking at opportunities to use it to their own advantage.

Filed Under: business models, economics, free, infinite, music, scarce
Companies: sub pop

UK Music Biz Kept Growing Before The Digital Economy Act; So Why Was It Needed?

from the does-that-make-the-IFPI-sad? dept

Last year, we were one of the only ones to report on Will Page and Chris Carey's analysis of the UK music market, which showed (contrary to all the whining and complaining out there) that the music industry was actually growing, if you stopped focusing in on just recorded music, and looked at the overall industry. This was a point we'd been making for years, and it was great to see some economists -- especially economists who work for the industry make that point. This year, they've updated the report and it's getting a lot more attention, because it continues to show that the music industry (in the UK, at least) continues to rise -- including highlighting that even recorded music sales are doing okay. Note, of course, that this is looking at 2009, so the Digital Economy Act has nothing to do with this.

The report notes that live music continues to grow nicely, suggesting again that for all the doom and gloom of "file sharing" out there, it may have driven more people to live shows. Of course, this year there has been a lot of concern about the live industry, as some of the bigger festivals and arena tours have had some trouble, but a lot of indications are that this may be more of a problem of how some of these big tours were set up and organized. Smaller shows appear to be doing well. Page and Carey also note that they've improved their methodology for measuring live revenue, going beyond just ticket sales, since they point out, quite importantly, that some bands play for a cut of the bar tab or through other forms of revenue. They also note the reports of 2010 decline, but warn not to read too much into it, as there is plenty of innovation happening in the market. They point out that while the "growth" of live may be slower, it's still growing.

That said, it is impossible to ignore the innovation taking place in this space, be it ongoing renovations and improvements in venues, better production facilities and food & beverage offerings, VIP suites and upgrade packages, sophisticated data management, or the close forging of fan relationships, all of which combine to increase the concert going population and hence demand.

In addition, we also need to appreciate the positive impact of services like Songkick which are akin to Facebook for live music fans with the end result being more awareness, more recommendations, and consequently more fans going to more shows. The Songkick business model looks to improve on a very simple observation from Sean Moriarty, former CEO of Ticketmaster, who said: "Nearly 35% of [ticket] inventory goes unsold and if you ask fans why they didn't go to shows, one of the more popular reasons is 'I didn't know about it'."

Hence, a balanced view for the outlook of this sector is to accept that live music revenues may well be moving onto a lower growth trajectory than during the boom years -- but please acknowledge that (i) it's still growth and (ii) that the sector is innovating in ways that are arguably just as impressive as those in the digital music sector.

On top of that, it's nice to see them spend some time specifically discussing the ad and sponsor revenue in the music business. This is a large part of the business that gets widely ignored by many. But it really is yet another case of selling the scarcity -- in this case, attention.

The report does spend some time noting that there are some significant differences in the US and UK markets, so it probably doesn't make sense to directly extrapolate out the results. However, this certainly does call into serious question the reasoning of BPI and others for the Digital Economy Act. What it shows, quite clearly, is that the industry was doing a very good job adapting on its own. It even makes you wonder if the BPI/IFPI/RIAA lobbyists are actually upset about this report, which sort of takes away the entire crux of their "help us politicians, you're our only hope" claim.

One final point on all of this: the last page of the report is given over to (soon to be knighted) Feargal Sharkey who has long led the "something must be done about the pirates!" charge in the UK, and has supported three strikes legislation. I find two things about his input interesting. First, there's no more talk about evil pirates and how something must be done. Now the story has flipped, so that it's "see how great the music business is... if the government helped us even more, we could help lead the UK economy out of its doldrums." It's as if we were always at war with Eurasia. Secondly, Sharkey notes that with the rise in live music, the government can help by "lifting the bureaucratic licensing restrictions that are stifling music performances in smaller venues." Now, I don't disagree. Lifting such licensing restrictions would certainly be a big help... but it's a bit surprising to see this in a PRS report, as it could just as easily be pointed out that "lifting the bureaucratic PRS fees that are stifling music performances in small venues."

Either way, we've already promised another interview with Will Page, author of this report, (you can see our last interview with him here) and we're still planning to do that, where we'll spend some time discussing this report as well. If anyone has specific questions you'd like us to discuss with Will, let me know.

Filed Under: economics, growth, music industry, uk

Dear Jeff Zucker, Whether You Like It Or Not, Content Will Stay Free

from the economic-confusion dept

It's sometimes entertaining when powerful executives don't seem to understand the rather basic market forces that they're facing. Take Jeff Zucker, CEO of NBC Universal, who's done a pretty good job driving the operation into the ground over the past few years. In a recent interview, he apparently said (as he's hinted in the past) that it might make sense to charge for TV content online, noting that:

I do not think that it is a foregone conclusion that content should be free on the Internet.

The problem, of course, is that we're well beyond should. Sorry, Jeff, but you don't get to decide that. The technology and the market have already decided that the content is or will be free online. It might not be authorized. It might not be legal. But the content is free. "Should" has nothing to do with it, because the technology and the market don't care about "should." Yes, this sucks for those who only understand how to run a business when they're a gatekeeper who controls things, but it doesn't mean there aren't really good businesses built on free content. NBC should know this, since an awful lot of its history was built on exactly that... And I don't recall Zucker's predecessors whining about that darn "free" broadcast TV.

Filed Under: content, culture, economics, free
Companies: nbc universal

Connecting With Fans... In The Porn Industry?

from the business-models-and-pornography dept

The same professors who recently wrote on the Freakonomics blog about how restaurant innovation thrives without copyright recently wrote another post about how the porn industry is also thriving despite widespread infringement. Even though there is copyright on porn works, with rampant infringement, there doesn't seem to be any evidence of less porn being made these days. The professors make the argument that the overall porn marketplace will likely adapt and change without copyright enforcement, but it certainly won't go away:

Here's a prediction: the porn-tube sites are here to stay, and yet many, many people and companies will continue to produce pornography -- even in the face of virtually uncontrolled copying. Like it or not (and we'll leave the morality of this subject to others), there is huge demand for porn. And although we are not economists, we feel safe in saying that where there is demand, there will be supply....

In short, the porn-tube sites probably won't kill the porn industry. But they will change it. Production is likely to shift even more from "features" to short porn-tube-friendly clips....

They then try to suggest some business models that the porn industry might pick up in the changing marketplace. One is to go upscale (such as an upcoming 3D porn film) that gives people additional "reasons to buy." The other is to focus in on specific niches.

The predictions are a bit simplistic, and economist and Techdirt reader Eric Crampton wrote in to point us to his own attempt at applying my "connect with fans + reason to buy" formula to the porn industry. He finds the suggestions in the Freakonomics article not very workable, and also points out that some of the classic "reasons to buy" probably wouldn't work all that well, at least in some circles. Unlike with musicians, people are probably a lot less interested in wearing a t-shirt highlighting their favorite porn star (yes, I'm sure there are some exceptions, but...).

He then suggests that touring is a possibility -- with online clips being used as enticement to come out and see "live" performances of some kind, though, I would imagine that might not fully work either. I would guess that for most -- "stripping" and "porn" aren't quite the same thing, and while I'm not familiar with how licenses for strip clubs work, I'd have to imagine that most don't allow actual sexual acts between people to happen either. Though, the Freakonomics article does say that some porn actresses use online clips to drive people to come see them strip -- which is a higher margin business.

Of course, a commenter suggests an even more obvious (though very illegal, mostly) form of CwF+RtB: prostitution. Though, that's got all sorts of problems as well.

What surprises me is that one of the more obvious models is mostly left out: straight up advertising. One thing that porn does well is attract a lot of eyeballs. In fact, plenty of online porn sites have supported themselves with advertising for ages. There's no reason for that to change. And, certainly you could think of interesting "tiers" that some top porn stars could use to attract people to pay for greater levels of access, such as private videos, chats and the like. A few months ago, someone had submitted a story about a porn star who was offering special packages on her website where she would attend sporting events with you (I believe for the Phoenix Suns), but I can't find that submission any more.

Either way, I have to concur with the initial analysis. Whatever the business model that comes out, it doesn't seem likely that porn is going away any time soon, even if copyright is totally ignored.

Filed Under: business models, economics, porn