Explaining Why 'If We Charge, People Will Pay' Thinking Is Misguided

from the go-King-go dept

Rose M. Welch points us to a wonderful writeup by King Kaufman at Salon (whose sports column I miss -- but the value of his work about the future of journalism more than makes up for it), concerning the news that Time Magazine used a stock photo it bought from iStockPhoto for a recent cover story. The photographer whose photograph was used was thrilled (as were some of the other photographers). However, there was also a group of photographers who went on to berate him (the photographer) for getting screwed over by a "multi-billion dollar company." Except, of course, they've missed the point. The photograph had already been taken (it didn't take any more work by the photographer to do this) and he was perfectly happy to get money he wouldn't have received otherwise -- even if it was a small amount. From there, Kaufman goes into beautiful beat down mode, and explains how the complaining photographers are flat-out wrong... while also comparing the situation to journalists who say the answer is to just put up a paywall and magically people will pay. It's so good, that I'm quoting a large portion of it, but go read the whole thing as well (and then follow that blog):

Saying that if photographers all refused to do stock photography they'd all get paid more is like saying that if restaurants all refused to give customers napkins without charging they'd all make a bundle on napkin sales. It's like saying that if local bands refused to play for drinks at dive bars, they'd all make good money playing music.

It's also like saying that if news organizations stopped giving away content on the Web, people would pay for news content online. It's absurd.

The posters in that forum who are making that argument are failing, or refusing, to understand basic economics, if not human nature. All photographers are not going to refuse to do stock photography. The ones who do refuse will simply be opening up the market for those willing to sell their pictures cheaply, either because they're not in it for the money or because they can make a profit on volume.

And those arguing that Time should have paid more for this stock photo because it sometimes pays more for other photos, or because it has a lot of money, are forgetting a little thing called supply and demand.

We should note, though, that because Time prints so many copies, it is likely it had to pay iStockphoto for an unlimited-run license, and that its cost was more like $125 than $30. Still nowhere near thousands, and we should also note that Lam, the photographer, was thrilled with his Time cover at a price of $30, and plenty of his colleagues were thrilled for him.

The same pricing dynamic is in play in journalism. The price is not set by how much time, effort, talent or experience went into making the product, and it's not set by how much money the customer has. It's set by supply and demand. The supply of stock photography is very large. The supply of general news content is huge.

If Time hadn't found Lam's stock photo of coins in a jar for $30, or $125, it would have found a similar photo for a similar price. If news consumers can't get their news online for free from their favorite news organization, they'll find it for free somewhere else.

What happened with Lam's photo is not a failure of the system, not a case of photographers eating their own and not a matter of big, rich Time magazine taking advantage of the little guy. I doubt those photographers would expect Time, because it has such a big budget, to pay $3 for a postage stamp or $20 a pound for the office coffee.

What happened with Lam's photo is simply the way the industry works. Time paid what it paid for that image because that's about what it was worth.

When the barrier to entry is low, the supply of goods is large and the alternatives available to the buyer many, the price is going to be low. Wishing it were otherwise, as the photographers are doing in that online forum and as opponents of free content do in Future of Journalism nerdland, will not make it otherwise.

Indeed. What Kaufman describes is the same sort of economic illiteracy that we run into in conversations all the time. People feel that because they don't like the way things work, they need to either blame those who are happy with the way things work or to blame those of us who are simply explaining the economics of supply and demand to them. It's a blame the messenger sort of thing. If I could create a world where photographers and journalists could magically make tons of money, I would. That would be great. But, that's not the world we live in, and pretending it is (or pretending you can simply start charging high amounts and people will keep paying) doesn't help matters. Instead, figuring out ways to understand the economics at play, and then looking for ways to take advantage of those basic economics, seems to make the most sense. This is not about what "should" happen or what people would "like" to happen. It's about what is happening, and learning to take advantage of it.

Filed Under: business, demand, economics, journalism, king kaufman, magazine covers, paywalls, photographs, supply

Has Google Reached The Perception Tipping Point?

from the an-important-question dept

Last week, Anil Dash wrote up a thoughtful post wondering if Google had hit its "Microsoft Moment," which I'll loosely paraphrase as the moment when more people were afraid (or, at least, were marginally distrustful) of the company than that loved the company. For many years, part of Google's success has been based on its ability to "not be evil." That mantra -- often misinterpreted -- tried to get the company to focus on putting the user first, which, in turn, led many people to trust Google and its quirkiness. And yet, the company has grown bigger and bigger and bigger. And the fear over what that means has only grown -- some of it reasonably, some of it certainly driven by competitors and critics. While I believe that the folks at Google really do still think of themselves as being totally customer focused and still try to present themselves as that quirky Google, they're reaching a point where they need to do a lot more to support that perception outside the company. Because it's really not getting through in many cases.

We've noticed this a bit ourselves, with some of the moves the company has made in the last few years showing a distinct change in tone. Whereas there was a point that Google seemed to be defending legal battles on principle, when the company capitulated with the record labels about YouTube, with the Associated Press and, most recently, in its (still in court) book settlement, a different story emerged. In all of those cases, the deals made Google stronger -- while making competitors weaker by not standing up for some key principles. Google started to use its massive cash coffers not to defend key principles, but to dump the problem off on smaller players. Of course, I believe this has already started to come back to haunt the company. The fact that publishers knew they could get a book settlement out of Google was because it had given in on the YouTube and AP deals without standing up for fair use.

Either way, it became quite clear that Google was no longer Silicon Valley's defender. It was Google's defender. And, of course, some will argue that's exactly as it should be. Google has no responsibility to stand up for the principles of others. At the same time, many will claim that Google would be silly not to use its money to harm competitors. But these all showed a particularly un-Google-like view of the world. It was that "don't be evil" stand that made people trust them. It was that belief (real or perceived) that Google was entirely focused on making the world better for everyone that built up that trust. These moves (and some of the moves Anil discusses in his piece) may make the shareholders happy in the short-term. But they end up harming reputation in the long-term.

As Google is fighting accusations of antitrust, the message it keeps trying to spread is that competition is only a click away. The company would be wise to remember that itself, because sometimes it doesn't actually act that way.

That said, I don't believe the company is acting "evil" or that it should be accused of any sort of antitrust violations. But the company has certainly acted a lot less "Googley" lately, and Anil is correct in saying that it appears a lot of folks internal to the company don't really recognize that (or want to believe it). It's definitely hard to keep that kind of culture and attitude as a company gets bigger (and, as some of its earlier employees sail off). And, to its credit, Google has certainly been able to keep a "good" reputation for a lot longer than other companies (and longer than many suspected Google could keep it). But that message has been drifting, and Google would do well to recognize how the external world is perceiving it.

Longtime Googler Matt Cutts responded to Anil's analysis in what I'd consider to be an open letter to other Googlers to take Anil's words seriously, rather than angrily (or just dismissing it as idle criticism). Hopefully that message gets through.

Filed Under: business, perception
Companies: google

Film Studios Can 'Cannibalize' Their DVD Sales, Or Lose Them Completely

from the time-warp dept

"Like music before it, and lately the book industry, major film studios are grappling with the transition from distribution of physical DVDs to electronic delivery. It is a change the studios need to make, to cut costs and curtail piracy." You'd be forgiven for thinking that line was from a story about the film business from several years ago, but it's from a piece over the weekend in the WSJ laying out that movie studios still haven't figured out this internet thing. Of course, with guys like Michael Lynton in charge, that doesn't seem too surprising. Anyway, the main point of the WSJ piece is that studios have been slow to move because they're afraid of killing off DVD sales, which still account for 43 percent of film revenues. Here's the rub, though: DVD sales are already slipping, and efforts to boost them by pushing new kinds of plastic discs on consumers aren't helping. The studios seem to believe that their content is valuable enough that they can dictate how people purchase and enjoy it, and that they'll keep on buying, regardless of how their preferences and desires change. This attitude has already shown up in the studios thinking of yanking their movies from Netflix and trying to hamper the Redbox rental service. Clearly, the idea that studios can protect DVD sales by hamstringing downloads and online services isn't working. Using the fear of cannibalizing DVD revenues with online services isn't particularly smart. Studios face the choice of perhaps cannibalizing their own sales, or losing the revenues to somebody else completely.

Filed Under: business, dvds

Bad Business Advice: Always Look To Charge For Content

from the if-you-want-to-fail... dept

A few people have sent in the NY Times story supposedly about the "free vs. paid" debate that quotes some business school professors giving what appears to me to be awful advice:

Eric J. Johnson, a professor at Columbia Business School, said he had been amazed by media companies repeatedly adding free online services, like on-demand video. "Before you add something to your site, you should say that if consumers really want it, that should be part of a package that you could charge for."

That's looking only at one side of the equation and is doing so in a dangerously short-sighted way. Rather than saying "hey, if people want this, we should charge for it," why not actually look at the larger ecosystem? Why not recognize the added value that can be added if it is free and how that can enable other business models? The problem is that professors like Johnson are basically pushing the idea that a media company is a "content company," rather than a company that's building a community. It focuses on the belief that the content is the final product. It's not. It's never been the final product. If you have open and available content, that allows users to make it more valuable by sharing it, spreading it, annotating it, commenting on it and building off of it. You can't do that when you put it behind a paywall. Content behind a paywall is less valuable to most people. So why would people pay for content that is less valuable?

The problem is focusing so much on the product rather than on the real benefit. Having the content free enables so much else. And if you focus on charging, all it does is open up an opportunity for others to step in and provide that value, and sap away the "paying" users. Focusing just on the pay question and ignoring the value side of the equation is a recipe for trouble.

So, rather than the NY Times "debate," perhaps check out what the site Hypebot did, which was note that the "debate" is already over. It's not about whether or not there should be "free" content, but that the economics and the market are clear: it will be free. So, with that in mind, it put together a whole series of thoughts from different folks about ways to embrace "free" as a part of larger business models. There's plenty of good stuff to read there.

Glenn Peoples, at Billboard, also picked up on the discussion, which is great, though I'd like to challenge one thing he wrote, complaining about Chris Anderson's take on "free":

Anderson did not draw enough distinction between marginal cost -- which in the case of digital distribution is zero -- and average cost. When Anderson writes that "the marginal cost of digital information comes closer to nothing," what he means is the marginal cost of distributing that digital information. There are significant costs in recording music. The cost of creating a brand and inducing awareness, other considerations Anderson understates, are both unavoidable and considerable. An insignificant cost of creating and distributing one more digital file does not reflect the amount of investment to be recouped.

While I don't want to speak for Chris, he and I have certainly talked about these things, and I believe that Peoples is misstating Chris' point on all of this. As we've discussed here before, no one is ignoring the cost of creation or the cost of those other things. We're simply stating the economic fact that none of those things matter in terms of final price. This isn't how we want things to be. It's how economics works. Price is influenced by marginal cost. That's it. Price is not influenced by fixed costs (or average costs). That's not because of what Chris says or what I say. It's how a market works, no matter how anyone thinks things should be.

That doesn't mean you ignore the fixed costs or the average costs. Obviously, you do need to pay attention to those for the sake of making sure there's an ROI where you need it. But that's where you look at your overall offering rather than focusing so narrowly on just the content. So if you can take the content (as you can) and make it free, and use that to drive up interest and value in other scarce products you can sell, then that's where it matters. And, as for the question of "the costs in recording music," we (here at Techdirt) have certainly addressed that at great length: the creation of content is in fact a scarce good. And you can charge for it -- and many have. Jill Sobule is a perfect example of this, getting people to pay to create a new album. Other models work as well, including having brands help pay for the creation of music. There are lots of models that work -- and they don't conflict with or negate the fact (not opinion) that the content itself will have its price driven towards free.

Filed Under: business, business models, charging, content, economics, free

NBC Universal Shuts Down Battlestar Galactica Fan Charity Event In Toronto

from the not-very-nice dept

And here we have yet another case where the copyright holder is certainly within its rights, but that hardly means that its decision made any business sense at all. Michael_S alerts us to the news that some fans of the TV show Battlestar Galactica tried to set up a showing of the finale in a movie theater in Toronto as a charity event. They spoke to someone at NBC Universal, who basically agreed to look the other way and let the event happen... but then the lawyers found out and they shut the event down, because how dare the biggest fans of one of your biggest shows all get together to celebrate the show and raise money for charity at the same time. Yes, it is absolutely within NBC Universal's legal right to block such a public performance, but it makes the company look like a massive, charity-hating bully, for no good reason (and, before someone says it, the need to enforce applies to trademarks, not copyright). It wouldn't have been hard for NBC Universal to set up a simple license to allow the showing to happen, but when you live in a world where lawyers and control are more important than actual business sense, this is what you get.

Filed Under: battlestar galactica, business, charity event, copyright, public showing
Companies: nbc universal

Why Government Backed Businesses Will Always Be Inefficient

from the limitations-on-actions dept

As it appears that the US government will be putting even more money into AIG beyond the $150 billion we've (us, taxpayers) have already spent, Fred Wilson has a good point about why government funded businesses will almost always act inefficiently. The very fact that every move they make is extra-scrutinized for how they're "spending our dollars" makes it almost impossible to act in ways that can help a company actually make the investments and decisions it needs to make. Instead, everything is second-guessed and scrutinized for "how will this look." This results in business decisions that are forced to respond to populist sentiment rather than good business judgment. This again raises questions of why we're propping up businesses that failed, rather than helping new entities open up.

Filed Under: business, government, inefficiencies
Companies: aig

How Does Chinese Internet Censorship Affect Business?

from the unintended-consequences? dept

China's sophisticated Internet surveillance and censorship often make headlines in the West. Usually, those stories chronicle the latest crackdown on dissident netizens or highlight a Western journalist's inability to reach the websites of human rights organizations. But recently, more of those articles are focusing on the business aspects of the censorship.

For example, some people are pushing for the US government to make Internet censorship a trade issue. The argument, that Google has made in Congressional testimony, is that digital barriers to the free flow of information are equivalent to traditional trade barriers which are illegal under WTO rules; as such, the US Trade Representative should use its leverage to lower those costs to doing business in China and elsewhere. It is not clear if this will be effective, especially given numerous other bilateral trade issues between China and the United States, but recent news makes it clear that censorship does affect technology companies in China.

Late last week, the head of the Internet surveillance department at the Beijing Bureau of Public Safety was arrested on charges of corruption. The man is accused of taking bribes of nearly $6 million to help an anti-virus company beat its competitor. This is obviously problematic for foreign companies operating in a country where they do not have close ties to the powerful bureaucracy, especially given China's notoriously corrupt judiciary. But perhaps what is even more worrying is that Internet censorship and surveillance are on the rise around the world, only furthering the control exerted upon what could be a very free marketplace.

Filed Under: business, censorship, china

China Shuts Down 'Unregistered' Websites

from the the-great-firewall-needs-to-be-fed dept

You may recall a few years back that China started demanding that all websites register with the government for approval. We hadn't heard much about the program since then, but apparently the government has recently decided to shut down thousands of "unregistered" websites, mostly of small businesses. Considering the state of the economy these days (yes, in China as well), you would think that China would think twice before shutting down small business websites... but apparently the ability to control the internet trumps all economic concerns.

Filed Under: business, china, websites

Maximizing Profits Doesn't Mean Screwing Your Customers

from the rinse,-lather,-repeat dept

A few years back, we wrote a post debunking the ridiculous notion spread by some that Craigslist was somehow "anti-capitalist" or not "maximizing profits" because it actually offered most of its services for free. As we noted, much of Craigslist's long-term success was because of these decisions -- which in all likelihood did increase overall profits for the company in the long run by building up further trust in the company. It may not have maximized profits for this quarter, but it most likely was doing a pretty good job in generating profits for the long haul by keeping customers happy, rather than trying to squeeze them for every immediate dime (and who was just saying that Silicon Valley doesn't have a long term view?)

Now we've got another similar story, as the LA Times is positively amazed that the popular virtual world Habbo Hotel limits its users to spending no more than $35/month, on the theory that many of its users are teenagers, who could get sucked into spending on stuff, which could lead to eventual backlash. Its CEO made this clear in a recent interview, saying: "We didn't want a situation where teens were raiding their parents' credit cards to be able to play.... We really don't want teenagers to spend more than the price of two movie tickets a month on Habbo."

So, how does the LA Times describe this decision? It points out, partly in jest, that "turning down money seems un-American." Again, even if this wasn't meant as a serious comment, it's similar to the silly claims about Craigslist. Habbo Hotel has simply made a strategic long-term decision on ways to best maximize its success for the long haul. And, part of that probably included the calculation that Habbo would have been in quite some trouble if news stories started showing up about kids bankrupting themselves buying virtual trinkets for their Habbo Hotel world. Limiting how much people can spend isn't anti-American or anti-capitalist or even anti-profit maximization. It's just taking a much longer term view of the best way to maximize profits over the long run.

Filed Under: anti-american, business, capitalism, long-term view, maximizing profit
Companies: habbo hotel

easyJet Wants To Sue Websites That Send It Business

from the is-it-illegal-to-help-someone? dept

I'm always amazed at people who get pissed off at anyone who makes their products more valuable -- especially when they threaten to sue. Like the whole ridiculousness surrounding the Associated Press threatening a blogger for sending more attention its way, for example. The latest case is even more bizarre, as European discount airline easyJet is threatening to sue various travel websites that send it business. It's difficult to see how this could possibly make any business sense for easyJet.

Now, obviously, some will claim (as easyJet does) that easyJet should have the right to only sell flights off of its own website. But if these other sites are merely scraping the content and then linking back to easyJet, then what's the problem? These sites are sending more business to easyJet, and it wants to sue them. The lawyer quoted in the article discusses copyright issues (which again, seems to go against what the company should want) and also database rights -- which is recognized in Europe rather than the US. But even if it's true that easyJet has a legal right to block these sites, it still seems like a bad business idea to sue sites for giving you free advertising -- especially when those are the sites people go to when they want to buy airplane tickets.

Filed Under: business, copyright, database rights, promotions
Companies: easyjet