There's just something about having to compete with "free" that gets people really, really angry. It's silly of course. In traditional competition, if someone lowers their price and it's lower than your own costs, you simply have to figure out other ways to compete (such as by adding more benefits and value). It's the same thing when you compete with free -- but for some reason, people see that big $0 and they stop thinking, not realizing it's no different if someone is charging $0 or if they're just charging less than you. You need to figure out some way to compete. EEJ points us to a story from a couple months back, noting that in Tampa, Florida, some entrepreneurially minded folks have started up free transportation services using electric vehicles. The operators of these vehicles make their money by wrapping the cars in ads and accepting tips. Other than that, the ride is free.
But... wouldn't you know it? Local cabbies are pissed off and demanding regulations to stop this sort of competition. Rather than coming up with better ways to compete, they feel the need to run to the government and get protectionist help. Doesn't this sound familiar? Amusingly, it's actually taxi regulations that have created some of this problem in the first place. At least one of the electric car owners notes that he approached the city about getting a license, but he was denied, because of the artificial scarcity the city places on cabs via such regulations (which help keep the cost of a cab ride artificially high). But... the loophole is that the regulations only apply to hired transportation. If the transportation itself is "free" then there are no regulations.
Could it be that EA is actually figuring this stuff out? It's been one of the most maligned video game companies when it came to mistreating fans with things like draconian DRM -- but perhaps that's changing. Earlier this month we quoted EA's CEO, John Riccitiello, putting a positive spin on the fact that people had downloaded and shared unauthorized copies of The Sims 3, finally recognizing that it was like a demo version of the game. Reader Jim alerts us to the news that Riccitiello was apparently so happy with the response to The Sims 3 sharing, he's now going even further, telling people to "please pirate our games":
"By the way, if there are any pirates you're writing for, please encourage them to pirate FIFA Online, NBA Street Online, Battleforge, Battlefield Heroes... if they would just pirate lots of it I'd love them."
It's not clear Riccitiello is totally comfortable saying these things. As with the quotes earlier this month, you sorta get the feeling that there's a lot of nervous laughter around the quotes -- but at least he's trying. And part of it is because EA is, in fact, putting in place smarter business models, such that unauthorized downloads can actually lead to more sales:
"Because what's in the middle of the game is an opportunity to buy stuff. I increasingly believe that's the way the market's going because that's how the consumer wants to consume. And by the way, [regarding] my competitor, do you think Blizzard gets upset when someone pirates a disc of one of their online games? While we don't want to see people pirate Warhammer Online, if they're going to give us a year's subscription it's not exactly a total loss."
Indeed. He's getting there. If the real opportunities to make money are from buying stuff within the game, then you want the game itself to be as widely spread as possible...
When we talk about the various business models and economics surrounding "infinite goods" people always want to insist that there's some area where there are no scarcities or are no ancillary goods that can be sold. One example that's commonly cited is novels. Sure, with business books, the writer can go on a speaking tour, but with novels, what else will people want to buy? But, of course, that misses the point. There are always creative ways to get people to buy, and it's rather insulting to suggest that people are so uncreative that they can't come up with other unique ways to either sell other things or to convince people that the physical book itself is worth buying.
That's why I was excited to hear from JC Hutchins, who was telling us about the way he's selling his new novel, Personal Effects: Dark Art. First, if you buy the book itself, it comes with a lot more than just the book. In the book are various "artifacts" that are talked about in the book and are a part of the story -- such as credit cards, business cards, IDs, photos and legal documents -- all of which look and feel totally authentic (yes, including the credit card). But, even more interesting is that the story goes beyond the book itself. We've seen various video games, movies and even albums have certain "Alternative Reality Games" associated with them -- and this book does, too. If you Google the names of certain characters, you can find their webpages and blogs (and accounts on certain social networking sites). The phone numbers on the business card work. You can email characters in the story, hear voicemails and hack into different websites and emails, as well.
Oh, and on top of that, in order to help people get more interested in the story, Hutchins offers up a free audio prequel to the book designed to introduce you to the story, the characters and the "world" the full story inhabits. He also has a huge 50 page PDF file you can download, with details and info on how to host your own party around the themes in the book, with the idea obviously being to allow fans of the book to evangelize it to other friends.
And, of course, Hutchins works to come up with interesting ways to "connect with fans," including the ability for fans to "commit themselves" as patients to the psychiatric hospital at the center of the story. The story in the book revolves around a therapist at the hospital who uses an individual's "personal effects" to help treat them -- so this part lets you submit your own backstory and whatever "personal effects" you want, in order to "become a patient." It may be a little gimmicky, but it's a lot more immersive than just about any other novel.
All in all, it looks like a really fun world around the book. It helps the author better connect with fans and gives them a reason to buy the actual book -- no ebook is going to replace the overall impact here.
Now, I can probably already write exactly what the critics will say in the comments here: that (1) this seems like a ton of extra work and what if the author just wants to write and (2) this only works this one time, with this one author, in this particular genre. In response to the first point, that's true, but Hutchins actually teamed up with an alternative reality game creator, Jordan Weisman, and there's no reason other authors can't find partners, too. Second (and this is important, even though it will no doubt be ignored by the critics here): no one is saying that this is "the model" for selling novels in the future. The point is simple: there are a nearly unlimited number of ways in which authors can be creative and unique in providing people true reasons to buy books and/or other scarcities. Hutchins is just demonstrating one (or, actually, a few) that he figured out. In this case, Hutchins recognized (correctly) that such an ARG would fit with this particular novel, and that's great. I'm sure other creative writers in totally different genres can come up with creative other "reasons to buy" and other scarcities around the types of things they do, as well.
On Friday, we thought that Mos Def's experiment with selling an album via a t-shirt (whereby if you bought the t-shirt, you got to download the album) was a pretty cool idea. What seemed even cooler was the claim that Nielsen Soundscan would count each t-shirt sale as an album sale. However, Soundscan has come out claiming this simply is not true:
"Nielsen Soundscan knows nothing about this and without knowing more, we have no intention of counting units triggered by the sale of a t-shirt."
The company offering up the t-shirts tried to explain, saying:
Instead of directly reporting retail sales through his company, Invisible DJ, Wineberg plans to relay the information back to the label. The label, in turn, can then submit the sale to Soundscan.
Hmm. That's not quite the same thing as saying Soundscan will count the t-shirt sales? And, it may be even worse, as Soundscan said it may count those sales submitted by the label, but only after "a discussion and negotiation." In other words, there's no real deal here at all, and nothing to suggest that the t-shirts will be counted as album sales.
Of course, that's ridiculous. In this era when the "music" is getting people to buy other stuff, the specific number of "album" sales is meaningless. We've seen artists who embrace these unique models making a lot more money from them, but they don't appear as top sellers because Soundscan only wants to count one (increasingly smaller) part of the ecosystem? That sort of thinking reinforces the misguided focus on the "album."
In the last post, I showed the video of my presentation at the NARM event full of music industry and music industry retailers. I recognize that not everyone wants to sit through a 30 minute presentation (even though I promise that it goes quickly!), so I did want to highlight two parts of it separately, here in text, that I think are worth calling out. Both show companies that seem to (implicitly or explicitly) recognize what we talk about in terms of enabling artists to better connect with their fans and give those fans a reason to buy -- Topspin and Nettwerk. We've certainly talked about both in various posts, but execs from both companies were kind enough to share some data on some of their experiments that have not been reported elsewhere, and which I thought was worth sharing.
Topspin, of course, has built up a platform to better enable artists to both connect with fans and to give them a reason to buy, and has been able to work with some fantastic artists, both big and small, including Eminem, Paul McCartney, the Beastie Boys, Metric, Beck, Van Hunt, David Byrne and a bunch of others as well. The exciting thing is the level of success Topspin has found with these artists:
The average transaction price across all Topspin artists has been $22. Compare that to the average price of a CD, which remains between $12 and $14. If you give people a reason to buy, they're willing to pay more. It's obviously not just about "getting stuff for free" as some contend.
Even better, two separate artists using TopSpin have found that their average transaction price is between $50 and $100.
Finally, one artist using Topspin has found (amazingly) that the average transaction price from what was being offered was greater than $100.
And, on top of that, on one recent project, they found that 84% of the orders were premium offers (meaning above the lowest tier).
The idea that people just want stuff for free? Debunked. Give people a reason to buy in the form of real value they can't get elsewhere, and they absolutely will. About an hour after my talk, Ian Rogers, CEO of Topspin did a keynote interview at the same event. You can watch it here:
Separately, we've definitely been quite impressed with what Terry McBride has done lately with some artists who work with Nettwerk, the indie label/artist management company. Terry's very much been a believer in the mantra of connecting with fans and giving them a reason to buy, and has even talked about how the whole concept of copyright has become outdated. His view isn't that this is necessarily a good or bad thing, but it's just the way it is, and in helping the artists he works with, they have to figure out ways to work with it. To date, that's included a lot of creative ideas for better connecting with fans and then giving them a reason to buy. One experiment he did was with the artist K-OS, who did a few different experiments, starting with allowing the fans to create their own "mix" of his latest album. Not a remix, but a mix. They released the stems of the songs before the album was released, let the fans create their own mixes, had them vote on the best, and then released two albums at the same time. One was the "pro" mix and the other was the "fan" mix. Then you could buy either one separately, or both together as a package.
The second experiment was the "pay on your way out" concert tour. Realistically speaking, this was a series of ten "free" shows. You could get in for free, but they asked you to pay what you felt was reasonable on the way out. Given the insistence by people that fans just want something for free, you would expect that very few would actually pay anything at all. Of course, that wasn't what happened.
Terry was kind enough to share with us some data from the experiment. Despite being free to come and go without paying anything, 63% of people attending ended up donating money on the way out. Now I'm sure some folks will mock this and say that he could have made more by charging everyone, but it seems quite likely that a lot more people came out to these free shows than if he had made people pay in advance. Almost two thirds of people ended up paying, totally voluntarily -- and their average donation was $6. Again, some will claim that this is low, but you have to look at the bigger overall picture. During this tour each of the two K-OS CDs were separately in the top 50 list of best sellers.
So, he gave a series of free shows that ended up bringing in tens of thousands of dollars combined (average attendance at each show was approximately 1,000 people) and it helped get a lot of people to buy both the CDs that were being offered in support of K-OS. Some people are going to nitpick the numbers, of course, but the evidence remains clear again: it's not that fans just want stuff for free. If you give them a reason to buy, an awful lot of them will absolutely buy.
To hear some in the industry tell it, the music industry is falling apart. Except, we're not seeing that at all. What we have seen is that sales of one particular element of the industry have come under much needed competitive pressure, and that's caused a few companies who relied too heavily on that area of business to finally start to recognize the inefficiencies in their business model -- which they're falsely blaming on "piracy." However, the rest of the industry is thriving. A couple weeks ago, I presented at the National Association of Recording Merchandisers (NARM) event, held in San Diego, about "success stories from the music commerce frontier," highlighting both artists and companies that were finding success, despite the "woe is me" complaints from both the big record labels and certain music retailers. Parts of the presentation come from older presentations, but about 2/3 of it is entirely new material, including the opening bit, built off of Clay Shirky's wonderful analysis of what comes next for the newspaper industry -- but applied to the music industry. The presentation itself runs about half an hour and you can watch it below (if you're in an RSS reader, click through to the page to see it):
While some folks like to mock the business model examples we talk about by saying that the future is just in selling looooooooooooooooooottss of t-shirts, the truth is that while the models involve a bunch of different things, we shouldn't mock the idea of using t-shirts as part of some models. It appears that Mos Def recognizes that. As a bunch of you have sent in, his latest album is being sold via t-shirt. That is, you can buy a t-shirt that will include the album artwork on the front, track listing on the back... and a code for a digital download. And even more impressive, he's convinced Soundscan to count sales of the t-shirt as album sales. Another cool experiment.
We just wrote about the Harvard economists who noted that, despite claims that file sharing would decrease the incentive to create content, more music than ever before is being made, and the trends keep going up. That report did note that it couldn't necessarily judge quality, but was simply focused on quantity. However, according to at least one well known band, unauthorized file sharing is absolutely improving the quality of music -- especially the band's own music. This is according to the lead singer of the Fleet Foxes, Robin Pecknold. He points out that his own musical tastes were heavily influenced by what he could download online, and that wide variety of influences has made him a much better musician:
"As much music as musicians can hear, that will only make music richer as an artform.... I think we're seeing that now with tons of new bands that are amazing, and are doing way better music now than was being made pre-Napster."
Now, obviously, this is anecdotal and a single data point -- but the critics (and fans) sure do seem to like the Fleet Foxes' music. Its debut album was named "Best of 2008" by Billboard, The Times, Mojo, Pitchfork and Uncut and hit number 3 on the UK charts (not sure about the US). And, of course, not surprisingly, Pecknold is fine if you want to download his album:
"I've downloaded hundreds and hundreds of records - why would I care if somebody downloads ours? That's such a petty thing to care about."
Andy Kessler's latest opinion piece is in Forbes, where he basically makes the point many of us have been making for years: piracy happens; so get over it, focus on new business models and stop thinking lawsuits will save you. There isn't necessarily much new in the article for folks around here, but it is nice to see more of these sorts of articles hitting the mainstream press, where maybe the message will start to sink in: copyright infringement is a business model problem not a legal problem. Once you realize that, your whole perspective changes.
The NY Times is running an article about a bunch of illustrators complaining that Google offered to promote their work for free as special skins for its Chrome browser. The concern? That Google wouldn't pay them to promote their work. Of course, that's fine. They can (and many did) choose not to accept this free promotion, but it's difficult to understand what sort of statement they think they're making. As Google noted, it found plenty of takers for the chance at such a great channel for promotion, so all those artists who stood by their "principles" will suddenly find out that for all their complaints about not being "paid" by Google, lots of artists will get a lot more exposure, and hopefully most of them are smart about turning exposure into money. Google wasn't asking the artists to do anything new, but to reuse an existing work -- but from that, it's likely that people will learn about these artists, and that could (or should) easily lead to new work. The cost to artists is next to nothing, but the potential payoff is quite high. So why deny it? It's the same silly entitlement mentality that has people think that for every use of work they've already done they must get paid. It's a failure to recognize that exposure is a form of payment, and widespread exposure from a brand like Google should be quite easily monetizable. People who think compensation only comes in money are going to have a lot of difficulty succeeding in the digital era.
