UK To Force ISPs To Kick Casual File Sharers Off The Internet

from the no-internet-for-you dept

Last November, we were surprised to hear that the French government was convinced by the entertainment industry that it would be a good idea to have casual file sharers kicked off the internet. Soon afterwards, rumors spread that the UK was going down the same path, and now it appears that very similar legislation is being introduced in the UK, even as ISPs and Hollywood have tried to come to a "voluntary agreement" on just such a policy.

As in France, this will involve a "three strike rule," with ISPs sending a "warning email" on the first suspected infringement, suspending the account on a second infringement and canceling the entire contract on the third. This seems to be a serious overreaction. Beyond shoving ISPs into the role of the entertainment industry's police, judge, jury and jailer, it also is a legal solution to a business model problem. The entertainment industry is still unwilling to adapt its business model to the new distribution mechanisms of the internet. That should be a reason to change the business models -- not change the rules of the internet. Only in the short-sighted minds of entertainment industry execs (and the politicians they support) would it make sense to change the platform to support a more limited business model, rather than embracing the new (more efficient) distribution platform and adjusting the business model.

Filed Under: business models, copyright, file sharing, isps, p2p, uk

A Modest Proposal: ISPs Should Stop Any Activity That Hurts A Business Model

from the it's-their-responsibility-after-all dept

With the entertainment industry's new push to force ISPs to somehow filter or block the transfer of any kind of copyrighted material, Charles Arthur is wondering why other industries facing massive business model challenges can't do the same thing? Newspapers, as has been well documented, are facing challenges from the likes of Craigslist and Google -- so why not have ISPs block those sites? And plenty of people are discussing news articles, even to the point of copying-and-pasting articles. Clearly, ISPs should be protecting the newspaper industry. But that's not all. Arthur points to some other industries that ISPs should help protect, such as auto mechanics and needlepoint pattern makers -- both of whom have faced market changes thanks to the internet. If only ISPs would block the sharing of information on how to fix your own car or how to create needlepoints -- both of those important industries could be protected. Or, as Arthur concludes, perhaps all of these industries could adapt to the changing market. But what are the chances of that happening?

Filed Under: business models, filters, isps, mechanics, needlepoint, newspapers, recording industry

Dow Jones Execs Talk Murdoch Out Of Dropping The Paywall

from the short-term-revenue-vs.-long-term-relevance dept

For months there had been a lot of buzz about how Rupert Murdoch was interested in dropping the WSJ's paywall. However, as we noted, execs at Dow Jones were quick to hit back, and said they would convince Murdoch otherwise after the acquisition was completed. It appears that's exactly what's happened. Murdoch today admitted that he's going to keep the WSJ subscription offering and maybe even increase the price. Amusingly, this news is available for free on the WSJ's site. The truth is, it's still not entirely clear what's going to happen to the Journal's website. While Murdoch said there will always be a subscription offering, he also said that more content will be free. It sounds like he's trying to straddle both solutions here, picking the "most valuable" content to remain locked up. Of course, that was the NY Times' strategy -- which failed.

The simple fact is that news reporting content is incredibly difficult to monetize directly anymore -- due to a variety of factors, mostly having to do with the nature of trying to sell content. There are models (even subscription models) that work, but they will be not for the content directly, but for advanced services, such as personalization or analysis. The risk in locking up your best content is that the WSJ will continue to lose relevance, as the next generation of readers won't even bother to sign up, as they won't be able to understand why it's worth paying for this content, no matter how good WSJ execs claim it is.

The next generation of content users have learned something important: it's no longer reasonable to take it on faith that content they don't have access to is good and worth paying for. They need to have access to the content itself, and will figure out for themselves if it's valuable -- and if it is, they'll want to do more with it than just read it. They want to share it, vote on it, discuss it, analyze it and many other things. Locking up the content makes it a lot more difficult and takes away much of the value. Taking away value from consumers isn't exactly a strategy for success these days.

Filed Under: business models, free, newspapers, rupert murdoch, wall street journal
Companies: dow jones, news corp

News Is Valuable, But Value And Price Are Two Separate Things

from the a-little-economics-lesson dept

This past weekend, David Simon, the executive producer of HBO's The Wire, and a former newspaper reporter, had an opinion piece in the Washington Post decrying the state of the newspaper business, saying:

"Isn't the news itself still valuable to anyone? In any format, through any medium -- isn't an understanding of the events of the day still a salable commodity? Or were we kidding ourselves? Was a newspaper a viable entity only so long as it had classifieds, comics and the latest sports scores? It's hard to say that, even harder to think it. By that premise, what all of us pretended to regard as a viable commodity -- indeed, as the source of all that was purposeful and heroic -- was, in fact, an intellectual vanity."

It's a rather common refrain, but to understand the challenges the newspaper business faces, it's important to dispel some of the myths that are a part of that refrain. The first is a concept that is quite important, but often gets lost: price and value are two separate things. They are not the same. Value drives demand -- but price is set by the intersection of demand and supply. If supply is abundant, it's not going to matter how valuable your product is, price will get pushed towards zero. So, Simon is incorrect in thinking that news isn't valuable or that it was an "intellectual vanity" to think so. News and reporting are valuable. The problem, though, is that it's quite abundant these days, and so the price that people are willing to pay gets pushed towards zero.

That's not necessarily a bad thing. While Simon goes on to complain about the state of news coverage today, the problem isn't that people don't value the news, but that the people who run newspapers haven't figured out how to properly adjust to the marketplace they're facing. We're seeing plenty of evidence that there's lots of money to be made in the news business, for those who understand how the market is changing and how to embrace it. There are plenty of ways to provide news the way people want to consume (and interact with) the news, rather than doing it the same way it was done for decades. It's not that news isn't valuable. It's that newspapers haven't figured out how to adapt to the changing market.

Filed Under: business models, economics, newspapers, value

Giving Comic Book Away For Free Helped Boost Sales

from the leave-it-to-the-smaller-publishers-to-figure-this-out dept

Paddy Dwyer writes "The comic book publisher Boom Studios announced about 2 weeks back that they were going to release the full first issue of a new comic called North Wind online free the exact same day as it was released in shops. They also plan to do this with the remaining 4 issues in the mini series. There was some retailer outcry when this was announced but it didn't last long. As the book quickly sold out with Diamond Comics Distributors. Then even though the book is still available online for free they are planning on doing a second printing to fulfill remaining back orders for the book. Also the book was released in CBZ format which is to comics what the mp3 is to music. There is no DRM and it is of very high quality."

This comes just a couple months after Tim Lee pointed out why comic book publishers should free up their content. He also discussed how the big comic book publisher, Marvel and DC have, instead, chosen to lock up their content and threaten people for sharing their books online. Yet, here we are, once again, with an example where the companies who embrace the ability to use free content as a promotion are finding that it actually helps them sell more.

Filed Under: business models, comic books, economics, free
Companies: boom studios

Freemium Models For Video Games -- Coming To Annoy At A PC Near You?

from the trade-you-virtual-guns-for-virtual-butter dept

As we've noted before, Electronic Arts has already tested giving away games for free and selling virtual items to players for small fees. The business model works (in South Korea, at least) -- and EA's CEO is looking to expand this 'freemium' model to more and more games. According to the New York Times, EA CEO John Riccitiello is ramping up the strategy with the release of 'Battlefront Heroes' which will introduce ads and virtual goods to subsidize the free version of this online game. And Riccitiello is quoted, saying "I've always envied the movie industry when they put a film out in the cinema, then they go to retail with a different business model and then to pay television and then free TV. They have the same content reaching different audiences with different models, and we could never figure out a way to do that. Now with higher broadband penetration, we can use the technology to reach a broader audience."

Hopefully, Riccitiello isn't too envious of the movie industry, and EA has a longer term view for the future of its game production. An easy trap to fall into would be for EA to try to charge for every little thing, hindering the enjoyment of video games with annoying reminders to buy virtual ammo. On the other hand, EA could remember to treat gamers well and charge for its games in way that keeps players happy -- but if 40% margins are the goal, the temptation to squeeze gamers for every microtransaction may prevent EA from playing nicely.

Filed Under: business models, economics, free, video games
Companies: ea

Sometimes Free Really Means Free

from the yes-there-are-free-lunches dept

"Free" seems like a simple enough concept. As we've explained in the past, there's a huge number of successful business models that involve giving away free stuff. But Adam Thierer points out that some people are still horribly confused about the nature of "free" business models. Alex Iskold claims that the "free" stuff given away by Google and other companies is an illusion. He notes that when a company offers us free stuff, it often come with a price attached: you get a free lunch, but you have to listen to an annoying timeshare sales pitch. What Iskold fails to appreciate is the difference between scarce physical goods and non-scarce information goods. It's true that if a company is giving a physical product away for free, they're probably going to try to sell you something as part of the deal. But that's because the physical product costs them money, and they'd go out of business if they gave away too many. Information goods are totally different. Once you've created a new information product, you can give away an unlimited number of copies without affecting your bottom line. And so you can afford to design your business model in a much more generous fashion. MySQL, for example, built a billion-dollar business by giving away millions of copies of its software in order to attract a few thousand companies willing to pay for its service and support offerings. Those millions of free copies of MySQL really are free.

Iskold also seems confused about the difference between monopolies and competition. He claims that Google's decision to give its word processor and spreadsheet application away is "monopolistic" and a "dangerous poker game" that's only possible because Google has a huge pile of cash. This is ridiculous on a couple of different levels. In the first place, it's absurd to think that Google's cash pile gives it an unfair advantage over Microsoft, which has one of the largest cash piles in the history of the world. Second, there are numerous other competitors in the online word processing space, such as Zoho, who don't have Google's large piles of cash, yet still give away online word processors for free. In fact, Google's own word processor actually came from a tiny startup, Writely, who had very little money, but was still giving away the product for free. Third, there's no inherent reason why word processors can't be free. You can make an unlimited number of copies of it just like any other software product. Microsoft has only retained the ability to charge hundreds of dollars for Office because they haven't had enough competition. Now that competition is increasing, the price of office software is likely to fall toward its marginal cost of zero, and companies will need to find more creative ways to turn a profit from it. Cutting prices (including cutting them to zero) in order to increase market share is the opposite of monopolistic. Consumers benefited from Microsoft's decision to give away Internet Explorer in the 1990s, and they benefit from Google's decision to give away Google Docs today.

Filed Under: business models, economics, free, scarce goods
Companies: google

A Psychological Explanation For RIAA Short-Sightedness

from the would-rather-lose-money-than-let-someone-else-make-it dept

In all of the discussions we've had over various business models that could help make the entertainment industry even bigger than it is today, while embracing things like file sharing, we're always shocked to have entertainment industry execs and lobbyists come back with some sort of version "but that's not fair." We saw it when we tried to explain why questions about the economics of file sharing really shouldn't be seen as a moral issue, because if the economics works out with everyone being better off, the moral question should fall by the wayside. Yet, we were still told that it was a moral issue and a question of "fairness." This is true even if what we describe would make the industry more money. On an absolute basis, they would be better off. If you can make twice as much money, even if some people are "freeloading" and not paying anything, wouldn't that be a good thing? Yet, time and time again, we're told that "no" it would not be a good thing, because of those freeloaders. Universal Music CEO Doug Morris even admitted flat out that giving up 10 cents today to make a dollar later means that he's being taken advantage of for that 10 cents. These reactions are not rational.

At times it's been frustrating trying to understand why this is. We've often just assumed that it's caused by a general inertia: that is, it's not easy for someone who's had a successful existing business model to accept the idea that the market has changed and the business model needs to change. That requires effort and effort is not as much fun as coasting on inertia. However, reader Bill Corry writes in with another intriguing possibility. He points to a story in the LA Times discussing some recent behavioral economic studies on how people deal with fairness vs. rationality, suggesting that it explains the RIAA's actions. I'd actually seen all of the studies mentioned in the past, but hadn't associated them with the entertainment industry's struggles. The key part:

Consider one more experimental example to prove the point: the ultimatum game. You are given $100 to split between yourself and your game partner. Whatever division of the money you propose, if your partner accepts it, you each get to keep your share. If, however, your partner rejects it, neither of you gets any money.

How much should you offer? Why not suggest a $90-$10 split? If your game partner is a rational, self-interested money-maximizer -- the very embodiment of Homo economicus -- he isn't going to turn down a free 10 bucks, is he? He is. Research shows that proposals that offer much less than a $70-$30 split are usually rejected.

Why? Because they aren't fair. Says who? Says the moral emotion of "reciprocal altruism," which evolved over the Paleolithic eons to demand fairness on the part of our potential exchange partners. "I'll scratch your back if you'll scratch mine" only works if I know you will respond with something approaching parity. The moral sense of fairness is hard-wired into our brains and is an emotion shared by most people and primates tested for it, including people from non-Western cultures and those living close to how our Paleolithic ancestors lived.

So, perhaps the industry is to be forgiven. It's not that they're completely blind to the fact that they're giving up potentially millions of dollars in forgone profits from not embracing new models that also benefit "freeloaders." It's just that we're all hardwired to make bad economic decisions when that happens.

Filed Under: behavioral economics, business models, economics, riaa
Companies: riaa

Jill Sobule The Latest Musician To Embrace New Music Business Models

from the good-for-her dept

Last month we wrote about musician Kristin Hersh embracing a version of the new business model we suggested for musicians way back in 2003. It's a model where the musician can actually embrace file sharing and do better because of it, by focusing on using the file sharing to sell more scarce goods, such as specific songs or access to the musician. One of my favorite ideas in that discussion was that the musician could offer up that he or she would play a backyard concert for a supporter. I've yet to see anyone else pick up on that suggestion... until now. Well-known singer-songwriter Jill Sobule has just announced her plans for a new album and it involves a website that allows people to buy in at different levels from $25 (you get the CD before it's released) all the way up to $10,000 (you actually get to sing or participate on the CD). At the $5,000 level, Jill will come and perform at your home. I still think the lowest level ($25) is a bit too high, but the various levels and the rewards at each level do seem about right for the model. It's not clear how Sobule feels about file sharing on top of this, but it's clear that she's really embraced this new business model -- so I'm hopeful that it works out for her. So here's a question: will all the folks who say that taking an idea without giving someone credit for it is "theft" claim that Sobule "stole" this idea from me or will they recognize how ridiculous that is and how we're all better off when infinite goods are spread freely?

Filed Under: business models, jill sobule, music

Saul Williams Agrees That It's Way Too Early To Be Disheartened

from the it's-an-emo-thing dept

Earlier this month, we wrote about Trent Reznor's disappointment in how his "free download" experiment with Saul Williams had progressed. He wasn't completely disappointed. He was quite happy about how much attention the album had received, but he had hoped that more people would choose to pay for the higher quality downloads. He did an interview with News.com yesterday that got some attention for a throw away line about having ISPs pay a $5/month "music tax" to let people download, but most of the interview reiterated the points he made in his original blog post: he's excited about the attention Williams was getting and how many people were listening to the music, but in the back of his mind he had hoped more people would pay.

What's much more interesting, however, is that News.com has now interviewed Saul Williams, and he appears to be much more pleased with the results, and seems to agree with our view that it's way too early to be disappointed:

"I'm actually extremely optimistic. The only thing that I really have kept in mind is that, one, we're two months into a project.... I think it's early in the game. I'm not disappointed at all."

He also notes that, since the music business is all about touring these days, anyway, the direct money from sales is less important:

"the lifespan from my last album, from touring, which is really how I made my income and everything, lasted for two years."

As for Reznor's disheartened response, Williams chalks it up to two factors. First, it's just Reznor's nature:

"I don't think Trent is as truly disappointed as he sounds in that blog. You got to think of him this way...listen to his music (he laughs). In my opinion, oh, he might not like this, but I think he's the king of emo."

Secondly, given the amount of time he's spent in the traditional recording industry, it's hardwired into his brain:

"I think Trent's disappointment probably stems from being in the music business for over 20 years and remembering a time that was very different, when sales reflected something different, when there was no such thing as downloads.... Trent comes from that world. So I think his disappointed stems from being heavily invested in the past. For modern times, for modern numbers we're looking great, especially for being just two months into a project."

It's nice to see Williams recognize that this is a long-term experiment and the early results are more encouraging than disheartening.

Filed Under: business models, free, saul williams, trent reznor