Back in 2000 I was working for a
dot-com you've never heard of. This was the heyday of Napster and
the kids working there had managed to saturate the company's T1 line,
inbound and outbound both, with music transfers. That obviously
wouldn't do, so I cut them off. There was a great outcry and much
gnashing of teeth. One idiot (completely unqualified for his job
as Webmaster, but buddies with the boss) even suggested that the
company pay for a second T1 line just for music. Hah hah.
Anyway, I had just added my Rants page to this site and a few people asked me if I had anything to say about music sharing. I did.
This is a bit dated now, but the fundamentals are, I think, still valid.
The New Economy
Whatever the heck that is
Robert M Brown
Information Wants To Be Free
You hear this a lot, from people talking about the Internet and 'the new economy.' What the speaker generally means is that other people's
information wants to be free. It means that the software he wants to
use, and the songs he wants to listen to, and the columns and articles
he wants to read, should all be free. Those programmers, musicians, and
writers should all work for him for nothing more than the joy of
producing something that he likes. Wow, what an honor, huh? Of course, his work should be richly rewarded, in cash and stock options.
In other words, when I hear most people talking about how 'information
wants to be free' the first thing I think is, "No, information doesn't
want to be free, you just want to be given everything you want without
having to pay for it." These early days of the Internet have spoiled
people. We've had 'warez' boards handing out pirated copies of
commercial software, programmers writing tools for their own use and
giving them away as freeware and, worst of all, companies so desperate
to create a user base (to impress investors and potential investors)
that they actually give away cash and merchandise to anyone who'll
install their software or use their service. Is it any wonder that
people are coming to think that getting free stuff is a right,
something they are owed?
What a nice world these people must live it. . . they get paid to do
their job, and then with that money they turn around and. . . don't
spend it on software, music, or movies, because those things are given
to them. Hmm. So, the workers get paid to produce, and the products of
their work are given away for free. How does anyone make a living at
that? Can companies really make a profit by giving away their product?
As we are beginning to see, no, they can't. Investment money can keep a
company going for a while, but eventually it has to make a profit. If
it doesn't, the flow of investment money stops, and the company goes
under. This is as it should be; money has to come from somewhere, and
if the company isn't producing something that people are willing to pay
for, why should it stay in business?
Part of the problem is that digital media is so easy to copy. You have
software that is just a bunch of magnetic bits and it's really
impossible to keep people from making copies, and passing those copies
around if they care to. Some people don't see this as a problem. "If I
can copy a $1000 program on a $1 CD, the software costs too much."
Downloadable material (software, songs, videos, text) have worsened the
problem; now there isn't even a CD to be copied. The material now has
no physical form at all. This has brought about a small, but important,
mental shift on the part of a growing number of people. Once upon a
time if someone bought a music CD, that's exactly what they were
buying; the CD.
Not the music, though the music on the CD was the reason they were
buying it. Now someone downloads a song, and instead of feeling that he
or she owns a copy of that song, they feel that they own the song itself, and can do whatever they want with it.
This disconnect between the content and the media it's copied onto is
enormously destructive of intellectual property rights. What you're
paying for when you plunk down your hard earned dollars for that CD
isn't a plastic disk, it isn't even the bits encoded on that disk. It's
the thousands of man hours of work that went into producing the
information on that disk. And the people who did all that hard work
want to get paid for it.
That's the catch, you see. Information may or may not want to be free,
but information doesn't just create itself. It doesn't fall from the
sky like rain, it isn't carved out by the hand of god. It is created.
Somebody took the skills that they acquired through years of study and
experience, applied those skills through hours, maybe days, weeks, or
months of hard work, and made
that information. Now, some of these people do this from the goodness
of their hearts, or from a desire to contribute to the community, or
for practice, or whatever, but most of them have a not unreasonable
desire to be paid for their work. After all, they have bills to pay
like everyone else, and their landlord or mortgage company isn't going
to let them off the hook just because they're nice guys who give away
their work. If they hadn't been doing this work for free, they could
have been doing something that paid for their time, right?
The trouble is, if we don't pay these people, if we insist that their
work has no value and must be freely distributed to everyone who wants
it (without questioning why anyone would want something of no value),
then what is their motivation to continue producing? If your boss told
you, "We can't pay you anymore, because information wants to be free,
but we'd like for you to keep working for us," what would your response
be? Uh huh. And why should anyone else react differently? If we don't
pay our artists, writers, musicians, and programmers, they have no
motivation to produce, and most of them won't. If you insist that
everything should be given to you for free, you will quickly be free to
have . . . nothing, because that's all there's going to be.
So, we have conflicting forces. . . it's pretty much impossible to keep
people from making copies of digital media, but if money isn't made
somewhere in the process, there soon won't be anything to make copies
of. I'm not sure what the solution is. I'd probably try something along
the shareware model. Or give away a song or two from an album as
teasers, and people who're happy with that can just listen to those
songs. But anyone who wants the rest of the album can pay their money
and either download it or have a disk sent to them. This model has been
working fairly well for books for years. A lot of novels have a sample
chapter or two from another novel in the back. Want the rest? Buy that
book when it comes out. Some software has been working on the 'nagware'
or time limited shareware principle for years now.
Could it work? Well, if a grocery store, bookstore, or record store
(just to name a few examples) didn't charge for the goods they sold,
but rather depended on people being honest enough to drop some money
into the till on their way out, they would quickly go out of business.
Sure, there would be some people who would be honest enough to pay what
they would have if they were required to pay, and a larger number who
would pay something
(drop a $20 on the counter as they leave the store with a cart piled
high with goods. . .). But there would also be those people who would
back a truck up to the store and clean it out.
On the other hand, certain types of entertainers can do quite nicely
off tips provided voluntarily by their audience. 'Exotic' dancers are
the class that probably does best by this, but musicians, comedians,
and other performers make money this way as well.
Why does one work, but not the other? Two reasons. First, it's easier
to stiff a faceless corporation than an individual. If you haul a
wheelbarrow full of CDs out of a music store, you can convince yourself
that you're only hurting some big company, and that they can afford it
anyway. When you have to look the musician passing the hat in the eye,
when you recognize the humanity of the person who's worked to entertain
you, someone with bills to pay just like you, it's harder to slink away
in the crowd. So, the lesson here is that people are more likely to
voluntarily pay an individual than a company.
The second reason is nicely summed up by one profession's motto: "You
got it, you sell it, you still got it." The tangible goods sold by the
traditional store have a cost associated with them. It costs money to
produce them, to get them to the store, and to have someone put them
out where they can be found by customers. What's more, once that
particular can of peas has been sold -- or given away -- it can't be
sold again. Another can of peas has to be grown, purchased, processed,
shipped, and stocked to replace it. Cost per unit usually exceeds net
profit per unit, which makes the impact of goods 'given away' even
greater. (That is, if a CD sells for $10, it probably cost the music
store $8 to put it there where you can see it. For every CD given away,
4 must be sold at full price just to break even.) A street musician's
song has a very different cost schedule, really only involving the
musician's time and the cost of his instrument. It takes him time to
learn how to write and perform the song, then more time to write that
song, but those are one time costs. The time spent learning the trade
is fixed; the more songs the musician performs, the lower the cost per
song. The time spent learning each song is fixed for that song. Again,
the unit cost goes down the more times the song is performed. The same
with the cost of the instrument; it's good for many, many songs, and
the unit cost goes down the more it is used. The only variable is the
time spent actually performing. Once the musician has racked up a fair
number of performances we're obviously talking about a very low cost of
goods sold, which means that the musician doesn't have to make very
much at all per performance to make a profit.
Now, take the same musician, and have him record that song. Digitize
it, and ask people to pay when they take a copy. The musician's cost is
only for one performance, but he can get paid for many. If some people
download his song and don't pay for it, the cost of that particular
download is so small that it doesn't really effect the bottom line. One
person paying for the song can cover the cost of many
people who don't pay, rather than the opposite situation in the world
of tangible goods. And, arrange it so people know that it's an
individual they're still dealing with, not a faceless corporation. Now,
you have a situation where a musician (for example; this can work for
other areas as well) can actually make money by letting people make
copies of his music and asking them to pay him if they like it. The key
is keeping those costs down, and playing on people's reluctance to
stiff another human being.
That is the so called 'new economy.' Some people say that it replaces
the 'old economy,' and that old rules about profitability and cash flow
are no longer relevant. These people, obviously, are deluded or
deranged. People still need to be paid for what they do, things still
cost money. The only thing that's changed is that we now have a new
means of distribution that lets us have a negligible cost of goods
sold, with effectively no distribution cost, on certain types of goods.
And we have a lot of people thrashing around trying to figure out what
it means, and how to make money off it.
One of the major points of contention right now, in this shake down of
the new distribution system, is Napster. Napster, in case you've had
your head under a pillow for the past few months, is a piece of
software that lets people share music files over the Internet directly,
right off each other's computers, without having to get them from a
central web site like in the old days. The result is a very diffuse
network of individuals tossing files back and forth at a great pace.
All this, naturally, drives the record industry absolutely frothing
mad. They see every file transfer as a lost sale, and go ballistic,
hurling lawyers at all and sundry. Some of the musicians are also
coming down on this trade and reaching for the lawyers. But some are
looking at things a little differently. Courtney Love (yes, that
Courtney Love) has a very interesting essay that you can read right here.
I know you probably don't think of Love as being thoughtful and
erudite, her public persona not really emphasizing those
characteristics, but I was quite impressed. (The only place I think
she's really off base is where she talks about the extremely poor
quality of MP3s. I think as a musician she doesn't realize how bad most
people's ear for music is; every layman I've ever heard comment on it
has thought the quality of MP3s amazingly good.) In any event, Love
considers the current music distribution system to be so badly broken
that giving her music away to Napster users can't be any worse, and may
be an improvement. I don't think she's alone in this; a lot of fans and
musicians alike are so frustrated by the current system that they are
ready to run up the red flag, smash it all, and start over if that's
what it takes.
My sympathies in this particular disput are not with either the record companies or
the fans, but rather with the artists; I'd like to see them bring the
record companies crashing down, if that's what it takes, and set up a
system that pays them what they're worth and that treats their work as their
work. There are only two things that could keep that from working: If
no one tries it, or if we've spoiled the market by all this
'information wants to be free' nonsense. If we've conditioned the
potential buyers out of actually buying anything, and spoiled
them by telling them they can get something for nothing, then the new
distribution system won't work, and the fans will have only themselves
to blame when there is no more music to steal.
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