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

by
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.

Napster

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.




Disagree? Don't forget to flame me.
Want to read more Essays?
Or would you rather just go Home or the Grumpy Pundit Blog?



Copyright 2001, 2011, Robert M Brown, All Rights Reserved.