Techdirt: The Grand Unified Theory On The Economics Of Free

The Grand Unified Theory On The Economics Of Free

Highlighted by tonycurzonprice

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

Highlighted by sunnypp2

In fact, if you look closely enough, you realize that any scarce product you buy actually has infinite components while any infinite good you see also tends to have scarce components.

Highlighted by sunnypp2

But, when done right

Highlighted by sunnypp2

Once you've broken out the components, however, recognizing that the infinite components are what make the scarce components more valuable at no extra cost, you set those free. Not only do you set those free, you have every incentive to create more of them, and encourage more people to get them. You break them into easily accessible bites. You syndicate them. You hand them out. You make them easy to share and embed and distribute and promote. And, yet, all the while, you know exactly what scarce resources those non-scarce goods are tied to, and you're ready to sell those scarce resources, recognizing that the more people who are consuming the infinite goods, the more valuable your non-scarce resource is.

Highlighted by senzafine3

1. Redefine the market: The benefit is musical enjoyment
2. Break the benefits down (not a complete list...): Infinite components: the music itself. Scarce components: access to the musicians, concert tickets, merchandise, creation of new songs, CDs, private concerts, backstage passes, time, anyone's attention, etc. etc. etc.
3. Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs and getting more publicity for the band itself -- all of which increases the value for the final step
4. Charge for the scarce components: Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.

Highlighted by takuya514

What the band has done in this case is use the infinite good to increase the value of everything else they have to offer. They've increased their marketsize by recognizing how they can use the infinite goods as a free promotional resource and made the value of the overall ecosystem around them more valuable. Rather than playing small shows in tiny clubs that don't pay very well, they get to play large venues with bigger covers. It's certainly true that there are some externalities -- where some people will enjoy the music for free without ever taking part in paying for the scarce components. But, when done right, you've increased your market so much that it more than covers the difference. Compare this solution to that of a band that sticks to the old way: they are then limited in the audience that will hear them -- especially as more and more bands give their music away for free. Fewer people will be interested in going to their concerts or buying their merchandise or joining their fan clubs -- when the benefits are so much greater for following other artists that actually give their music away for free. The end result really is a much bigger market with much greater benefit by expanding the market by using infinite goods to make the scarce goods more valuable.

Highlighted by takuya514

If you're looking to catch up on the posts in the series, I've listed them out below:

• Economics Of Abundance Getting Some Well Deserved Attention
  
• The Importance Of Zero In Destroying The Scarcity Myth Of Economics
  
• The Economics Of Abundance Is Not A Moral Issue
  
• A Lack Of Scarcity Has (Almost) Nothing To Do With Piracy
  
• A Lack Of Scarcity Feeds The Long Tail By Increasing The Pie
  
• Why The Lack Of Scarcity In Economics Is Getting More Important Now
  
• History Repeats Itself: How The RIAA Is Like 17th Century French Button-Makers
  
• Infinity Is Your Friend In Economics
  
• Step One To Embracing A Lack Of Scarcity: Recognize What Market You're Really In
  
• Why I Hope The RIAA Succeeds
  
• Saying You Can't Compete With Free Is Saying You Can't Compete Period
  
• Perhaps It's Not The Entertainment Industry's Business Model That's Outdated
  
• An Economic Explanation For Why DRM Cannot Open Up New Business Model Opportunities
  
• Recognizing That Just About Any Product Is A Bundle Of Scarce And Non-Scarce Goods
  
• Scarcity Isn't As Scarce As You Might Think

Highlighted by takuya514

You're assuming the fanbase will not be content simply downloading and listening to Sam's songs. I might be a little old fashioned, but I don't own a single concert T-Shirt, and most of the people I know don't either (30+ yrs old) The few they own where purchased from overpriced vendors at concerts with already overpriced tickets.

You expect to raise the price of these "Sam" related products and the concerts beyond the already inflated prices (example, Tool concert $40 for LAWN seats!!)and you expect people to redirect "CD" money on their own? Give me a break.

Highlighted by senzafine3

Mike,

Very interesting mix of truths and wishful thinking. Reminds me of Internet Bubble 1.0 Thinking 101.

There are several large holes in your blanket theory, but I will try to briefly outline what I think are the two most significant ones:

1) Nothing is infinite. Even downloading mp3s. The marginal costs are small (my guess is a few pennies per song, at most, exclusive of the wait time on the part of the downloader). But fixed costs are fairly significant, including:
(a) technical costs, such as the cost of the server, the time and other resources to maintain the server and its connection to the Internet, programming costs, etc.;
(b) artistic costs, such as the time and effort it takes to write a new song, time taken to maintain or increase proficiency in singing or musical instruments, time taken to record the music and put it into digital format, etc.; and
(c) the opportunity costs, such as the cost of making music rather than spending time to make more money to pay the rent, time not spent with your friends and/or family, time spent not going to school or training to increase your earning power, etc.

Highlighted by senzafine3

So in summary: Mike's thinking works for large-scale commercially-oriented artists, but my model (which I have posted here before) works for the other 98% of artists who just want to create music. Oh, and my model works for commercially-oriented artists, too, but just does not overwhelmingly favor them the way Mike's model does.

Highlighted by senzafine3

You just set up the incentives in a way that more people are willing to pay for something. There are tons and tons of ideas on ways that bands can make additional money from all of this. Don't get so focused on just t-shirts or just concerts. The idea is that you have so many scarce resources (time, attention, which you discussed) and all of those can be charged for.

Highlighted by senzafine3

Another (and this has been done by a few bands) is to ask the biggest fans to pre-pay for the cost of creating new content. That new content (as you noted) is a scarce resource, so it makes sense to ask people to pay for it. But once it's been created, it becomes infinite, so then you set it free, to get more people interested and willing to pay for the next set of music.

Highlighted by senzafine3

So it is not "free" for everyone and every use, it's just targeted to a different market.

Highlighted by senzafine3