Earlier this week, I noted that book publishers and authors had, so far, been largely protected from the mass copying that has helped to undermine the music recording industry's profits. The reason is simple. You can't copy dead-tree books for minimal effort and cost the way you can CDs or MP3s. But, with e-books finally seemingly establishing a bona fide foothold with Amazon's Kindle, that's going to start changing.
New York Times Op-Ed columnist Paul Krugman notes this trend in "Bits, Bands and Books" together with a corollary that Esther Dyson predicted in 1994:
”that the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away. Whatever the product--software, books, music, movies — the cost of creation would have to be recouped indirectly: businesses would have to--distribute intellectual property free in order to sell services and relationships.”
This, of course, is what a lot of folks--whether as a way to justify music piracy or otherwise--have been saying for years about the business model for music. It's (supposedly) OK if you can't sell a lot of CDs (or iTunes downloads) any longer. Krugman notes that, according to a recent Rolling Stone article: "Downloads are steadily undermining record sales--but today's rock bands, the magazine reports, are finding other sources of income. Even if record sales are modest, bands can convert airplay and YouTube views into financial success indirectly, making money through 'publishing, touring, merchandising and licensing'."
I'm a bit skeptical that selling tchotchkes, tickets, and "extras" in one form or another is really a practical substitute for selling the music itself in the general case. But let's leave that go for the time being. It's been endlessly debated and isn't going to be resolved here. What seems to me even more problematic is the suggestion that there has to be viable alternative models for creative content that becomes de facto free in the general case. For example, Krugman goes on to write:
Indeed, if e-books become the norm, the publishing industry as we know it may wither away. Books may end up serving mainly as promotional material for authors’ other activities, such as live readings with paid admission. Well, if it was good enough for Charles Dickens, I guess it’s good enough for me.
And here, I'm deeply, deeply skeptical. At least with music, there are a variety of revenue-generating activities that are a natural outgrowth of the primary creative product. Most musicians do live performances in any case. The only question is how much money they can make by doing so.
But writers? Sure, some well-known authors make engaging speakers. Geoffrey Moore (author of Crossing the Chasm and Dealing with Darwin) is one I've heard fairly recently. J.K. Rowling just spoke at Harvard's commencement. But just because someone is a writer--even a best-selling one--doesn't make them a good speaker. Indeed, some of the best writers are reclusive and would shudder at the thought of having to make a living by public speaking.
Yes, business models are changing. And all of us will have to adapt in various ways. But let's not kid ourselves that advertising, live performances, or magic money trees are going to automagically pay the bills for creative content that we want to consume but don't want to pay for.
An article by Edward Wyatt in the New York Times discussed how the Amazon Kindle e-book reader was stirring unease at the BookExpo America trade show.
But excitement about the Kindle, which was introduced in November, also worries some publishing executives, who fear Amazon's still-growing power as a bookseller. Those executives note that Amazon currently sells most of its Kindle books to customers for a price well below what it pays publishers, and they anticipate that it will not be long before Amazon begins using the Kindle's popularity as a lever to demand that publishers cut prices.
I'm a bit skeptical about this particular concern. From my perspective as a consumer, one of the problems that I have with e-books today is that I have to buy a $400 device and then still have to pay almost as much for the bits as for the dead tree version even though many of the costs associated with printing, distributing, and inventorying physical books are eliminated.
That's not to say that costs go to zero--nowhere close. And there's a legitimate concern that buyers may naively assume that they do. An earlier post on this topic: Digital distribution isn't free. But costs are lower--and the prices should reflect that.
What would seem a more germane concern is whether pervasive e-books lead to pervasive trading and copying. DRM, my other beef with a lot of today's e-books, inconveniences legitimate users as much as it retards piracy. So I think we can take that off the table a solution that's either desirable or especially effective. Today, the economics of photocopying and the restraints that time and space put on physically giving a read book to the next reader sharply limit the amount of duplication and trading that can take place.
In my view, you shouldn't discount limits imposed by the physical world too much. While movies consume plenty of bandwidth on the Torrents, their quality and the effort it takes to download them--paired with the ready availability of modestly-priced, full quality movie rentals--means that they aren't that attractive for a lot of people. Certainly music lends itself far better to downloads--legal and otherwise. And the apparent impact on the recording labels has been proportionately greater as well.
A lot of the dynamics associated with creating, producing, distributing, and purchasing books are considerably different than those of music than those of movies. Electronic distribution creates possibilities. Impulse purchases from the living room and ready availability of the longest, "long tail" work are just two.
But, at the same time, the cost of putting toner powder on a page of paper and the time associated with putting all those pages on a copier glass will no longer be a defense in a world where "If it can be copied, it will be copied" often seems to rule.
In "The Album is Dead," Mark Cuban wonders:
So the question arises, why don't artists serialize the release of songs ? Why not create a "season" of release of songs, much like the fall TV season and promise fans that Flo Rida is going to release a new single every week or 2 weeks for the next 10 weeks ?
Whenever discussions like this arise, there's always the school of thought holding that most albums only have one or two decent songs anyway. This theme is presumably a close cousin to "all current music is crap" (i.e., they just don't make music like when I was a kid).
However, there's another school of thought. As this comment notes: "Currently, those who only purchase individual songs, rather than entire albums, are missing many lesser known gems, and are missing the cohesive experience of an entire album."
We can come up with examples where this is clearly the case. Pink Floyd's The Wall, The Who's Tommy, and so forth. However, it seems a stretch to call the vast majority of albums out there as being particularly cohesive. In fact, to the degree that there's excessive sameness within a single album I tend to see that as a bug rather than a feature.
It's worth noting that the album is far more a creation of technology and custom than of art. Columbia produced the first 12-inch, 33 1/3 RPM vinyl "long playing" record in 1948. (According to Wikipedia, the term "album" relates to the fact that the relatively short 78 RPM records that preceded LPs were kept in a book "album.") Although 45 RPM singles (in particular) were popular during the 1950s and early 1960s--such singles generally had a "hit" on the A-side and a less popular song on the B-side--LPs continued to define a great deal about how music was released. Even cassettes and CDs didn't change things much as these new formats adopted about the same capacity as the LP. As Kees Immink wrote in the Journal of the AES:
The disk diameter is a very basic parameter, because it relates to playing time. All parameters then have to be traded off to optimise playing time and reliability. The decision was made by the top brass of Philips. 'Compact Cassette was a great success', they said, 'we don't think CD should be much larger'. As it was, we made CD 0.5 cm larger yielding 12 cm. (There were all sorts of stories about it having something to do with the length of Beethoven's 9th Symphony and so on, but you should not believe them.)
In other words, whenever the industry has come up with a new format it has almost always stuck with roughly the same playing length.
There are many lessons here for IT and other businesses. For one thing, there's backward compatibility. The industry wanted to reissue LPs onto cassettes and CDs without having to routinely use multiple of them for a single album. In practice, you rarely get to start with a clean slate. The digital realm finally banishes the physical aspect of backward compatibility. No longer is there any technical reason to favor selling any particular size of song bundle.
However, there are more subtle types of inertia. Whole sets of practices from booking studio time, to promotion, to going on tour have grown up around the chunk of music that is the album. On the other hand, the nature of digital distribution--and the flat-pricing scheme that Apple has fought for successfully (even though it doesn't really make economic sense)--tend to drive us towards hits-driven downloads, Long Tail notwithstanding.
I don't know if a scheme like Mark's would work. However, it's increasingly hard to see a traditional album format making sense in a world where it's got no physical reason to exist. If we move away from albums, perhaps we have to recreate "B-sides" or other mechanisms that encourage the sort or serendipitous discovery that the album has brought us over the years.
Seth Godin has a great post about 14 "things you can learn from the music business (as it falls apart)." And it doesn't just to music. Read the whole thing (a couple of times) but one big point that I take away is this: All the analysis and hand-wringing over what percentage of people pay for some downloadable album is really beside the point. The business model has changed for better or worse. The music business going forward won't continue to be about CD's that just happen to be available in electronic form but are otherwise essentially unchanged.
It's not easy to give up the idea of manufacturing CDs with a 90% gross margin and switching to a blended model of concerts and souvenirs, of communities and greeting cards and special events and what feels like gimmicks. I know.
Get over it. It's the only option if you want to stay in this business. You're just not going to sell a lot of CDs in five years, are you?
Lots of other good thoughts as well that are applicable to businesses producing all manner of digital content.
I'm here shaking my head at much of the media coverage around downloading Radiohead's Rainbows album. ABC News gives a short summary:
Last month, Radiohead announced it would let fans set the price for its new album, available for download on the British alt-rock band's official Web site.
Now, the statistics are in and it looks like offering fans free downloads turns them into freeloaders.
More than six out of 10 fans worldwide--62 percent--who downloaded "In Rainbows" between Oct. 10 and Oct. 29 paid nothing for it, according to digital research firm ComScore Inc. The 38 percent who did cough up cash paid an average of $6 each. A total of 1.2 million people downloaded the album.
Much of the news media has apparently decided en masse that these results indicate a marked failure of the voluntary payment model. (To be clear, the band's Web site does ask for payment rather than a "donation," a subtle but important difference.)
Headlines include: "Fans Shortchanging Radiohead's Rainbows?" (E! Online); "Radiohead Lets Fans Set CD Price; Most Say $0" (ABC News); and "Thanks for the Free Album, Radiohead!" (TMZ.com). Those are just the ones at the top of Google News this morning; there are many others in a similar vein.
What nonsense.
To put this in some historical context, back in the 1980s I spent many late nights working on shareware programs for DOS and Windows. In particular, I wrote a program called Directory Freedom, a DOS-based file manager, that made its way onto a number of "best of" shareware lists.
Shareware, at that time, mostly referred to "try before you buy" commercial software. In this case, the author typically set a price and requested payment after a certain evaluation period. Unlike today's software trials and demos, however, the software typically remained fully functional indefinitely. (The Association of Shareware Professionals promulgated rather detailed rules about what constituted allowable registration inducements.)
I made some decent beer money off Directory Freedom and my other software; I was hitting about $7K a year at peak. A few shareware developers, such as Bob Wallace, built real businesses on the shareware marketing model. However, most made very little even relative to my modest earnings.
There were never, to the best of my knowledge, any studies to systematically measure payment rates. However, the shareware author community bandied around figures of 10 percent or less. (Corporations may have paid at a higher rate; over half my revenue came from businesses even though I suspect my software was used far more by individuals.)
Thus (back to the topic at hand), I find that 38 percent of downloaders paying an average of $6 each a great conversion rate with an average price of $2.38. This figure may be less than what an album normally goes for, but it's actually more than what two songs on the iTunes Music Store would cost. And, as lots of folks like to remind us, many people buy CDs for only one or two songs.
The number may be less than Billboard's $5 assumption of what this album would bring in but it's really hard for me to imagine how anyone thought such a figure was likely. Especially when you consider that some of the downloaders may have been just listening to the music for the first time and, therefore, their downloads were more in the vein of a trial than a purchase.
All that said, I wouldn't read too much into this data and this data point. This is an extremely well-known band with a loyal following. The fact is that most downloaders probably had heard at least some of the music as would not necessarily have been the case for a more obscure band.
Furthermore, this was a singular, well-publicized case. As such, there's psychology involved that might not be present if this were more widespread. "We have to show the RIAA that people will pay for music given the opportunity," some might say.
On the flip side, the data doesn't reflect the many people who got the music from friends or over P2P networks--meaning that the percentage of people who paid is lower than the data indicate.
Bottom line? Digitization of movies and music will continue apace with all the broad implications for back-end infrastructures and consumer devices that implies. This particular example doesn't tell us much new about the process and dynamics involved. Many will pay but many won't, given the choice. But we knew that--or should have.
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