Business Models

Why Not Fix Your Broken Business Model?

Been reading a lot about how the music industry and the TV and movie industry are falling down, and they all blame “pirates” (great article on how stupid and offensive a label that is given the Somali pirates here). I also recently finished reading Grown Up Digital: How the Net Generation is Changing Your World and one of the things he talks about is that people of my generation (the “Net Generation”) don’t see “piracy” as stealing.

I used Napster, back in the day, but since it shut down I stopped and I don’t “pirate” music anymore. I also buy far fewer CDs. Connected? I think so, I don’t hear as much random music as I used to, when if I downloaded a song and loved it I’d go out and buy the CD. So I wasn’t at all surprised to read this – pirates buy more music, what a shocker.  As my friend Dig pointed out, when I linked him to this article (got to love Twitter) “Yes, more importantly though they go to more gigs, buy more merchandise and tell more friends – and the labels are bypassed.”

And now the TV and Film industry are appealing for government help. And I find it frustrating to read this stuff because it’s like – get with the program. Finally, I’m reading in the news the things that my friends and I have said for years.

Suing your customers is not a business model – it’s at best a short term fix and invariably a PR disaster.

In Grown Up Digital he talks about the way “our” generation consumes media, and whilst I don’t agree with everything he says on this – I think he’s right on.
  1. We want to watch what we want to watch when we want to watch it: i.e. we don’t want our schedule dictated by the TV listings. I remember people saying stuff like, “Oh I can’t go out on Thursdays <insert TV show here> is on”. But why do we need to live like that now?
  2. We ignore adverts: This has two parts. Firstly, we don’t trust advertising and tend to buy things on the basis of recommendations from friends. And, what’s more, because we tend to multitask whilst watching TV, when the ads are on we’re probably on Facebook.
So obviously this is driving us to the internet. If you’ve tried to watch TV in the US it’s something like 50% adverts. Which is kinda nuts. But the internet is lower quality. I was streaming Sex and the City online, and I liked it enough and got fed up enough not being able to find episodes and the fuzzy quality I bought the box set. Because here’s the thing, and I think the “pirates buy more music” thing illustrates this, it’s not that we want to watch TV shows and movies illegally, or download music illegally – most of us at least would sooner watch or listen to the proper, higher quality, properly labelled versions. There’s just some questions that need to be answered first.
  1. Why is it harder to watch movies legally? If I’m under 18 and don’t have a credit card… what are my options exactly?
  2. Why do I have to pay for the song before I listen to it. What if I don’t like it? No, a 30 second clip is not enough to make that decision.
  3. Why is it just as expensive to rent a movie, or buy a song, on iTunes as it is to buy it on physical media? Storage and distribution costs have been dramatically reduced, but why is none of that passed on to me the customer?
  4. And having paid for a movie or a TV show or an mp3… why is it packed full of DRM?

There’s this graph in economics. For most things (normal goods), as price goes down demand goes up. If the cost is zero, of course demand goes sky high. But the cost of illegal downloading isn’t quite zero because of other “costs” – it’s a hassle, legally questionable, and you don’t always know what you’re getting. Streaming a movie only for it to cut out near the end ‘cos you don’t have a subscription to the site hosting it or whatever is annoying.

However because the monetary cost of downloading is zero, it’s not realistic to say that because 90% of downloads are illegal if people were paying for that you’d be making 10x as much money. If there was no illegal downloading, some of those downloads would be paid for but some would just never happen, no matter how cheap the download was because of the transaction overhead (the act of deciding whether something is worth paying anything for, period. Clay Shirky has some good articles about that regarding micropayments).

In fact I don’t know why I’ve written this because I have very little to add to the argument. What it comes down to is pretty much what Shirky said when Napster was taken down and sadly it doesn’t seem like anything much has changed since then.

It’s very hard to explain to businesses that have for years been able to charge high margins for distributing intellectual property in a physical format that the digital world is different, but that doesn’t make it any less true. If the record labels really want to keep their customers from going completely AWOL, they will use this ruling to negotiate a deal with Napster on their own terms.

In all likelihood, though, the record executives will believe what so many others used to believe: The Internet may have disrupted other business models, but we are uniquely capable of holding back the tide. As Rocky the Flying Squirrel put it so eloquently, “That trick never works.”