“Is free the future?”
I’ve been meaning to post on this article — Macolm Gladwell’s review of Chris Anderson’s new book, “Free: The Future of a Radical Price.” Anderson, who is the editor-in-chief of “Wired” magazine and author of another influential book re technology & culture, “The Long Tail: Why the Future of Business is Selling Less is More,” argues that information has an inherent pull to be free:
At a hearing on Capitol Hill in May, James Moroney, the publisher of the Dallas Morning News, told Congress about negotiations he’d just had with the online retailer Amazon. The idea was to license his newspaper’s content to the Kindle, Amazon’s new electronic reader. “They want seventy per cent of the subscription revenue,” Moroney testified. “I get thirty per cent, they get seventy per cent. On top of that, they have said we get the right to republish your intellectual property to any portable device.” The idea was that if a Kindle subscription to the Dallas Morning News cost ten dollars a month, seven dollars of that belonged to Amazon, the provider of the gadget on which the news was read, and just three dollars belonged to the newspaper, the provider of an expensive and ever-changing variety of editorial content. The people at Amazon valued the newspaper’s contribution so little, in fact, that they felt they ought then to be able to license it to anyone else they wanted. Another witness at the hearing, Arianna Huffington, of the Huffington Post, said that she thought the Kindle could provide a business model to save the beleaguered newspaper industry. Moroney disagreed. “I get thirty per cent and they get the right to license my content to any portable device — not just ones made by Amazon?” He was incredulous. “That, to me, is not a model.”
Had James Moroney read Chris Anderson’s new book, “Free: The Future of a Radical Price” (Hyperion; $26.99), Amazon’s offer might not have seemed quite so surprising. Anderson is the editor of Wired and the author of the 2006 best-seller “The Long Tail,” and “Free” is essentially an extended elaboration of Stewart Brand’s famous declaration that “information wants to be free.” The digital age, Anderson argues, is exerting an inexorable downward pressure on the prices of all things “made of ideas.” Anderson does not consider this a passing trend. Rather, he seems to think of it as an iron law: “In the digital realm you can try to keep Free at bay with laws and locks, but eventually the force of economic gravity will win.”
Gladwell, who is the author of his own series of popular books re contemporary culture including “The Tipping Point”, “Blink”, and “Outliers”, does an excellent job in the New Yorker article laying out some key assertions in Anderson’s book, then noting some of the problems with Anderson’s contentions:
And then there is his [Anderson] insistence that the relentless downward pressure on prices represents an iron law of the digital economy. Why is it a law? Free is just another price, and prices are set by individual actors, in accordance with the aggregated particulars of marketplace power. “Information wants to be free,” Anderson tells us, “in the same way that life wants to spread and water wants to run downhill.” But information can’t actually want anything, can it? Amazon wants the information in the Dallas paper to be free, because that way Amazon makes more money. Why are the self-interested motives of powerful companies being elevated to a philosophical principle?
Where the rubber meets the road per Anderson’s contention is in actual business practices. And here is where, at least for now, the argument fails to account for reality:
Anderson cautions that this philosophy of embracing the Free involves moving from a “scarcity” mind-set to an “abundance” mind-set. Giving something away means that a lot of it will be wasted. But because it costs almost nothing to make things, digitally, we can afford to be wasteful. The elaborate mechanisms we set up to monitor and judge the quality of content are, Anderson thinks, artifacts of an era of scarcity: we had to worry about how to allocate scarce resources like newsprint and shelf space and broadcast time. Not anymore. Look at YouTube, he says, the free video archive owned by Google. YouTube lets anyone post a video to its site free, and lets anyone watch a video on its site free, and it doesn’t have to pass judgment on the quality of the videos it archives. “Nobody is deciding whether a video is good enough to justify the scarce channel space it takes, because there is no scarce channel space,” he writes, and goes on:
Distribution is now close enough to free to round down. Today, it costs about $0.25 to stream one hour of video to one person. Next year, it will be $0.15. A year later it will be less than a dime. Which is why YouTube’s founders decided to give it away. . . . The result is both messy and runs counter to every instinct of a television professional, but this is what abundance both requires and demands.
There are four strands of argument here: a technological claim (digital infrastructure is effectively Free), a psychological claim (consumers love Free), a procedural claim (Free means never having to make a judgment), and a commercial claim (the market created by the technological Free and the psychological Free can make you a lot of money). The only problem is that in the middle of laying out what he sees as the new business model of the digital age Anderson is forced to admit that one of his main case studies, YouTube, “has so far failed to make any money for Google.”
Why is that? Because of the very principles of Free that Anderson so energetically celebrates. When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That’s the magic of Free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number. A recent report by Credit Suisse estimates that YouTube’s bandwidth costs in 2009 will be three hundred and sixty million dollars. In the case of YouTube, the effects of technological Free and psychological Free work against each other.
So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free — pirated material, cat videos, and other forms of user-generated content — are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. For Anderson, YouTube illustrates the principle that Free removes the necessity of aesthetic judgment. (As he puts it, YouTube proves that “crap is in the eye of the beholder.”) But, in order to make money, YouTube has been obliged to pay for programs that aren’t crap. To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.
The evidence is not just businesses, such as YouTube, that are not making money for stuff that is free, but the other side as well:
And there’s plenty of other information out there that has chosen to run in the opposite direction from Free. The Times gives away its content on its Web site. But the Wall Street Journal has found that more than a million subscribers are quite happy to pay for the privilege of reading online. Broadcast television — the original practitioner of Free — is struggling. But premium cable, with its stiff monthly charges for specialty content, is doing just fine.
To drive home this last point, here’s an article on The Wrap — “While Networks Sputter, Pay Cable Soars”:
It’s not just “True Blood” that has bite. So do “Entourage,” “Hung” and “Nurse Jackie.”
Indeed, as ad-supported media goes up in flames, the premium cable networks are on fire.
Somehow, they’re growing.
Showtime added 674,000 new subscribers in the first quarter of this year, at a time when the TV ad market was down double digits and the major broadcast networks were laying off staff, according to data just released by Kagan Research,
HBO added 35,000 subscribers during the same period, while Starz brought in another 380,000. All three networks were up in the fourth quarter, too.
“It’s just a very good time for us,” said Matt Blank, chairman and CEO of Showtime. “Regardless of the cost of subscription cable, consumers see staying home and watching premium channels as a cost-efficient use of their dollars.”
Why am I going into detail on this subject? Because while we, as screenwriters, are concerned with stories, the studios, cable operators, and other distributors (legal or illegal) consider our movies and TV shows to be content. They are “content providers.” And whether we like it or not, in their minds, screenwriters are, too — our stories = content.
Our function is to create the content.
Their job is to commoditize that content.
So when someone starts talking about “information wants to be free,” as Anderson does in his book, then we had better be paying attention — because even in This New World Order / Web 2.0 / or whatever we call it, it’s still hard as hell to make money off product that is free.
To make it personal, imagine you write a horror spec script called “Death Night.” You sell it to Screen Gems. They produce the movie. It hits theaters. A few months later, you anxiously await its release on DVD which will mean a lot of money to you in the form of residuals. But wait a minute — before “Death Night” comes out on DVD, you can actually download it online — for free! Somebody took an HD camera into a movie theater and taped your movie. Or somehow got hold of a digital copy and uploaded it to the Internet.
That is money out of your pocket.
Setting aside possible ways to protect against or monetize piracy in the future, all you’re relying on at this point is the value a consumer places on an original creation. But then you’re expecting them to look “Death Night” and see your own blood, sweat, and tears, instead of a movie produced by a ginormous multinational corporation. Which do you think they’ll see?
What’s going to happen? Here’s Gladwell’s summary in the New Yorker article:
Apple may soon make more money selling iPhone downloads (ideas) than it does from the iPhone itself (stuff). The company could one day give away the iPhone to boost downloads; it could give away the downloads to boost iPhone sales; or it could continue to do what it does now, and charge for both. Who knows? The only iron law here is the one too obvious to write a book about, which is that the digital age has so transformed the ways in which things are made and sold that there are no iron laws.
What do you think? Where is the future headed re content creation, management, distribution, and income? How will the movie industry look in 20 years time?
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