[Tim Lee]
OK, this will be my last post on the subject of free content, but I wanted to highlight this excellent comment by Lance Linden from the previous post:
Let's say that down the road is a burger stand run by a retiree. Because the retiree has other sources of income, she need not sell her hamburgers at a price that would max-out her revenue. She sells her burgers because she loves to cook and likes having something to do with her time. Your argument as I read it ("everyone is made worse off by there being less of this superior output. The fact that you can get enough 'to pay the bills' is irrelevant") is that this retiree is harming the burger-eating community by reducing the incentive of restaurants to make better, cheaper burgers. This does not make sense to me.Price points are shaped by the seller's financial needs, goals, and expectations, and sometimes those goals are capped at merely "pay the bills." These price points, regardless of how they were reached, influence the marketplace. Sellers who choose higher price points need to compete in other areas, thus enforcing *stronger*, not weaker, incentives to create higher-quality content. This is as true with creative and information-based works as with hamburgers or anything else tangible. The only difference is the information can be created and increasingly be distributed more cheaply than stuff that can be eaten or dropped on a foot.
This is the great thing about markets: they tend to self-equilibrate. If the amount of content supplied at a price of 0 is inadequate, consumers will be hungry for more content and will be ready to open their wallets, leading to a non-zero price. If, in contrast, there's a lot of content around for free, then it will be a struggle to get people to pay for your content unless it's significantly better than the free stuff. Which of these conditions will obtain is an empirical question that will only be answered in the marketplace. But there are good reasons to think that, for most types of content, the equilibrium price will be zero.
This has nothing whatsoever to do with whether any given writer, musician, or programmer is able to make a living, or whether his salary is a "living wage" with good benefits. If some people are willing to create high-quality content at very low costthat will place downward pressure on profits and wages in that part of the market. That's unfortunate for the people competing with them, but there's nothing unfair about it, and it doesn't really matter how people manage to provide so much free content—whether it's done as a hobby, supported by third-party charity, or thanks to a clever "free-based" business model. All that matter is that the content is being produced.
The concern seems to be that profits might go so low that nobody is able to produce high quality content at all. But this confuses cause and effect. To the extent that producing high-quality content is unprofitable, it's precisely because there's so much high-quality content being produced that it's pushing profits down. Obviously, it doesn't make sense to predict that in the future content will become so plentiful that no one is able to produce it any more.
You'll notice that you commonly hear protectionists make the same kind of argument about "unfair" competition from overseas workers: competition in industry X is causing job losses in industry X, so what if competition in general causes all of our jobs to go away? Back before he was shrill, Paul Krugman tackled this argument in one of my all time favorite essays. At bottom, the argument suffers from a fallacy of composition: The fact that more competition in one sector reduces jobs in that sector doesn't mean that more competition everywhere means everyone loses their jobs. Likewise, the fact that competition from the web is costing jobs in the newspaper business doesn't mean that the long-term result will be no jobs in the news business at all. Quite the contrary, the reason things are so grim in the newspaper business is that there's more and better content available from other sources. The newspapers' decline is an unfortunate side-effect of a generally positive trend, not a harbinger of future problems.
And just to be sure there's no misunderstanding: none of this has anything to do with copyright.
Wow, not only are my comments blatantly misread, their misreading is praised by the blogger.
My argument was NOT that "hey, more expensive producers can't charge what they want because of the near-hobbyists, boo hoo". My argument was that these near-hobbyists are NOT satisfying replacements for the copyright-reliant productions, as judged by people's actual decisions with their own money when copyright law is enforced. All of your arguments amount to, "who cares if copyright isn't enforced against pirates, these people over here don't need it to produce their stuff".
But nobody ever disagreed that such low-cost producers exist!
I was most certainly not making a protectionist argument, but the point that your arguments are implicitly rejecting the desirability of copyright law, and thus missing the benefit to everyone to accrues from the higher cost producers being able to enforce their copyrights.
As long as the best you guys have is to caricature me, I'm not going to bother.
"Person": who said anything about copyright law not being enforced?
Say, is that the Ono Burger on Kauai? Man, I love that place.
Person, for the last time, this has nothing to do with copyright or your frankly bizarre fixation with protecting copyright from anarchist assault.
If you write a novel and choose to publish it on a freely-accessible Web site and allow anyone who chooses to cut and paste it, provided that any alterations they make are themselves freely distributed, then you have done no harm to either the laws or principles of copyright. If you write a novel and choose to leave 2,000 mimeographed copies at your local library, you have done no harm to copyright. By extension, if you charge $23.99 for hardcover editions bound in the feathers of a dodo bird you cloned expressly for this purpose, you have done nothing to strengthen copyrights.
This discussion was originally about whether a) a content-distribution system which does not charge for the content is a "viable" business model and b) whether the creator's financial goals are relevant to that viability (you asserted they are not). None of this has anything to do with copyright.
I confess I lack the intelligence and articulation skills to make this point any more clearly.
Feel free to challenge my arguments if you like regarding whether for-money distribution methods can or cannot or should not compete with free-distro methods. Feel free to argue that (as I think you did or came close to doing in the other thread) people who give away stuff for free are harming those who do not. Argue about Tim's posts on the various pros and cons on patent reform (please remember that patents and copyrights are different). But I will ignore any reference on your part to copyright.
LCL
This is the great thing about markets: they tend to self-equilibrate. If the amount of content supplied at a price of 0 is inadequate, consumers will be hungry for more content and will be ready to open their wallets, leading to a non-zero price. If, in contrast, there's a lot of content around for free, then it will be a struggle to get people to pay for your content unless it's significantly better than the free stuff. Which of these conditions will obtain is an empirical question that will only be answered in the marketplace. But there are good reasons to think that, for most types of content, the equilibrium price will be zero.
No, there are not good reasons to think that. The simple empirical fact that the market price of the vast majority of content is greater than zero refutes your claim. Business models that involve giving away the producer's primary products or services for free are rare.
"Business models that involve giving away the producer's primary products or services for free are rare" largely because creating and distributing the producer's primary products for free are rare.
In most functioning markets, the selling price of goods begins to approach the production cost of those goods. Let's say you're a writer or a musician. The cost of creating your product is VERY low relative to most industries. This lower cost leads to lower barriers to entry; lots of people can fire up a text or HTML editor and write. Many of these people will stink on ice at writing. Some will be good. Some of the really good ones will charge all they can for every word. Other really good ones will sell their words for next to nothing. They will force their higher-price competitors to either a) improve the quality of their products to justify their higher prices, b) lower the sales price of their work, or c) lose market share. The key here, and what makes information content "special" in this regard, is, again, the low cost of content creation. If cars could be made as cheaply as blog posts, then there would be free cars on every street corner.
By the by, it is true that no company which hopes to maximize its profits can give away its primary products (profits require selling *something*, even if "selling" is little more asking for donations). Thus it's important to note that companies that freebase their biz models are not giving away their primary products. Red Hat's primary product is not its operating-system programs and widgets. Its primary product is support. The software is a loss-leader designed to get people through the door, as it were. If Red Hat overstates the value of its support agreements, or overestimates the degree to which giving away *this* set of software packages will lead to support-agreement purchases, then that is a failure of Red Hat's execution and is not, in and of itself, a damnation of the freebase method.
"Business models that involve giving away the producer's primary products or services for free are rare" largely because creating and distributing the producer's primary products for free are rare.
No kidding. And that isn't going to change. The fact that the internet makes it easy for any talentless hack to create a blog or upload his amateur videos to YouTube isn't going to eliminate the demand for good journalism by talented writers or commercial movies and television shows that require lots of expensive labor and materials to produce. The reason there are lots of free blogs is that they are easy to produce, aren't very good, and few people attach much value to them. The reason the New York Times can continue to charge its readers is that it provides high-quality journalism by talented writers that few or no "free" blogs or other "free" sources can effectively compete with. And the flip-side of the internet's ability to allow digitizable content to be distributed widely for very little cost is its ability to allow financial transactions to be conducted at very little cost. Services like PayPal allow producers to "monetize" content that would previously have been difficult to sell for profit. "'Free'-based business models" will continue to be limited mostly to small, niche markets and products.
The reason the New York Times can continue to charge its readers is that it provides high-quality journalism by talented writers that few or no "free" blogs or other "free" sources can effectively compete with.
So am I imagining this?
So am I imagining this?
No, and I'm not imagining the hefty sum of money the New York Times charges its subscribers, either. Or the Wall Street Journal.
No, and I'm not imagining the hefty sum of money the New York Times charges its advertisers, either.
Now it works.
It worked before your change, mouse. The New York Times has a daily circulation of more than a million. For the Sunday edition, more than 1.5 million. Weekday and Saturday editions cost $1.25 or more, and the Sunday edition costs $4 or more.
Nor are you imagining this
http://politicalcalculations.blogspot.com/2008/03/accelerating-decline-of-new-york-times.html
Yes, circulation is declining (though the growth in online readers probably more than compensates). That doesn't alter the fact that the New York Times receives hundreds of millions of dollars a year through direct payments from its readers for content. Perhaps advertising will one day provide sufficient revenue to cover all of the Times' costs, but that certainly isn't true now. It seems even less likely that advertising alone could support the entire news and journalism industry.
Okay, fine. Your post's about a race to the bottom... but if you ask me, it's kind of a sop to say that your train of thought has nothing to do with the revenue potential of intellectual property rights.
At any rate... I'm no trained economist, but:
Find a happy balance between marginal cost and quality, get your product in front of the largest serviceable market, make that product as easy as possible to obtain, and let the market sort out the winners on its own. THAT is the way to do it, and more to the point it's the system we'll wind up with barring significant (and onerous) intervention.
Instead, all kinds of industries say, "government, protect our markets" which has the second order consequence of reducing the market and/or making the product harder to obtain. Bass-ackwards, hmm?
...What am I missing?
It worked before your change, mouse. The New York Times has a daily circulation of more than a million. For the Sunday edition, more than 1.5 million. Weekday and Saturday editions cost $1.25 or more, and the Sunday edition costs $4 or more.
According to the 2007 10k filing, News Media Group saw 63% of all revenues from advertising and 29% from Circulation, with the remaining 8% coming from Other (p24). Total revenue was just under $3.2B and net income was just $209M (following last year's $3.3B revenue and $506M net loss)(p21). About 64% of 2007 revenue was attributable to operations within the company's New York Times Media subgroup (p23).
In other words, right now the Times and its parent need all of the income it can get, and circulation data is a not-inconsequential component; but in the end, advertising is carrying almost two-thirds of the company.
You've all forgotten that the primary business of journalism isn't selling content to readers, but rather to sell readers to advertisers. In this context, the switch to internet distribution changes nothing about the business model. The New York Times never made money by selling a wad of paper for $1.50.
And all this talk to a "race to the bottom" is positively laughable. A previous commenter, Mixner, said that "The fact that the internet makes it easy for any talentless hack to create a blog ... isn't going to eliminate the demand for good journalism by talented writers". Really? Tyler Cowen is a "hack", but Sean Hannity is a "good journalist"? The internet is maturing as a platform. The videos posted by the Onion are in the same league as the Daily Show and Colbert, in terms of the quality of content.
In the 80s there was no Internet and no Napster, yet during that decade the quality of pop music and rock music and what have you took a nosedive and never recovered. Most of the best music since has been underground, amateur, quasi-free, you name it.
(Unless you are seriously thinking about buying the new Madonna, to which I say: Mercy Me)
Newspapers deserve to die. Die evil inkstained vehicle of disinformation, die.
Books are another matter altogether. Even the most die-hard pirate would shed a tear when the honest discussion arises on how would (say) Kurt Vonnegut make a living had he been a man of our time.