‘Long Tail’ author Chris Anderson, and Duke University law professor James Boyle, discussed the economics of ‘free’ and the merits of the Creative Commons, in a BBC Radio programme yesterday evening. But to find out why the headline, I’m afraid you’ll have to read the whole article.
Anderson, who uncovered how digital economics means that selling a large catalogue of niche products in small volumes can be profitable, has a new theory. That businesses can give up to 90 per cent of their products and services away free, and still make a profit.
Taken at face value, Anderson’s theory will cause apoplexies among music and entertainment industry executives. But when you think about what he says more carefully, he is
re-stating a fundamental of the economics of content, namely that more people use the product than actually pay for it. In the digital world however, the zero marginal cost of reproduction means that it takes fewer people to pay for it, in order to subsidize the many.
Anderson gave a range of examples. Google is profitable and gives its main service away free to its users. Online games can be offered free, if only a few dedicated enthousiasts pay for an improved or faster service. Online publications can be funded by a small amount in donations, and the content given away free. Open source software – an invaluable free resource to many users and small businesses – is funded by large companies such as IBM who see it as a resource and sell services around it.
Essentially, old media has always worked on the principle that the number of paying customers is a different one from the number of audience members - this is a fundamental of newspaper economics. So the principle really isn’t so new. What’s new, as with everything in the digital world, is the sliding scale of numbers.
For companies based on ‘old world economics’ it does, however, raise the problem of ‘how to compete with free’ (incidentally, a problem highlighted by rights-holders within the EU policy debate on creative content online).
The discussion with Boyle focussed on the issue of online content, copyright, Creative Commons... and downloading.
Boyle’s words carry a salient message for policy-makers: “Does the music industry face a threat from illicit downloading, where someone has put their works up there and they don’t want them copied, and the answer is that it definitely does. But the fact that some of this activity is harmful, shouldn’t lead us to suppose that everything that is proposed in order to supposedly remedy that harm is kosher, is legitimate, is appropriate. You often have illegitimate interests which lead them to propose reforms to copyright, some of which are reasonable, others which are actually designed to make competition with the business model of the recording industry or the movie industry illegal. It’s almost as though we were giving the people who made lamp oil a veto over the business of these new fangled electric light makers”.
The interviews were broadcast on In Business, 8 January 2009, on BBC Radio 4. For non-Brits and those not familiar with the In Business programme, it is a regular analysis of business issues, and has a track record of highlighting topical and leading edge technology matters. The programme is available here in mp3 format , but I’m not sure if the BBC leave it there for longer than 7 days or if it is accessible to people outside the UK.
If you liked this article, remember you read it on iptegrity.com!