Priced to Sell: Is the Future Free?

[Moejoe]

Interesting New Yorker article by Malcolm Gladwell that is part review, part rebuttal of the ideas put forth in Chris Anderson's "Free: The Future of a Radical Price".

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.”

http://www.newyorker.com/arts/critic...urrentPage=all

[Tuna]

An excellent review, and a neat rebuff against the high-school level philosophy that because some creative works can be given away free, all creative works have no inherent value.

[Moejoe]

Originally Posted by Tuna

An excellent review, and a neat rebuff against the high-school level philosophy that because some creative works can be given away free, all creative works have no inherent value.

I think his rebuttals are sound, but I tend to lean towards Richardson's zero-cost idea that digital products (creative or not) have no inherent monetary value. There are other forms of value, of course. There's lots of value in zero-cost creative works, take for instance the plethora of PD works available here and at Feedbooks, all very valuable, but are any, in a digital format, worth 'money'?

[Tuna]

I'm not sure about the 'no inherent value' argument.

Any product has three basic costs:

1. The intellectual cost (the effort involved in designing a car, or writing a book)
2. The manufacturing cost (printing a paper book, building a car)
3. The delivery cost (getting the product to the consumer)

Now, a 'fair' price is one that covers these three costs. If your product has an audience of one, then they've got to cover all those costs. If it has an audience of thousands, then the cost can be shared between them.

Digital distribution doesn't really change that equation. Sure manufacturing and delivery costs drop enormously (but they don't become zero, whatever the utopians would have you believe), but the creative cost remains. The audience may potentially grow, but in an environment where creative works are highly available, the theoretically large audience is actually divided by the huge range of products on offer. The end result is that the audience for an ebook is not any larger than it would be for a pbook.

My point here is that digital products may have no theoretical 'value' (any more than you can ascribe a value to a pulped up bit of dead tree), but they have a cost that should be met. If you are one of an audience of a thousand that all want a given ebook, just because it's free to reproduce doesn't free you from the obligation to pay for the creative effort that went into that book, or the infrastructure costs that were incurred getting the book into your e-reader.

[Musicman]

Originally Posted by Tuna

My point here is that digital products may have no theoretical 'value' (any more than you can ascribe a value to a pulped up bit of dead tree), but they have a cost that should be met. If you are one of an audience of a thousand that all want a given ebook, just because it's free to reproduce doesn't free you from the obligation to pay for the creative effort that went into that book, or the infrastructure costs that were incurred getting the book into your e-reader.

I think the rule of supply and demand would determine what is the appropriate price. If few people want your book, then even fewer will buy it at a high price that covers your costs.

I also think that DRM used to limit your access and fair use demands that the price be LOWER. I think people would not mind a higher price for DRM FREE E-Books.

[Tuna]

Originally Posted by Musicman

I think the rule of supply and demand would determine what is the appropriate price. If few people want your book, then even fewer will buy it at a high price that covers your costs.

True, but it's also the case that if there's over supply at a cheap price (for instance, freely available pirate copies of books), then the public perception is that the product is 'worth less'. "Why should I pay so much when I can get a different book (or even the same book) for free?"

The problem then is that, if authors and publishers cannot cover their prices, they will choose not to waste their time.

[PKFFW]

Originally Posted by Tuna

My point here is that digital products may have no theoretical 'value' (any more than you can ascribe a value to a pulped up bit of dead tree), but they have a cost that should be met. If you are one of an audience of a thousand that all want a given ebook, just because it's free to reproduce doesn't free you from the obligation to pay for the creative effort that went into that book, or the infrastructure costs that were incurred getting the book into your e-reader.

Couldn't agree more. Though, according to some, or at least so it would seem, the fact that the modern digitally aware consumer doesn't want to pay is what free's them from the obligation to pay.

Originally Posted by Tuna

The problem then is that, if authors and publishers cannot cover their prices, they will choose not to waste their time.

Never a truer word was writ, at least imho. Though, I've heard they will simply write for the pure joy of writing and gift the world with their joyous creations. In the mean time they will go out to wait tables or mop floors in order to make a living so they can continue to write and give to the ravenous crowd who wish to read their writings but don't think the joy of the reading is worth paying for.

Cheers,
PKFFW

[Kali Yuga]

Anderson has apparently posted a response:

http://www.wired.com/epicenter/2009/...so-threatened/


"Free" has its role to play, but in general I have to side with Gladwell on this one.

I may be wrong, but Anderson's assumptions remind me of the people who travel to another country, buy a sarong for $1 that sells for $10 back home, gets dollar signs in their eyes, and 12 months later their import/export tchotchke store is already out of business. One specific aspect looks dirt cheap, and this blinds you to all the other costs involved with the business.

It might seem that digital production costs are nearly zero, but this is slightly absurd. Someone has to invest time to produce the content, edit the content, market the content, maintain the servers, and pay for the bandwidth. High-quality home music recording equipment costs a fraction of professional equipment, but you still need the expertise to use it (and use it well) -- not to mention the skills to book those shows, sell those tickets, design the posters and t-shirts and write press releases; these are not necessarily skills that a musician, particularly ones who need to work day jobs in order to put food on the table, will have or can develop. Same with movies; even a small film requires dozens of collaborators, lots of time and lots of money.

Some ventures will involve low enough overhead to be supported exclusively by advertising; but there is only so much advertising you can sell, especially without invading the product itself. I'd rather not have to see a banner ad on every third page of my e-books.

Then again, I'd be happy to see Mr Anderson put his money where his mouth is, and release all of his publications in e-book form for free.

[tompe]

Originally Posted by Tuna

An excellent review, and a neat rebuff against the high-school level philosophy that because some creative works can be given away free, all creative works have no inherent value.

Inherent value seems to be a strange idea for products. What somebody is willing to pay can never be an inherent value so I think you are misrepresenting the ideas. From your description you have probably not understood them so maybe you should not be to sure that it is a rebuff.

[Moejoe]

Originally Posted by Kali Yuga

Anderson has apparently posted a response:

http://www.wired.com/epicenter/2009/...so-threatened/


"Free" has its role to play, but in general I have to side with Gladwell on this one.

I may be wrong, but Anderson's assumptions remind me of the people who travel to another country, buy a sarong for $1 that sells for $10 back home, gets dollar signs in their eyes, and 12 months later their import/export tchotchke store is already out of business. One specific aspect looks dirt cheap, and this blinds you to all the other costs involved with the business.

It might seem that digital production costs are nearly zero, but this is slightly absurd. Someone has to invest time to produce the content, edit the content, market the content, maintain the servers, and pay for the bandwidth. High-quality home music recording equipment costs a fraction of professional equipment, but you still need the expertise to use it (and use it well) -- not to mention the skills to book those shows, sell those tickets, design the posters and t-shirts and write press releases; these are not necessarily skills that a musician, particularly ones who need to work day jobs in order to put food on the table, will have or can develop. Same with movies; even a small film requires dozens of collaborators, lots of time and lots of money.

Some ventures will involve low enough overhead to be supported exclusively by advertising; but there is only so much advertising you can sell, especially without invading the product itself. I'd rather not have to see a banner ad on every third page of my e-books.

Then again, I'd be happy to see Mr Anderson put his money where his mouth is, and release all of his publications in e-book form for free.

The problem is that the vast majority of the digital audience don't share the same ideas about time=money. The fact that it might have taken the author five years to write their book means nothing to the downloader, it does not fit into the equation any longer when they come to make a choice from the swathe of products before them. That fact is background noise, and is especially unimportant with an audience who are schooled in the ideas of creative commons, open source and the information=free philosophies.

Lets take as an example the amount of books that are offered every day on Mobileread for zero cost or near to zero cost (<$1). Any book now offered over these magical price points is probably going to get ignored, unless it has something more to offer. We're already at a point where zero or near-to-zero price points are becoming expected for new authors, established authors in digital format seem to get a pass for the most part, but even this is changing. A lot of avid readers refuse to pay the price-point the publishers/stores set on established authors books. They (we) do not value the digital product the same as the physical product. This is the inescapable fact of all this. Digital, because it is infinitely reproducible, has no starting worth. It begins at zero and you must add value from thereon in. Saying it took five years to write and all the rest doesn't mean anything to the end customer when they can go to Gutenberg or Feedbooks and snatch themselves a classic or new work of fiction for ZERO COST.

it's all a value proposition now. I can't remember who said it, but it was linked to in a recent MR posting, and it was a talk about the future of publishing. The speaker said something along the lines of "Product is dead, it's not about the product anymore but the context." By which he was talking of the community in which the product is offered, the value that the individual community put upon the object/information being offered. Its easy to value a pbook, there's a definitive process that must be undertaken and it has set costs at each stage. With a digital product there is no way to make the same value assumptions. Server costs/hosting? What if it's using P2P technology for distribution? What if it sits on a free blog host like wordpress, or one of the many new digital book outlets such as Feedbooks? What if it only took a weekend to write (famously the classic Incredible Shrinking Man by Richard Matherson was written in one weekend, also On the Road by Jack Kerouac).

You can't make a value assumption over a non-physical object, and the audience certainly wont make this judgement. It's the context of the object not the object itself that has worth now.


But I do agree, if he's so hell-bent for this future of free pricing, where's the free digital version of his book?

[Kali Yuga]

Moejoe: I partially agree, in that there will be tremendous pricing pressure on digital goods, including expectations that "digital costs nothing, and should therefore be free."

The problem is that in the cases where costs -- however small -- are higher than the ad revenues that can be generated, the "Free" model is not sustainable and the inevitably new products cannot be produced. For example, it is plausible that you could set up a free distribution network for feature-length films, using digital files and Bittorrent or a similar P2P network. However, distribution is only one component of the cost; making the movie itself can still cost millions of dollars. If no one is willing to pay for a movie in any form, who could afford to actually make a new one?

Or, look at Facebook. It might appear to be "free," in that all of the content is essentially generated by its users. Presumably Anderson would assume that Facebook costs "nothing" to run, but this is far from the case; costs include bandwidth, hardware expansion and maintenance, software development and maintenance, management, debt service and so forth. Facebook has a massive audience and is growing exponentially -- but is still losing money, and costs increase as its user base expands. Nor could these costs be reduced by moving to some type of distributed or P2P model.

Now, it's entirely plausible that Facebook will develop a sustainable free model. But it is erroneous to assume that the site costs "nothing" to run because the content is generated at no cost.

Nor should we necessarily assume that users would never, ever join something like Facebook if there was a charge... because they already do pay for services like Second Life, WoW, Lineage and so forth. (Users even trade real currency for virtual goods, services and currencies!)

There are also hidden costs and issues with an uncontrolled (and uncontrollable) distribution network. There's no quality control; minimal ability to market a specific item; no guarantee that a specific item will be available; reduced ability to track downloads; and no one to contact with technical issues -- but still someone to blame (the publisher).

Keep in mind that the "Free" model is not exactly new, either; for example, it's how broadcast television has worked for decades. Revenues were good enough to even support expensive productions. Ironically, these bastions of Free are increasingly threatened and unsustainable -- in no small part because the competing low-cost distribution networks do not generate comparable advertising fees.

Distribution is only part of the costs. As such, the "inherent value" of a digital good is not zero just because one aspect of the production costs falls.

P.S. it actually took Kerouac far more than a weekend to write On the Road - about 9 years to finalize it.

[Phogg]

Originally Posted by Tuna

True, but it's also the case that if there's over supply at a cheap price (for instance, freely available pirate copies of books), then the public perception is that the product is 'worth less'. "Why should I pay so much when I can get a different book (or even the same book) for free?"

The problem then is that, if authors and publishers cannot cover their prices, they will choose not to waste their time.

Other equally occurring instances are promotional books from competing authors, public domain works,and free or inexpensive books by amateur authors.

The recording industry realized early on what promotional and amateur competition would eventually do to their business model, and spent millions trying to shut the original MP3.com (then a site for indie artists) down through the courts in an effort to stop the inevitable.

They failed but it was an understandable (if unethical) attempt.

Writing is now up against the same dynamic, and it is very closely paralleling the moves which the recording industry made.

[Elsi]

Where I get bent out of shape is with a new release being priced "too high". Take for example, Dead or Alive by Michael McGarrity. The hardback can be purchased new from Amazon.com for $17.13 (free shipping!) while the Kindle edition is $14.97. So for $2 more, I wind up with a physical object that I can lend or sell or give away. I cannot consider the nearly $15 for the Kindle edition a fair price. If I was eager to read this book ASAP, I'd probably look for a used copy (how about $6.32 from an Amazon merchant?) or borrow a copy from the library.

I'd hope that the publisher -- and Amazon -- could do the mathematics to see that they could make a higher overall income by selling more units at a lower price.

[Tuna]

It's unfortunate that I feel in some industries we are now seeing a reduced range or quality of products being available due to these price pressures.

Call it the YouTube phenomenon - people advocate 'free' content and point to the fact that anyone can now make a film in their own homes and distribute it for free. The same applies to music and books. However, the vast amount of rubbish on youtube points to the fact that without more investment (time, quality control, production experience, editing and so on), the product you get is not very good and some products are just not made. High quality documentaries are replaced by 'citizen journalism' and so on.

People say "but this is just how it is, this is what new technology does". Anderson tries to make this palatable by suggesting that quality creative works will still find investment through indirect means. However, the reality is that unless we can collectively come up with a better way to support authors, musicians, film makers, we are consigning ourselves to a narrower, lower quality cultural heritage.

[Moejoe]

Originally Posted by Tuna

It's unfortunate that I feel in some industries we are now seeing a reduced range or quality of products being available due to these price pressures.

Call it the YouTube phenomenon - people advocate 'free' content and point to the fact that anyone can now make a film in their own homes and distribute it for free. The same applies to music and books. However, the vast amount of rubbish on youtube points to the fact that without more investment (time, quality control, production experience, editing and so on), the product you get is not very good and some products are just not made. High quality documentaries are replaced by 'citizen journalism' and so on.

People say "but this is just how it is, this is what new technology does". Anderson tries to make this palatable by suggesting that quality creative works will still find investment through indirect means. However, the reality is that unless we can collectively come up with a better way to support authors, musicians, film makers, we are consigning ourselves to a narrower, lower quality cultural heritage.

This also irks me, but in reverse. The assumption is that the majority of paid-for content is actually good, wherein in fact its mostly mass-marketed, focus-grouped, carbon-copied pablum. Out of all the BBC produced TV shows this year there was only a tiny fraction of that content that could be labelled as 'good', and as usual we got a vast majority of gameshows, reality based humiliation festivals and soap operas. Content that I pay £100+ every year for through my license fee is barely worth that fee. The movies that have come out in the last ten years suffer a similar fate, sequel upon sequel, frothy inept romantic comedies, CGI demonstrations that forgot to add any kind of plot or character. Same for books if we're all going to be honest about this. What was the last genuinely well-written book that made the best seller list? I'm talking about something that will last more than the plane journey it takes to read? The bookseller lists are crammed full of terrible writing, rehashed ideas and sequel upon sequel. Oh and any argument that says monetary payment is a measure of quality can be rebuked instantly by using only two words: Dan Brown

I think where people get confused is in their analogies, for instance yours equating youtube user generated content with professional TV/movies. Youtube isn't an avenue for serious creative endeavours, and it never was. It's a repostitory of video clips, none more than ten minutes in length (supposedly). This isn't the place where you're going to find much more than drunk people singing, filmed accidents and pop videos, and all of these without any notion of building upon a creative career. if you want creativity go to Vimeo or Revver, even Dailymotion has more interesting user-generated content.

I suppose what I'm arguing is the Zappa equation (99% of everything is shit). That Zappa equation applies equally to traditional and new media, the only shift we're actually seeing is in how the audience filters out the shit from the shine. The responsibility is now firmly in our hands (pardon the image) to figure out what is good and what is bad. No more intermediaries from the big corps making the initial decisions on what sells and what does not. Because if the ability of a work of fiction to make money is the only metric by which we measure 'quality culture', then we're all fucked.