Content Economics
I am in macro mode this week as I revise the entertainment market model taxonomy for the new edition of Forecast 2020. I am in The Big Picture.
I had the occasion to write Esther Dyson today, with good wishes on the recent acquisition of her publishing firm EDventure Holdings by CNET. I ribbed her that a postcard in pearls was in order. Years ago I recalled her announcing a change of address (after buying her first newsletter business?) with a photo of her in an elegant evening dress complete with a long strand of pearls, perched on a stack of moving boxes. For those of you not old enough (or too old?) to remember, Esther was one of the few women experts at early computer industry conferences, but always noticeable as the girlish figure in t-shirt and jeans sitting cross-legged on the edge of some stage fielding the most important questions of the day from 1980s cognescenti and wannabees. She is also credited with originating the idea in my mind that content wants to be free.
I recalled CNET founder Halsey Minor and his coinage of the great term disaggrenomics, whereby vertically integrated online companies would be out-competed by horizontal players.
Recent charges that Clear Channel Communications used their dominance in radio station ownership illegally by holding back airplay on artists who did not sign up to tour with their concert promotion division underscored my wisdom in pursuing a career as a successful entertainment economist rather than an economically successful entertainer.
An FT parlay between two economists last week blurted out what we had all been too polite to mention publicly, that people were getting more content and paying less for it.
I made some progress on the Home Net project to bring that into the model, but I was focused on the struggle between consumer electronics manufacturers and PC manufacturers for control of the content, and the struggle between them and the telecommunications companies for storage and processing of the content. But it finally all came together for me when I considered that the whole thing might come to a screeching halt because of file transfer prevention legislation being pushed by the studios for HDTV?!? I had to take a break and get some new running shoes.
I had overlooked until that moment the ages old struggle between the content companies and the delivery platform vendors, you know, which one was going to be the razor and which one was going to be the blade when few companies besides Sony own both types of factories. But then, buried on page 8 of an IFPI report on the online music market was statistical proof that pinpointed a huge logical fallacy under which we had been operating, that music sales and music demand are the same thing.
Content is King
We first delivered a series of InfoTech lectures Content is King, Content is Kindling ™ at MILIA in 1997, after bundling multimedia content with computers starting going berserk. At the time, we thought the practice seriously damaged the perceived value of content to the consumer, but in hindsight, computer makers were exploiting a hidden oversupply situation of staggering proportions that ultimately culminated in an adjustment of the market. I mean, nobody forced the publisher’s to give away 25 CD-ROMs worth of content in every PC bundle.
Content is Kin(dlin)g
The idea of free content may have started with CD-ROM when mass economies of scale brought the cost of replicating a CD to under $.01, but it did not end there. What happened to multimedia CD-ROM, sounds like a footnote in history though, as economist Eli Noam lists in the FT within one devastating sentence what has happened to the information economy since then: the dotcom bubble; the telecoms crash; the music industry bust; the advertising downturn; the e-publishing revenue stagnation; the PC slowdown; the wireless saturation; the semiconductor slump; the newspaper recession; the R&D retrenchment. But wait, it is worse than that, as he continues, the conclusion is, therefore, that as countries rely more on information-based activities, their economies become more volatile. Oh, great. I make a mental note to buy more Berkshire Hathaway for my kid’s college fund.
Disaggrenomics
On the Net, Halsey Minor said a few years back in a Wired article, companies like America Online are being slowly displaced by a range of companies in four horizontal categories - content, content aggregation, software, and telecommunications - in the same way vertically integrated mainframe companies like IBM and Unisys were previously replaced by hardware, application, and operating system competitors like Intel, Netscape, and Microsoft. Ok, so America Online bought Netscape and later Time Warner, which owned content, content aggregation, and telecommunications properties. But now, those deals are looking foolish, and AOL is opening its content beyond subscribers to the web at large in an attempt to capture more ad revenue. No wonder Time Warner wants a divorce.
Attaway
Digital rights management is critical to the dissemination of high-value content through this equipment, said Fritz Attaway, executive vice president of the Motion Picture Association of America. If we cannot provide adequate and effective security, those delivery systems can’t be used for high-value content. Think the future home entertainment scenario will be pipes coming in to a central server full of high resolution entertainment and information tagged with rich metadata and being networked from room to room to mobile device on demand? Not so fast.
You Gotta Pay the Band
All of this reminded me to write an essay someday about my other life as a musician. Entitled Circle of Fifths, it would chronicle the musician’s search for a living when the record producer suggests you get paid by the concert promoter who suggests you get paid by the conservatory who suggests you get paid by the private students who suggest you make money with branded merchandise, e.g. band t-shirts. I remember last year going to hear Cowboy Junkies for the first time, and liking the ultra-cool yet earthy delivery of Margo Timmins, and then being utterly turned-off when she closed the set by pitching the t-shirts on sale in the lobby. Not even the CDs.
Stay Tuned
The IFPI Online Music Report 2004 states, “An IFPI survey conducted in Australia, Germany, UK, USA and Canada showed that total music consumption (legitimate physical formats plus all digital downloads) actually increased by 30% between 1997 and 2002. Total online consumption of music - the vast bulk of it unlicensed - amounted to approximately eight billion tracks in those countries alone - one third of all songs consumed.” The graph is a beauty.
The venerable and respected IFPI is the umbrella organization for all the world’s RIAAs, but a lot less trigger-happy. Independent but unofficial reports had suggested that the record companies in fact released significantly fewer records in the last three years, but this new evidence was from the horse’s mouth, so to speak. By showing that when 8 billion online track downloads, mostly illegal P2P file traded tracks, were added to legitimate sales of 16 billion tracks in 2002, demand had grown significantly over the 18 million tracks sold in 1997, the same period music sales had fallen off, the IFPI showed the absurdity of its own argument that file trading caused the sales decline.
The industry has not moved effectively to provide attractive and viable music downloading services, but if the industry could monetize just 25% of the illegal file trading, it would be dynamic and healthy. The industry has raised prices on CDs. They have lowered the number of albums released. They have incurred the wrath of millions by their rhetoric and litigation of private citizens. None of the consumer electronics or computer manufacturers have benefitted from all the free content being distributed, only the telcos. The catalog available through legitimate sources online is limited, the prices are high, and the terms are overly complicated. But demand for music is resilient, higher by far than ever.
There you have it, undisputable evidence that content is king and content is kindling.
I did not hear how much CNET paid for EDventure Holdings, but I do think the properties were the newsletters and conferences produced by EDventure, not Esther Dyson-brand t-shirts.
posted by julia b schwerinÂ