HOW INNOVATION COULD SAVE THE ENTERTAINMENT INDUSTRY FROM ITSELF

Posted on July 7, 2003 by Dave Pollard

The New Yorker this week (article not available online) reports that the record industry is in free-fall, with sales down 50% from peak levels several years ago. The RIAA is starting to sue people that allow others to copy their music $150,000 per ‘offense’. Satellite TV companies run adds comparing satellite ‘theft’ to stealing cars. Software and music companies, with the support of politicians like Orrin Hatch, are seeking legal opinions on new technologies that would wipe out the hard drives of anyone downloading copyright material without paying. And movie companies, fearing massive peer-to-peer copying of films even before they hit the screens, are studying complex copy-blocking algorithms and trying to prohibit the sale of DVD copying machines. When you Google ‘file sharing’ you get sponsored ads from companies hawking file-sharing blocking tools to corporations, warning of legal and security consequences if companies don’t buy their wares, and equating employee file-sharing with “pornography and on-line chat”. Horrors.

It’s people versus corporations, and it’s guaranteed lose-lose unless the entertainment and information industries shake off their hoary thinking and start to get creative, reasonable and accommodating. Our parent magazine, Salon, reported earlier this year on entertainment heavy-weight John Snyder’s pragmatic appeal to the record industry to Embrace File-Sharing or Die . In the face of armies of well-paid corporate lawyers, the courts have generally sided with business over people, except in extreme cases where even this reactionary cadre realizes the unenforceability of their decision. At least a quarter of a billion people are guilty of violating these laws, and Snyder rightfully points out that this means the laws, not the people, have to change.

suppdem Let’s look at this from a purely economic perspective, and set aside for a moment the political, legal and moral issues. At the same time consumers have become increasingly reluctant to pay $20 for a collection of over-hyped music on a CD that costs fifty cents to make, they have actually been willing to spend more than ever before on the technologies that ‘play’ the content. That’s right, a recent survey shows consumers are moving upscale in their entertainment ‘hardware’ purchases, because they see more value for their dollar there. And while CD sales (at least of mass-marketed titles) are off 50%, the total number of titles issued by the Big 5 (who generate 85% of all music sales) is also down 50%. Cut the supply in half, why is the industry surprised that demand has declined accordingly?

Snyder quotes Tim O’Reilly on the supply-demand principles that are now governing the entertainment industry:

Obscurity is a far greater threat to authors and creative artists than piracy.

Piracy is progressive taxation.

Customers want to do the right thing, if they can.

Shoplifting is a bigger threat than piracy.

File-sharing networks don’t threaten book, music, or film publishing, they threaten existing publishers.

“Free” is eventually replaced by a higher-quality paid service.

The solutions follow pretty obviously from O’Reilly’s principles, and apply across the entire spectrum of entertainment and information industry sectors, not just to the music sector (just look at the battle over TiVo and PVRs, though, as Snyder points out, there are important differences in user experience between music, film, television, literature and information content that have especially hurt the music industry, so far):

Content must be made much more affordable, in creative ways. Allowing subscribers to pay an all-you-can-eat flat monthly fee, the model that Satellite Radio is pursuing, is one possibility. Letting users compile their own CD’s of just the songs they want is another. Sponsoring of groups and songs by major corporations, like PBS does with its content, is a third. Consumers got the idea that entertainment should be free from the fact television programs always were, and guess who’s model that is?
The artists need a bigger say in the model that’s used. They’re stuck in the middle right now, and some, like Joni Mitchell {“I hope the whole [commercial music industry] goes down the crapper. It’s a corporate cesspool”) are furious about it. Rightfully so.
Multiple models for different income groups should be considered. Let the radio-quality music go for free, subsidized by premium-quality versions (perhaps with a personal greeting from the artist, like a signed art print?) for those willing and able to pay vanity prices. Or just view the CD as ‘free’ advertising for the live tour, since consumers seem more willing to pay $100 for a live concert ticket than $10 for its CD.
The last two bullets above are the key ones. The default scenario, the one that will occur if we do nothing, or try to leave it to the courts, or squabble until it’s too late, is that the existing publishers will die, there will be a ‘dark ages’ during which only free, amateur content will be available, and then as consumers grow dissatisfied and want more polished product, they will choose (not be forced) to pay for the quality. That’s not necessarily a bad thing, and it’s certainly consistent with Economics 101.
As Snyder suggests, the industry needs to reinvent itself, working collaboratively with competitors, artists and consumers, instead of with lawyers and peer-to-peer saboteurs as they’re doing today. A model to follow in doing this? The very technology companies whose reinvented, sexy, feature-packed, value-added, inexpensively-priced players carry their content.

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9 Responses to HOW INNOVATION COULD SAVE THE ENTERTAINMENT INDUSTRY FROM ITSELF

Ray Jefferd says:

July 7, 2003 at 07:00

Everything digital is in an unstoppable race to a price of zero like, air, sunshine, etc. get used to it.
lightning says:

July 7, 2003 at 08:13

The entire entertainment industry is showing symptoms of long-term cocaine abuse. Vastly inflated self- worth, reckless disregard of consequences, parinoia, tendency toward violence, feelings of invincibility.Next time these bozos testify before Congress, make ’em pee into a bottle first.
mrG says:

July 7, 2003 at 08:29

I’m with Lightning — in face, “make ’em pee” makes for a darn good rallying cry for the anti-RIAA rally.What bothers me most about these sorts of stories, though, is the lack of direction for positive change. We’re all very quick to decide that someone else’s business must fail and die, but we don’t seem to be prescribing anything for us to do towards a resolution.For example, if everyone went right now to eFolkMusic.org and bought two MP3s, $1 of that $2 would go direct into the artists’ pockets and maybe that mighttell the artists that micro-distribution is a good idea, a better idea than selling their soul rights to the RIAA partners.tell the RIAA that we do want artists to live and pay mortgages and all that, we just don’t think they should be subsidizing huge executive limo bills.tell MP3.com and others that the model of $1/track which gives you full rights to burn your own CD is not only feasible, but it’s what the consumers really want.tell the media that there’s a difference between ‘pirate‘ and ‘bootlegger‘ in that one of them uses illegal and threatening means to steal money from citizens and merchants, often causing wonton damage in their thirst for easy profit, so it’s pretty darn obvious who the pirates are in this situation.Instead of prescribing negative change for the coke-heads, we need to turn it around and prescribe positive change for us, the consumers of music. At $1/track, let’s face it: We tip our donut shop waitresses more than we tip the musicians we cannot live without!
Dave Pollard says:

July 7, 2003 at 10:00

That may be a trace harsh, Gary. I know some people in the industry and they mostly want to do the right thing as well. They just lack the imagination, and they’re hamstrung like all other corporations by the demand to maximize ROI, which means take no risks, resist change, and keep costs down. The paradox of course, is the same one that keeps us working 60 hours a week to afford things we have no time to enjoy — the fatally flawed economic system that has us, as shareholders, us, as consumers, and us as employees, at constant odds with ourselves, eating our own tails.
Rob Paterson says:

July 7, 2003 at 18:03

Will we not see a direct market emerge from musician to consumer? My sense is that this DIRECT modality is the essence of the new economy. Farmers will sell direct. Journalists direct. The busines smodel of cornering the middle ground is what is under fire. In the music industry it is further along but direct relationships between those with something to sell and those who want to buy are it . Look at eBay!There is no room anymore for the old intermediary who screwed both msusician and consumer. The new technology cuts them out
Dave Pollard says:

July 7, 2003 at 22:31

That’s an interesting idea, Rob. Could it apply to other entertainment media as well, e.g. direct-to-video films? However, to update McLuhan, every disintermediation produces a new value-added re-intermediation. More likely the reintermediator will be more of a filter/preference predictor/cataloguer than an agent/publicist, however.
Rob Paterson says:

July 8, 2003 at 09:41

Yes Dave.For instnce my son James is a leading web artist. What helps him are the 2-3 boards that are the focus of this community. When James has something new he presents on these boards – the result – huge traffic.I can see blogging communities who like say Elvis Costello or Country and Western being the group that filters the good from the bad. True I think for most things – too complex to find good material on the web as one offs’ I think you can even run a good bookshop like this. Say you and I like the same kind of nooks – bet we do – if we started to review 3-6 books a week and linked back into Amazon we could have a nice little business – not become millionaires but probably nice.I think that Amazon are being very smart and will extend their reach and power by empowering specialty groups to get behind categories of books and later other stuff. This will be the new village bookshop
maxine locker says:

July 8, 2003 at 11:32

Dave,I didn’t read the New Yorker piece about music, nor even your words. My era is wrong for this particular back and forth. But I DID read that beautiful piece of writing in the VO on “Good porn,” and that’s why I am writing…didn’t know where else to comment. I wonder if you do movie reviews anywhere, if not, perhaps you should.
Dave Pollard says:

July 8, 2003 at 22:42

Maxine: Thanks. Mark actually reached back a bit for “No Good Porn”. You can find the original post, and others’ comments on it, here.As for movie reviews, I’m too critical, old and crotchity to like many movies, and those I do like are a bit eclectic (my favourites include critical flops How to Make an American Quilt and Leaving Normal). I’ll do some movie reviews if I find something I can be positive about — could take a while.