Thursday, October 04, 2012

Tom Brokaw's idea about file sharing

I was listening to Tom Brokaw on a podcast.  He got to talking about how to save newspapers and wandered over into pirating music and movies.  He said that younger generations think that these things are free and that attitudes need to change in order to save newspapers.

I’ll ignore his point that people pirate these things b/c they believe they should be free, but there’s a lot of information that indicates that it’s more likely that people pirate things b/c it is more convenient.   Itunes punched a big hole in music downloads and a lot of the movies that are illegally downloaded aren’t readily available, Game of Thrones jumps to mind.

One of the reasons that younger generations may doubt the alleged value of the materials they pirate is because the industry who produces the CDs or movies aren’t honest about the costs.  I’m going to talk about music more than movies, but check the price of DVD, versus a download on cable on demand, versus Amazon Prime, versus rental at a redbox.  You’re going to get several different prices and some will be significantly higher than others.  

With music, when record companies switched formats to CDs they raised prices, but a series of price fixing suits quickly made it apparent that that wasn’t a reasonable price for the CD.  But the labels kept trying to raise the prices.  Then, when the CD product became obsolete, they still tried to maintain a high price.  When they were able to promote music regularly by selling it online for 2.99 or 4.99 it became clear that at best, most records are at least priced twice what their cost is.  

The next issue became, what are the actual costs to the music industry.  A series of lawsuits showed the money wasn’t going to the musicians.  It wasn’t going into CDs, liner notes, and cases anymore.  It also wasn’t going into the transportation or storage for those obsolete CDS.  So, who’s getting the money?  Promotion maybe? But overall, it was people who have very little to do with the music.  

This point was made clearer when independent artists began giving away their music b/c they knew it would spur concert ticket sales. Busta Rhymes recently gave away his new record on Google Music.  Other artists began raising money to record their music on kickstarter.  Suddenly it was quite clear that a reasonable band could probably record a record for $20,000 or less. If they're going to sell 10,000 records online, for $5 they could probably cover costs and put a little in their pocket.

So, if the price is so elastic, and the costs are no longer there, and the record companies are dishonest and greedy, then how do you assess what a reasonable price for a record is?  You can’t tell.  So you pay the price that is most advantageous to you.  That is the measure the industry has chosen to determine price.  But suddenly, when baud rates are high enough and the product can be transferred digitally, the industry lost control of setting price and it's the consumer setting the price at what is most advantageous to them. And that price is free.

So, if Mr. Brokaw is right, then what has to happen first is that the industry has to become an honest broker when setting prices.  They need to establish some credibility in their pricing schemes.  In order to do that they have to start treating the musicians who create music fairly.  As long as musicians are complaining that they’re getting ripped off and there are enough high profile cases of record labels ripping off their artists, they won’t be able to establish any credibility.  They also probably have to get more uniform pricing.  It’s understood that Kanye will sell more records and he’ll be able to discount his record b/c sales volume will make up the price differential,  but bands that don’t sale big on a major label shouldn’t be twice the price that an indie label charges or that is the same price as the physical CD.

Until there is some kind of credible pricing scheme consumers will set the price based on their own self interest. And that's bad for the record labels. Because as far as consumers can tell, if the record labels go bust, the consumer loses nothing. We buy directly from the artist, and most of us would prefer to do that. So, the labels need to show what value they contribute to the music and why they deserve any portion of the money for the product.



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