Stuff Channel

One of the interesting subtexts of the “FREE!” revolution is in order for musicians, artists, whoever to make a living, income still has to be generated. Since musicians are no longer suppose to sell their music on shiny plastic discs, and because of infinite distribution, the question comes up: How does a musician make money?

The answer, according to the Cynical Musician, is to find the Big Dope.

Who is the Big Dope? Well, the Big Dope is the one person out of a hundred (or thousand, or million) that is willing to pay you significantly more for something than it is really worth, because they are a “fan”. You know, they pay $90 for a band hoodie at a concert, even though it’s a $20 hoodie you could get at Wal-Mart with $1 worth of silk screening on it. They are the dope, because by paying for this hoodie, they have helped to pay for probably 200 people to enjoy free music.

The prices of concert tickets are on the rise as well. “FREE!” supporters like Mike Masnick at Techdirt will tell you it’s a good thing that artists are making more direct money, and that the increase in spending on live shows is a good thing that makes money for all artists. However, people rarely look at the increasing concert ticket prices, which see top acts often selling tickets in the hundreds of dollars for a 2 hour (or less!) show. In the UK, even acts like Bon Jovi are trying to push tickets at nearly $500us a seat. There is no indication that more people are attending live events, and every indication that people are just having to pay more for the same events. Key in this is that lower end artists (without the big followings) aren’t going to see any more of the money, because it is going to the top few percentage artists who are able to dramatically overcharge for their tickets, merchandise, etc.

Just as importantly, in the UK and Swedish studies, it has been shown that consumer spending on music has been flat for a number of years. The dollars gained in live music ticket sales is money lost on recorded music sales. What that means is that while music consumption is at an all time high, the income from selling music is dropping rather than rising. Everyone paying for the live music is in effect giving a subvention to those who choose to download music for free.

As the Cynical Musician points out, it’s the “anyone but me” syndrome. People don’t care who is paying, as long as it isn’t them. Everyone else is paying, but the actual music consumer isn’t.

Don’t be the big dope. Don’t buy the over priced merchandise, don’t pay for over priced tickets. Support your favorite bands by buying their music on CD, through Itunes, whatever, and show your dislike for a system that searches only for dopes.

Well, two races into the 2010 season, and NASCAR, aka NAPCAR, is already showing some serious signs of crumbling at it’s foundations. The sheer volume of empty seats in California this past weekend, even noted on the NASCAR.COM site, shows that things are not all good and going to plan.

Over the winter, all sorts of changes have come to NASCAR, seemingly somewhere between rearranging the deck chairs on the Titanic and wild desperation. Viewership in 2009 was way off, attendance was way off, and even the official collectables / t-shirt company has been in financial trouble. A number of tracks “revamped” their seating, which is to say that they got rid of many seats and changed around others. Daytona got rid of a back stretch grandstand and replaced it with a fan fun area, and they announced that none of the back stretch seating will be open for the July 4th weekend races. Richmond lost almost 20,000 seats, and overall NASCAR tracks apparently lost more than 100,000 seats for events from 2009 to 2010.

NASCAR made some major rule changes, put the driving “back in the drivers hands”, and have announced that the rear wing on the CoT (Crap on Track, I think) will be ditched in favor of the more familiar blade spoiler, which has been a part of stock car racing for as long as I can remember. It was little surprise to most fans that when the CoT took over, the best racing was actually in the Nationwide series, as the cars were the older style blade cars and just ran better. NASCAR also added more green white checker attempts to try to get a green flag finish to races, and so on.

Yet, two races into the season, attendance is down, and just as importantly, viewership is down. If a product is in demand but people can’t afford it, they will watch it on TV. NASCAR faces the hard reality that fewer people are turning up to the events and fewer people are watching on TV. Only the presence of one Danica Patrick has given them a ratings boost for their undercard series, which have done better than last year.

In the end, the big problem for NASCAR is their ill conceived attempt to become a national sport. Not every market wants or will support a race by buying tickets, and the California situation is a perfect example. All the population in the world, a rabid car culture, and half filled stands. NASCAR also has too many look-a-like tracks, D shaped 1.5 mile ovals that often produce dull follow the leader racing. These are tracks designed to make the track owners happy, not to produce good racing. All this is against a background of classic shorter tracks without NASCAR dates, yet that would likely pull better crowds and produce a better racing event. Rockingham has new owners and is apparently doing well with series like Pro-cup and others, and even North Wilkesboro is back in action with racing back at this classic facility.

NASCAR would do well to forget their overdone plans and slide back to the things that made them popular to begin with. Without that, the deck chairs will look nice but the ship will continue to sink.

As a long time fan of the Deadliest Catch, since the time before the show existed as was just part of the a Dangerous Jobs series, it saddens me to report that Captain Phil Harris, the gruff but loving master of the F/V Cornelia Marie passed away on February 9th, as a result of complications from a stroke suffered less that two weeks ago. Captain Harris had some past serious medical problems including blood clots (one that passed through his heart at one point), but had recovered well and returned to work. While offloading in St Paul during the crab season, he suffered a stroke and went into a coma. While he came out of the coma, he finally did succumb a few days after. His two sons work with him on the boat and appear on the show, and they posted this:

It is with great sadness that we say goodbye to our dad – Captain Phil Harris. Dad has always been a fighter and continued to be until the end. For us and the crew, he was someone who never backed down. We will remember and celebrate that strength. Thanks to everyone for their thoughts and prayers. – Jake and Josh Harris

RIP, Captain Phil Harris, we will miss you.

While it may be a shocker to some, the “resignation” of Lou Dobbs from CNN has pretty much been a foregone conclusion for a while. CNN as a network is floundering badly these days, unsure of it’s direction. But Lou Dobbs has been sure of his direction, going from a reasonably friendly Newsy guy to a nasty attacker who’s strident opinionated messages were just not hitting the mark.

While he is mostly not wrong (such as with the problems of illegal immigration in the US), his last few years have been marked with repeat returns to the same themes, often appearing to fill quiet news days with illegal immigration outrage stories that were often puffed up to make them bigger than they seem. Some people have suggested this has come as CNN has tried harder to compete with Fox news on the “strident shill” level, which is something that more liberal media seems very poor at doing. Instead of coming out as the champion of the average guy, Lou Dobbs started to come across to me more and more as someone with an axe to grind rather than a series of solutions. Certainly, his inferences that President Obama may not be American enough to be President didn’t win him any fans.

Lou Dobbs hasn’t said where is going to next, but he will still be on syndicated radio and is “looking at his options”. Some have suggested that he might end up at Faux News, where a strident axe grinding attitude seems to go over better. Read more of the story here.

It’s almost a traditional thing now, the Tom Cruise dead rumors seem to come up about two or three times a year, more often when he is doing something nutty. Recent stories have peopel from inside his camp reporting on his weeks of trying to use his Scientology powers to dominate door knobs and other inanimate objects. It’s sort of up there with his classic jump around on Oprah thing. Whatever the deal, there is no truth to Tom Cruise having a heart attack, Tom Cruise falling off a building, Tom Cruise falling off a cliff, or Tom Cruise dying in some other manner, at least not yet.

Xenu must wait another day, I guess.

I have been a lifelong racing fan, I can remember watching the highlights of NASCAR races on Wide World of Sports long before it became an every week, 12 hours per day extravaganza that is it today. In the last few years I have been less and less enamored with the product, and thought it was only me. But recently, I have noticed more and more people publically calling out NASCAR’s top series with names like NAPCAR and such.

Well, the capper I guess was this past weekend’s race in Talladega, typically one of the wildest and highest speed races, where a combination of engine restrictor plates and aerodynamic tricks get together to make the cars run pretty much in a pack. The only way to get ahead most of the time is bump drafting, where the back car pushes the car in front, making them both move faster. After a terrible wreck at the end of the last race here, NASCAR outlawed this practice this time out. The results? Well, let’s just say that the drivers showed than about 450 out of the 500 miles of the race was meaningless, and paraded around single file in a freight train so dull that driver Tony Stewart was heard asking his crew to tell him something interesting so he didn’t fall asleep. The ABC commentators for the race could obviously see this race has turned into a snoozer, and rather than deny the truth, they repeated over and over the fact that NASCAR had diddled with the rules to make this happen.

Well, it seems that NASCAR doesn’t like when someone points out the obvious: NASCAR got all huffy and spokesman Ramsey Poston said that “ABC missed a lot of very good racing”.

News flash Mr Poston: There was no good racing. For the first 400-450 miles, it was follow the leader, let’s not use up our equipment, throttle off cruising so painful to watch, it was beyond understanding. The only thing that saved the race for most of the “fans” was that in the last 5 laps, the aero package and rules came together to destroy pretty much half the field in two seperate wrecks that both involved violent rollovers.

Don’t get made an ABC, they told the truth. NASCAR (or is that NAPCAR) needs to wake up and smell the coffee, look at all the empty seats and closed seating sections at the tracks, and remember that “it’s the racing stupid”, before they are shrunk back to being a regional series without national coverage. Ratings are down for a reason, and it isn’t because ABC says you are boring.

I really enjoy reading the Techdirt blog mostly because it’s fun to watch Mike Masnick tie himself in knots trying to prove things. He is forever posting very speculative things, drawing conclusions that just aren’t obvious, and then to solidify these masterpieces of logic, he then quotes and links them in later posts, treating them like the god’s honest truth. It’s almost comical to watch him go at times.

Today’s stupidity is a UK poll from “third way” Think tank Demos that shows that shows that the 10% of the people they surveyed that download music buy more music in a year than the average person. This is the type of stuff Mike loves, because it is so full of holes that he can drawn any conclusion he likes and make it “stick”. First off, he calls it a study, which is a serious upgrade from a 1000 person one time phone poll. Then he goes on to rant

Those who engaged in unauthorized file sharing tended to spend £77 on media per year, while those who did not spent about £44. And yet file sharers are the enemy? And the industry wants to kick them offline so they discover less new content? How will that help?

It’s an amazing reach for a poll that reported such low numbers of file downloaders (only 10%, less than half the numbers reported pretty much every other poll and study out there), and fails to remove people who don’t buy music at all. It also doesn’t show any relationship between age group and activity, nor does it appear to reset the numbers to reflect the actual UK population. They also don’t account for the idea that this is a phone poll that a significant number of people attempting to hide their illegal activities might have actually lied about.

It’s meaningless numbers, pumped out by a group that is attempting to sway the UK government off of a Three Strikes plan that would kick illegal file traders off the internet. Mike Masnick latches onto it, and will in the future reference it as “file downloaders buy more music”, even though he knows it’s junk science polling at it’s finest.

One of the more interesting debates I have gotten into recently is one regarding the laws of supply and demand (and cost) for movies and music in the current market. It’s an interesting debate mostly because the “guru of FREE!” Mike Masnick is involved, which means that we are in for some truly fun times. When it comes to bending the basic rules of business, Mike is all over it!

Anyway, the favorite theory of the “FREE!” crowd is that infinite distribution means that supply is infinite, and by the basic rules of supply and demand, that means that the price is zero. It’s a pretty simple concept, and it is exactly what the laws of supply and demand state. It is basic economics, first year, almost first week stuff. Nobody debates the math, but I certainly debate the theory.

First up, the infinite supply is based solely on piracy. Basically, the idea is that once music or a movie is released, it will be made digital and spread all over the torrent and other piracy sites, making it infinite, and thus having no market price anymore. This does fit the in the supply and demand model, but it requires that you accept one simple issue: The control and ownership of copyright materials is moot. It’s an amazing blind spot, one that everyone in this movement seems to be forgetting, that at the base of their idea is hundreds of thousands of people obtaining and trading movies and music that they have no legal rights on. It’s like basing an entire economy only on shoplifted goods, or only on what some guy will sell or give you out of the trunk of his car. Call it the “fell off the truck” economy. So we are basically required to suspend the laws of the world, stop calling it piracy and call it advertising, and everything is good. Wow.

Second, the cost difference in distribution of infinite goods versus physical DVDs or CDs isn’t that great. The market price of a DVD has little to do with the packaging, and everything to do with the content itself. Moving from one delivery method to another does not greatly affect the costs of the product. It is very deceptive to say “movies are free because infinite distribution lowers the marginal costs to nothing”, because of (a) the marginal cost (the cost of producing one more unit) is nothing only in piracy, and (b) marginal costs are only part of the full cost of the product. In a full legal download situation, the cost of bandwidth is still an issue, even if it is pennies per gig. There is no zero cost, unless you are operating illegally.

In the end, the major cost of a movie isn’t in the DVD, it’s in the production of the movie. It is clear that there is very strong demand for movies and music, and that the only reason prices would come to zero would be if infinite supply overwhelmed the marketplace. Even then, the infinite supply (piracy) is entirely dependant on the real supply (movies being produced), thus is not truly supply. It is similar to a store losing 10% of it’s inventory to shoplifting, so they reduce all their prices to zero because that is what the market demands. While it may work out in a classroom discussion about the supply and demand system’s extreme limits, reality says that there is no longer term business to be done giving away your sole product.

The current situation is tenable only because there is still a robust market for DVD and music sales, but in the case of music, the worldwide market in dollars is only at the same levels as it was 10 years ago. At some point, the content producers will change their business models, but I sincerely doubt it will be to giving away their candy for free.

Over the last few years, much has been made about the move to “online media”, and that traditional media, from newspapers to radio to television were all doomed as the new wave on online reporters and citizen journalists would take over. Even behemoth CNN has taken to using it’s Ireport setup to take stories submitted by readers / viewers and runs them on their website and sometimes even in broadcast.

However. there are drawbacks to this revolution, and recently Matt Drudge of the Drudgereport.com has been showing why. Since the election of Obama, his site has become one of the shrillest conservative attack sites around, with no attempt made to hide the scorn or contempt that he appears to have for the entire Obama administration. The story titles vary from things like “Rahm it through” to today’s massive whopper of a lie, “World Rejects Obama”. The world did no reject Obama, the Olympic committee didn’t choose Chicago for the Olympics. On that basis, the “world” also rejected 2 other cities and thier leaders. It’s a gross distortion of reality, such an obvious attempt at Obama bashing that it is beyond shame.

All this of course on a day when one of the other most featured stories is the cover of the new Sarah Palin biography, Going Rogue. I can’t imagine that he doesn’t see the irony in that sort of layout.

Online media has a long way to go.

I have discovered more and more I read the flailing Wired magazine the same way I read The Onion, mostly for a laugh at the outrageous and humorous things that appear there.  In the Sept 2009 edition (their 17.09), they have once again gone down the road of attempting to jump in from on a trend and call it their own.

The Good Enuf Rvlutn tries desperately to make the case that the public isn’t as interested in the best products or evolving ideas, but rather are willing to accept lower tech, lower ability products because they are “good enough”.  Reading the article, you can see that Robert Capps is trying pretty hard to stretch things pretty far, perhaps as an attempt to write a book similar to his boss Chris Anderson’s latest Free: The Future Of A Radical Price.  Anderson’s book has sunk almost without a trace off the best seller lists, appearing in the 15th and last position of the NY time Business hardcore book list.

Reading Capps’ article, it is pretty easy to see that he started with the conclusion and attempted to make the facts fit the theory.  MP3s get a fair bit of play here, in part I think because it allows Capps to quote noted Guru Clay Shirky.   His theory is that people accept the MP3 sound quality because it is good enough, and that other formats have failed because MP3 is good enough for most people.  While this may be correct, the reasons aren’t at all to do with what people are willing to tolerate, but other significant forces over the years.

You only have to go back to the days before MP3.  Most people listened to either cassette tape walkmans, or FM radio.  Both of these formats are somewhat to significantly limited, compressed, and lacking in dynamics.  The top of the line was a CD, which at that time would be played back on a machine sampling at 44mhz (giving sound up to about 22mhz, in theory).  That was super duper hi-fi, high end, and more than “good enough”, it was better than pretty much everything a consumer could get.

Enter MP3s.   All an MP3 had to do was be between FM radio and CD quality, and everyone was happy.  After all, most of the people were listening to the music on their computer speakers, which were usually little plastic things with little musical ability.  If they did listen with headphones, it was with earbuds that had even less musical ability.    The size of an MP3 file was basically limited by the speed at which data was transferred online.   Even when connection speeds increased, there was no need to increase sound quality because the quality of the “new” MP3 portable players on the market wasn’t that great anyway.   As we continue to use earbuds for the vast majority of our MP3 listening, super high fidelity isn’t really a true need.

Further, MP3 is the established format in the field.  Similar to the Betamax / VHS discussion, the better technical format did not win for various reasons.  With the widespread installation of VHS machines in almost every household, it took years for DVDs to uproot them.  It has only been in the last 2 years that major electronics stores stopped selling commercial VHS players.  DVDs offer a significanly better picture than VHS, but was limited by the abilities of the television sets they were playing on.    DVD quality is good enough that even now, with Hi-DEF televisions and the Blu-ray format, most people are still using DVDs.  In the same manner that it took years to uproot VHS, it will take a similar amount of time for BluRay to kill off the DVD.

It isn’t a question of “good enough” but rather a set of circumstances and barriers that are often not on the individual product, but on the things around it.  There is little need for MP3 to be replaced by anything else, because the fidelity of the players that most people listen to downloaded music on still hasn’t caught up to the 2001 file format.  Similarly, there is no reason to move to Bluray because the playback from a DVD far exceeds what people were use to before.

Copps then goes on to name the Amazon Kindle as a sign of “good enough”,  where the product is in fact more in the “early adopters” phase.   While he cites projections of 310 million of e-book sales for 2009, he fails to mention by comparison that Amazon’s overall first quarter sales 2009  have been 4.89 billion.  The sales of ebook materials in that is just this side of a rounding error, typical of products in the “early adopter” phase.  It isn’t a question of good enough, but a situation similar to people who bought huge 1/2 inch betamax tape machines for home before residential size VCRs were really available.  Kindle as a concept may in fact take off if and when the costs come down to the point where the general public can warrant paying for it, or that the software product offer is so compelling that people will work with the limitations.  It isn’t a question of a good enough product (Kindle) but rather other limitations that currently exist (such as a limited number of books to buy, limited online content, few if any newspapers or other productions moving to this format, etc).

Much of it also comes down to not so much “good enough”, but that the needs have long since been covered and we are now down to design and additional features.  He posts the Netbook / Laptop situation, and punts this one into the weeds as well.   Laptops are still fairly expensive, and outside a small part of the market that require extensive computing power while on the road, they are also little more than status symbols for their owners.  Netbooks do all the things that most people go online to do anyway.  It isn’t a question of “good enough”, but rather of needs met, end of problem.  I suspect that most people who own netbooks also own a desktop or work at a desktop during the day.   Their needs for computing power beyond email / surfer / simple tasks are met when they are in those locations.

In the end, it isn’t the public’s willingness to tolerate a lowered end product, but in each case that the product meets all the needs of the market place.  More advanced products, more complicated products, more involved interfaces are in the want category, not the needs.    Attempting to rename “meeting the needs” as the “good enough revolution” is just tagging, nothing more.   It is also what Wired seems to becoming more and more about these days, spotting unrelated items and attempting to rewrite history a bit to appear to look like they are ahead of the wave.   I remember when Wired was actually ahead of the wave, but articles like this one prove that they have long since passed their stale date.

Well, this is certainly one for the “should have been obvious” file. South African “female” running star Caster Semenya has apparently tested as a Hermaphrodite, which is to say that she really isn’t a she, but more of a both. Accord to the report in The Sun (UK), the runner has no internal woman’s parts (ovaries, womb, etc) and has internalized testicles. Her outward genitalia is female, but everything else appears to be male. Her testosterone levels are three times the normal for a woman, due to the testes. Effectively, the runner is a man with a vagina, from what the report suggests.

The report has yet to be released officially, likely in part because of the issues this may cause on South Africa, where the runner has been treated as a star, and the public generally thinks the entire testing deal is a way for the Europeans to strip a medal from the South African. It is likely when the report is released that the runner’s career will be over.

More on this story here.

it hasn’t been a very good week for Perez Hilton, the screen name for flamboyant “blogger” Mario Lavandeira. First off, he gets into a scuffle in Toronto with Members of the Black Eyed Peas, calls one of them a “f-ggot”, and get whacked upside the head and gets a black eye as a result. Then on Thursday, as news broke that Michael Jackson had suffered a heart attack, this guy has the balls to post the picture above with “heart attack or cold feet” written on it, and the text:

Michael Jackson was taken by ambulance from his Holmby Hills home to a nearby Los Angeles hospital on Thursday afternoon!! Supposedly, the singer went into cardiac arrest and the paramedics had to administer CPR!!!
His mother is even on the way to visit him!!!…
We are dubious!!
Jacko pulled a similar stunt when he was getting ready for his big HBO special in ‘95 when he “collapsed” at rehearsal! He was dragging his heels on that just like his upcoming 50 date London residency at the 02 Arena, of which he already postponed the first few dates!!! Either he’s lying or making himself sick, but we’re curious to see if he’s able to go on!!! Get your money back, ticket holders!!!!

The reaction has been swift. Perez’s own blog is packed full of comments calling him out and really giving it to him. Online petitions have started. Fox news ran the story, which apparently Perez declined to comment on when reached for a comment. Considering this guy seems to have something to say about everything, well.

There is a pretty big move out there for people to boycott or stay away from his blog, the anger is running deep as the senselessness of his comments are sinking in.

RIP Michael Jackson!

Quite simply, I am shocked and dismays. As many of us who grew up in the 70s and 80s, I didn’t really like Michael Jackson’s music (rock guy here) but still had respect for this work. We all watched as he went through his creepy, reclusive stage, and deep down we cheered as he announced his 50 concert event for the UK, scheduled for later this year.

Well, some people, like annoying gossip blogger Perez Hilton, could only seem to joke and jibe about it. In his typical fashion, he made crude comments. The Perez style includes writing rude comments on images, adding genitalia, and other childish things. Anyway, when the news broke of Michael Jackson’s heart attack, this fool ran the picture above – “heart attack or cold feet”.

How crude. Perez, I know why you got slugged the other night. You are a creep. I hope every one of your advertisers drops your site like a rock, and I hope that every intelligent celeb in the world no longer wants anything to do with your rude, crude blog. Go away, your time is up.

RIP Michael Jackson!

Welcome to the third part of my look at the world of “FREE!” as proposed and pushed by a few pundits and online bloggers as the future of stuff. I am particularly focused on Chris Anderson’s new book “FREE!”, because it is leading the charge of misinformation, similar to his book The Long Tail.

Chris Anderson has the admirable position of having a sort of bully pulpit to work from. As the Editor of Wired magazine, he has been in the position to decide and report on what is wired, tired, and expired. He has also used the magazine as a place to float the first chapter of his book about free. The funny part is that this article is already more than a year old, which is an incredibly long time in the internet world. It is interesting to see how his suggested business models have worked out, and how they show that Anderson may be nothing more than a tourist taking a snapshot, not really understanding what all is going on under the hood.

His first free model is “Freemium”, that is where there is a free product and an upgraded, premium version for a price. This is one of the areas where Free doesn’t go far past traditional marketing methods, from the sample of soap to the bite size sample in the supermarket. However, the model has it’s problems, specifically that the free they are often giving away isn’t a restricted enough product to truly promote the premium product. He uses Flickr as an example, with their free model and “flickr Pro” setup. The problem is that Flickr in and of itself as a free service is good enough for almost everyone who uses it. While the pro options might have some interested additional features, the base product is a fully functional system. There is realistically very little on the table to encourage people to move to the pro product. Sample systems should be about encouraging users to move to the pay product, not satisfy their needs for free.

The second item is “Advertising”. You know, like the google ads on this site, banner ads, etc. This is all and well, Anderson has been editing a magazine that is entirely dependant on the ad model to make it go. Broadcast TV is another traditional ad supported model, and they tend to work. Yet, in the economic downturn, magazines and newspapers have seen significant downturns in ad revenue, and Anderson’s own magazine has lost more than 50% of it’s ad pages in less than a year (and has ended up a much slimmer monthly edition). While ad supported is a model most of us clearly understand, the market of “FREE!” really kicks at it and makes it difficult to use. Movies are some of the biggest advertisers on broadcast TVs and newspapers, but if movies are being pirated more often and sales decline, the ad dollars available to promote the movie drops as well. So many online sites which run advertising and give away significant amounts of product (especially torrent sites that encourage file trading and other forms of “infringement”) are shooting themselves in the foot by taking away the exact revenue stream they are trying to cash in on. Ad supported in the end requires that people buy something or do something that is of value to the advertisers. If you take away the public’s desire to do those things, then your ad sales disappear.

Next is “Cross-subsidies” – this thing is free, provided you do that. Typically we would see this in cheap cell phones, expensive monthly plans, the old razor and razorblade mentality. Anderson uses the example of WalMart running DVDs below their cost as a loss leader, knowing full well that you are likely to buy other more profitable stuff while you are in the store. This is an example though that proves that free doesn’t really work out, because the item is rarely free. $0 phones are often very out of date phone models, Wal-Mart isn’t giving away DVDs for free because there isn’t enough upside elsewhere to support it. This is actually a good indication that free just doesn’t apply here very much at all. Anderson stretches this example (to the limits) in mentioning the most popular “FREE!” supporter model, the free music, expensive concert ticket model. Basically, they attempt to say that by giving music away (or in Anderson example the band gives the masters to street vendors who can see the music and keep all the money), the band in theory makes tons of money on fuller concert venues. This model is very dangerous, because it leads down a finacial dark alley, let me explain:

One of the problems of this model is that a certain point, the bands involved cannot perform more concerts (there are only so many hours and so many days in a week) and there are only so many places they can play. There is a point where they can not longer easily grow the size of the concerts, so in order to increase income, the only choice is to raise ticket prices. Already for top acts, it isn’t unusual to see tickets selling in the $200-$500 range per seat. These higher prices are at least in part as a result of the artist (and mangement) looking to make up the income lost due to declining music sales.

Further, it creates a simple problem, where tickets are no longer priced where an average fan can afford to enjoy the band’s concerts. Wealth is not spread evenly in society, rather the vast majority of the wealth is concentrated in a very small group of people, with more people in each level as you drop down. The vast majority of potential fans may not have enough income to attend the shows. The well off people pay for the overprices concert tickets, and subsidize the lower income people. Another way to look at it is the rapid fan who will pay anything to see the band, pays for the big dollar front row tickets, and in the end pays for a number of casual and non-fans to get the music for free.

You end up with a model where very few people are paying to entertain the masses. If some of those affluent people decide not to support a bad (by not attending over priced shows) then they have too signficant a control over what would be considered popular. In the end, is it fair to collect $100 from one person and give out 99 free songs, or would it be better to collect $1 from each of them and sell some of them $20 concert tickets too?

The final item I will touch today is “Zero marginal cost”. This is perhaps the biggest lie of the “FREE!” movement, because it trivializes and ignores the costs associated with creating content. Example is music, which takes time, effort, and skill to create, often recorded in studios, or on home cmputers, edited by someone, polished, packages, and made ready for the public. All of those steps cost money, time, and effort, typical full length CD album takes between 1 and 3 years for a band to create, between the writing process, the recording, the finishing, and the preparing for distribution. So while the costs for distribution of the music (digitally) may be lower than the “shiny plastic disc” model, the bigger end of the costs are still there. This is where the Long Lie comes back to haunt Anderson again – marginal cost is never zero, but often those costs are hidden from the public. Costs of internet connections, computers, bandwidth, servers, and all those other things required to make the “virtual” downloads happen are still there, just not charged directly. While the number is often very small per unit (if you push enough units), it never reaches zero. That space above zero is a big enough market for the Long Tail, yet is something to ignore when dealing with “FREE!”.

Also, marginal costs on music cannot be calculated directly on the cost of adding one more unit of distribution, because the initial unit cost (for the 1st disc) is incredibly high. So if it cost $100,000 to produce a CD, and it costs you only 1 cent per unit total margin costs to distribute it, the actual per unit cost never actually reaches 1 cent, it is always above that cost due to the cost of creation. Sell 100,000 copies, and each copy cost you $1.01. Give it away for free and distribute 1 million free downloads, and each one still cost you 10 cents to do. Notice there is no free lunch.

So looking only at the margin costs of distribution and declaring a product free can only be done by people who aren’t paying to create the product to start with. Many of them point to the cross subsidies model as “this is where you make the money back”, which would be good if the example band wasn’t already performing concerts and wasn’t already making money from them. Further, the process removes the incentive to create new and interesting music, rather it encourages estalished acts to sit on their catalog and just tour, not taking the time to create new music because there isn’t any money in doing that.

Anderson makes the mistake of looking at the exceptional profitable ad supported websites, the exceptional free music artists, and the exception freemium purveyors and tries to claim it should apply widely. Exceptions tend to prove the rules, there is no such thing as a free lunch. Under all the “FREE!” there is cost, and without income, there is no functional business model and in the long run no business. Sites like Twitter and YouTube are massively popular with the public, and yet Twitter has made no move to try to make money on their product (venture money keeps them in the game), and You Tube losses have been reported to be in the neighborhood 1 million dollars a day (supported only by the bigger business of Google). All the free in the world gets you a crowd, but not always business.

If you believe the buzz, if you are foolish enough to fall for the gurus, then you probably think that “FREE!” is the next best thing in marketing. As I mentioned last time out, Chris Anderson of Wired is coming out with a new book about “FREE!”, which oddly has been very slow to come out and more oddly will be sold and not given away. The first exerts from the book were published in Anderson’s Wired magazine more than year ago, which with lead time means that the content was ready more than 18 months ago.

Why the long wait?

Well, Chris Anderson isn’t anything if he isn’t a man good at timing things. As I mentioned previously, Anderson is well known for his book The Long Tail, published at the height of the great back catalog releases from the movie and TV companies. His basic theory held water only because of timing. Released when the data matched the premise, it solidified his guru status. At the helm of Wired Magazine, he has done the same thing, with so much muck thrown at the wall that he is going to have enough places where he is right to look like a true prognosticator of great skill, rather that a guy who tries to jump in front of a parade and look like it’s leader.

You sort of know the whole “FREE!” thing is getting convoluted when you read this first chapter (as published in Wired). Anderson starts out looking at King Gillette (he of men’s razor fame) who developed the great business model of “cheap or free handles, charge for the blades” which is a model still in use today. The point Anderson tries to make is that by giving away the handles, he developed a great blade business. While this is true, it also required a couple of other important points to make it work out. Foremost is having a tied product. The handle is useless without blades. A million free handles does nothing, nothing is accomplished with just a handle. The handle is custom and accepts only your blades. So all the free handles in the world will not shave a man’s face, will not accomplish anything.

Anderson goes on to cite examples: “Give away the cell phone, sell the monthly plan; make the videogame console cheap and sell expensive games; install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.” In each of these cases, there is a tied and required sale. A cell phone without service is useless (except as a paper weight), a videogame console without games is nothing, and a coffeemaker without coffee is a nice way to make hot water. In all of those cases, there is no completion of task, no satiation of a marketplace. There is creation of additional demand, not a pure giveaway.

The discussion moves to the internet: “In economics, the parallel is this: If the unitary cost of technology (”per megabyte” or “per megabit per second” or “per thousand floating-point operations per second”) is halving every 18 months, when does it come close enough to zero to say that you’ve arrived and can safely round down to nothing? The answer: almost always sooner than you think.” Again, a totally misleading discussion where Anderson attempts to quickly dismiss the costs of operating a website, distributing material of the net, and so on. What is truly funny is that when you pair this against his Long Tail theory, you start to see where it turns into the long lie instead.

Basically, costs of bandwidth and computer equipment has dropped rapidly, but will soon reach a point where the human and physical costs of providing it are key components, rather than the actual equipment to provide it. A good quadcore server might cost a couple of thousand dollars now, the bandwidth to run it maybe ten thousand a year, which is very low considering what costs were not 10 years ago. However, the cost of the person to maintain the equipment, the monitoring, the support, and all that stuff which is dependant on people, not machines, continues to cost. Even if the machines and the bandwidth were free, the costs to keep things online would still be there.

What Anderson is doing is looking at the steep part of a log scale curve, and assuming (incorrectly) that it will continue to fall in the same manner forever until it effectively hits zero. Yet, when it comes to selling books and videos, he says that same sort of curve NEVER hits zero. Is the glass half full or half empty? It all depends which “guru” theory you are trying to push this week.

One of the funniest things is how Anderson is pushing ad supported as one of the business models. This is a section of the book that will likely be quickly re-written because the current economic downturn has proven Anderson wrong. In fact, his own Wired Magazine (which is mostly ad supported), has lost more than 50% of it’s ad space, and has gone from a fat, double thickness magazine to a thin, lean, and almost empty wasteland in less than a year. The owner / publisher Conde Nast has already shut down other publications in their group because of a lack of advertising. How long before Wired goes down the same road?

It brings the simple point: If Anderson could be so wrong about the basics of his own business (magazines), how can we take his “Guru” statements seriously?

Next time out, I will look at each of the areas of “freeconomics” that Anderson pushes, and expose the realities behind them.