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Who needs payment? There’s always advertising…

Apr 20, 11 8:23 AM

I suppose the central dilemma for creators on the internet is how hard it is to get paid. Becoming popular, unfortunately, doesn’t often equate to becoming rich. This is a bit odd, and one of the key differences between “old media” and the internet, and I think it’s also the central challenge.

I mentioned previously that one of the oft-suggested ways of addressing this dilemma is to use creative output as the loss leader for something else. People who download your tracks might come to a live performance. People who read your blog might book you to make a keynote speech.

The other way, far more common on the internet, is to sell advertising. Use your popularity to serve up more pages, more pages equals more ads, more ads equals more money.

Sounds fine in theory, but works less well in practice. There is a detailed financial analysis to be done by someone more that way inclined. If I find it I’ll link to it.

But my view on this is quite simple and based on experience and logic.

Experience is that ad revenues don’t grow, in reality, anything like as quickly as traffic. The actual amounts of money to be made are quite pitiful when viewed against the amount of consumption.

Logic says that if everyone relies on advertising to fund their creativity then there isn’t going to be enough money to go round.

Both of these lead to the same outcome: the winners in the ad-funded content game are those who pay little or nothing for content. The investment has to be scaled down to match the size of the opportunity – and when the opportunity is only marginally above zero, the winning model will be the cheapest.

We all know who those winners are – endless sites serving up scraped or “farmed” content, with more investment going into SEO than anything else to maximise traffic. Or the big search and advertising giant itself, Google.

There’s plenty of analysis and de-constructing of this to be done, and doubtless I’ll do more of it at some stage, but actually the simple logic doesn’t require any understanding of the internet at all.

Traditionally creativity, and the huge success of the creative industries, has been funded by a combination of advertising and other revenue sources – principally from actual customers paying for the creative output.

If it is now going to be just advertising, and given that the advertising market is by-and-large static in overall size (or at least doesn’t grow in line with audience and consumption), it means less money is going to be available to invest in creativity.

In my view, more investment in creativity is a good thing. More opportunity for creative people is a good thing. Popularity leading to success is a good thing. So a shrinking opportunity is a bad thing and this is the dilemma which needs to be solved.

For this reason, I think anyone who believes that an ad-funded model leads to good outcomes for creators (and therefore for users) is a mite delusional. Of course, it has its place and always has.

But even if you choose ad funding, rather than having it forced upon you, it’s a pretty tough market. When ad spending moves from offline media to online, a whole load of it gets swallowed by Google and other intermediaries. The bit that’s left is competed for by thousands of new, zero cost, competitors who ae mainly gaming search algorithms to acquire traffic.

But media overall has always thrived on having other sources of revenue too, often direct from the consumer. Some form of cover price. For the most part, and for the time being, these are simply unavailable online.

Charging for content is still a controversial idea, and conflicts with the desire to reach a large audience. This is seen by many as a good thing – cheap is better than expensive, free is better than cheap.

I don’t agree with that, and I think the outcome is the obvious one – you get what you pay for.

How we can move the internet away from the obsession with free is for another post (another few hundred posts). But this much I know: advertising isn’t a viable way to fund creativity online. It wouldn’t be even if every penny of ad revenue went straight to creators.

But with pathetic dribble of revenue which remains after the scalpers and middle men have taken their disproportionate cut, the idea that it can sustain serious enterprise is ridiculous.

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Giving and taking back

Apr 15, 11 1:51 PM

It’s a bit late to say much of interest about AOL’s acquisition of Huffington Post (other than to wonder whether they ever had any senses to take leave of) but the news that Jonathan Tasini is suing HuffPo is worthy of comment.

Tasini has form when it comes to lawsuits. His name is on one of the most famous, tedious and pointless copyright cases of recent years. In that case he was arguing, basically, that journalists should be paid again when the publications which commissioned them made the content available through databases.

Based on that case, you would expect that Tasini is the kind of writer who is strictly coin-operated. He doesn’t seem like the kind of guy who’ll let any publisher use his words without paying him for his efforts.

Yet, it seems, he was a willing, despite being unpaid, contributor to Huffington Post. Like many others he chose the nebulous and intangible reward of exposure through her site in preference to money. In his case it was to publicise his senate election campaign.

Now, though, he says he deserves some of the absurd sum she received for her site, because although he knew he wouldn’t be paid and didn’t ask to be paid, he thought maybe he would be one day anyway. So the money she has made in the transaction is “unjust enrichment” and he and his fellow bloggers deserve a third of it. $105m.

Now, in my view the amount paid for Huffington Post was unjustified by any sane assessment of value, but it wasn’t unfair on anybody (except, perhaps, AOL shareholders). She has done extraordinarily well to have pulled off such a deal, the fact that she managed to persuade so many people to work for her for free is testament to some kind of skill she must have.

Truth is that contributors to HuffPo knew the deal. Their contributions weren’t done in exchange for shares any more than money. A deal’s a deal, and whinging about it afterwards when you realise you got the raw end of it seems pointless to me. (Who is that guy who sold his Apple shares to Jobs back in the day? He got some trifling sum for them, would be worth billions today. Haven’t noticed him whinging).

And where copyright is concerned, I think that as long as the deal is clear, and you agree to it, then it’s fair and square. That idea, in fact, formed the basis of Tasini’s previous lawsuit, where because publishers hadn’t explicitly obtained rights to use content in databases, contributors demanded to be paid again. Notably, Tasini’s case this time doesn’t mention copyright.

There’s plenty of use of content on the internet which is both unrewarded and infringing – that would seem like a better target for lawsuits.

In the meantime, there’s a lesson here. If you give someone something valuable without asking for anything in return, don’t be surprised if they end up better off than you.

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Perfect economies

Apr 6, 11 7:42 AM

Is free really a radical price or just radically irrational?

Some say content will become free as a matter of economic necessity. That as the cost of copies of content approaches zero, so will its price. That we are in the grip of an all-powerful economic principle which will sweep whole industries before it, and the fact that so much content is given away online proves their point.

I say that the cost of content, in pure economic terms, has always been zero. That the “pure” economics of physical goods, applied to intangible products like content, led to terrible outcomes the last time it was tried, leading to a change in the law to prevent it happening again. And that this law, now being widely ignored, is the answer both to the “content wants to be free” pseudo-academics and also the problem the content industry now faces.

Cost=value?

I am not an economist. I am not an academic. I didn’t study much of anything. So forgive me if I tempt fate by taking a mighty leap to address a – seemingly academic – point which has become trendy among certain prophets of the digital age who, presumably, hope their wisdom will become self-fulfilling.

The academic point in question concerns the price for which content is sold online. More specifically, the point made by many that the rules of the internet radically change the economics of publishing, such that the aspiration to charge users for content is hopelessly unrealistic. Only dinosaurs think that way, we’re told: people who understand the internet also understand that giving things away is the key to reaching a lot of people, and reaching a lot of people is the key to making money.

So free, to quote the cover of Chris Anderson’s counter-intuitive but attention grabbing book “Free”, is “a radical price” which will define the future.

(An aside: I tried to get a copy of Free for, er free. It was available as a digital download for nothing at the time it was published. However now it’s not available free. The “hardcover” edition is available as a Kindle download for £12.15. The “paperback” edition – with a new, less embarrassing, strapline – is available for £5.45 in print but not at all on Kindle. So much for the radical economics of the internet).

Anyway, the argument goes something like this: making copies of digital things doesn’t cost anything. Economists tell us that in a perfect economy the price of something will tend towards its cost of production. For something which costs nothing to produce, like a digital copy, the price will tend towards zero. The fact that so much content is available for free is proof that the market is working well and the internet is fulfilling its potential. (Expand this argument to 400 pages and sell it and you too can be an internet guru as well as a rich author).

The sub-argument is that having so many consumers of your stuff gives you the chance to sell them other things, like concert tickets instead of CDs, or slightly better things, like CDs instead of downloads for your hardcore fans (or, like Chris Anderson, hardcover books, speaking engagements, consultancy and a day job editing an old media magazine as well as temporarily free downloads). So you can make money that way, in a way the content is a loss-leader for whatever else it is you have to sell. This is known as “Freemium” – you reward the people who care little for your stuff by giving them what they want for nothing, and punish those who really love it by charging them for consuming a lot of it.

Circular thinking

I think these arguments are a perfect illustration of what is wrong with internet thinking. So much of it is a post-rationalisation. It starts with a utopian picture of the internet the way the thinker would like it to be, idealised so that everything they care about is plentiful and – with the exception of whatever it is which makes them money – free. It progresses into the real world, via people and businesses simply behaving as if their utopian ideal were a reality (this is called, proudly, “a disruptive business model”), unencumbered by any old-world rules. It finishes with a seductive, intellectually feeble, post-rationalisation of the outcome whose main purpose is to justify itself and perpetuate the insular interests of those who profit most from the changes. An honest consideration of the broader picture almost never features and the interests of users and society as a whole, almost always claimed as the ultimate justification for whatever is being argued, are virtually never really considered.

So, back the economic argument for content being free (or, in some cases, for copyright no longer being relevant). The central point is that the cost of a digital copy is zero.

Cost has always been zero

My counterpoint is that the cost of copies of content has always been zero. When books first started being mass produced, the cost of the content, as opposed to the paper, ink, binding, distribution and so on, was always nothing. You used the same amount of ink however you arranged it on the paper. The words themselves made no difference to the cost. A CD costs the same (about 9p) to manufacture whether it contains a Lily Allen album or Microsoft Office but might be sold for anything from a few pounds to a few thousand pounds depending on what it contains.

It’s the content which creates the value. The bits, not the atoms, are the product whatever it looks like on the shelf of a shop.

So in my view, it’s pointless to consider the economics of content in terms of the manufacturing cost of copies because doing so not only defies everything we know about the content economy but also leads to perverse outcomes.

Weve been here before…

There was a time when the “natural” economics were the only kind around. The world was about supply and demand, the materials which went into something more or less defined the whole. You could add up all the costs of something, add on whatever margin you thought you could get away with, and sell your product.

The thing which changed it was books. The advent of the printing press revolutionised the way in which knowledge could be shared and spread. For the first time mass production could make books affordable to the masses. Great things would happen.

However, the economic realities lagged behind the industrial surge forward. Although printing was indeed cheaper and easier than ever before, the main value of a book was the words on its pages rather than the pages themselves.

Bits and atoms 300 years ago

Unfortunately the laws of supply and demand didn’t recognise this. They only dealt in atoms, not bits. So the people who wrote the books, who created most of the value, tended to get a bit of a raw deal – however successful their book might be they rarely made much money. So not many books got written. The authors usually had better and more lucrative things to be doing.

So a law was written, the now infamous Statute of Anne, the first modern copyright law. Its aim was to ensure authors were properly rewarded for their work, to end the “ruination” of them and their families which too often had happened in the past. And it did this in a simple way – by giving them control over copies of their work. By recognising that the bits had a value beyond the atoms of the paper and ink, and putting in place a solution which would allow the value to be determined by the market.

And so, a book or CD which costs a few pence to produce is sold for a few pounds. JK Rowling is a billionaire. Hundreds of thousands of books are published every year, hundreds of TV channels flourish and thrive, countless movies are made every year and the creative economy supports 8% of the overall UK economy and over 2 million jobs. Even the printers, publishers and distributors of books, who would have seem to have got the raw end of the Statute of Anne, are still doing fine. Taking a smaller, fairer, slice of a much bigger pie, and thriving nonetheless.

All be recognising that the words, or the bits, have value separate from the paper they’re printed on, or the atoms.

Forward to the past

Fast-forward to the internet. Here we find ourselves in a situation a bit like the pre-copyright era. For a number of reasons, most of which are for another day, mass market publishing is only possible online for no charge. The only direct revenues available to publishers are from advertising, but they are competing for a smaller slice of an ever-diminishing advertising pie (I’ll come back to this point in another post as well). Success is about scale, quantity trumps quality.

So the people making money are those who pay the least for their content. The most money is made by the people who pay nothing (Google, overwhelmingly). The people who pay nothing, who benefit the most from content being free, are also the strongest advocates of content being free as a force of nature or of economic reality. They ignore, because it doesn’t matter to them, the actual reality that if the returns on the investment of time, money and creativity diminish so will the investment.

Free isnt worth the paper it isnt written on

To me the “free” idea is as worthless as it suggests. To my mind it’s simply wrong, and it destroys value for almost everyone except the person sitting at the tip of the pyramid.

Anyone who wants to be able to make a living from their creativity should be able to choose to do so, and choose their way of doing so, without the odds being so heavily stacked against them. I hope this is about to become a bit easier.

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