Wednesday, 14 November 2012

Give it away now…

OR: The internet economy, doing stuff for free and why that will make you more profitable.  OR: Shift your channels, or they’ll shift you. 

Who remembers the ‘dot-com’ boom?  Fortunes made and lost over the idea that a website could, and would, make you rich beyond the dreams of avarice.  It seemed so logical – you have a website, you fill it with advertising and the money comes rolling in.  Easy!  So what went wrong? 

There is a very long answer, to do with speculative investment and venture capitalists getting over-excited, but the short version is that consumers don’t value (and therefore won't pay for) what they can get online for free. 

As an example, let’s look at one of the first industries to be hit by the immediacy and ease of online distribution as the dot-com bubble began to wilt.  Remember Napster?  Napster and the widening usage of mp3s and broadband internet forced the music industry to fundamentally change its business model, pretty much overnight.  According to The Recording IndustryAssociation of America (RIAA)

“In the decade since peer-to-peer (p2p) file-sharing site Napster emerged in 1999, music sales in the U.S. have dropped 47 percent, from $14.6 billion to $7.7 billion.”

Time was, a band got signed by a record label and got money up-front to be recouped by album sales. Music consumers bought the records or CDs (for around £15 for an album) and watched the bands on Top of the Pops.  Then napster and peer-to-peer distribution happened.  Virtually overnight, music went from expensive to free (subject to a pc and internet connection). 

The first thing the record companies did was to panic and stop signing ‘real’ bands, so the late 90s and early 2000s were a plague of Steps and Sugababes and Vengaboys.  But in the peer-to-peer world of the internet, something else was happening.  New musicians were able to bypass the bottleneck of the industry using free website and media hosting like Geocities, then Myspace, then Facebook and Youtube.

Ed Sheeran, the UK’s most pirated artist, stated on the BBC website:

I've sold 1.2 million albums, and the stat is that there's 8 million downloads of that as well illegally.

"Nine million people have my record, in England, which is quite a nice feeling.

"I'm still selling albums, but I'm selling tickets at the same time. My gig tickets are like £18, and my albums £8, so ... it's all relative."

Ed, and others like him, are happy to give away nearly 90% of their work for free.  It costs him nothing if someone who was never going to buy his album anyway downloads it from a torrent or a file-sharing site, and that person might well then spend the money they save on a concert ticket instead.  Nobody really loses, and arguably, we may all be richer for it.  In the old world of the A&R man, would Ed and Florence and Jessie have been signed?  Quite probably not...