With the publication of Chris Anderson’s new book Free, the discussion about the role of free, today and in the future has expanded. Articles from Malcom Gladwell in New Yorker, and Seth Godin discuss the various merits and challenges of Free. Is Free inevitable ? Is Free the beginning of the end ? Let me answer the question.
First of all, what we are experiencing right now is “Better Than Free”. The videos on Youtube, magazine articles, newspapers reports, anything that used to be analog that now is digital have a perceived value that is based on their legacy delivery. We value all those TV shows on Hulu highly because we assign a value to what we pay for cable or satellite. We assign a high perceived value to newspaper and magazine reports based on the years we spent paying for them. Anything that we paid for as recently as last year, that we now get free, of course we assign a value of more than free. That makes it worth the effort to find it for free. Because the effort is worth your time. You are getting something for nothing, who doesnt want that ?
Of course that is a challenge for those industries. Not only do they face the challenge of their former customers wanting their content for nothing, but they have the problem that their costs are based upon their ability to sell their content.
There in lies the problem for the free movement. The subsidies of pro content producers from the newspaper and magazine industries will disappear as those businesses contract significantly. What happens then ?
You get the music industry. Anyone can create any song for no cost, and they do. The problem of course is getting your music to stand out among the millions of songs available at any given moment. Its expensive. Very, very expensive. (If it werent for groupies, would the number of musical artists contract 90pct ? )
The future of content outside of the music industry is exactly what you are now seeing inside the music industry. The music industry uses what they have learned from more than 10 years of competing with free. First they cut the size of their organizations to the bone, keeping just those they hope and pray will know best how to guide them through the world of free.
Those survivors have learned or are learning how to identify the music and artists that best fit the new world of free. They learn how to work with the artists and those willing to pay for music in some form, whether CD, Download, Licensing or in concert, and do their best to maximize the return on their investment. They use free as a weapon. They use free as an asset. They use it anywhere they can leverage it into something more. Something hopefully profitable.
What they music industry realizes that they have to offer quite a bit of music for free. What they have learned however, is that they dont have to allow it to be freely distributed. They can and do control where its delivered. You can have it for free, if thats how you want it, but you have to come get it where we want you to get it. On our websites. On websites we co produce with Youtube or Hulu or whoever. If you want it for free, you have to go through the exhausting effort of clicking to our website and giving us something in value in return. It may be your attention. It may be your interest. It may be a referral or your email address. We give you something free, you give us something that costs you nothing.
The music is often free, but it is NEVER freely distributed.
The TV and Movie business are realizing this is the case. Hence TV Anywhere. They will give you access to content for free if you are already a customer of their distributors. And before you IT ALL HAS TO BE FREE BIGOTS EXPLODE, even google requires you have internet access of some kind, which costs you in subscription fees , taxes or coffee.
Newspapers are catching flack for saying there should be copyrights on their news reports and the summaries. They are right. Their work, their ability to control it. They should have the right to control where it appears. If, as Chris Anderson and others suggest, there will be plenty of content creators and the quality of the work is sufficient for consumers of that content, then there will be plenty of open source content and it shouldnt matter what the newspapers request for protection. The market will decide.
Newspapers are also catching flack for saying they dont want their content openly distributed. On this point, they are correct again. They should have complete control over where it is distributed. They should have the ability to choose where it is offered for free.
Not only should they have this control, taking back this control is the exact right business move. Im not saying it will save newspapers or magazines, it wont. But it will make their website offerings stronger in the long run. If Im them, I take the risk that the “printed” content business follows the path of the music industry.
In other words, you take on the role of identifying the best in breed for your business and use your resources to help those talented people figure out how to make money for themselves and for you. You provide your resources and knowledge to make them smarter and then you go and compete against the masses.
In the long run, printed content producers should have a brand, and use their institutional knowledge, their core competencies and ability to procure, improve and market to maximize the value of their brands and the perceived value of their content. Whether its on a central website, a co produced website, in print or on a hologram in the evening sky, I should go to the NY Times because they have demonstrated to me that they have the very best articles on the subjects I am looking for. That they are the best source for breaking news about the topics I care about. THEY NEED TO MAKE SURE I DONT HAVE THE CHOICE OF GETTING IT ANYWHERE ELSE BUT WHERE THEY DICTATE. If they cant make their content stand out from the open source masses and convince enough people to transact with them in a way that makes them money they dont deserve to exist.
They should distribute their content for Free where they believe it maximizes return, but should do everything possible to keep it from being distributed Freely.
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Remarkably missing from the FREE debate are some facts.
1) The freemium concept – giving away something first and then asking for money is NOT the way most of the money has been and is made in the media/entertainment industry: Historically, Cohn left the rag business (where he struggled to collect receivables) to start Columbia Pictures BECAUSE he observed people paying for a movie ticket IN ADVANCE, with no returns if not satisfied. This model still works: you pay your cable bill in advance and the cable segment is the healthies in revs and profits in the industry today.
2) Music, the entertainment segment which is the “poster child” for the “freemium” concept – by “sampling” on free radio first to sell recordings and tickets to concerts – is the entertainment segment struggling the most in this marketplace.
4) The highest direct-from-consumer profits and revenue growth are in the sports industry, where the audience pays to not just watch but to PARTICIPATE (tickets, merchandise to represent team loyalty, fantasy league games, etc.)
5) Historically, the distributor was the link in the value chain with the closest proximity to the consumer and “owned” the marketing role. The distributor paid for the content in the advance, taking the risk that they could sell access to the consumer. It is based on this historical market structure that Cuban bases his conclusion that distribution is paid. BUT, while distributors pay a premium for “known” high value content, they aren’t willing to take this risk on anything else. So this structure benefits the established content brands, and keeps out the new players.
6) When the established content brands realize they can make a lot more money selling directly to their audience and are confident they can market effectively in this highly competitive marketplace, Cuban’s charge-for-distribution model will not be where the money is made.
Here’s how the established content brands will leverage the “freemium” tactic, successfully:
In marketing history, sampling is optimal when: the product’s is significantly superior to anything on the market and this superiority is observable in an “appetizer” portion, so that by sampling, intent to purchase and pay a premium vs. the competition increases.
(In any other scenario, giving away product or services for free is perceived by consumers as an act of desperation and lowers the perceived value of the product or service. Case in point: newspapers one once paid for are now available for free online and our value perception has dropped)
Capitalizing on the value of PARTICIPATION demonstrated by sports entertainment brands, established media companies will produce a quality interactive experience and will learn to market directly to consumers premium priced entertainment experiences. Advertisers interested in tapping both the entertainment brand’s marketing know-how and relationship with their audience will pay a premium to participate in these entertainment brands and enjoy an opportunity sell directly to consumers too.
Comment by comradity -
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We’re going through another “dot com” phase where the internet is being completely re-thought, redesigned, and forever altered. There will be a mixture of paid and free content, because one thing we know…all consumers do not fit the same mold.
Artist, publishers have every right to do what they want with their content. Those that figure out the mix of free/paid will succeed. Those that don’t evolved will certainly take the path of those dot coms that faded in the last internet revolution.
Nothing in this world comes without some cost associated with it. Not air or water, dirt…nope…it’s all got costs if we use it.
Nice post Mark…
Comment by tzugidan -
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Mark,
Agreed – free isn’t free at all. People pay a lot for access to content. I think Kindle is the new model. The connectivity/distribution is included in the price for the content. There is plenty of room for everyone to make money with this model. People will pay more for the content than they will pay for a commodity like connectivity/distribution. I understand that this business model will require a transformation in relationships and skill sets. Publishers and Programmers have never had to market to consumers before – they relied on distributors to do that. But the advantages to publishers and programmers of having a long-term, interactive relationship with consumers are many – starting with less hope and more sure things. The advantage to distributors is already proven by premium cable channels- whose subscription levels continue to grow to new all time highs, even during the economic meltdown in 4th qtr 2008.
I can’t wait until everyone gets past debating free vs paid. There will be both. The exciting unexplored frontier is what is worth paying for . . . how market efficiently . . . how high can profit margins go?
Comment by comradity -
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Any business, nothing comes for free.You may not know it,you only know it’s for free. In business, every cents count,
Comment by dynamicproducer -
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I’m not smart enough to argue about the print media situation, but as for music I can say that you’re right on the money. In less than a year we have built a career for a young artist named Joe Pug by exploiting this exact idea…..we’re giving music away free, but the primary destination to get the free material is through our own website, usually in exchange for an email address. We launched a free EP last week on http://www.joepugmusic.com (using backend from topspin media, who are a wonderful company who understands where things are headed) and have nearly doubled Joe’s email list. In an industry where touring is often an artist’s lifeblood, a well-organized, well-maintained email list is like gold.
I don’t pretend that there aren’t plenty of other means of getting the music for free (filesharing virtually guarantees that), but our experience is that the large majority of people would rather get it from the original source anyway. And on a conceptual level, i don’t believe that it makes a lot of sense to stand in the way on anyone who wants to listen to your music. There will always be a way to adapt your business model to capitalize on a fan base so that an artist can make a living. It will often involve thinking in ways you’re not used to thinking, but such is life, and such is business.
Comment by nodoor -
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In the real world that’s not how it works. Many companies would like to control how their content is delivered but the web will always find alternatives.
Comment by darryl3 -
Mark,
Happy Independence Day.
I’ll argue it’s “better than free” if you either directly save money that you would have spent or else (even better) receive money.
The examples you give (Youtube, magazine articles, newspapers reports, TV shows on Hulu) don’t do either. Do they? In most cases they’re “just free”.
I’m quibbling over your wording to illustrate an important point. While the Web provides a flood of media that we browse for free and Web 2.0 brings us user generated content, also also available for free, the future Web will provide new opportunities in a social economy that actually provide cash – and are really “better than free”.
When on the social Web I am paid for my affiliation with the businesses I trust or can earn money for my favorite charity through my Web-based or Web-facilitated transactions then I’ll agree that it’s “Better than free.”
“There’s value in them thar relationships”,
– – Tim
Comment by timtracey -
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There is an easy technical fix for this that. We need to put limitations on all embeds, including ‘cuts and paste’ of the content, even with attribution. This is not too complicated but requires new way of thinking. Again links are OK, embeds without permission are not.
Comment by Ben Atlas -
College tuition continues to increase while media companies face extinction. It seems the free or freely distributed model should be applied to education.
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Correction. Source is available at:
http://www.socialmediacommando.com/2009/07/02/social-media-lands-in-the-brig/
Comment by joemescher -
Free = Chains?
I agree 110% that newspapers should limit access to products/services they charge a premium for.
However, with respect to their efforts to ban Google and the Blogosphere from linking to their FREE content, that is just nuts.
I’m referring to Connie Schultz of the Cleveland Plain Dealer, who allegedly supports a rewriting of US copyright law that would ban linking to and summarizing freely distributed news articles.
(Source: http://www.socialmediacommando.com/2009/07/02/social-media-lands-in-the-brig/)
Why not erect a pay wall or take their business away from Google News to see how much money they can keep free and clear without the support of all the ‘freeloaders’?
Charging for Premium Content = Good.
Threatening Bloggers (like you, Mark Cuban) = Bad.
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“What they have learned however, is that they dont have to allow it to be freely distributed. They can and do control where its delivered.”
You’re forgetting the simple fact that they CANNOT control where it’s freely distributed. Technology will always be one step ahead of whatever lock mechanism is used to control the actual music file. If there’s demand for the song, it will always end up in the hands of the public, whether legal or not. This simple fact can’t be overlooked.
The value of a song today is pretty much marginal cost if it can be converted into a digital format. Therefore trying to compete with free like the industry does will only prove to be more and more difficult, and they are going down if their business model stays focused on selling the idea (the song).
Comment by jstevens2009 -
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So the internet age has produced micro-monopsonies with most of the power now in the hands of the micro-segmented buyers????
Or is it the really the ISPs that have the power and they don’t know it yet (commodity market)!? What happens if the ISPs all raised their prices 10x, would you still be connected? What happened if all the major ISPs started merging due to hypercompetition and then were purchased by media giants who they started charging very granularly or went to capacity based pricing? Like the cloud backup and storage providers now? Or how about if content providers only allowed certain ISPs to carry them (exclusive distribution agreements)? Impossible or tried before and it didn’t work? Maybe, but think about who was on which satellite radio provider and who currently has exclusivity on subscription NFL now (directTV, no?). Awkward, but there’s probably a way to do it. Also, copyright is just controlling near the source. DRM was another attempt.
Nothing new here, but just reminding us all that power can still shift dramatically in the info/medie/content sector by controlling the production at the source (content) or at the delivery point (your display device) or any point in between. Look for power grabs as incumbents will not go down easy.
Switching gears, let’s bring in open source… it is technology socialism and can work pretty well as an underpinning, but it does not produce disruptive innovation since there is not enough incentive. So technology can stay stuck in a potential well and be sub-optimized for years.
“Free” is a tactical gimmick to entice buyers for “trial” and then to up-sell. It always has and always will be. Nothing wrong with it. Been around along time as Mr. Anderson has written about. It’s not that different from money-back-guarantee you see on late night TV and all over the internet. It’s a risk mitigator for the purchaser. Is it “a system”? Not by itself. Why not just call it a price-point of zero in a product mix strategy, like we used to.
“Near-free” is usually only possible due to a disruptive innovation around cost (economies of scale or scope). Premiums exist due to cleverly controlling some aspect of production or delivery. If you can’t do that, companies sometimes play the game of free or near-free and go out of business.
Michael Porter or Philip Kotler are still relevant in this “free-dumb” debate. “Free” is OK, but it’s basically temporary, or perhaps it can be a prolonged or repeated tactic. It is not really a strategy by itself. “Monetizing free”, again, is just a “product mix” marketing exercise.
Comment by harveyandruss -
I like the way you look at this as a game of strategy. Rather than bemoaning the modern zeitgeist of plunder inherent in the concept of “Free,” you seem to see the overall situation as only a change in the ‘game-space’ of property rights enforcement. No matter how “free” something is, it still must be gathered from some point. The gatherer must always interact within a context—controlling that context is the key to securing one’s revenue.
Thus, the enforcement issue, like the definition issue (what is properly “property?”), will be solved more by clever strategies, (such as that employed by the music industry), than by policy, lawyers and legislatures.
Posted by Bill Churchill
Comment by billchurchill -
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Nice discussion. The ability to control distribution of what you make is essential. If it makes sense to allow a free for all then businesses will allow it. If it doesn’t then they won’t. Their decision, not the customers. This type of pricing disruption has happened before when popular products are used as premiums or come-ons. Overtime the market either balances out, or a significant amount of variety and quality gets driven from the system as pricing becomes unsustainable.
Comment by Fred H Schlegel -
Great points as always; but I do think music is a little different because unlike video or print, musicians can perform in front of live paying audiences. Also, the current copyright laws actually encourage them to stop creating — when is the last time MJ released a new song or performed and yet he was still very rich.
Comment by bjdraw -
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Excellent post. Understanding the distinction between “free” and “freely distributed” will mean the difference between life and death for media entrepreneurs.
Free controlled distribution means that quality content is not just something valued on its own by target consumers, but is also effective brand marketing. Making it easy for the right people to get your content encourages them to subscribe to you through Facebook, Twitter, Youtube, etc and creates an amazing and valuable virtuous circle.
My company Inside Mexico publishes a free, controlled distribution print magazine for a very targeted audience; it’s both content and marketing for all of our other offerings. The magazine content is also available for free on our website Insidemex.com, and we’re very proactive about sending content, traffic and brand back and forth through our 2.0 channels and networks. The exciting thing is that learning to view the whole thing as a system rather than separate products (and presenting it as such to our advertisers and partners) is starting to pay off in interesting ways in terms of monetization for us.
Free also generates incredible market data on the behavior of your audiences. Freely distributed, not so much.
Comment by slowclothes -
The problem with Free is they just don’t seem to be able to kill it. They tried like crazy back in 2000, but like a zombie it returned with a vengeance.
There are three problems with the old-fashioned paper newspapers:
1. No one wants paper newspapers anymore.
2. Old-fashioned newspaper editors are so protective of their headlines that they don’t understand that other online sites driving readers to their headlines is better than operating in a vacuum, as they did when they were an old-fashioned paper newspaper.
3. Facts can’t be copyrighted.
And as they’re going to find out, attempting to “fix” the problem by copyrighting facts is a loser’s game.
Yes, it’s sad for old-fashioned newspaper workers that lose their jobs, just like it was sad for the horse buggy makers and railroad passenger staff. But they didn’t try and fix the problem by copyrighting the wheel.
And recorded music has never been a moneymaker for anyone but the star-level artists anyway. Touring is where the dollars were, and are, for 99% of working bands. What’s great now for artists is that if you decide to quit YouTube tomorrow, you can, and YouTube won’t claim the rights to all of your next five years’ works.
Now that’s progress.
Comment by michaelcee -
I don’t think the issue with newspapers is so much that they want to control where you read their content, it’s that they want to eliminate your ability to discover it independent of their site. The concern that many observers have is that the newspapers are taking “control of free” one step too far, and will hang themselves in the process. If no one knows your brilliant content exists, it might as well NOT exist. And if they implement these policies in an effort to earn more from what they produce, they’ll be killing themselves, giving the advantage to the open source masses, and (potentially) doing damage to journalism as a whole.
That said, I actually agree with what you’ve said about the “freely-distributed” distinction. I just made the move from free-for-all to a more tethered approach (without really appreciating what I was doing), and I think it has a lot to do with what you’re saying… you can be “free”, but you need to tie your audience down a bit. Make sure they know where it’s coming from, and hopefully convert their presence into money in somehow. The more distributed your content is, the less that works. Embedded players (like Hulu uses) are a nice way to simulate free distribution, while still tethering.
This was a great piece, thanks!
Comment by mrandrews -
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“If they cant make their content stand out from the open source masses and convince enough people to transact with them in a way that makes them money they dont deserve to exist”
perfectly stated!
kind of like the battle between “Talking Thoughts & Talking Points” — people deserve an outlet to share their thoughts but more and more “media voices” these days are simply individuals regurgitating talking points…and more often than not this is with the conservative/republican right/foxnews
Comment by enricopallazzo -
Just loved this: “Let me answer the question.”
Comment by naughtygeneration -