Showing posts with label filmmakers_roadmap. Show all posts
Showing posts with label filmmakers_roadmap. Show all posts

Wednesday, December 16, 2009

The Key is Generatives (Part 8 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 8 of 8)
This is an article in a series. You may read all the articles by clicking here.

THE KEY IS GENERATIVES
When Sheri Candler passed me this speech by Brian Newman at DIY Philladelphia, I'm not ashamed to say I was ecstatic. Finally, I thought, fiiiiiiinally, somebody who really gets it. Brian’s lecture provides a succint overview of how content producers can still make money in a free economy:



I went searching for more information about generatives and found what appears to be the original article by Kevin Kelly. Below are the most salient parts from his article:

The simplest way I can put it is thus:

When copies are super abundant, they become worthless. 
When copies are super abundant, stuff which can't be copied becomes scarce and valuable.

When copies are free, you need to sell things which can not be copied.

Well, what can't be copied?

There are a number of qualities that can't be copied. Consider "trust." Trust cannot be copied. You can't purchase it. Trust must be earned, over time. It cannot be downloaded. Or faked. Or counterfeited (at least for long). If everything else is equal, you'll always prefer to deal with someone you can trust. So trust is an intangible that has increasing value in a copy saturated world.

There are a number of other qualities similar to trust that are difficult to copy, and thus become valuable in this network economy.  I think the best way to examine them is not from the eye of the producer, manufacturer, or creator, but from the eye of the user. We can start with a simple user question: why would we ever pay for anything that we could get for free? When anyone buys a version of something they could get for free, what are they purchasing?

From my study of the network economy I see roughly eight categories of intangible value that we buy when we pay for something that could be free.

In a real sense, these are eight things that are better than free. Eight uncopyable values.  I call them "generatives." A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time. In the digital arena, generative qualities add value to free copies, and therefore are something that can be sold.

Eight Generatives Better Than Free


Immediacy—Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released—or even better, produced—by its creators is a generative asset. Many people go to movie theaters to see films on the opening night, where they will pay a hefty price to see a film that later will be available for free, or almost free, via rental or download. Hardcover books command a premium for their immediacy, disguised as a harder cover. First in line often commands an extra price for the same good. As a sellable quality, immediacy has many levels, including access to beta versions. Fans are brought into the generative process itself. Beta versions are often de-valued because they are incomplete, but they also possess generative qualities that can be sold. Immediacy is a relative term, which is why it is generative. It has to fit with the product and the audience. A blog has a different sense of time than a movie, or a car. But immediacy can be found in any media.

Personalization—A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room—as if it were preformed in your room—you may be willing to pay a lot.  The free copy of a book can be custom edited by the publishers to reflect your own previous reading background. A free movie you buy may be cut to reflect the rating you desire (no violence, dirty language okay). Aspirin is free, but aspirin tailored to your DNA is very expensive. As many have noted, personalization requires an ongoing conversation between the creator and consumer, artist and fan, producer and user. It is deeply generative because it is iterative and time consuming. You can't copy the personalization that a relationship represents. Marketers call that "stickiness" because it means both sides of the relationship are stuck (invested) in this generative asset, and will be reluctant to switch and start over.

Interpretation—As the old joke goes: software, free. The manual, $10,000. But it's no joke. A couple of high profile companies, like Red Hat, Apache, and others make their living doing exactly that. They provide paid support for free software. The copy of code, being mere bits, is free—and becomes valuable to you only through the support and guidance. I suspect a lot of genetic information will go this route. Right now getting your copy of your DNA is very expensive, but soon it won't be. In fact, soon pharmaceutical companies will PAY you to get your genes sequence. So the copy of your sequence will be free, but the interpretation of what it means, what you can do about it, and how to use it—the manual for your genes so to speak—will be expensive.

Authenticity—You might be able to grab a key software application for free, but even if you don't need a manual, you might like to be sure it is bug free, reliable, and warranted. You'll pay for authenticity. There are nearly an infinite number of variations of the Grateful Dead jams around; buying an authentic version from the band itself will ensure you get the one you wanted. Or that it was indeed actually performed by the Dead. Artists have dealt with this problem for a long time. Graphic reproductions such as photographs and lithographs often come with the artist's stamp of authenticity -- a signature -- to raise the price of the copy. Digital watermarks and other signature technology will not work as copy-protection schemes (copies are super-conducting liquids, remember?) but they can serve up the generative quality of authenticity for those who care.

Accessibility—Ownership often sucks. You have to keep your things tidy, up-to-date, and in the case of digital material, backed up. And in this mobile world, you have to carry it along with you. Many people, me included, will be happy to have others tend our "possessions" by subscribing to them. We'll pay Acme Digital Warehouse to serve us any musical tune in the world, when and where we want it, as well as any movie, photo (ours or other photographers). Ditto for books and blogs.  Acme backs everything up, pays the creators, and delivers us our desires. We can sip it from our phones, PDAs, laptops, big screens from where-ever. The fact that most of this material will be available free, if we want to tend it, back it up, keep adding to it, and organize it, will be less and less appealing as time goes on.

Embodiment—At its core the digital copy is without a body. You can take a free copy of a work and throw it on a screen. But perhaps you'd like to see it in hi-res on a huge screen? Maybe in 3D? PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good. What about dwelling in your favorite (free) game with 35 others in the same room? There is no end to greater embodiment. Sure, the hi-res of today—which may draw ticket holders to a big theater—may migrate to your home theater tomorrow, but there will always be new insanely great display technology that consumers won't have. Laser projection, holographic display, the holodeck itself! And nothing gets embodied as much as music in a live performance, with real bodies. The music is free; the bodily performance expensive. This formula is quickly becoming a common one for not only musicians, but even authors. The book is free; the bodily talk is expensive.

Patronage—It is my belief that audiences WANT to pay creators. Fans like to reward artists, musicians, authors and the like with the tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators. Radiohead's recent high-profile experiment in letting fans pay them whatever they wished for a free copy is an excellent illustration of the power of patronage. The elusive, intangible connection that flows between appreciative fans and the artist is worth something. In Radiohead's case it was about $5 per download. There are many other examples of the audience paying simply because it feels good.

Findability—Where as the previous generative qualities reside within creative digital works, findability is an asset that occurs at a higher level in the aggregate of many works. A zero price does not help direct attention to a work, and in fact may sometimes hinder it. But no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless. When there are millions of books, millions of songs, millions of films, millions of applications, millions of everything requesting our attention—and most of it free—being found is valuable.


This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:
  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Tuesday, December 15, 2009

The Way Out (Part 7 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 7 of 8)
This is an article in a series. You may read all the articles by clicking here.

THE WAY OUT
To survive in this new economy, moviemakers must first and foremost be able to recoup their fixed costs, and secondarily recoup their marginal costs. It follows, then, that moviemakers must:

  1. make movies cheaper than they have before
  2. exploit old income streams and discover new income streams

The downward pressure to make movies cheaper is already happening as studios torpedo A-List stars’ salaries in favor of offering them larger back end points, and use relatively unknown actors to make their tentpole blockbusters (e.g., Star Trek). Another measure to cut costs, also well underway, is studios relocating outside of Los Angeles. The other major boondoggle, of course, is slashing union salaries. Hey, I never said this would be pretty.

Moviemakers also need to minimize their marginal costs by streamlining theatrical distribution costs, which means nixing prohibitive film duplication costs in favor of beaming files directly to digital light projectors, and pushing more online sales via portals like iTunes and Hulu. CEO Reed Hastings believes DVDs will stop being the primary delivery format in two years, so free marginal costs are just around the corner. If the studios ever get DECE up and running, 21st century entertainment might finally become a reality.

Discovering new income streams from movies will mean employing advertising in creative ways like product placement and product integration. It will also mean selling any scarce goods which adds value to the movie (the infinite good), e.g., a collector’s edition DVD, an evening Q&A with the filmmaker, T-shirts, toys, etc.

Consider Cnet reporter Greg Sandoval's insightful open letter to Hollywood:
Cut your spending. Save your money. Many of the revenue streams that have gushed into your industry for decades, some for nearly a century, are about to dry up. This will likely mean a period of belt tightening like you've never seen before.

The end is coming for DVDs, traditional movie rentals, and yes, much of your cable money will likely disappear.

The news isn't entirely bad; you still have iTunes and Netflix—places where people spend money to buy or rent movies. You still have Hulu, Crackle.com, and YouTube, which are generating ad revenue by streaming full-length films and TV shows online. But the reality is that the amount of money that these legal operations generate is far less than the returns your industry is used to making. Unless some dramatic technological breakthrough occurs that can defeat file sharing, then you are staring at checkmate. Your business is headed for the same meat grinder that has chewed up the recorded music sector and print publishing. What will come out the other side is still uncertain but will likely be much smaller.


This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:
  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Monday, December 14, 2009

Creating Value (Part 6 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 6 of 8)
This is an article in a series. You may read all the articles by clicking here.

CREATING VALUE
I used to think producing a film was like building a house. You build a product for $200,000, and sell it for $500,000. Like building a house, you create a perceived value from nothing, which is called “forced appreciation”. When films are distributed, though, they don’t appreciate in value over time, but act more like cars—when you drive a car off the lot, its value drops almost in half. But a film’s long tail does continue to add value to its film company and to all other films made by that company. This explains how Roger Corman was able to sell his entire 400 film catalog to Disney-owned Buena Vista Entertainment for hundreds of millions of dollars.

To state the obvious, products build cumulative value to your brand over time. Once a film’s fixed costs are recouped on the front end, its marginal costs are ultimately pushed down to zero. If a product is effectively “free”, i.e., not able to regain any more money, then it can be given away for free to help build branding and, thus, add value to the company and its future products.

When the film Ink was pirated on BitTorrent last month, its filmmakers had no distribution deal locked down. They had made no money from the sale of their film at the typical jaunts like AFM or Cannes. In essence, they were screwed... or so it seemed. Instead of getting bitter, they chose to embrace the inevitable and play their hand for as much as they could: they chose to let their hundred of thousands of illegal viewings add value to their film by leveraging Ink's unprecedented buzz.

This is the dilemma in the title of Matt Mason's fantastic book, The Pirate's Dilemma: if piracy is taking value away from your product, Mason posits, you must fight them or you'll have to put the keys under the doormat. "Fighting" piracy can take more traditional forms like legal action, but it can also mean competing with piracy a la iTunes and Hulu. In some cases, as happened with Ink, piracy may be adding way more value to your product than you could ever have added yourself. Are you mentally ready to make that shift in perspective if it happens to you?

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:

  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Sunday, December 13, 2009

It's All Fixed (Part 5 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 5 of 8)
This is an article in a series. You may read all the articles by clicking here.

IT’S ALL FIXED
The problem at the chewy center of the free debate is about fixed costs.

Let’s say you’re publishing a book. If your book costs $5,000 to produce the initial printing plates, but only $5 to print and distribute each book after those plates are made, then your fixed cost is $5,000 and your marginal cost is $5. Traditionally, a publisher might charge $20 per book and break even once that $5,000 fixed cost had been recouped after which the publisher could either sell each book for as little as $5 or continue selling them at $20 to make handsome profits.

Unfortunately for producers, competition will always drive retail prices as close as possible to their product’s marginal cost and—in the case of airlines desperate to capture holiday travelers—retail prices can sometimes go lower than the marginal cost. Other market forces like labor unions and anti-outsourcing lobbyists are hard at work to artificially inflate this downward market pressure but, ultimately, businesses must seek profit (or simply survival) by using their resources in the most efficient way possible… which often means relocating factories overseas where 10 foreign employees cost the same as one American employee, or installing cutting edge technological systems that do three times the amount of work with only half the staff. Still, it’s the fixed costs that matter. If you don’t get your fixed costs paid back, your business will soon die.

And no matter what your product is, basic economic laws apply—no business model is sustainable when 1) fixed costs are so high that they can never be recouped or 2) retail prices are consistently lower than marginal costs. Therein lies the quagmire for the movie industry: unlike books and music, movies cost a lot. Studio movies have staggeringly high fixed costs and, for theatrical releases, substantial marginal costs as well. By comparison, a movie’s digital distribution (marginal) costs are nil—once a film gets burned into a digital version, it can spread like wildfire around the world with no harm to the original file. Digital files are an infinitely renewable resource.

If movies cost too much (i.e., their fixed costs are higher than their projected revenue) and the movie itself is the only product being sold, then piracy does indeed pose a fatal threat to that particular movie and fundraising for similar films in the future. Thus, if studios are resolute in keeping the industry exactly as it has been over the last 60 years, then the film industry will get left behind, just as horse carriage drivers were left behind when automobiles were first introduced into the market. As Big Champagne CEO Eric Garland says, “…growing a sector is a privilege, not a right.” How bitterly ironic that Hollywood was founded by a group of independent filmmakers who blatantly ignored Thomas Edison’s patent laws—those outlaw "pirates" are now the orthodoxy. Oh, how the mighty shall fall...

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:

  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Saturday, December 12, 2009

Digital Theft, Oxymoron (Part 4 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 4 of 8)
This is an article in a series. You may read all the articles by clicking here.

DIGITAL THEFT, OXYMORON
Regardless of my own views on morality, I suspect our global society's understanding of "theft" and "property ownership" in the digital age is being slowly redefined. Unlike an apple, an idea is not a scarce good: if you have 10 apples and and I take one, you only have 9 apples. That, we can all agree, is theft. By contrast, ideas are an infinite good—nobody can claim ownership over an idea because we can all think them: if I take an idea from you, you are not left without that idea.

However, the digital age has been thrust upon us and we've inappropriately grafted that ancient concept of scarce property ownership onto this modern market of infinite ideas and called it "intellectual property". In a digital age, things like CDs, DVDs, and software can be copied infinitely, like ideas. If I pirate a movie from you, you aren't left without a movie—you still have it. Thus, in the digital age, "theft of digital products" reads like a vestige from a time when resources were finite and not shared without violent complications. With infinitely duplicative media, our world isn't entirely a zero sum game anymore. Once most of us realize that, P2P networks will finally be seen as the blessing they actually are—a highly efficient means to share infinite goods.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:

  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Friday, December 11, 2009

Feedback from Pirates: A Case Study (Part 3 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 3 of 8)
This is an article in a series. You may read all the articles by clicking here.

FEEDBACK FROM PIRATES: A CASE STUDY
Consider the case of Cliff Harris, whose software games were being pirated even at the low price of $20. Frustrated, he opened up the can of worms and asked pirates—without malice or judgement—why they were pirating his game.


Talking To 'Pirates'


A few days ago I posted a simple question on my blog. "Why do people pirate my games?". It was an honest attempt to get real answers to an important question. I submitted the bog entry to slashdot and the penny arcade forums, and from there it made it to arstechnica, then digg, then bnet and probably a few other places. The response was massive. This is what I found:

Introduction
Firstly it's worth pointing out that there were LOTs of responses (and they are still coming in now), hundreds of comments on the sites listed, a ton of comments on the blog (despite it crumbling under the strain) and hundreds of emails made it through to me. I read every one of them. They were also generally very long. Few people wrote under 100 words. Some people put tolstoy to shame. It seems a lot of people have waited a long time to tell a game developer the answer to this question. Some people thought my name was chris, or that I developed Braid. But that doesn't matter :D It's worth pointing out that the original question was specific to MY games, because I already do the majority of what people complain about (free demos, easy demo hosting, digital distribution, original games, good tech support etc), but the majority of the replies were aimed at games devs in general, not me. Here is what they said:

The semi-political ones
I got a few people churning out long arguments about whether or not intellectual property is valid, and claiming that it was censorship, or fascism and other variations on this theme. I'm used to reading all this, and find it completely unconvincing, and to be honest, silly. The really interesting news was that this was a trivial proportion of the total replies.

Money
This *did* surprise me. A LOT of people cited the cost of games as a major reason for pirating. Many were kids with no cash and lots of time to play games, but many were not. I got a lot of peoples life stories, and a ton of them were my age. Even those who didn't cite cost as their main reason almost always mentioned it at some stage. A lot of anger was directed at the retail $60 games, and console games. People in Australia were especially annoyed about higher prices there. My games were $19-23, but for a lot of people, it was claimed this was far too high. People talked a lot about impulse buying games if they were much cheaper.

Game Quality
This was a big complaint too. And this also surprised me. I have a very low opinion of most new games, especially triple A ones, but it seems I'm not alone. Although there were many and varied complaints about tech support, game stability, bugs and system requirements, it was interesting to hear so many complaints about actual game design and gameplay. Not a single person said they had felt ripped off by a game due to substandard visuals or lack of content. The consensus was that games got boring too quickly, were too derivative, and had gameplay issues. Demos were widely considered to be too short and unrepresentative of the final product. People suspected that the full game was no better than the demo. Almost everyone had a tale of a game that was bought based on hype which turned out to be disappointing.

DRM
This was expected, but whereas many pirates who debate the issue online are often abusive and aggressive on the topic, most of the DRM complaints were reasonable and well put. People don't like DRM, we knew that, but the extent to which DRM is turning away people who have no other complaints is possibly misunderstood. If you wanted to change ONE thing to get more pirates to buy games, scrapping DRM is it. These gamers are the low hanging fruit of this whole debate.

Digital Distribution
Lots of people claimed to pirate because it was easier than going to shops. Many of them said they pirate everything that's not on Steam. Steam got a pretty universal thumbs up from everyone. I still don't get how buying from steam is any different to buying from me, other than you may already have an account on steam. For the record, I'd love to get my games on steam. I wish it was that easy.

Confessions
I got a few people, maybe 5% of the total, who basically said "I do it because I like free stuff and won't get caught. I'd do the same with anything if I knew I'd get away with it." This is depressing, but thankfully a small minority. I also got the occasional bit of abuse and sarcasm from hardcore pirates who have decided I am their enemy. Who would have thought that would happen? They give the other 99% of pirates a bad name, and are the reason people don't listen to pirates.

What I'm going to do about it
There was a point to all this, and it was partly to sell more (I have bills to pay!) as well as hopefully get more people to legitimately play my games. I'd be very happy if some reduction of overall piracy happened too, as I love PC gaming and the current situation is only helping to kill it off. I've thought hard about everything people have said and I have decided to change a few things about my games.

1) No more DRM
I only used DRM for one game (Democracy 2) and it's trivial. It's a one-time only internet code lookup for the full version. I've read enough otherwise honest people complain about DRM to see that its probably hurting more than it help's. I had planned on using the same system for Kudos 2, but I've changed my mind on that. I have also removed it from Democracy 2 today. I now use no DRM at all.

2) Demos
People think demos are too short. My demos *are* short, because the marketing man in me sees that you can't give away too much. I've wanted people to feel a bit annoyed when the demo cuts out, so they buy the game to keep playing. Too many people are put off by this and pirate games so they can see exactly what they are getting. I'll be making my demos much better, and longer, and will retrospectively change this when I get around to it for some of my older games. (I'm swamped with work right now)

3) Price
I think my games are priced right, and was considering charging more for Kudos 2 (which is my biggest and best ever game). I sometimes play casual games for $20 which seem to have maybe a tenth of the effort I put into mine. However, enough people out there see price as a factor to change my mind. I halved the price of Kudos 1 a few days ago, to $9.95. I'll keep an eye on how it does. I'm also strongly inclined to price Kudos 2 lower than I originally planned to.

4) Quality
My games aren't as good as they could be. Ironically, one of the things that reduces your enthusiasm to really go the extra mile in making games is the thought that thousands of ungrateful gits will swipe the whole thing on day one for nothing. It's very demoralizing. But actually talking to the pirates has revealed a huge group of people who really appreciate genuinely good games. Some of the criticisms of my games hit home. I get the impression that if I make Kudos 2 not just lots better than the original, but hugely, overwhelmingly, massively better, well polished, designed and balanced, that a lot of would-be pirates will actually buy it. I've gone from being demoralized by pirates to actually inspired by them, and I'm working harder than ever before on making my games fun and polished.

A final note is trying to make it easier for people to buy my games. I'm really hassling my payment provider to support amazons one-click method. For me, I think that's even more convenient than steam. I'm always doing what I can to make buying them as quick and easy as possible.

Conclusion
So it was all very worthwhile, for me. I don't think the whole exercise will have much effect on the wider industry. Doubtless there will be more FPS games requiring mainframes to run them, more games with securom, games with no demos, or games with all glitz and no gameplay. I wish this wasn't the case, and that the devs could listen more to their potential customers, and that the pirates could listen more to the devs rather than abusing them. I don't think that's going to happen.

But I gave it a go, and I know my games will be better as a result. I'll never make millions from them, but I think now I know more about why pirates do what they do, I'll be in a better position to keep doing what I wanted, which is making games for the PC.


Thanks for reading.
Cliff 'cliffski' Harris

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:
  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Thursday, December 10, 2009

The Moral Issue (Part 2 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 2 of 8)
This is an article in a series. You may read all the articles by clicking here.

THE MORAL ISSUE
If you’re still in the Universal Morality Camp of, "Nope, it’s morally wrong, it’s theft, pirates should be banned from the internet and you’ll never convince me otherwise," then let me offer you some historical perspective on how the Morality card has been used in the past:

Below is a list of wars or warring factions, and their "immoral" actions:

  • The Battle of Agincourt—the French viewed the British longbows as unchivalrous
  • Hashshashins—the first Muslim suicide assassins, and highly effective
  • Ninjas—Samuraii warriors considered ninjas dishonorable in part because ninjas’ blades were sharpened on both sides (as opposed to a samuraii’s one-sided blade)
  • The American Revolution—the Brits thought the Americans' guerilla warfare was dishonorable
  • Vietnam—the Viet Cong intentionally left wounded soldiers in the field to lure out and kill rescuers
  • The US Civil War—sniping was considered dishonorable and they rarely survived capture
  • The Algerian War—kidnapping, ritual murder and mutilation were all used to weaken the French occupying force
  • Al Qaeda & The Iraqi insurgency—suicide bombs killing innocent civilians are deemed immoral

In each case, the winning side or faction used more efficient fighting methods typically described (by the losing side) as "unfair", "unethical", "dishonorable", etc. In the early examples, it's obvious that what was once thought of as unchivalrous, dishonorable, immoral or unethical—i.e., longbows, guerilla warfare, sniping—is now widely accepted and used as a standard tool of warfare, even seen as ethically sound. Thankfully, we haven't gone so far as to embrace kidnapping, mutilation and ritual murder as commonplace tools in our wartime arsenal (at least not publicly; waterboarding is considered torture, so I suppose it's possible we're slowly leaning in that direction... ah, but I digress).

Many things we first think of as immoral and unethical are re-evaluated and often downgraded in the longer lens of history. Losers of any conflict are often heard complaining, "How could we have possibly won that war when our opponents were doing 'X'?", where 'X' is any of the above. In the Battle of Agincourt, the French outnumbered the British more than 4 to 1 but they refused to use longbows because they thought longbows were unchivalrous/unethical/immoral/unfair. If the French had only set aside their obstinate righteousness and accepted that longbows were a vastly more efficient weapon, they would have crushed the British. Instead, they became preoccupied with longbows as an unethical, unchivalrous and dishonorable weapon... and they lost.

I see this same head-in-the-sand attitude crop up in strikes. When unions go on strike, they are typically protesting a new and more efficient system that threatens their jobs. Case in point: 1984's Wapping Dispute saw British typesetters going on strike to protest the newer, more efficient desktop publishing systems. Instead of embracing the future by adapting to change on their own terms, career typesetters were forced to adapt on someone else's terms by accepting the unavoidable truth that newer DTP systems were more efficient than old typesetting methods. Yes, many people lost their jobs and it was an extremely sad chapter for all career typesetters. I'm sure all the old typesetters even thought of the new DTP systems as "unfair" and perhaps even "dishonorable", but the newer and more efficient DTP systems benefited everyone. In the end, nobody ended up caring what was unfair or dishonorable—the only thing that mattered was how efficient the system ending up being.

We’re faced with a similar situation with Peer-to-Peer networks like eDonkey, Limewire, and BitTorrent. Even after years of increasingly harsher laws and incessant moral reproaches, P2P networks continue to flourish unabated and now have representatives in Sweden's Pirate Party (if that isn't a signal of a neverending battle, I don't know what is). In my eye, then, the moral and legal arguments against piracy are becoming moot—what becomes important is recognizing why P2P networks are still so popular despite all the moral and legal roadblocks.

Two things have become clear to me:
  1. Compared to current distribution channels, P2P networks are an astonishingly efficient distribution method. Consumers want content and they want it now. Should they walk/drive down to the movie theatre or video store, or sit at home and watch it on their desktop computer? Increasingly, it is the latter. This has affected theatrical releases: desperate to see a movie because of its massive marketing campaign, consumers scramble online to find a leaked version. Their goal is not necessarily to watch something for free (though that can be a bonus), but to watch it now. If producers/distributors provided a convenient and low-cost option to fill that market need, I assure you that piracy would fade away, but producers/distributors are (understandably) too committed to defending the status quo of the Old Model's staggered release windows. Despite what producers and distributors want the world to be, the New Model is give-it-to-me-now-or-i-will-take-it-from-you-anyway. Of course, producers and distributors have their livelihoods to defend, and they will defend it with vitriol, but they can’t make P2P file sharing any less efficient—the genie is out of the bottle.
  2. Overall, both consumers and producers are better off with P2P network distribution. When consumers watch content, they get it now. When producers have their content watched now, consumers talk about it to their friends and that's free publicity. Even if the movie is downloaded for free, other income streams can/should make up the difference, e.g., George Lucas made more money off Star Wars merchandise than he did off his movies. While music CD sales may be declining because of piracy, the music business overall has grown because more people are listening to more music as a result of piracy. As Jamin Winans of Ink said about the 400,000 BitTorrent downloads of his film, "...I don't see it as lost revenue, but fans gained."


This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:
  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Wednesday, December 09, 2009

OK, it's wrong... so what? (Part 1 of 8)

THE FILMMAKER'S ROADMAP TO FREE (part 1 of 8)
This is an article in a series. You may read all the articles by clicking here.

OK, IT’S WRONG… SO WHAT?
Gladwell makes some excellent points, and eloquently, but I feel he misses the larger picture. Ethically, I feel file sharing is wrong, so I actually agree with Gladwell. I don't want to gloss over this point, so I'll belabor it: I am not a feverish file sharer defending my own lifestyle of piracy. I don't pirate "because everyone else is doing it." In fact, I never even used the Pirate Bay.

Not only is piracy unethical, it's also illegal. Yet the legality of an action does not in itself infer moral purity—"law-abiding citizens" have committed morally repugnant actions, including slavery and the Holocaust. If everyone always obeyed the law, slavery would still exist, America would never have been founded (if you think America wasn't founded on piracy, go brush up on the etymology of the word "Yankee"), and Hollywood wouldn’t have existed. History has fun portraying leaders of a rebellion as either heroes or outlaws depending on the outcome of the conflict in question and the point of view of the current government. For instance, we aren’t taught to see the Founding Fathers as violent criminals yet, from the 18th century British perspective, that is exactly what they were: if Benjamin Franklin had been caught, he'd have been swiftly executed for “betraying his country”. Thus, the mere fact of disobeying a law is not enough to draw a morally righteous condemnation—one must also commit an act that does more harm than good.

No matter how much I agree with Gladwell, and how morally wrong I may think file sharing is, I also see piracy as the way of the future, a genie out of the bottle which has the potential to foster a more vibrant entertainment industry if we can all simply accept digital file sharing as the key innovative tool of The Digital Age. I'm aware of how contradictory that may sound. On the one hand, I'm admonishing file sharing: file sharing is (usually) taking content from producers without permission. On the other hand, I look at all the unexpected benefits that come with file sharing and I have to ask myself whether all the ethical and legal jangles are trumping a fantastically new technological innovation.

When you examine the practicalities of the exchange of goods—meaning, are all parties better or worse off when content is pirated?—ethics and legalities become irrelevant. File sharing continues to thrive because producers and distributors are not yet providing en masse a service the market is starving for: convenience at a low cost. iTunes makes money selling content that anyone can get for free... Spotify in the UK is starting to do the same. So obviously, the market is still willing to pay money for content if it's convenient and inexpensive enough. If it's too inconvenient or too expensive, the market will pirate. People won't pay $35 for a DVD, but they'll download it first to see if it's worth the money (and if it isn't, they won't bother paying for it). They won't pay $25 for a CD, but they'll download a few tracks to see if they like them (and if they do, they may even get more tracks on iTunes). Perhaps they download all their music and never pay a dime... but they will enthusiastically pay for merchandise and live concerts of that musician.

Money can still be made in this new “freemium” economy... we all just have to start accepting that morality, ethics and legality are not the core principles determining whether piracy will starve or thrive. Sure, piracy is wrong, but so what? People are still pirating content. Britain is trying to ban users from the internet, but if banning users succeeds in stopping them from pirating, it still won't get them to buy more music... and isn't that the whole idea?

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction

The Free Debate:

  1. Free: The Future of a Radical Price by Chris Anderson
  2. PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
  3. Dear Malcolm: Why so Threatened? by Chris Anderson
  4. Malcolm is Wrong by Seth Godin
  5. Free vs. Freely Distributed by Mark Cuban
  6. Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
  7. Freemium and Freeconomics by Fred Wilson

The Filmmaker's Roadmap to Free:
  1. OK, it's wrong... so what?
  2. The Moral Issue
  3. Feedback from Pirates: A Case Study
  4. Digital Theft, Oxymoron
  5. It's All Fixed
  6. Creating Value
  7. The Way Out
  8. The Key is Generatives
  9. Acknowledgments & Further Reading

Tuesday, December 08, 2009

Chris and Malcolm are Both Wrong by Brad Burnham

August 9, 2009 12:58 PM

Many of you are familiar with dust up between Chris Anderson and Malcolm Gladwell that was touched off by Malcolm's review of Chris's new book, Free: The Future of Radical Price. [UPDATE: Free is no longer free. The link to Chris's book has been retired. You can find Chris's book on Amazon.]

Anderson's book points out that the cost of providing web services is declining as a result of open source software, commodity hardware, and cheap bandwidth. Gladwell agrees with the trend but notes that it is very expensive for YouTube to host video. Gladwell and Anderson also traded visions of the future of the media business, with Anderson arguing that content was becoming commoditized and Gladwell holding up the Wall Street Journal's paid web subscription as an example of paid for premium content. Ultimately the debate veered into a discussion of the economics of abundance, pitting overly enthusiastic cyber utopians against cynical and perhaps self interested, defenders of current media business models.

The debate was entertaining but not very satisfying. Malcolm's examples were too narrow and not compelling. The WSJ gets away with a subscription, for the moment, because their users bill it to their corporate credit card. YouTube has real costs because of its enormous scale, and the structure of the pharmaceutical industry has little to do with purely digital products on the web. Chris, on the other hand, drifts too easily into an imagined world of abundance where economics (for lack of scarcity) will no longer be able to describe human behavior. I agree with Chris that the economics of the web are fundamentally different, but I agree with Malcolm that the basic laws of economics still apply. I understand why Chris and others are attracted to a "new" economics of abundance. Material abundance does change what we value, but it does not eliminate scarcity. Malcolm, Chris, Seth, and Fred all made good points in this debate. Many others weighed in. Much of this conversation is captured here in the Squidoo lense devoted to the topic.

My frustration with the debate about Free is that it seems like a last ditch effort to fit the internet economy into the familiar framework of the industrial economy. That isn't going to work. Free is not a pricing strategy, a marketing strategy, or the inevitable consequence of a market with low variable costs. It's a symptom of a much more fundamental economic shift. Until we agree on what resources are scarce and have a framework for how they will be allocated in the future we are not just talking past each other, we are talking about the wrong things.

Fortunately, a bunch of smart people have been thinking about scarcity in an information economy for a long time. Herbert Simon, the Nobel winning economist and psychologist, first wrote about it in 1971.

...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients.

Since then Michael Goldhaber and Rishab Gosh have debated the nature of the attention economy. John Hagel summarized the arguments here. These insights into the economy of attention offer a powerfully explanatory perspective in the debate about Free and explain why Free will be the dominant media model of the near future.

In a world where facts are readily available, from multiple sources, basic information will be commoditized. But the explosion of sources will create a real burden for the consumers of information. Raw information will become not just a commodity, it will be a nuisance. In that world, consumers will value scarce, relevant insight over abundant facts. Computer scientists have been working for years on algorithmic ways of mining text for insight with only modest success. It turns out that people still out perform computers at this task. Web services like Google, LastFM, and Facebook, succeed because they do a good job of harnessing the explicit or implicit input of users to sift through an overwhelming supply of information to deliver relevant insight. Google uses in-bound links to filter search results. LastFM uses other people with similar tastes to recommend music. Facebook filters information by the strength of relationships. So the users of these services are not just consumers, they are a necessary participant in the creation of the service. Since all these services require a large base of users for their filtering techniques work, you could just as easily ask why the services are not paying their producers. Debating whether to charge these same producers make little sense.

Both sides of the debate about Free do not seem to acknowledge how fundamentally different the relationship between suppliers and consumers is on the web. Services are not offered for free at all. There is an exchange of value between users, the creators of the raw materia—data, content, and meta-data, and the network where that data is converted into insight. This exchange is still governed by the basic laws of economics but the currency is not dollars, it's attention. The network that takes attention and converts it into insight is also quite different than a traditional firm. The services they provide are more like those we expect from a government than a company. Craigslist, Facebook, and Twitter all provide (or try to provide) a robust stable reliable infrastructure (hosting, bandwidth), security, safety, and dispute resolution. In all three cases, the product users create and consume emerges organically from this environment.

In a world where the scarce resource is some combination of time, attention, relevance and insight, those commodities become the medium of exchange in a parallel economy alongside traditional currencies, debating what a traditional firm charges for something they produce and distribute to customers who have no role in the product's creation sheds very little light on what is going on today.

The much more interesting conversation is about the appropriate economic model for a social network that depends on the contributions of its participants and increases in value as more people use it. One possibility is that the economic models of these networks will look more like Craigslist than Yahoo. Recent estimates peg Craigslist's revenue at more than $100,000,000. Not much compared to Yahoo's billions, but Craigslist still employs only 28 people. Even allowing for substantial bandwidth, and server costs, it is still hard to imagine how their costs are more than $5,000,000. Since Craigslist collapsed a multibillion dollar classified advertising business into a fabulously profitable $100,000,000 business, perhaps we should be talking about the potential deflationary impact of more "zero billion dollar" businesses. As the radical efficiencies of the web seep into more sectors of the economy, and participants in social networks exchange attention instead of dollars, will governments at all levels need to make do with less tax revenue? That's a scary thought in an era of high deficits unless traditional governments can learn from the efficent governance systems of social networks and provide more for less.

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction
Free: The Future of a Radical Price by Chris Anderson
PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
Dear Malcolm: Why so Threatened? by Chris Anderson
Malcolm is Wrong by Seth Godin
Free vs. Freely Distributed by Mark Cuban
Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick
Freemium and Freeconomics by Fred Wilson

Monday, December 07, 2009

Freemium and Freeconomics by Fred Wilson

JUly 4, 2009

This week we saw the release of Chris Anderson's book Free and reviews from the New Yorker (Malcolm Gladwell) and the Financial Times (John Gapper). I'd like to talk a bit about the firestorm that freeconomics (fed by Chris' book) has unleashed but first we need to clarify something.

The FT piece says:

The most plausible contender for an "entirely new economic model" made possible by the internet is what Fred Wilson, the New York venture capitalist, has dubbed "freemium".

There was no dubbing by me. In March 2006, I wrote a post called My Favorite Business Model in which I outlined the freemium concept and I asked the readers to help me give it an easy handle. The word Freemium was not coined by me. It came from Jarid Lukin, who at the time was working for Alacra, a company I am on the board of. Fortunately, we've got Wikipedia which has got the story straight.

Now let's talk about freeconomics. I don't believe everything will be free on the Internet. There will be plenty of paid business models. For example, if you want to watch Major League Baseball games live over the Internet, you'll pay for that. If you want to use services like the FT and the WSJ frequently (more than 10x per month), you'll pay for that. If you want to watch HBO over the Internet, you'll pay for that. If you want a Twitter desktop or mobile client, you might pay for that too.

But we also must recognize that the cost of delivering many services over the Internet has decreased significantly from what it cost to deliver them in the analog world. The marginal cost of delivering a piece of content is approaching zero. But the total cost of delivering content on the Internet is far from zero. My partner Albert wrote a great post about this last week. He said:

The price of watching a stream on Youtube is zero. With marginal cost zero and marginal benefit zero, from a perspective of maximizing total social (net) benefit, free is the right price because it does not preclude any video that could possibly have benefit from being viewed. That does not mean that free is sustainable because it obviously doesn’t help cover the total cost.

And, as Albert recognizes at the end of his post, this debate is not entirely about economics. It is about the value of various participants in the content ecosystem.

Gladwell got pretty negative on Anderson and his book in the New Yorker piece. He said:
It would be nice to know, as well, just how a business goes about reorganizing itself around getting people to work for “non-monetary rewards.” Does he mean that the New York Times should be staffed by volunteers, like Meals on Wheels? Anderson’s reference to people who “prefer to buy their music online” carries the faint suggestion that refraining from theft should be considered a mere preference. And then there is his insistence that the relentless downward pressure on prices represents an iron law of the digital economy. Why is it a law? Free is just another price, and prices are set by individual actors, in accordance with the aggregated particulars of marketplace power.

These are the anti-freeconomics arguments we hear from the likes of Andrew Keen and his ilk. Lambasting file sharers and entrepreneurs who rightly recognize that free is the right way to build market share on the Internet might be fun and make certain people feel good. But it's ignorance of a fundamental fact. And that fact is that free, ad supported media works best on the Internet. We have seen it again and again. I'm not going to even give examples.

Once you have built that audience, you can deliver upsells via freemium models, you can monetize it via advertising and you can branch out into other services which are easier to monetize. This post by Silicon Alley Insider on Facebook's revenues this year is instructive:

Earlier this week, we spoke to several sources who each have some insight into Facebook's financials (none of them know precisely). Taking the sources' input together, we'd estimate the company's expected 2009 revenue this way:
  • $125 million from brand ads
  • $150 million from Facebook's ad deal with Microsoft
  • $75 million from virtual goods
  • $200 million from self-service ads.

These numbers are similar enough to others that I have heard that I feel comfortable republishing them here. Facebook has 200mm+ monthly active users worldwide. Let's say they are doing $50mm per month in revenue. That's a revenue per monthly active user of $0.25. Low for sure, but enough to operate at breakeven. And I expect the self service ads and the virtual goods revenues to grow strongly in the next year, more than making up for the likely loss of some of the $150mm from the ad deal with Microsoft.

And the next move for Facebook is to generate transaction revenues with its payment service and off site ad and transcation revenues from its Facebook Connect service. I'm pretty confident that Facebook can take its revenue per monthly active user to at least $0.50 and maybe higher in the coming years.

Facebook is a perfect example of freeconomics at work. A woman who works for a major media company was in my office recently. She quoted her CEO as saying "why doesn't Facebook just charge a monthly subscription fee, they'd be making money hand over fist?". Well I believe that if Facebook did that, they'd be vulnerable to other networks offering a free service. And certainly not every one of those 200mm+ users are going to cough up a monthly subscription. But by offering a friction free service, they have built a powerful and growing network that they are now starting to monetize in various ways and that they will monetize even further in additional ways. And they are super hard to compete with because they are free.

I like to keep my posts short, so I'll end here with the observation that the Internet allows an entrrepreneur to enter a market with a free offering because the costs of doing so are not astronomical. And most entrpreneurs who take this approach will maintain an attractive free offering of their basic service forever. But that doesn't mean that everything they offer will be free. That's the whole point of freemium. Free gets you to a place where you can ask to get paid. But if you don't start with free on the Internet, most companies will never get paid.

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction
Free: The Future of a Radical Price by Chris Anderson
PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
Dear Malcolm: Why so Threatened? by Chris Anderson
Malcolm is Wrong by Seth Godin
Free vs. Freely Distributed by Mark Cuban
Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick

Sunday, December 06, 2009

Chris Anderson, Malcolm Gladwell And A Look At Free by Michael Masnick

July 1, 2009

from the might-help dept


Malcolm Gladwell is an interesting guy. He's an amazing writer and storyteller—perhaps the greatest storyteller of this generation. And, as such, he's amazing at taking complex ideas or research and making it seem simple and easy to understand. I have to admit that I really enjoy reading almost anything he writes for the pleasure of seeing how it's written. That said, I've found his books to be unsatisfying in the end. Great, fun reads at the time, but I kept feeling like I was waiting for more. I was waiting for the actual substance to back up the amazing thesis. It's amusing then, to see him basically suggest the same thing about Chris Anderson's new book, Free in his review of the book in the New Yorker. That review has kicked off quite an online conversation—with a response from Chris, and other "luminaries" like Mark Cuban and Seth Godin weighing in as well (Godin agrees with Chris, Cuban doesn't).

A few people asked me if I was going to respond to Gladwell's review, and at first I wasn't sure if it was worth digging in to it, but at the same time, I did want to put up something of a review of Free myself. So, I might as well kill two birds with one stone here. First: a bit of disclosure: I know Chris. Not well, but we've been known to email and talk on occasion, and we sat down and got lunch a year and a half ago when he was first planning out this book, during which I made some suggestions (some he took, some he didn't) though I doubt my words really had that much of an impact (I'm sure he heard similar things from others, and that they were much more clear and eloquent than I was). Also, Chris does mention me in the acknowledgments section of the book, noting that my daily writings here "informed and inspired" the book. Thus, take anything I say with a grain of salt.

There have already been some attacks on Free that have really missed the point. There are plenty of points to attack, but it seems that the problem is that (once again) people get stopped by the big zero, and forget to keep working through the rest of the details. Like I said last time, it's as if our brains have a "divide by zero" error message that prevents all additional thinking on the subject. Nearly all of the attacks on the concept of free seem to focus on the fact that not everything is free (this is what Cuban does, for example). Except... no one ever claims that everything is free. The whole point is that "free" is simply a part of a larger business model, and the fact that you charge for some stuff doesn't take away from the idea of embracing "free" where it makes sense as a part of that business model.

Gladwell, to his credit, stays away (mostly) from this type of mistake, but he makes a few other ones in the process. For example, in responding to Anderson's recognition of the value of non-monetary rewards as a part of the larger economic ecosystem where some business models involve "paying people to get other people to write for non-monetary rewards," Gladwell's retort is:

That said, it is not entirely clear what distinction is being marked between "paying people to get other people to write" and paying people to write. If you can afford to pay someone to get other people to write, why can't you pay people to write?

The answer to Gladwell's question is simply one of economic efficiency. You can pay people to write—just as Encyclopaedia Britannica does. Or you can get other people to write for non-monetary rewards—as Wikipedia does. The latter is a lot more efficient a solution, and the difference in productivity and output is quite evident. It's not saying that there is no business in paying people to write, but it's a very different business than the indirect business model, and it's the economic efficiencies that come into play.

Money, at times, is a transactional lubricant. It helps us make transactions faster than bartering three pigs for two trees, a goat and a bushel of corn. At other times, though, money can be friction. It can limit transactional effectiveness by acting as a kind of crutch. That's where non-monetary benefits can suffice (or do a much better job) in rewarding people for their actions. In those scenarios money gets in the way and actually makes a transaction less efficient.

A more efficient solution is a good thing. It helps enlarge markets, increase productivity and make the net of society better off. Much of what Chris discusses in the book is that end result. The process may be messy, but economic growth through efficiency is undeniably a good thing—and Gladwell seems to miss that point entirely.

That said, Gladwell's comment actually does bring to light my biggest complaint with Anderson's book. I think it's a fantastic read, and quite educational and (at times) thought provoking. But I don't think it goes far enough in diving into the meaty details, which is where folks like Gladwell are led astray. So while I think that Anderson is correct, I'll also say that Gladwell is correct in suggesting that Anderson doesn't clearly answer that question. That doesn't mean that Anderson cannot or that the failure to answer that question means that Anderson's thesis is wrong, even though Gladwell implies the failure to answer such questions calls the entire work into question.

My second issue with the book is related to this, in that while it outlines why "free" is so important and how it's being used and how it plays out in other areas, it really doesn't explain much of what to do about it. This, too, is echoed in Gladwell's questions. He feels that there should have been more about how do you actually apply such things—and I agree that the book comes up short here as well, though I believe it is on purpose. It lists out examples and business models that are certainly useful to read about, but does little to suggest how you actually apply them. This is speculation on my part, but I remember in our discussion before he started writing the book, Chris explained his goal was to make the book more descriptive than prescriptive, recognizing the difficulties in making a prescriptive book on a topic where there are so many other factors that it's often difficult to outline specific prescriptions. I recognize that challenge, but it does leave the book open to many attacks from people who read it and are left saying "ok, but what do I do about this?" On that, I think the book comes up a bit short—though, it should provide plenty of consulting fodder for Anderson (and other consultants who jump on the bandwagon, probably without understanding it too much).

The big problem here is that not only will people among the critics misinterpret the lessons of the book, but so will businesses. They'll implement bad business models that have "free" as a component, but that won't be economically sound. No one claims that "free" solves everything, but some will undoubtedly interpret it this way. Then, when they fail, they'll blame "free" and claim that it was wrong, rather than the fact that they implemented a bad business model. This, in fact, is what happened in some areas with The Long Tail, Chris' earlier book. They assumed it said stuff it did not, and then got upset when their improperly created business models failed.

From there, however, Gladwell then goes on to bring up some other criticisms that don't pack much of a punch. He knocks Anderson for using YouTube as an example of using "free" as a part of a business model, noting that YouTube is losing money (though, Gladwell relies on debunked numbers to assert those losses). Similarly, he talks about how the WSJ can charge, Apple can charge for iPhone apps, and cable TV can charge—but his mistake here is taking a static picture and (often) removing the context. The WSJ can charge, but there are questions about whether that strategy really can last—and the publication has been opening up more and more stuff as "free" to try to draw people in to that subscription model. The Apple example is quite misleading as well. Estimates suggest that Apple makes very little on iPhone apps, but has really nice margins on the iPhone.

But beyond shoddy research by Gladwell, the bigger issue is not recognizing the dynamic nature of these things at work. Using a little game theory economics wouldn't hurt. By looking at how business models play out when goods have a marginal cost of zero, you quickly learn how opportunities to be more efficient via a well-placed use of free expands the size of certain markets. The trick is recognizing that things that are "free" stop being products that are sold, and become resources—inputs—into other products... for free. Thus, you get markets where increasing marginal returns carry the day, rather than diminishing marginal returns. This seems especially odd, given that Gladwell's claim to fame is his ability to pick up on trendlines. To then look at Chris' book and compare it to a static picture of the world is quite unconvincing.

Furthermore, it misses the main point of the book: which is that competition happens, and when it does, price gets driven to marginal cost. You might not like it. You might wish it didn't happen, but arguing against the fact that it's how markets work is like arguing that the sun won't rise tomorrow. No one said that it didn't make economic sense when other businesses had margins squeezed. Yet when that big "zero" shows up, people seem to forget that it's just a number and the basic lessons of the book aren't new or radical—but the same economics we've always known. It's just that it's applied to markets where marginal cost is zero, something that's become more common thanks to technology.

Gladwell's review, then, does Anderson's book a disservice. It criticizes it because it doesn't answer questions the book didn't set out to answer, and then attacks the picture today without acknowledging the trendlines and the direction that they're moving in. And, finally, it ignores the actual nature of the argument (this is happening) with a moral discussion (is this good?). That's unfortunate. Where Chris' book shines quite frequently is in laying out these trendlines clearly and in a way that will get you thinking. It may not answer all the questions about free, but it should certainly help those who don't stop thinking at the zero to at least recognize the trendlines and get them thinking about how to deal with them. And that is, unquestionably, a good thing.

As Chris did with The Long Tail, he's taken complex economic theory and made it easy to understand in a compelling and highly readable format. While my own personal complaint (above) concerns how much of that economic theory may have been left on the cutting room floor, that's a critique that probably only applies to folks like myself who spend way too much time reading, talking and thinking about these issues. I'm guessing the mass audience this book is targeted for doesn't care so much about understanding the deeper economics, even if it answers the basic questions raised by Gladwell. If you read Techdirt frequently (and enjoy it), then you're quite likely to enjoy reading Free. It certainly complements and adds to the material we write about here frequently, and presents it in a great package.

I did want to bring up one separate issue, because I get the feeling it will be raised in the comments. There was a lot of attention paid recently to charges of plagiarism in the book. Chris has admitted to the basics of the charges, and explained it as sloppy editing in an effort to deal with concerns about how to cite online content. I have to admit that sloppy editing seems like a weak excuse here, and a bit disappointing. It seems a bit lazy.

That said, I've discussed at great length my position on "plagiarism" in the past—and, amusingly, much of it is inspired by Malcolm Gladwell's own discussion on plagiarism, where he recognized that someone taking his own work and adding value to it and doing something different wasn't such a bad thing after all, and that it could actually represent an inspiration. So if I were actually "plagiarized" by Chris or anyone else (and I don't believe I was), I'd actually find it something of an honor to have my works as a part of something better and more interesting. I don't think it takes away from the quality of the overall work at all. I would have preferred that such mistakes in attribution did not happen, mainly because it's a distraction, but the issue is a minor one. If Chris can take the works of others and make it into something more valuable, aren't we all better off because of it?

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction
Free: The Future of a Radical Price by Chris Anderson
PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
Dear Malcolm: Why so Threatened? by Chris Anderson
Malcolm is Wrong by Seth Godin
Free vs. Freely Distributed by Mark Cuban

Saturday, December 05, 2009

Free vs Freely Distributed by Mark Cuban

June 30th 2009 7:21PM

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.

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction
Free: The Future of a Radical Price by Chris Anderson
PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
Dear Malcolm: Why so Threatened? by Chris Anderson
Malcolm is Wrong by Seth Godin

Friday, December 04, 2009

Malcolm is Wrong by Seth Godin

June 30, 2009

I've never written those three words before, but he's never disagreed with Chris Anderson before, so there you go.

Free is the name of Chris's new book, and it's going to be wildly misunderstood and widely argued about.

The first argument that makes no sense is, "should we want free to be the future?"

Who cares if we want it? It is.

The second argument that makes no sense is, "how will this new business model support the world as we know it today?"

Who cares if it does? It is. It's happening. The world will change around it, because the world has no choice. I'm sorry if that's inconvenient, but it's true.

As I see 'free', there are two forces at work:

In an attention economy (like this one), marketers struggle for attention and if you don't have it, you lose. Free is a relatively cheap way to get attention (both at the start and then through viral techniques).

Second, in a digital economy with lots of players and lower barriers to entry, it's quite natural that the price will be lowered until it meets the incremental cost of making one more unit. If a brand can gain share by charging less, a rational player will.

Conde Nast (publisher of the Wired (Chris's magazine) and yes, the New Yorker (Malcolm's magazine)), is going to go out of business long before you get sick, never mind die. So will newspapers printed on paper. They're going to disappear before you do. I'm not wishing for this to happen, but by refusing to build new digital assets that matter, traditional publishers are forfeiting their future.

Magazines and newspapers were perfect businesses for a moment of time, but they wouldn't have worked in 1784, and they're not going to work very soon in the future either.

We're always going to need writers, but the business model of their platform is going to change.

People will pay for content if it is so unique they can't get it anywhere else, so fast they benefit from getting it before anyone else, or so related to their tribe that paying for it brings them closer to other people. We'll always be willing to pay for souvenirs of news, as well, things to go on a shelf or badges of honor to share.

People will not pay for by-the-book rewrites of news that belongs to all of us. People will not pay for yesterday's news, driven to our house, delivered a day late, static, without connection or comments or relevance. Why should we? A good book review on Amazon is more reliable and easier to find than a paid-for professional review that used to run in your local newspaper, isn't it?

Like all dying industries, the old perfect businesses will whine, criticize, demonize and most of all, lobby for relief. It won't work. The big reason is simple:

In a world of free, everyone can play.

This is huge. When there are thousands of people writing about something, many will be willing to do it for free (like poets) and some of them might even be really good (like some poets). There is no poetry shortage.

The reason that we needed paid contributors before was that there was only economic room for a few magazines, a few TV channels, a few pottery stores, a few of everything. In world where there is room for anyone to present their work, anyone will present their work. Editors become ever more powerful and valued, while the need for attention grows so acute that free may even be considered expensive.

Of course, it's ironic that sometimes people pay money for my books (I view them as souvenirs of content you could get less conveniently and less organized for free online if you chose to). And it's ironic that I read Malcolm's review for free. And ironic that you can read Chris's arguments the most cogently by paying for them. [Update: you can chime in here and see what's being said around the web as well.]

Neatness is for historians. For a long time, all the markets for attention-based goods are going to be messy, which means that there are going to be huge opportunities for people (like you?) able to get that most precisous asset (our attention) for free. At least for a while.

Link.

This article is part of a series called The Filmmaker's Roadmap to Free. You may read the entire articles by clicking here, or the other articles here:
The Filmmaker's Roadmap to Free: An Introduction
Free: The Future of a Radical Price by Chris Anderson
PRICED TO SELL: Is Free the Future? by Malcolm Gladwell
Dear Malcolm: Why so Threatened? by Chris Anderson