1. The Business Model of Selling Copies

When the internet came upon us, there was a paradigm shift. Unlike in the real world, copying became infinitely cheap and accessible. (in fact it was nearing that point with the arrival of tapes, CDs and the DVDs anyway)

“The free flow of free copies tends to undermine the established order. If reproductions of our best efforts are free, how can we keep going?
To put it simply, how does one make money selling free copies?” – Kevin Kelly
“I have an answer. 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.”

“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?”

Mr Kelly argues that there are eight things that are better than free which he calls 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.” [Full Article] Generatives are scarce. These things you can sell or translate into more money later on: immediacy, accessibility, findability, physical goods, attention, generosity.
Indeed, generosity is a business model!
(Mike Masnick adds to the list in Ten Good Reasons to Buy.)

In a post-internet world where copying has become infinitely cheap and therefore super abundant, it no longer makes sense to run your business model on the selling of copies. Copyright laws do not protect an Artist’s ability to make a living. It protects an Artist’s ability to make a living using ONE business model. The business model of selling copies.

So when the big publishing industries and the government tells us that artists won’t be able to make a living any more without copyright, well, they lie. Because all I have to do is point to one example of artists earning a living without copyright and their argument is dismantled. See Kickstarter.com. The advantage of a pledge-based business model is that, no copyright is needed. When the work is created, it is released into the world completely free (and public domain) for the whole of humanity to benefit from. The artists get paid, the backers paid no more money than they are willing to pay, and everyone receives the end product for free.

  • There is no need to restrict file-sharing in order to pay for things.

The Economy of Abundance
In Economics we are taught that it is the “science of scarcity” or understanding resource allocation in the presence of scarcity. All too often, economics itself is defined by scarcity. Basic economics tells us that the free market will push prices towards their marginal costs (because of competition). If their marginal costs reaches zero (as it has with the arrival of bittorrent), then it says that price will get pushed to zero. This makes people upset, because it suggests to them that the model is broken now that a zero has been applied.  They tend to look at it and say that if price equals marginal cost, then no one would ever produce anything. That’s the misconception that is at the heart of this whole debate!

The key to solving this paradox lies in our recognition that scarcity doesn’t exist anymore. Instead you have abundance. You can have as much content as you need — and in that world, it makes perfect sense that there’s no costs, because bittorrent means there need not be a cost. Supply is infinite, and price is zero. That does not mean, however, that there’s no business.  Instead, it just means you need to flip the equation and use the zero to your advantage. Instead of thinking of it as forcing a “price” of zero, you think of it as being a “cost” of zero. Suddenly, you’ve lowered the cost of making something to nothing — and you should then try to use as much of it as you can. One simple example of this is to use that item that “costs” zero as a promotional good for something that does not have a zero marginal cost. When you realize how zero factors in, you realize that there’s nothing new or radical here at all. It’s just coming to terms with the idea that free market economics still works in the face of zero (in fact, it thrives) and there’s no reason to put in place government-sanctioned barriers to impose artificial scarcity (aka copyright) on an economy of abundance just to continue the operation of an outdated business model.

  • “Saying You Can’t Compete With Free Is Saying You Can’t Compete Period” – Mike Masnick

Explaining The Economics Of Abundance In Two Minutes Or Less With A Whiteboard:


If You Want To Make Money As A Musician You Need To Be A Musical Entrepreneur
Making music is not (usually) a job of work. It is a creative act. You don’t have the RIGHT to make money from your music. You only have the opportunity. If you make music speculatively – that is, you create it in the hopes of making money from it, then you are a music entrepreneur. As such, entrepreneurship rules apply. You may invest a good deal of energy, effort and expense in your creative ideas. You may make a lot of money. You will probably make none. But nobody OWES you money just because you put the work in. [Full Article]

…But the simple fact is that you don’t become a successful entrepreneur by making things that people will not pay for, insisting that they should, and then complaining that their morals are to blame. They may not share your morals, but that’s not even the point. It’s not their job to understand your needs. It’s your job to understand theirs. You become a successful entrepreneur by meeting people’s needs and wants, solving a problem for them and doing it in a way that allows you to make money.

I’ve said it before and I’ll say it again. Even if it was true that all the people you wish to target with your art are immoral thieves who you would never invite into your home – why would you insist on trying to change their behaviour as part of your business strategy?  You may make great and interesting music, and put on an amazing show…. But decrying a sense of entitlement among those who won’t pay you for what you insist on doing is back to front.

The More People who are Consuming the Infinite Goods, the More Valuable Your Scarce Goods become
The simple bulletpoint version:
  1. Redefine the market based on the benefits
  2. Break the benefits down into scarce and infinite components.
  3. Set the infinite components free, syndicate them, make them easy to get — all to increase the value of the scarce components
  4. Charge for the scarce components that are tied to infinite components

You can apply this to almost any market (though, in some it’s more complex than others). Take an example of the recording industry:

  1. Redefine the market: The benefit is musical enjoyment
  2. Break the benefits down (not a complete list…): Infinite components: the music itself. Scarce components: access to the musicians, concert tickets, merchandise, creation of new songs, CDs, private concerts, backstage passes, time, anyone’s attention, etc. etc. etc.
  3. Set the infinite components free: Put them on websites, file sharing networks, BitTorrent, social network sites wherever you can, while promoting the free songs and getting more publicity for the band itself — all of which increases the value for the final step
  4. Charge for the scarce components: Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.

What the band has done in this case is use the infinite good to increase the value of everything else they have to offer. They’ve increased their marketsize by recognizing how they can use the infinite goods as a free promotional resource and made the value of the overall ecosystem around them more valuable. [Full Article]

Cory Doctorow and John Perry Barlow are saying the exact same thing.

“Economically when you spread information you create demand for it.”
– John Perry Barlow
 (Co-founder of Electronic Frontier Foundation http://eff.org/)
(Also see Understanding Free Content by Nina Paley.)

“Copying is an inherently social activity”
“Copying between two people is social. When I make a copy for you, it carries with it a little bit of reputation capital, a little bit of recommendation, a little bit of “you might want to try this, it meant something to me”, but it can mean something more forceful than that. It can mean something as forceful as what happened to the Secrets of Ya-ya Sisterhood where women who had read the book and had their lives transformed grabbed their friends by the collar and said “Read this now it changed my life!!!”.

This is how media sells. This is how media spreads. The more copyable a media is, the easier it is to socially evangelise it. And that means the internet is great news for creators and authors.” – Cory Doctorow, editor at Boing Boing, author, journalist & activist.

How Being More Open, Human And Awesome Can Save Anyone
Worried About Making Money In Entertainment


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