(My first attempt at writing about the idea as the central element of the capitalism. Next time, I will write about the freedom of entrepreneurship as the defining freedom of the market economy.)
"Creative contents should be free, especially when they take a digital form." That seems to be the most popular thought these days.
I thought it was a fad that would go away. But now that Paul Krugman, a highly respected economist whom I never thought I would dare to argue against, has joined the group, it seems serious. See http://www.nytimes.com/2008/06/06/opinion/06krugman.html?_r=1&oref=slogin.
When I went to college, Marxism was very popular among Korean students. However, I was not attracted to it. I thought something was missing about the theory. The classical economics sounded reasonably, but it also lacked something. The text book did not convey the excitements and pains and discontinous and volatile changes. The theory depicted the market as smooth, misleadingly smooth. After years of pursuit for the nature of business and innovation, as a student, consultant, and an entrepreneur, I reached a conclusion.
So, here it is. To deliver my still rough thoughts clearly, I will say it in several different ways.
- Capital, as defined in classical economics, is not the defining element of the capitalist economy. Entrepreneurial idea is.
- Idea is the most essential source of profits, not the capital or labor.
- If idea is not compensated well, a free-market economy won't be much better off than a socialistic economy.
- Capital, material, and labor create value only when they are aligned with a good idea.
- Compensation for an entrepreneur is primarily compensation for his/her ideas.
- Profits from car sales are essentially the same as profits from Beatles album sales. They are margins attached to a unit of a product, which is an idea materialized and replicated.
Let me explain the last point. A car is nothing but an idea + materials. (And labor and capital. I am simplifying.) A Beatles CD is an idea + materials. So, a Beatles music file is essentially an idea only. So, idea = content.
(Again, I am simpifying. There are ideas that are not strictly the ideas that go into a song, a narrowly defined content. For example, the title of the album, the accompanying photos, the jacket design, etc. Similarly, there are "contents" that are more directly associated with a car, like design and engineering, and less direct ideas like marketing messages and management methods.)
As I said, the entreprenerial profits (which is the main source of economic profits) come from ideas. So, a car is nothing but ideas applied to materials (via work and capital). The way an entrepreneur is compensated is by replicating the idea many many times. There is nothing different between a Ford car in a dealer shop and a beatles CD sold at Amazon.com.
Now, what is different about a digital content? None. Well, there is some difference. It 'looks' different, because it does not have 'materials'. It is very deceiving to people. How can you charge some price to something that does not have any material? You would ask.
But, if you realize that the profit margin going to the entrepreneur was mainly for their creative ideas, i.e. contents, you know that there is nothing special here. Henry Ford is a content creator, as much as the Beatles is.
How would you erode their profit margin? The surest way is to allow other people to replicate their ideas. In the car example, it would be like giving outsiders an exact recipe to make Ford cars. In the music, it would be to let others copy Beatles songs freely. A song is much easier to copy, but you will be surprised how well some companies in certain countries can copy manufactured products.
In both cars and music, content creators have been making money by charging a small idea/content/creativity margin at each product and replicating the product many many times. That worked well. It was efficient and seemed pretty fair.
Is this the only way to make money from contents? Of course not. There are less straightforward ways. GM and Ford used to make more money from financing than from selling a car. Essentially, it is charging their idea margin indirectly. For music, a similar thing can be done. You give your music away for free, become popular and make money from concerts.
The thing is, no other business model is as efficient as the direct charge model. To use non-direct model, you should have other creative ideas. You need to create a new business model, and you need to make a good concert. With the direct charge model, you only need one good idea. What would give opportunities to broader people, having one good idea or two?
Also, there is a fairness issue. If your idea is loved by many people, you will sell many replicated units. If not, you won't. However, with the non-direct model, it may not be so. You created a great song, and it was downloaded millions of times for free. But you are a bad live performer, you don't look good, and your concert does not attract many people. On the other hand, there is a sexy female singer. Her songs are popular, but not as much as yours. However, people love her concerts because she looks hot. As a musician, which world looks fairer to you?
I don't reject non-direct model. We use it ourselves. But we should make the direct charge model, which is the most accessible and the fairest, a viable option for the content creators.
If you argue digital content should be made free and musicians should make money performing, it is like you are arguing that anyone should be allowed to copy Ford or Toyota cars freely and they should make money servicing. I don't see much logical difference.
I say, give the digital content the right to be protected from copying, when the creators want (not even always), like the Ford car is protected from copying. Idea is the life blood of the free market economy.
By the way, capitalism is not a very good name. We should call it marketism, or entrepreneurialism. Marx did a poor naming job.
8 comments:
I agree and disagree at the same time. FIRST; I WOULD LIKE TO ASK YOU ABOUT YOUR OPINION ON SERVICES not on only products and content.
You say: "Is this the only way to make money from contents? Of course not. There are less straightforward ways." AGREE.
Where I have to disagree is where you say: "The thing is, no other business model is as efficient as the direct charge model". See Google. However Google is not creating content but providing services to content and are "Middle Men" in this field. They simplify search. For THIS SERVICE they do charge in-directly. they could not have reached that popularity if they asked consumers to pay directly for that service. We also need to get entrepreneurial in the methods of charging for services.
You wrote: "Also, there is a fairness issue. If your idea is loved by many people, you will sell many replicated units. If not, you won't. However, with the non-direct model, it may not be so. You created a great song, and it was downloaded millions of times for free ..." The world is not about fairness AND CONSUMPTION in General is an emotional thing and not about fairness. People would pay the good looking pop-singer even if she's not the best singer.
Additionally you say:
"If you argue digital content should be made free and musicians should make money performing, it is like you are arguing that anyone should be allowed copy Ford or Toyota cars freely and they should make money servicing. I don't see any logical difference." BUT, this is exactly what is happening now. HP is providing printers at very low cost, Kodak their cameras and mobile operators are cross subsidizing their mobile phones and the servicing (i.e. cartridges, films, calls are not free and are VALUE-PRICED), so it is all going into in-direct charging. I see this as truly entrepreneurial. HP, Polaroid or Kodak and Mobile Operators are trying to gain more market share and - guess what - they SUCCEEDED in gaining ADDITIONAL market share. They gained for changing the RULES OF THE MARKET GAME. What is wrong with that?
Content should be protected from being copied, that is true; but how charging of content is going to be done is a matter of the market, not the matter of entrepreneurs.
Marketism or Entrepreneurialism (as you name it rather than capitalism) makes markets free and that's what will happen. No governance from outside (I hope and I trust). It's the rules of free market economies.
I still would like to hear your opinion about services, as what you described is about content and products.
Harry,
I am sorry that I did not reply earlier.
1. I don't think a service business is very different. What's different about Google is that it has two different services. They provide search and they provide ad spaces. So, they have a choice - charge searchers, charge advertisers, or charge both. I think it made sense for them to charge advertisers, because of a lot of reasons. It must be simpler to charge only one side. There are more difficulties in charging searchers, technically and psychologically. So, they charge advertisers.
2. "People would pay the good looking pop-singer even if she's not the best singer." I have no problem with it.
3. "HP is providing printers at very low cost, Kodak their cameras and mobile operators are cross subsidizing their mobile phones and the servicing..." I don't have any problem with it either.
2-3. My point is that content (or intellectual property) should be protected so that the direct-charging can be a valid choice. Depending on circumstances, the entrepreneur may use revenue models that are not direct-charging. But that does not mean we should allow copying of others' contents thereby killing direct-chargind option.
i dont see the need for a demand for free content, services or products. but its a matter of choice, and for some this is a more robust choice than others, for more than just monetary economic reasons. Yochai Benkler has the complete text of Wealth of Networks on his website, but that didnt stop me from purchasing his book. My friends give away CDs of their bands locally to get the word out. Content should not be protected if you don't want it to be. And it can be under more open paradigms, such as Creative Commons or GPL. Making content free or open is not up to intellectual property evangelists, but the creators themselves. You will have to reckon with freedom of choice before you can demand "protection" for everything.
I offer a free service myself. I volunteer skills as a Community Developer that I developed over the years at academies and in the field. I do it for free because I can and I feel that it is important, and help out local non-volunteer agencies as well. I would be very uncomfortable with someone demanding that i receive payment for my services because i provide some kind of unfair competition.
besides, to demand anything of the market, that anything "should" or "shouldnt" be is pretty socialist. in true free market philosophy, it is up to the individuals, not an outside force. so how can you justify demanding that material should be copyrighted?
To Richard Schulte,
Thank you for the comment. I fully agree with you that it is up to the individuals. I should have said "the content should be protected, when the creator wants it to be."
Actually, your own article contains in itself its total refutation. Your premise is that “Idea is the most essential source of profits” but a few paragraphs after this you give this example of the sexy female singer who sells more than a better artist but less sexy. In other words, no matter what is the quality of your idea (your musical creation) it can’t match the sexiness of that chick in terms of market value, but sexiness is NOT an idea. And anyway, I just don’t see how is this related to the availability of free recorded music?
Notwithstanding, talking about music, your thinking is narrowed by the (dying) recorded music business. Music is a performing art. Until the invention of recording devices, the only way to enjoy music was to attend to a live performance, unless one was a musician oneself. The way musical production companies have made financial from recordings is a heresy in regard of the artistic nature of art. It’s conceptually flawed as a business model. It could work only as long as the recording had an identified physical support which could materialize the existence of a production cost and therefore give the illusion of value. But it’s no secret that what we pay for, for the most part of it, when we buy recorded music is neither the physical support nor the creative content: it’s the A&P.
Also, to have a monetary value, an idea must have a certain degree of usefulness for a potential paying market (I feel like I’m stating a truism here…). What I mean is that an idea has no value in the first place, it may acquire value afterwards if succeeds in becoming useful, but that is not even sure. In terms of ideas, Einstein’s relativity theory is arguably the most powerful intellectual production ever in mankind’s history and it has long ago turned out to be pretty useful, but it’s a free content, it is public domain and if it was copyrighted, I would bet we wouldn’t be where we are as far as technologic development is concerned.
First of all, my thoughts are not final. And I appreciate your challenge, as it makes me think about my own ideas. Anyway, let me do my best to answer your many issues.
1. "Actually, your own article contains in itself its total refutation. Your premise is that “Idea is the most essential source of profits” but a few paragraphs after this you give this example of the sexy female singer who sells more than a better artist but less sexy."
I am not sure whether you read my post end to end, which is not very long. I never said the idea is the only source of profits. Another source is possession of useful natural resources, and physical attractiveness seems like a kind of natural resource.
Let me ask you. Do you prefer an economy where someone without a physical attractiveness (or, worse yet, one with physical handicap) can never be a financially successful musician? One great thing about the idea as a source of profit is that the idea is independent from (though it carries to some extent) your self. Some people may think this is the very evil, but I think the opposite is true. Even though I may not have the perfect voice, I can have great musical ideas and hire a singer with a great voice or maybe tune my voice in the studio. You are not bound my yourself, when you have a great idea.
2. "Music is a performing art."
Yes, and more. Music 'was' a performing art only before the recording began. And there was a lot of resistance against recorded music. The performing musicians called it 'canned music.' However, it is the very canned music that brought music close to most people around the world. Without it, you cannot hear your favorite musician every day. You are not saying to me that we should go back to pre-recording era, are you?
3. "It’s conceptually flawed as a business model. It could work only as long as the recording had an identified physical support which could materialize the existence of a production cost and therefore give the illusion of value."
You are right and wrong. People tend to value something that has physical material. In that sense I agree. But I think this is a kind of inertia(?) from the long history before civilization. In the old agricultural and hunting society, most things that were valued were materials.
But as the society becomes more advanced, people understand that something that does not have material form can also have value. Ask someone who just bought a Tom Peters lecture video, whether she would take the lecture file or the empty CD, if she is forced to give one up. The answer is obvious, right? (Don't tell me that you would take the CD and download a pirated file. That is the subject of the point, not to be used as an evidence here.)
4. "But it’s no secret that what we pay for, for the most part of it, when we buy recorded music is neither the physical support nor the creative content: it’s the A&P."
It is a typical 'popular' cynical notion, which sounds cool but has serious problems. It implies that marketing has no value. Well, it does. Without marketing, how can you know what is available? How do you know there is something new that you may want? Marketing actually works hard to communicate to the people in need of the product. It may look overspent, but I would argue that it is probably close to the optimal spending, at the contemporary level of technology and societal infrastructure. They don't have much incentive to overspend. People don't get fooled very long, and good companies know it. So they don't spend too much money for a product that does not appeal to people.
5. The last paragraph.
I am not clear what your point is. Just one thing. I never argue that every idea should be monetized. I am just saying that we should be free to make it free or not free. And when one make something not free, people should respect it.
By the way, if I had been a consultant to Einstein when he found Relativity theory, I would have recommended him to make it public even if he had wanted to make money out of it. I cannot think of a better way. (I am assuming that his employer, the patent office or the university, does not have any or much claim to this IP.)
It's nice to see productive debates where people aren't calling each other names.
Post a Comment