by Nick Bilton
With e-readers proliferating, it also won’t be long before we have the option to read or watch just about anything—magazines, newspapers, movies, TV shows, or church newsletters—on a portable reader. A generation already in its teens probably will mature and enter the workforce believing that all of its media bytes, snacks, and meals will be delivered on a screen. The limits of paper won’t exist. Digital will mean “immediate” and “infinite” and “extremely personalized” for the customer at the center of the map.
“Me” Economics
“OK, great,” you say. “So we’re moving to this world of digital narcissism where consumers young and not so young aren’t just always on their phones or texting away but also demanding that they have their own customized and personalized music mixes, movie choices, and specifically culled news selections. Who is going to pay for this great music, these fabulous movies, and these very important (and expensive-to-produce) news stories?”
Great question! As an employee of this industry, I’ve been involved in more meetings on this topic than a single human being should be allowed to attend in a lifetime. I’ve been to all-day talks and fifty-person meetings with everyone from the CEO to a lowly intern and all the players in between. I’ve also attended conferences as a panel member with other journalists and publishers to discuss this very topic. Depending on who is in the room, these conversations usually start out lamenting the death of newspapers and magazines and quickly move to asking how we will ever be able to charge people to access news online.
I have heard over and over that young people won’t pay for anything. Movie producers, publishers, and musicians argue that kids have been raised to think content is free and they have a God-given right to take it.
I’m not going to list a magic formula here with profit margins, returns on investment, or revenue models. That is simply not my area of expertise. But as a student of new technology and consumers, I use a four-prong formula when deciding whether to purchase digital content: price, quality, timeliness, experience.
People will pay for some experiences around the content but not for just the content. But people will pay.
They will pay for quality, whether it’s high-level graphics, a beautiful design, or graceful language.
They will pay for timeliness if the experience of having something first or before it perishes is worth paying for—if they can purchase it immediately.
They will pay if the price matches the experience. Just as with porn subscriptions, in which the sales drop off once the price hits a certain point, there will be a limit to what people will pay for content. The amount may be below the seller’s hopes—but there is a price people will pay.
I still pay for digital content all the time. I buy the New Yorker on my digital e-reader. I buy heaps of fun applications for my phone and games for my Xbox; sometimes I even buy TV shows and music for my iPad. What makes me decide when I will pay for music or TV shows or films? In short, I base my choice on the overall experience and what I want at that particular time. Here are three different ways people, especially young ones, may evaluate whether something is worth purchasing.
Bad = Free
My friend Mike loves music. In fact, Mike is a music fanatic. In every spare moment he has, Mike scours the Web and his social networks, searching for new music to listen to and potentially purchase. Like most of his friends, Mike uses his recommendation systems and social networks to find the music he’s interested in. He’ll preview a few songs, and if he decides the content is good, he’ll follow through with a purchase. He rarely buys entire albums because he believes most albums contain only one or two good songs. Mike also follows a handful of bands and immediately buys their entire albums on release day.
But Mike steals music, too. He doesn’t steal music because he can’t afford it or to take a stand against media moguls and corporations, and he definitely doesn’t do it for the thrill. He does it for two simple reasons: Either he thinks the content is overpriced or he wants payback for something he purchased that was unsatisfactory. That is, sometimes he’ll buy a couple of songs and then download others, figuring the total he paid balances out to a fair amount.
If he previously purchased an entire album and felt that the majority of the album was inadequate, he feels cheated because there’s no way to return the album. The next time, he’ll find that artist’s work for free online and download it, essentially stealing it.
You might think this is a lazy and ridiculous justification—illegal, plain wrong, or perhaps a sign that civilization as we know it is ending. But Mike is frustrated that poor-quality digital merchandise or disappointing downloads can’t be returned like a shirt that doesn’t fit properly or doesn’t match other clothes. He knows that free music abounds on the Web for those tenacious enough to find it—much like those of us who bypass the dealer to buy “used” hubcaps from the resale shop even though we know we may be buying stolen merchandise. Mike has established his own Internet law of economics and can implement it because so much music is easily available for free on the Web. To him, it all balances out.
You might think Mike is one in a million, but he’s not. I’ve heard many people say they do the same thing. An individual who works in politics has the same mentality. When I asked why he steals music or if he feels guilty doing it, his response was an abrupt “absolutely no way. I feel deceived if I buy a whole album and 90 percent of the music is bad.”
Peter Serafinowicz, a British producer and actor who has appeared in more than forty TV shows and movies, including Shaun of the Dead, Star Wars, and Couples Retreat, admitted to piracy in May 2010 in a blog post on the technology website Gizmodo.com.5 In a piece titled “Why I Steal Movies … Even Ones I’m In,” he said that a main reason he will download illegal content is that it’s not available for sale on the Web. So he’ll hop online, do a quick search, and find the show or movies he wants, which usually arrive on his computer in moments.
Serafinowicz wrote that he hopes people will steal his own TV show. He explained that when his new BBC TV program The Peter Serafinowicz Show appeared on illegal file-sharing sites on the Web, he saw the posts as a way to spread the word about his new, relatively unknown show. In fact, he added that he’s illegally downloaded the show himself, since it’s easier than trying to find a legal copy online.
Serafinowicz said that he’ll pay for a show or movie—but only when it is “better than free.” “I’ll click and buy,” he wrote. “It’s simple, quick, better quality, not to mention legal. It’s also cheap.”
Serafinowicz explained that he practices his own version of Me Economics. “I recently wanted to show my son Disney’s classic Jungle Book and intended to get it on iTunes,” he wrote. “Unfortunately, it is currently incarcerated within the Disney Vault. So I’m afraid I simply downloaded a pixel-clear pirate copy which arrived in seconds. My moral justification for this? I once bought the VHS. It’s your own vault, Disney!”
Not surprisingly, many commentators agreed with him. One wrote, “Lesson to content providers: You make it easy to own, or we’ll make it easy to own.”
In other words, when consumers are not offered an option, they make one themselves.
Price Is Relative to Cost
Consumers of online and digital content are all too aware that what they are buying in many cases costs far less to produce than the old-fashioned product. Creating a digital version of content costs the same whether you’re creating 1 copy or 10 million copies. It costs practically nothing to re-create bits, beyond hard drive space. So consumers expect costs to change accordingly for the digital version.
Newspapers get to drop the paper, printing presses, and delivery. Books don’t have to be transported or stored. Music doesn’t have to be pressed onto CDs and shipped to stores. Anyone with a Flip camera can make a video; anyone with a digital camera can snap a shot of a fire or tornado or another news event and share it with the local newspaper or television station. Any wishful novelist can self-publish a book
that looks an awful lot like what you see at the store—even if it doesn’t read the same.
Bill Grueskin, dean of academic affairs at the Columbia University Journalism School and former managing editor of WSJ Online, noted that the cost of new subscribers fell once the business was established. The Wall Street Journal originally sold a subscription to its website for $49 a year.6 But “once it had established a base, the incremental cost to serve a new subscriber was $8. By 2006, the cost of the annual subscription had climbed to $99—but the price of serving that additional subscriber was a mere 85 cents.” Of course, without a print edition that is supported by print circulation and advertising, the costs to produce editorial content would be different. But these striking numbers underscore that it is less expensive to produce digital copies without the costs of printing, paper, and physical distribution.
Of course, there are still costs—highly skilled editors, copy editors, author royalties, and so on—but distribution is drastically less expensive, and the public recognizes this. In the public mind, the product you hold in your hand should cost more than the one that was downloaded—especially if it was downloaded onto an expensive e-reader or another gadget.
As technology has demolished barriers to entry, consumers have become much more aware of what it costs to produce new content. Now anyone sitting in her bedroom with a microphone and a laptop can become a music producer. You don’t even need a separate camera and a tripod to create a TV show. Using only the camera built into the computer, young producers have made videos that collectively have reached hundreds of millions of viewers on YouTube and other advertising-based online video outlets. Mike Wesch, a YouTube anthropologist, says that a single famous video of a kid dancing in his bedroom to the Numa Numa song has been viewed more than 50 million times.7 And the cost to create, edit, and distribute this video was probably close to zero.
This became apparent in the music industry in 2007 when Kate Walsh, a solo guitarist from the United Kingdom, decided to record an album of her own music. She went to her friend Tim’s house and spent a “few hundred pounds” (mostly on thick velvet fabric to soundproof Tim’s bedroom) to record an album that she released digitally via iTunes. Before she knew it, she had the number one album on iTunes, quickly surpassing the extremely famous band Take That.
In an interview with the Evening Standard, a London newspaper, Walsh said, “I set up my own record label called Blueberry Pie and just got the music out there. It’s pretty easy. Anyone can do it.” When asked about the costs of recording and distributing her own album, she replied that “you don’t need loads of money to make an album and they don’t need the backing of a record label. There’s no advertising or marketing involved, you don’t go on how much money has been spent.”
Though such fame is admittedly rare, Walsh isn’t an outlier in the music world. A couple of years ago, Justin Bieber was just entering adolescence and living in low-income housing in Stratford, Ontario, when he uploaded a few videos of his singing to YouTube. By accident, a hip-hop marketer named Scooter Braun stumbled across his songs and then tracked young Bieber down. To build up his experience and his image, he flew Bieber to Atlanta not to make an album but to make more YouTube videos, filmed by other kids rather than using expensive equipment.
Hip-hop star Usher heard the songs and leaped at the chance to sign the mop-haired boy wonder. Before Bieber turned sixteen, he had made two albums, become the biggest teen sensation in a generation, gone on tour, sung for the president of the United States, and appeared at Madison Square Garden. He is cashing in, but his original work cost almost nothing to produce.
Now that we know this, why would we pay loads of money to buy an album unless we wanted it very badly? Understandably, content industries want to charge as much as the market will bear—but the market won’t bear as much as it used to.
Price = Quality of Experience
If you offer unique quality content at a fair price, I guarantee people will pay for it. How can I guarantee that? Apple, the computer and music company, has already done the research for me.
Before iTunes came along, my friends and I stole music all the time. Sure, you could buy songs and albums online, but the choices and quality were extremely limited, and it’s an understatement to say that the process of actually buying the music was painful. Downloads were slow, digital music was extremely limited, and getting the music onto a digital device required a computer engineering degree and a lot of patience.
So we started to steal all of our music, all the time, years before social peer-to-peer sites such as Napster and TekNap arrived on the music pirating scene. Instead we would go to hacker sites called trackers and search for and share the MP3 files and albums we wanted. These peer applications and trackers, unlike legitimate digital music stores, were incredibly simple to use.
In 1998 I remember buying one of the first consumer digital music players, the Rio PMP300. The Rio looked like a regular Walkman without the tape slot and stored a whopping ten songs. I remember how excited I was to get the player, and as soon as I picked up my new fancy gadget, I was ridiculed by my friends for spending $200 on a music player that could barely hold enough music to listen to an entire CD. Even the salesman at the electronics store looked at me like I was crazy. I remember him shaking his head, saying, “These digital music players are a fad. You should just buy a CD player instead. It’s much cheaper.”
Turns out, they were right in ridiculing me. Buying music online and getting it on the Rio took longer than driving to the store and actually buying a physical tape or CD. Transferring music from my computer took twenty minutes. The user experience was utterly terrible, and the price was ridiculous.
Digital music players and online music stores promised a great experience, but the technology just wasn’t ready for prime time. So despite my new expensive digital music player, I continued to steal music.
My music heist came to a screeching halt in 2003, a couple of years after Apple rolled out the iPod and opened the music store iTunes. MP3 players had come a long way since my Rio, and there were plenty of choices. But Apple had introduced coolness, immediacy, and simplicity; with the single click of a button, I could download, transfer, and listen to an entire album. From a click of the mouse to the play button on my iPod, the entire transaction took less than thirty seconds. And since the only way to do this was to buy the music, I happily bought it.
I clearly have lots of company. Since the iTunes Store opened for business seven years ago, consumers have downloaded 10 billion songs. Granted, not all of these songs are purchased—some are offered free, and others are included in longer albums as add-ons. But even if they gave away a generous 25 percent of these songs, consumers would have paid for 7.5 billion digital songs. That’s a lot of music and a lot of money.
iTunes displaced a large proportion of music theft because it was simple, ultrafast, consistent, and one of the few ways to get music on your iPod, which quickly became a status symbol. The standard fee that Apple charged seemed reasonable and sensible: 99 cents for a single song and $9.99 for a whole album, regardless of the band’s name or status.
That’s part of the balance to be had with Me Economics.
Finding the iTunes Formula
The iPod and iTunes proved that we’ll pay if the price is right and the experience is special enough. The same can be applied to other kinds of media. Let’s say I subscribe to the print New York Times and have it delivered to my doorstep every morning. I pay $700 or more a year for this bundle of paper with black ink and pictures, but what exactly am I paying for?
I’m paying for the words, reported and written by some of the best in the business, naturally, but that’s not all. I’m also paying for consistency, trust, good design, and an attractive layout. I’m paying for professionally produced pictures and graphics. I’m paying for the guy who wakes up at four a.m. and drives the truck to my house to deliver the newspaper to my doorstep. I’m paying for reliability, and I’m even paying for
a little blue bag they put my paper in to protect it from the rain. I’m also buying the ability to discuss that article with my spouse or friends. In sum, I’m buying an informative and social experience.
On the Web, most of those services go away. I own the computer or phone where the content appears. If I use another news service and flow in a feed from the Times, I own the layout and design, too. If I were to pay (and the Wall Street Journal is just about the only outlet successfully charging right now), I’d seemingly be paying mostly for words. It would be for great content, to be sure, but in a world with commodity news (that is, content that’s available just about everywhere) and a fair bit of useful free information, it would be a difficult bill to swallow—especially now that I’m used to having it for free.
My perception is that I’m not getting much of a special or different experience on the Web. I have to be at my computer, navigating takes time, all those links are somewhat overwhelming, and the content doesn’t feel as personal or customized as the way I can work through the print edition. In newspapers and in other media, the packages haven’t evolved much, yet the information is on a new platform and the experience hasn’t really been transformed. It doesn’t feel to me like something for which I should pay very much—or anything.
In reality, we don’t pay for the content; we pay for the experience.
And there are digital experiences I would pay for. With news, for example, if I were offered a personalized and customized version of a digital newspaper that incorporated my personal preferences, location, and social circle or if the subscription software made reading especially easy, fast, and smooth, I would sign up right away. But right now, many online newspapers and magazines are only starting to swirl social customization, or me, into the experience.
