Chris Anderson, editor-in-chief of Wired Magazine, is known for his clear-headed analysis of emerging business models. He’s the guy that analyzed Amazon’s success in his now frequently-cited book, The Long Tail. His latest article, which he plans to expand into a new tome next year, explores the future of business models based on the concept of not paying money for stuff.
Anderson writes that the Internet has made information essentially free. Terrestrial radio and some publications are free to the consumer, supported by advertisement, and we’re now seeing an extension of that into every sector of the economy. The reason this can work, he argues, is due to a variety of tactics that drive profit without customers paying a cent. Instead of a two-way economy (buyer and seller), the new model is a three-way (producer, advertiser, consumer).
He also briefly extends the free concept to the music industry, using the example of a band that distributes free copies of its CDs to entice people to come to their shows. They’re in the performance business, he writes, and their product merely inspires audiences to attend concerts. The notion of CDs as a commodity to be sold is outdated, he suggests, because the profit margins are next to nil. Therefore, the live experience will become the lucrative aspect of the music business, with recordings acting as a hook to ensnare fans.
The problem with this argument is that that most artists would still like to get paid for their work, whether they cut tracks in a big-money studio or their bedroom. Although touring and merchandise is profitable for some, others acts aren’t as performance-driven. Let’s face it, if Anderson’s model were applied to The Beatles, they wouldn’t have received a cent for any album after Rubber Soul.
Anderson admits that, according to his vision, artists will make less money than before, due to the loss of a major revenue stream. By point of comparison, he mentions that internet classifieds have lost $326 million a year in revenue because of cragislist, while craigslist pulls in just $40 million a year. A similar trade-off would be devastating to most musicians.
And that’s why simply giving away recorded music in hopes that other revenues will increase is an iffy proposition, at best. The music industry is changing rapidly, but the new form must be one that is fair to artists, or else there won’t be a product to give away.