The point of no return…

There's been a lot of buzz lately around the recent findings of an Ipsos-Mori survey in the UK related to so-called music "piracy". The key finding of this survey is that people who admit to illegally downloading music spend on average £33 more on purchasing music every year. That's nearly double the amount of spending declared by people who don't admit to downloading music illegally (average of £34).

Why is this making noise now? I don't really know. There have been numerous surveys ever since the Napster incident that have demonstrated this. Each and every one of them has been dismissed by the music industry as irrelevant, skewed or not aligned with their own "research". As we say in French, "Il n'y a pas pire aveugle que celui qui ne veut pas voir."

The combination of this latest bit of information, reading Chris Anderson's Free and a great talk by Chris Castiglione at Ecomm got me on a new trail of thought though, which I'd like to share with you.

There's no denying that sales in recorded music have gone down over the last ten years. Unlike what the music industry would have us believe, piracy is not the only reason although it is a contributing factor, no doubt about it. The way I see it, the reasons are:

  • the gradual breaking up of the album model that was enabled by digital music
  • the realisation by customers that the music industry had been gauging customers for years
  • the plethoric offer of "free" legal music online
  • the ease of use and gratuity of "pirated" content
  • spending gradually shifting to other media or cultural goods

And yet, heavy downloaders purchase more music than others. That hints at an essential misdirection of the efforts of lawmakers to crack down on lawbreakers. What would be really interesting would be a study looking into the music spending of casual listeners, people who are not passionate about music but just listen to it occasionally. How has their spending evolved?

My suspicion, which I'd like to see verified with numbers if they exist, is that their spending has dwindled to next to nothing. Not necessarily because of music piracy, but simply because if you're a casual listener you have ample opportunities to hear the music you want for free, legally or illegally.

Think about it. People used to have to buy a CD album to get the single they liked. Today they can just buy one song on iTunes or Amazon and stick on their ipod Nano. Spending ten years ago was £20, spending today is £1. And they're more satisfied than they were ten years ago. Assuming these people represent the vast majority of music buyers (which I strongly suspect is the case) that alone explains the dramatic drop in CD sales.

In other words, the music industry is paying the price of a historically constrained delivery model that suddenly became unconstrained thanks to digital. This is exactly like you're butcher selling you 600g of mince meat when you only ask for 500g. Except they were selling you 12 tracks when you only wanted one.

The question then, in terms of response strategies from the music industry is: is there a way for them to shift the market back to people buying what they don't want? I would say the answer to that is a resounding no. Which is why three-strikes, were it even technically viable (which it isn't) won't change anything.

But there's another fallacy around the thinking of the music industry which I think is infinitely more dangerous for them. I had this intuition for a while that the execs in the music industry think that if they could somehow eliminate piracy, the market would shift back to the glorious peaks of the late 90s. Reading Anderson's Free I think I understand now that their thinking is even more deluded.

In Free, Anderson explains how you can't map a price of zero in a price elasticity graph. There's a complete discontinuity between a 1p spending and a 0p spending. This made me realise that the music industry actually thinks that if they could eliminate piracy all of the "free" downloads could then be monetised. Which is a fundamental misunderstanding of what's happening and the appeal of "free".

Any paid transaction is going to be weighed in a cost/benefit analysis by the purchaser. Even impulsive purchasing goes through that process. Thinking that your price elasticity curve still means something when you reach a price of zero - in other words that the infinite spike on the far left of your graph actually means something from a market perspective - is absurd.

And that leads me to the key point of Chris Castiglione's presentation at Ecomm last week. The title really says it all: Copy what can't easily be sold and sell what can't be copied. Of course, one of the key outputs of his presentation is that the industry itself ultimately becomes useless, at least as an intermediary to distribution and a means to collect payments. But he's got it right: artists can only thrive by embracing this new paradigm where the music itself becomes a commodity and what customers value is interaction, proximity, unique experiences that cannot be replicated digitally.

Inevitably, Chris got a question at the end of his presentation asking "how Prince would go on making millions with such business models". Chris answered that the new models would likely generate less upper class musicians and more middle class ones. I thought that was a very polite answer indeed. Mine would have been "who cares about Prince's revenues?" The music industry has been using the argument of "protecting the artists" to defend an obsolete business model when really the only artists they want to defend are the one's that don't need defending: the billionaires who have become part of the industry themselves...

I will end this diatribe by pointing you to a really interesting experiment that was undertaken by email friend and talented harmonica player Richard Hunter prompted by Derik Sivers of CD Baby fame. Following Derik's recommendation, Richard started selling his whole stock of CDs at gigs, even if the price paid by the end customers was zero. Quoting Richard:

I brought 50 CDs to the gig. I repeated over and over to the crowd, starting with my hellos, that I wanted 50 people to go home with CDs, whether they paid for them or not. Ultimately I sold or gave away 36 CDs at prices ranging from $0 to $20 for total revenue of $156, almost exactly $4.33 per unit.

For this size crowd--about 100 people--normally I'd have sold about 15 CDs at $10 each. So the total take was similar, my cost was about $20 higher (about $1 per CD), and over 20 people--1/5 of the crowd--went home with my music who otherwise wouldn't have. And I don't think anyone at that gig will forget me soon. The goodwill I generated today was substantial. A lot of people were smiling in that crowd. The people who ran the [venue] loved it, too.

[...]

For me this experiment was a success. I'll certainly try it again. I'd MUCH rather end up printing a couple thousand more CDs to sell at an average price of $4 apiece than sit on boxes of CDs at home that a lot of people won't buy at $10 apiece.

If you're selling your CDs at your gigs, I suggest you give it a try. Tell the audience that everyone is going home with a CD, ask them to pay whatever they want to pay for it (I told my audience I would accept anything from $0 to $1 Million), and see what happens.

This is the face of the "new" music industry...