17 September 2006

Free as in Peanuts

I "downloaded" the title of this post from the great meme just created by David Weinberger in a post of the same name.
You know Richard Stallman's "Free as in speech, not free as in beer"? I think we could stand to add one more: Free as in peanuts.

If you're in a bar, speaking freely and paying for beer, the bartender sometimes will put out a dish of peanuts for free. I know that I'm capable of eating an entire bowlful and then eying the bartender waifishly until s/he refills it. But, I generally won't buy peanuts in a bar, even if they're reasonably priced. I get value from eating them, yet I won't pay for them.
This is a useful way of considering the problem of file-sharing specifically, and of intellectual creations in general. We heard last week from Doug Morris, the chief executive at Universal Music, essentially that if any residual or secondary value is created based on a product they originally produced, they should be paid.
He said he was keen to avoid repeating the 'mistake' made when cable music channel MTV was set up 25 years ago, and record companies allowed their artists' music to be aired for free.

He added that that MTV had 'built a multi-billion-dollar company on our [music]...for virtually nothing. We learned a hard lesson'.
Unfortunately, Mr. Morris did not learn the correct lesson from the MTV experience. By serving up "free peanuts," MTV created a much wider demand for Universal Music's "beer" that MTV's viewers bought and paid for in droves. Not only that, but it seems to me that Universal Music might be making a few pennies here and there on music video DVDs, thanks to a genre made popular by MTV's innovation.

It's not surprising that the recording industry should want to be paid for residuals. But, carried over to almost any other aspect of life, the logic falls apart. Should the brick company be paid a portion of the capital gains of said executive's home when it increases in value? Should the professor be paid a portion of the student's income when the student applies the knowledge learned in the class (hey, considering that's where I'm heading, that's not a bad idea!)?

Creating secondary and tertiary value is what innovation is about. I wouldn't pay for peanuts in a bar either - and, more important, I would choose a bar that doesn't demand payment for the peanuts over one that forces me to pay for every peanut I consume, even if it's offered by a friend. (Or worse, one that might reach down my throat and remove an already consumed peanut.)
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Anonymous said...

At one point in time music videos were nothing but a promotion vehicle for selling music. They were peanuts selling beer. But that is starting to change. Now in the age of iPod video in your pocket maybe the record companies are recognizing that some people are more interested in the peanuts than the beer. (ringtones can outsell music singles these days)

Regardless your analogies are pretty weak. The bar buys the peanuts they give away for free to sell more beer. YouTube isn't buying the copyrighted videos they give away for free to sell more ads - regardless of whether it's good promotion for the music companies. The brick company is paid for the bricks and the professor has a salary and both agree to give their goods and services in return for that payment.

And if you are in full support of others making profit from creating secondary value, why do have a non commercial creative commons license attached to this blog? Isn't that the exact same sort of restriction that the music companies are putting on the videos they produce? Why won't you let me sell a book of your blog posts? Surely it would increase traffic to your site and help you sell more of your intellectual beer.

Mark Federman said...

The answer to your last question should be fairly obvious, anonymous - I don't sell any beer here. Or anything else, for that matter. So in this case, your earning money from a derived work does not increase my income, unlike the case of the record companies. Your first observation is spot on, and is, I think, the key problematic of this entire discourse. There is more money made from the add-ons than from the initial product, yet the legacy companies hold fast to their now obsolesced business models. A bit of related history might be in order.

If you look at the history of IBM (something that I do here), you'll see that over its history, it has moved from selling the hardware and giving away the software and services to selling the software, and (for all intents and purposes) giving away the hardware and services, to selling the services and (effectively) giving away the hardware and software. (The qualifiers relative to hardware has to do with the nearly zero margins on a lot of IBM's hardware sales in the context of large, managed projects). Throughout IBM's history, it has adapted its business model to suit the changing times and prevailing markets and models - albeit sometimes under market duress, as in the early 1990s.

The recording (and related) industry, however, has attempted to hold fast to their business model based on sales of plastic-coated aluminum disks, and have not learned the hard lessons. There's the Sony debacle. There's the extortion and fraud perpetrated by the RIAA. And, in contrast, there are the success stories of independent labels, artists saved from obscurity, and the wonderful model by Jane Siberry (now Issa). Of course we haven't even touched on the success of some writers who offer their books for free download simultaneous with the hardcover release.

The point of the "free as in peanuts" meme is that there are some things that cannot be sold in a particular context despite the fact that they may create value in that context. This idea is one that needs to be properly understood by both management theorists and business managers alike

Anonymous said...

The answer to your last question should be fairly obvious, anonymous - I don't sell any beer here. Or anything else, for that matter. So in this case, your earning money from a derived work does not increase my income, unlike the case of the record companies.

Oh come on ... you are an author and a lecturer and a professor and this blog is nothing less than a series of music videos for everything you do. If my book helped drive awareness of your site and your ideas it could definitely increase your income (think book deals, high profile lecture gigs, television appearances etc.).

(Do you mind if i make an audio version of the last book you authored and distribute it as a free podcast with ads?)

Mark Federman said...

Well, anonymous, beside the fact that you are being entirely presumptuous about my sources of income (it's not at all what you seem to think), I would indeed mind if you made an audio version of the last book I authored and distributed it as a free podcast.

First, that book is not released under Creative Commons. It was published under conventional copyright, and it will remain that way for the time being. (I will likely release it under CC at some point in the future). As for anything else that I do release under CC, so long as you adhere to the by-nc-sa license (the "sa" part may be the bugaboo for you), have at it! The free podcast part is fine with me (it makes my "knowledge" available to everyone), and the ads are paying for your "service" in providing the podcast. (Just make sure that the accreditation part is appropriate, that is, people who receive the podcast know that the intellectual content is me, not you.) As practical examples of that, my course materials are being taught by professors around the world who earn a helluva lot more than I do, and I receive not a penny of compensation, and I'm cool with that. A number of my articles and lectures are being used in coursepacks around the world, and I don't receive a penny of compensation, and I'm cool with that. That's why I release them that way, and you're right about those aspects being "music videos" (of a sort) - but more accurately, they increase my reputation in the academy and that is good currency.