escaping the spiral

One of the most enduring themes of the past decade has been the decline of traditional industry models.

Record companies and newspapers have been the biggest losers, yet demand for the ‘products’ these companies deliver has risen dramatically during the same period.

The two trends seem to be in conflict: how can something experiencing increased demand simultaneously lose its value?

Has classical economic theory come totally undone?

Let’s take a closer look.

All-consuming

As recently as the 1990s, a music collection of  100 albums (about 1,500 songs) was something to be admired, taking pride of place across a whole wall of the living room.

Today, even cash-strapped teenagers carry that much music in their pocket everywhere they go.

But still we crave more.

Numerous new services attempt to satisfy our insatiable appetite for a fresh and varied playlist – Pandora and Spotify are obvious examples.

Yet almost none of these seem to be making much money.

It’s the same story for news.

As technology has advanced, instantaneous, ubiquitous news updates have become the norm, and we’ve become so used to these ‘info fixes’ that we even experience symptoms of withdrawal if they’re taken away.

Demand for news hasn’t just grown; it’s exploded.

So why are news agencies disappearing at an inversely proportionate rate?

What’s going on?

From the outside, the reason appears very simple: these industries have become too caught up in what they think people are buying; not what those people actually want.

The music industry is still obsessed with selling albums, because that’s been their core offering for decades.

Of course, at the time of their inception, albums were a highly efficient (and profitable) distribution medium.

The same goes for newspapers.

But, as Dave Trott points out, people don’t buy the media.

They buy the content that those media carry.

And if they can find that content more efficiently (and cheaper) elsewhere…

A false equilibrium?

Despite initial appearances to the contrary, the trend of rising demand and falling profit in these media-based industries is actually in keeping with classical economic theory.

The model suggests that people will tend towards the most efficient satisfaction of their needs: that they try to maximise the benefits they receive, while simultaneously minimising the associated cost (in terms of money, time, effort, etc.)

As Adam Smith posited in 1776,

“…what every thing really costs… is the toil and trouble of acquiring it.”

He went on to assert,

“What every thing is really worth to the man who has acquired it… is the toil and trouble which it can save to himself.”

Let’s look at those two statements in context:

  1. From the consumer’s perspective, the cost of acquiring music and news content is not a pure price consideration: factors such as the effort needed to acquire and consume the product, as well as opportunity cost, are equally important;
  2. The worth, or value, these products deliver is hard to measure, because the benefits they deliver are usually intangible (except where unique access to news provides a financial benefit to the consumer).

The key issue in these industries is that people suddenly have access to identical value at a much lower cost.

So what changed?

What are people buying?

People don’t buy media; they pay for access to content.

But if that content is available for free, why would they choose to pay for it?

Free access to music has been around for years via radio; the main issue has been a lack of listener control in the playlist.

The only legal alternative has been to pay for the privilege to listen to what you want, where you want, when you want, by buying albums and singles.

But given the costs involved in this alternative, another popular solution has been to acquire an illegal copy.

Piracy is nothing new; it has affected the music business since it began.

However, until recently, the quality of an ‘original’ was always noticeably better than that of a cost-effective copy.

The advent of digital formats like MP3 changed all that. Today, people can quickly and easily create a copy that is identical to that which they would get if they bought it from the original source.

The problem for the record companies is that there is literally no difference in the quality of pirated content.

Furthermore, the industry’s continued protectionist approach to ‘selling’ music means that it’s often actually easier to find pirated copies than it is to find the original*.

Returning Adam Smith’s concept of ‘real cost’, this means that people have fewer and fewer reasons to pay the cost associated with original content; the only remaining motivator is conscientiousness.

Meanwhile, the situation with news is even starker: the industry itself has trained us to believe that news should be free, through ad-supported models such as CNN or freesheets.

When people have been so used to legal access to free news content, it’s easy to understand their current reluctance to move to services requiring payment – particularly when services like the BBC continue to offer free access.

Bene-fit for purpose

The only sustainable hope for these industries is to rethink what they’re actually offering.

The process is actually very simple:

What do people really want?

Where is it most relevant to them?

How can we deliver it to them and make a profit?

The critical step is to move away from thinking about how to improve the existing product, and to focus instead on identifying and understanding the benefits people seek.

New news

Why do people crave news?

It might be for a variety of reasons:

It provides information that helps us make decisions about our own lives (Will it rain tomorrow? Is there a crazed gunman on the run downtown?);

It offers a common topic we can talk about with others;

It shares opinion and that stimulates our minds and provokes further thought of our own;

It entertains and stirs emotion;

Perversely, it helps us put our lives in perspective, reminding us that “there is always someone worse off than yourself” (this is the only reason I can find for our continued obsession with ‘bad’ news).

However, none of these things belong to conventional news channels.

Indeed, most of those channels exist because they provide an audience for advertisers, and, arguably, they’ve never been truly focused on the audiences themselves.

Where would these benefits be most relevant?

What could we do to deliver it to them then… at a profit?

Change the tune

The task with music is a little more difficult, because it’s intangible and transient.

What exactly is music, and why do we love it so much?

What benefit does it provide?

It’s a question that has many different answers, because music means different things to different people in different contexts:

Sometimes it’s an all-consuming experience, like a concert;

Often, it’s something we use to define our personalities;

Sometimes it’s a means of escapism (like ‘cocooning’ on a crowded subway);

Sometimes it provides a reassuring background distraction;

Like fashion, it’s something that’s constantly evolving and fresh, providing us with something to talk about, and offering us things to look forward to.

I’m sure you can think of many more benefits (why not share them in the comments?).

Deliverance

It’s safe to assume that people’s desire for new music and fresh news will continue to grow.

As such, musicians and journalists are not – contrary to media scaremongering – on the verge of extinction.

The only thing that’s likely to disappear is the existing media model.

So how will we access these benefits in the future?

Much as I hate to inflate an already over-hyped solution, I believe the answer is ‘something social’.

Services where people already go to seek similar benefits – to talk to people, to find out what’s new in their world, to seek emotional stimulation – are the most obvious places for them to seek music and news benefits too.

I believe we’ll see an increasing number of social services combine these offers in their bid to become our ‘one-stop shops’ for all such content.

I wouldn’t be surprised if they didn’t include TV and movies too.

Services such as Facebook have a great opportunity to became the de facto source for news and new music, although I suspect it will be a new, as-yet unheard of successor, who’ll bring about this next step in the web’s evolution.

So what’s new?

I suspect that, although you’ve nodded your head a few times during this post, you don’t feel there’s anything revolutionary in its content.

But that’s possibly because, in this simple format, it all seems obvious.

And I think that’s the problem: perhaps it’s so obvious, we’ve been missing the forest for the trees.

But, the good news is, the solution is very simple.

If we focus on the benefits that people seek – the real value that they perceive in the things they consume – then we have a chance of delivering it to them at a profit.

Sadly for some, it may be too late to save the mass media model, but the rest of us have a real opportunity to learn from their mistakes.

Thanks to Willsh for setting this thought process off with these lovely posts: one, two.

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7 Responses to “escaping the spiral”


  1. 1 slainson December 4, 2009 at 00:33

    “If we focus on the benefits that people seek – the real value that they perceive in the things they consume – then we have a chance of delivering it to them at a profit.”

    Both news and music tend to be thinking in terms of the wrong deliverables. Unless you are a news junkie, you don’t really think in terms of wanting news for news sake.

    However, if information could make you happier, wealthier, prettier, healthier, etc., you’d pay quite a bit for it. So if information providers can deliver solutions, that is valuable to people.

    Music does appear have a unique place. It works in a certain fashion in the brain. And people will continue to make music whether they earn any money from it or not. So there will always be music in our lives. But in terms of what people will pay for, they have enough free music available to them that they don’t have to pay for it anymore. Further, the music itself is now something people willingly give away. They want as many people to hear it as possible.

    Therefore we can’t think of music as such as a salable item. The trends that I see are tools that allow more people to make music and to participate in it. What if there are creative instruments that allow anyone, even with no musical training whatsoever, to create amazing pop songs of their own? People might pay for that.

    Or what if there are ways to turn us all into the most amazing dancers? So we don’t go to clubs to listen to music anymore, but to become stars on the dance floor. Some people would play for that.

  2. 2 Alejandro Walker December 7, 2009 at 03:09

    Great resume of something so dizzling, will 2000-2010 be characterized for when Internet provided free access to content??Will consciousness combined with easy access to quality content make concumers pay?

    News: they give me a broader vision of limited subjects happening on the world, specially those who can indirectly affect my life (economic trends, politic decisions, social happenings)

    Music: inspiration

    Keeeeeep it up!
    Al

  3. 3 Sisi December 10, 2009 at 06:54

    maybe this is relevant:

    http://www.economist.com/opinion/displaystory.cfm?story_id=14966219

    to eski: are you stopping by London? I can have a 1st round interview with WPP ;-)

  4. 5 Matt Nelson December 19, 2009 at 11:41

    I thought your Adam Smith reference was fitting, because for me, the music and news industry boils down to one basic economic idea: scarcity.

    People will always pay for scarcity. When music and news became digital, we could access it (legal or illegal) for free, whenever we wanted – no scarcity. You loose scarcity, you loose value, you loose value, you loose customers.

    Thankfully, musicians will retreat back to a world where scarcity rules – live shows. We can’t download a live experience so we’ll pay. If you’re a good musician, you’ll thrive, if you’re not, you’ll die. The musical artifact though, is dead (digital or physical)

    Same for news outlets. If your content is the very best or somehow different (scarce). people will pay. (ESPN Insider is a wonderful example).

    Any industry who interfaces online at all faces the same challenge. Identify and leverage scarcity – people will pay.

    • 6 eskimon December 28, 2009 at 15:21

      Absolutely – the removal of scarcity has changed everything. However, I’d suggest that the Rupert Murdoch approach of trying to artificially recreate that scarcity will only backfire in the long run.

      Having said that, people still place great value on both news and music, so it’s up to marketers to find alternative ways to add value to these products. As you point out, live musical experiences – whether concerts or club nights or even karaoke – are a clear opportunity for musicians (although it’s unlikely the record industry would emerge unscathed from such a transition).

      As for news, it’s more tricky. The current view seems to be that speed – i.e. being first – is the way to add value, but with the arrival of things like twitter, the lead associated with being first has been reduced to a matter of seconds. I’d wager most people would be willing to wait 10 seconds if it means they get their news for free.

      The problem for news brands is that no-one has a monopoly on reporting the events that go on around us; it’s very easy for us to pass on exactly the same details by many different means, many of which result in no remuneration.

      I think the answer lies in the product itself; perhaps what we really need is a radical rethink of what constitutes ‘news‘. News brands need a bit more imagination – they need to spend a bit more time thinking about what people might really want to read about, beyond sensationalism, petty gossip, or individual tragedy.

      Offering a unique, valuable benefit is the surest way to create a strong brand.

      This goes back to the fundamentals of differentiating brands: the answer isn’t always about being better; sometimes, simply being different is a much better approach.

      • 7 britalicus February 5, 2010 at 18:36

        Yes, speed of news is important, – but which would you rather read for quality, the Sun or Times? …..and that will need qualifying – which do you trust? The same applies to brands – which brand do you trust? Consider higher value items that customers buy, such as Sony or Apple; different customers trust each, and will develop brand loyalty as a result, but this can be lost through poor product quality and customer care. It’ll be interesting to follow Toyota, a brand trusted for reliability and thus attracting a strong customer base, following the throttle pedal and now brake problems, to see how ‘trusted’ the brand remains. Or will this be a case of not so much the problem, but the way it is dealt with?


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