Archive for April 27th, 2011

The all-you-can-eat business model

Today, TorrentFreak published an article saying that piracy in the US is on a downward spiral because of competition it’s facing from a legal opponent, Netflix.

Some people have said online that “no one has a silver bullet against piracy”, but this is not true: the all-you-can-eat streaming model is the only one that works for these easy-to-copy digital products. Especially if the product is now cheaply produced too (e.g. music), it makes little sense to try to sell works individually.

I envision a world where $10 per month gives you access to all movies, $5 to music, $5 to a conglomerate of news/magazines, and optionally for most, $10 for access to video games. Another $30 for a 25 mbps internet connection with an allowance of 250 GB of bandwidth per month, and another $30 for a 4G cellphone package with 25 GB of data/voice per month. For $80-$90 per month overall, your digital life is complete. Today, most people pay for such services about $150 per month, and they get LESS. Naturally, as people trying to balance their wallet, the less important services, like entertainment, are getting the short end of the stick, because of piracy.

It’s not just the lower prices that can make consumers become legit, but rather the differences in service. Consider the following:
- You get a beautiful and easy-to-use UI to find a movie/album compared to the chaos and spyware of a thousand bittorrent sites.
- With streaming you get to watch/listen immediately, with bittorrent you’ll have to wait for the download to finish first.
- Good quality rips from the master source, rather than an optical source or shaky-cam-from-within-a-theater.
- Ratings, suggestions, and other social features can make the experience better, more interesting, and help you find new movies/artists.
- Edge-caching is more effecting for the network than Bittorrent downloads that are killing worldwide bandwidth by often going transatlantic.
- By going legit you help the producers/artists/journalists produce more.
- You won’t have the FBI/RIAA/MPAA on your back.

Bittorrent still has a few advancements, but most of them are going to fade away within 2-3 years:
- Not all Netflix titles have closed captions, but this is worked on as we speak.
- New albums appear immediately in the library upon release, and eventually Netflix will be able to get movies within a few weeks from theater release too (especially after the death of Blu-Ray/DVD that is upon us already). Also consider that some TV shows already show up on Netflix a few days after broadcasting (e.g. Stargate:Universe, Gladiators).
- It’s still free for those who can’t even spend $15 per month for their entertainment.

It’s because of these reasons why I also believe that any cloud-based music service that might come around from Apple, Amazon, Google, or your mom, will fail to deter piracy. See, if these services only allow you to upload your own already-purchased music instead of letting you stream everything in THEIR library, that’s a near-useless service in the grand scheme of things. I’m personally subscribed to RDIO, and I loves me the legal, unlimited, streaming (that also has an offline mode).

All this is so clear for me that it’s mind-boggling as to why we don’t have all entertainment ever created, streaming, right now, worldwide. Technical difficulties aside, the real reason we don’t have this yet is because of conservative businessmen who don’t want to face the truth that their business is now commoditized, in some cases as easy to create on a bedroom, and that it therefore generates less money than it did in the golden age of the (culturally) read-only generation (that is, particularly, 1930-2000).

An ex-Warner Bros VP wrote yesterday that he believes that the Netflix model does not work for music because music can be listened in the background, as opposed sitting in front of a TV that has our full attention. Therefore, music has lower value than video in the minds of consumers, and so they won’t pay the price. I agree with this, music is more abstract as a product. But what this only means is that instead of $10 per month (as in video), music must cost $5 per month. Music is cheaper to produce than a movie anyway.

What his real problem seems to be is that he doesn’t want to see that lower return in investment. So he basically shoots down the whole idea, that Netflix has proven to work, just because he wants to make as much money as movies do. Sorry pal, but that’s not how much music costs or is valued at. Movies are way more expensive to produce! Get down with more realistic prices for music licensing, buy a smaller house, a smaller car — or change your profession if you don’t like it. But don’t shoot down a business model that does work because you want to cling in the old world’s unnaturally big profits.

Update: Another reason why the old school labels don’t feel that the Netflix way will work for music too? Because then their products would compete on the same grounds with the indie bands, and so the competition would be more fierce for them. It’s easy to pay radios to play your music, try to do that on an “on demand” service! So it’s not a matter of making less money, but of eventual irrelevancy.