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.


Glenn wrote on April 27th, 2011 at 10:36 PM PST:

I don’t think a $5 music service like that would make too much difference. It would only be streaming, right? People wouldn’t be able to download the songs to their iPod and go jogging. Much like, yeah? You pay a monthly fee, listen to your favourite artists on there, it’s all streaming and they suggest other similar artists. Which reminds me, I set up a profile and need to upload some of my own music there..

Personally, I mostly just listen to dj mixes these days. I’m a big fan of this guy’s mixes. Great music to have playing in the background whilst cleaning the house etc. And a nice change from the tracks I have to edit videos to! Plus, I don’t have the patience to set up playlists for individual mp3 songs, so mp3s that play for an hour work well for me. I especially like how BT’s last album was just two mp3s. One for each of the two CDs, much like an old vinyl album.

This is the admin speaking...
Eugenia wrote on April 27th, 2011 at 10:58 PM PST:

>It would only be streaming, right?

No. If that was only online streaming I wouldn’t have given it a chance either.

RDIO and MOG both provide offline playback. The way this works is that you “check” which albums or songs you want to locally sync, and it copies a blob of data to your smartphone or iPod. You can switch between online and offline modes.

John Reagan wrote on April 27th, 2011 at 11:54 PM PST:

What makes you believe that Netflix will in anything like the near future be getting movies quickly after theatrical release? Surely you don’t mean movies from Warner Bros., Fox, Universal, which are licensed
exclusively to HBO for over 8 years before they can be on any other
subscription service. And it’s questionable whether Netflix can afford to continue to get Disney and Sony movies much longer. They get them now via subdistribution from Starz. But that deal is up for renewal.
Why do people write without doing basic industry homework? And by the way, Blu-ray and DVD are in slow decline—not fast disappearing.
Please. More homework before you opine.

This is the admin speaking...
Eugenia wrote on April 28th, 2011 at 12:02 AM PST:

Oh, come on. Do my homework? Please stop with the passive aggressiveness. Everyone and their dog knows about the licensing nightmares all these companies have to go through before they can stream anything. What you wrote is already well known.

But this is not the point at all of this article.

The point is that the all-you-can-eat model — as long as all pieces of entertainment have been properly licensed — DOES WORK. This is what people want and what they need in order to give up piracy: the convenience that comes with the model, at a modest monthly fee. The fact that we have to deal with ASSHOLE licensing houses doesn’t make the model “wrong” somehow. It makes it difficult to implement, but not wrong. It’s the way forward, they like it or not.

Paul wrote on April 28th, 2011 at 12:10 AM PST:

John, deals can be made and unmade. There just needs to be will and incentive.

I want the buffet model but I’m wondering if incentives to create good content would be harmed. If a ‘good’ show can not be licensed to a network for more money than a ‘bad’ one, then won’t they just feed us crap?

I guess their could be a royalty sharing scheme based on the number of views.

What if the market penetration of this service is close to 100%? Would they do just enough to prevent you from unsubscribing? Would there be a monopoly of industry players like now?

This is the admin speaking...
Eugenia wrote on April 28th, 2011 at 12:41 AM PST:

I’m personally a proponent of royalty-sharing based on the number of views/playback. The provider gets a 10% or so, and the rest goes to the copyright holders. I don’t believe that any provider should be paying extra for access to these works. Apple or Amazon doesn’t pay extra to sell mp3s, so why should a streaming provider should? Everyone gets paid at the end, exactly as much as the market demands, depending on streaming access.

Sean wrote on April 28th, 2011 at 4:42 AM PST:

‘I’m personally a proponent of royalty-sharing based on the number of views/playback. The provider gets a 10% or so, and the rest goes to the copyright holders.’

And if copyright holders got anything like that amount from streaming services, you’d have no ‘ASSHOLE licensing hoses’ making any fuss whatsoever.

However, the rate of pay, when the provider even bothers to pay anything (Grooveshark pay nothing), is twisted in the opposite direction. That’s why those ‘assholes’ make things so difficult for the likes of Spotify. Not because the music industry is against the idea of streaming content, but because it’s against the idea of streaming content at the insulting rates offered by the service providers. The service providers continue with the proposal that, ince they pay *something*, they should be seen as the good guys, offering an alternative to piracy and that the music industry should just be grateful for what they can get. The music industry, quite rightly, says no. No-one much likes the music industry any more, because when illegal downloading rendered their entire stock of merchandise worthless they tried to find legal ways of halting that process. Of course, as the interwebz made it quite clear, what they should have done, on having their business looted, was ‘innovate and discover creative ways to embrace the new paradigm, man’.

Spotify pay less than a tenth of a cent for every play of an independent musician’s recording, which has to be divided amongst the musicians credited for their playing on the track, as well as between the composer(s) who wrote the song. Grooveshark pay nothing. The problem is that, quite reasonably, people feel that as long as they’re paying for a subscription, they must be compensating the artists. The truth is entirely different. Ethically speaking, buying three or four cds a year, and then torrenting evrything else you want to listen to, is of more benefit to musicians worldwide than streaming subscriptions. Not trying to make anyone feel guilty or sympathetic, but if you buy free range eggs or fair trade coffee, it would be nice if you’d apply some of the same ethical rigour to your music consumption. Thanks.

This is the admin speaking...
Eugenia wrote on April 28th, 2011 at 10:47 AM PST:

Sorry Sean, but I don’t agree. Currently, yes, streaming services don’t pay that much, but they do pay. As long as the indies get the SAME rates as the majors do in the cut of the pie, the money can be “good enough” when you remove all these useless middlemen involved. Don’t forget these news last year that Lady Gaga was making pennies all year on Spotify, but the truth was that her LABEL was actually making good money on it! She simply needed to ditch all these useless labels with their crazy contracts.

Also, don’t forget that RDIO/MOG or Spotify only have few subscribers so far. As long this thing goes global and more people subscribe, the pay rates will get better.

And please don’t mention Grooveshank as your argument. It’s not a legitimate business, they have licensed nothing from no one. RDIO, MOG, Netflix, Rhapsody, Spotify, ThumbPlay, have, and they do pay their dues.

As for me personally, I spent over $2100 last year on digital music via iTunes and Amazon. So I did my part to pay the full prices and make rich people richer in some labels. Sorry, but I don’t want to spend that much money ever again for music. For my style of devouring music, the unlimited subscription works better.

Dave D. wrote on April 28th, 2011 at 2:40 PM PST:

This model actually doesn’t work, Eugenia. It seems to, but that’s becuse the bulk of the money is made in other places that streaming.

Studios can dump movies for pennies on netflix because they make money on ticket sales, licensing (toys, shirts, etc,) DVD/Blu-ray sales, foreign distrubution rights, and even redbox copies. It’s similar with music, because they put it on every single streaming and MP3 download site, as well as radio and music video if possible. If they have the clout, concerts.

Without this, it simply doesn’t pay enough to live on. Most artists are not going to see Lady Gaga levels of penetration, but modest success, and a royalties of pennies on the view wont be enough to make a career.

This is the admin speaking...
Eugenia wrote on April 28th, 2011 at 3:25 PM PST:

No, this is not true. The vast majority of movies don’t make money back from DVDs or tickets. Most of them are not even getting theater releases. And don’t forget that movies are VERY expensive to shoot. WAY more than putting an album together. So please don’t tell me that “it’s easier for a movie to make its money back”. IT’S NOT.

In fact, on music is easier for artists to make money, as you said, via live music. That’s their real job: playing music.

As for streaming being pennies, you forget the fact that when more people subscribe, the more money is being made. And the more successful an album or song is, the more is going to be streamed, and more money is going to get earned. Of course, forget Lady Gaga super stars. Being a musician would just be “just another profession”. There is absolutely no reason why we should be having super-star celebrities. I find the whole concept of the super-star a vomiting affair.

Henry Jacob wrote on April 29th, 2011 at 12:10 AM PST:

I completely agree with you, a good way to fight piracy is to beat them on price. but still we need to think how individual producers get their share with ‘all-you-can-eat’ business model.

cmcg wrote on April 29th, 2011 at 9:18 PM PST:

The main problem with these all-you-can-eat music services is that the availability of my favorite artists might be sprawled out over multiple providers. What am I going to do, pay for 2 or 3 of these services and have my music fragmented between multiple applications? That SUCKS!

This is the admin speaking...
Eugenia wrote on April 29th, 2011 at 10:50 PM PST:

This is not quite accurate. While RDIO is missing lots of artists, MOG has a lot of them, almost as many as Amazon.

Chris wrote on May 7th, 2011 at 9:24 AM PST:

This is a slippery slope. I had rewritten this many times because its easy to contradict yourself. We all want content and readers (me personally) want to create it. We want to put our abilities to use and get good money for it. This both floods the market for everyone who can play a triad on guitar or can turn the focus ring on a lens and enables healthy competition for people who are truly good at what they do.

However, its still all about preference. I use pandora. I pay for pandora, I use netflix. If this were more than ten years ago Id have to have cable. One paradigm to the next. It also depends on where this all goes. A company like google could actually make a network out of thin air on the internet with premium content equal to what youd see on nbc, fox (aka satan) and other networks. And they could very well charge for it the same way cable has been raping customers for decades. Depending on what shows they could convert over to their side it might be attractive. Ive known people who would pay for 24/7 iron chef programming. I think what it boils down to is content vs how many people own this content. With some patience we could see a battle royale between cable companies and internet starups and all that fun stuff. Even farther than we have, hopefully it comes to blows.

Comments are closed as this blog post is now archived.

Lines, paragraphs break automatically. HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

The URI to TrackBack this blog entry is this. And here is the RSS 2.0 for comments on this post.