Posts Tagged ‘freeconomics’

It took me a long time to learn that I am a slow learner, but finally I got it.
It has been almost a decade since some smart people, after watching NASDAQ hit the floor, quickly came to a conclusion that businesses, investors and policymakers might need to reassess their conception of Internet and any future e-commerce. Soon afterwards Napster went off-line and KaZaA kicked in, announcing to the entertainment industry that their analog business models are also redundant and would have to be replaced by completely new ones.
Subsequently ideas like web 2.0, long tail, and most recent freeconomics, entered the mainstream carrying with them overarching notion of new business model. Presently, New Business Model (NBM) is everywhere. It creates buzz greater than snorting cocaine rock stars and starving to death children in Somalia. Everyone seems to have something to say about it; President Obama talks about it; and Gordon Brown talks about it; the Pope and the Queen talk about it; Michel Jackson was elaborating on this subject just before he died… or at least it’s not impossible. But recently even my grandmother used that phrase, which scared the shit out of me.
Nevertheless, despite all this publicity, I am still unable to grasp the idea. On the other hand, from time to time it seems to me that I know as much as most of the people:
“What is the new business model?” – “Well, … it’s the new business model.”
Somehow, my simple brain fails to follow such a line of reasoning, but maybe it’s just me being ignorant and mean.

In my view there are few things, which make the idea of new business model for content industry quite problematic. Essentially these problems revolve around the fact that content industry is highly consolidated, large and entirely built around its control over distribution channels of their intangible products. Let’s consider in greater detail some of the necessary features of any transition to potential new business model in this context:

1.    Assuming that the transition is intended to change the way the industry generates profits and taking into account the scope of industry’s activities, it is safe to consider that it would be a large enterprise. As such it would most likely require substantial funding and in the end it could relatively diminish current status of industry’s assets.
2.    To large extent creative industry is composed of multinational corporations, which operate under certain regulations and are accountable to their shareholders. Accordingly, industry’s primary objective is to generate profits and this objective determines any potential course of action.
3.    On the other hand, digital technologies with their low costs of production and distribution combined with high levels of participation on the Internet create highly volatile environment, which is unparalleled in fostering creativity and innovation but also disallows any constructive planning. In short, industry must appreciate that a bunch of students could make any “new business model” inefficient and out of date before it is even fully in operation.
4.    Despite grim outlooks it is rather certain that the analog creative industry together with its “obsolete business model” is not going to fade away anytime soon. Even though its abilities to control distribution channels of their products are largely diminished which have negative impact on relative value of their rights, the industry still generates large profits. Furthermore, industry’s size and importance gives it substantial bargaining power, which could be utilized to the industry’s advantage.
5.    Finally, considering the above, it could be difficult to find necessary level of support among investors for the idea of major overhaul of established strategies; at the same time investors might be very keen to accept the “new business model” as a supplementary strategy and in the meantime continue to do the business as usual but being ready to grab any potential opportunities to strengthen industry’s position.
Having said that, it seems to me reasonable to suppose that any proposition regarding new model for content industry would either resolve these problems or at least show that they stem from my simplistic analysis and limited understanding of mechanisms involved. However, as I already mentioned even though the idea of NBM entered in recent years official discourse and often appears in the media, it is rarely discussed in any greater detail. In fact, it seems that the concept has been reduced to some sort of a catchphrase, often used but rarely understood. Nevertheless, brief review of available publications could indicate that my initial evaluation of NBM for content industry is not entirely implausible.
Number of papers published recently raised the question of practicality of new business model in relation to content industry. For example, Final Report on the Content Online Platform (pdf), published in May 2009 by Information Society and Media Directorate-General of the European Commission, states:

Established business models of the traditional media companies are based on highly evolved approaches to advertising and subscription models – models which themselves are built upon the presumptions of both the ownership or control of intellectual property (i.e. content) and the ownership or control of expensive distribution networks (so that the content can reach the audience).

And further:

Due to the “prototype” business model widely applicable to creative content in Europe, it is difficult to attract risk capital for new online business models and it is difficult in the short term to finance the transition to digital distribution (…).

Nevertheless, whatever are the reasons for my failure to grasp the idea of new business model, I would still remain in the same group as slow to learn officials and execs of content industry.

But are they really that thick?
To be continued…

Update (23 Jul 2009):

Debate with Chris Anderson on John Gapper’s Business Blog, regarding freeconomics (or freemium) could indicate some difficulties that content industries might face with potential development and subsequent implementation of new business models.

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