The economics of physical goods followed a supply and demand curve, as you no doubt learnt in high school: the larger the supply of something, the lower the cost; conversely the tighter the supply (a.k.a. scarcity) lead to higher costs. But classic economics doesn’t deal happily with “goods” that are effectively infinite, such as digital copies of media are.
There are attempts to create artificial scarcity in order to maintain “higher pricing” (or in the case of broadcasters, to maintain a gatekeeper role) but economic practice dictates that the cost of any good or service will migrate to the cost of incremental production: free. This is good, this is what makes the Internet valuable because it bypasses artificial gatekeepers of knowledge and entertainment.
The prevailing feeling among the studio managers I spoke with is that Netflix’s streaming service will be a good outlet for the least-valuable material. If they have their way, Netflix will be the Internet equivalent of a swap meet, where only the most dated and least popular titles are available. The studios are betting that eventually people will get bored with the service.
Yeah. Good luck with that. But the statement I wanted to focus on was one that preceded that, and which explains why the movie studio execs think the above is even possible:
Netflix takes the scarcity out of the equation, one film industry insider said. People can watch any of the service’s commercial-free films and shows anytime they want.
You can try and create scarcity, but the true secret to long term prosperity is to use the infinite goods to sell something that is scarce. This is much easier to do for musicians because they rarely made money of the music recordings because that all went to the record company one way or the other. Musicians can tour – that’s a physical scarcity – or sell merchandise, or deluxe packages of content.
It’s somewhat harder for film and television because so many people are involved in production, all needing to be paid from the revenue generated from the scarce goods. We’ve seen better moves toward this goal from documentary producers like Brian Terwilliger have pointed the way with projects like One Six Right where revenue has come from:
- selling DVDs directly (9,000 in the first 9 days it was available);
- selling the soundtrack on CD (30% who buy the DVD also buy the CD of music unknown other than in the documentary);
- selling posters signed by the 24 year old filmmaker (so far $30,000 from sale of posters)
- listing (and selling) the DVD and merchandise through a catalog for pilots (Sporties);
- selling through Amazon (where apparently the tip is to keep supply to Amazon low, which keeps them from deep discounts and keeps the sale price high);
- selling a calendar (people pay to have the project’s promotion on their walls);
- deals with local general aviation airports for local premiere’s;
- giving the show to public television while retaining 4 x 15 second spots before and after the show to promote the DVD and merchandise;
- creating a half hour “making of” special that builds the documentary out to a 2 hour or 90 minute package and selling that to Discovery channel. This sale apparently covered the original budget, on top of all the income from all the other revenue-generating activities, which is substantial.
That list, btw, comes from my How to Grow and Monetize an Audience for your Independent Production in-depth session at NAB 2011.
Bottom line: use the infinite as a way of publicizing the scarce and making it more valuable. That’s what filmmakers like Brian Terwilliger have done, and what countless musicians have done by forging a relationship with their audience, and then giving them a reason to buy something scarce – concert ticket, merchandise, performance opportunity, etc, etc.