Internet, changes and business models

Photo by hyku

Today, I listened to a great podcast from Planet Money dealing with the effects the internet is having over the music industry. In the podcast, they present Jonathan Coulton, who is making about half a million dollars per year just selling his music online with no label to support him. The discussion focuses on whether this is replicable and what it means for the music internet.

While I enjoyed the podcast immensely, I did finish with a bitter taste of disappointment. The story is told well and its hero, Coulton, is really relatable. However, I found the commentaries to be a bit simplistic from both side of the argument. Especially, the very shallow argument doubting whether Coultion’s story means a change for the music industry. I was expecting a bit more from a podcast dealing with economics.  At least three truly interesting economic issues have not been covered:

• Distribution of wealth. In the “label model”, few artists and a few labels (and executives) made a lot of money. Do we prefer to have a few mega-artists making a lot of money or do we prefer many niche artists making reasonable sums? This is a microcosm of this bigger economic question (not only in the US). How can the internet affect the distribution of wealth?
• Efficiency. I think the “Coultron model” makes more sense. Economics is about efficient use of resources. Are big labels using money to efficiently make art? No. Because of huge transactions costs. The labels, were (maybe still are), essentially a cartel or monopoly.  Monopolistic entities are (usually) not the best way to manage resources. What kind of economics is driving this change?
• Death of The middle-men. The music industry is an example of industries that relied on middle-men and are slowly dying (see also newspapers, publishing and the movie industry). When transaction costs are almost zero and everybody is reachable, there is no need for a “power of scale” middle-man. Just check out “gapingvoid.com” or “the domino project”. As the story illustrates, there is a need for a new, smaller, savvy middle-men that will help artists focus on their art while taking care of some of the administrative stuff. What about them?

These are all issues to think about relating to the changes the internet is brining to business and economic models. The change is here. It keeps developing. You don’t have to be in the music business to be affected. It affects all of us. Isn’t it time we started realizing that? The question is what are we (as societies and individuals) are going to do with the opportunities it presents?

Elad

Shorts: Seth Godin and others on Rupert Murdoch

Isn’t it time our past will stop trying to prevent a better future?

Seth Godin writes:

You don’t charge the search engines to send people to articles on your site, you pay them.

Maybe Murdoch should learn from others how to re-invent his business model. Maybe we all will. Trying to resist is just futile. Hopefully, he wouldn’t be able to do it (link in Hebrew).

Elad