eValue

The creative industries have long been lobbying governments to help protect their antiquated business models from the real world as it evolves to digital. They claim to be protecting the "creative" people, by ensuring they get fairly compensated for their work. They claim to be offering fair prices to consumers for their work so let's have a closer look. A fair price for creative products is hard to measure, there is no exact formula so I'm going to break down in broad chunks where the money goes, so you can judge for yourself. I'll use the example of a CD, DVD and Novel as well as their precursors the LP, Cassette and VHS.

All creative work is valued by it's effect on the audience, not the form the media takes. Nobody buys a CD to value the CD, it's meaningless outside of a working CD player. They value the sound they hear when that CD is played. Nobody buys a DVD for the DVD itself, the value is in the experience of watching the movie when it's played on a DVD player. Nobody buys a novel for the novel, the value is in the imagination it sparks when you read it and experience the story through your own imagination. The difference with the paper novel is that it's a standalone unit, it does not require any player to be functional.

Like all goods, a large part of the cost comes in the conceptualising, designing, tweaking, testing etc. After the final product is ready, the duplication and distribution costs are relatively minor to get the goods to a shop shelf for the consumer to purchase. The more of something you make, the less per unit it costs, meaning the more per unit you can make from the same selling price; ie the economies of scale.

Albums

The creation costs are all about the weeks or months of writing, practising and recording time from the band as well as the fees of the various producers, engineers, session musicians etc involved. The end of that process results in a master copy on some storage medium, which is then duplicated at minimal cost as many times as needed.
The marketing costs involve the designing of the posters, covers, inlay cards etc as well as deals with radio and TV networks for interviews, airtime etc

The duplication costs are minimised by the economies of scale, but the factories and raw materials still need to be paid for, along with the staff to operate them. At all stages there's insurance to add in too.

The distribution costs involve the packing, trucks, drivers, fuel etc to get the physical goods to the stores.

The store costs are in shelf space. They want fast turnover of stock. All of these units cost money which is only recouped and profited from when the consumer buys them, at which point the various cuts come off the selling price, a fraction of which gets back to the band who put their blood, sweat and tears into creating something unique and personal to them. The last thing they want is a lot of something the public don't want to buy; not only does it soak up money they can't use to buy new stock, it soaks up shelf space they can't use to store or display new stock.

The costs of pressing an LP were rather expensive, as were cassettes, which explained the cost to the consumer. There was also no other way to get music other than the radio. You could of course tape tunes from the radio but you had to try and time the record and pause buttons, as well as guess what song was next. You also had the DJ talking, or jingles etc on the recording. You could also tape the LP, or cassette but neither of these produced great results, and each subsequent copy degraded the sound quality further, adding more hiss to the results.

The industry then gave us the CD, a digital recording, which was much cheaper to produce, so we all expected a drop in the price of our favourite albums. Oh how wrong we were. Instead of even staying the same price, the CD was actually more expensive. Why? They were still trying to sell the cassette versions to the people who didn't have CD players and didn't want to have to write off the current stock. So it's transition time. Even now, after many years, the CD is still priced very high, although they've been forced to reduce prices somewhat to counter the new age where people can and do share music freely.

The industry expects consumers to buy the same albums they already bought on cassette or LP over again in CD format with little or no incentive. Where is the trade in policy? Trade the cassette or LP of an album along with an upgrade premium for the same album on CD. It's not like the consumer is going to play the older formats after they have the new one.

Movies

The creation costs are about the months of writing, filming, editing and post production time alongside the design and manufacture of the sets, costumes, props and the fees for the cast and crew, along with the day to day costs of location work like meals, parking fees, hotel bills etc. The final product, just like the album, is a master copy on some storage medium which can be duplicated at minimal cost as many times as needed.

The marketing, duplication, distribution and store costs are much the same as the album, with the addition of cinema chains into the mix, and a short run where the audience has to visit the cinema to see the movie.

Much like the cassette, the VHS video was more expensive to produce per unit, and like the cassette, the audience understood that, so it was reflected in the price. Like taping from the radio or an LP, taping from a TV broadcast was also subject to similar timing, TV network overlays or announcers messages. They were also subject to a degradation in quality the more they were used or duplicated.

Then came the DVD, just like the CD, it was now a cheaper to produce digital version, where the LP, cassette and VHS were all analogue. So, just like the CD, we saw a drop in price where the DVD's were great value for the consumer didn't we? Of course not, just like the CD before it, we saw DVD's being a lot more expensive than their VHS counterparts. Why?

Not all movies or TV shows were made for a digital medium, in fact when the DVD first came out, almost nothing was. So what we got was an analogue transfer to the new digital format which you'd struggle to tell apart in a side by side comparison. Sometimes they'd do a digital remaster to clean it up, or turn 2.0 stereo sound into a faked 5.1 surround sound that sounds half decent. Sometimes they'd find a few old trailers and a five minute interview to throw on the DVD to make it appear more substantial than it was.

Now almost everything is made with digital in mind, movie makers are thinking ahead to the DVD extras while they make the movie itself as more movies have set the bar higher. Peter Jackson's Extended Editions of the Lord Of The Rings Trilogy was simply incredible for the sheer number of high quality extras included on the DVDs.

Not all movie makers are so enlightened. They expect customers to buy new versions of movies they already own on VHS with little or no incentive other than "my VHS recorder is old, I'm using the DVD player now but I fancy watching a movie I own that I haven't seen in years". Where is the trade in policy? Trade in your VHS copy of the movie, pay an upgrade premium and get the DVD or BluRay version of the same movie? Just like the album upgrade, it's not like the customer is going to play the VHS version when they have the DVD or BluRay version. Where is the discount in exchange for your used cinema ticket when you buy the movie you already paid to see at the cinema?

Novels

Novels are a bit different as there is no physical format change. There is the hardback and paperback, which is a two part release allowing the publishers to charge more for the hardback first before they make the paperback available. Unlike a cinema run for a movie, the hardback is still a product you can take away and experience as often as you like, when you like, at no extra cost.

The creation costs are all about the authors and editors time in planning out the plot and sub plots, tying loose ends together, rewrites and refinements. Like any creative process, the people at the heart of it need to be intensely involved and will pour their soul into the final product. Just like the others, the end result is a master copy ready to be duplicated as often as needed.

The artists create the art, which is duplicated, and the customers buy duplicated products from a factory line.

Just like albums and movies, the marketing, duplication, distribution and store costs are the same, with the addition that a novel takes time to experience, so it does not have the instant sales hook of a trailer or single song to help sell it. Less and less people read for pleasure these days too, so the market is not quite as big as it used to be. The odd novel bucks that trend like the brilliant Harry Potter series by JK Rowling. It's really a game for established authors, rather than taking a chance on new or unknown authors.

The common thread in all of these items in the traditional business model is that they cost money to create, which is a one-off cost. They cost money to market, duplicate, distribute and stock, all of which ties up companies money until the unit is sold, at which point it's recouped. Now lets move that to the digital era.

As consumers do more and more online, that includes buying music, movies and ebooks too. When the prices are worked out for online media are they fair? I'll use easy round figures to illustrate what I mean. If an album on CD is valued at £10, and has 10 tracks, that's £1 per track. So the eStore sells them by the track at £1 each. The thing is, that £10 includes a whole lot of stuff that does not apply to the online version, from the factory, fuel, drivers, packaging, shelf space etc so why does it cost the same? There is no risk of overstocking the album as it's simply 10 files on a server which are duplicated on the customers PC when they purchase it.

The bandwidth involved is a cost, but a negligible one. Is a file worth the same as the physical CD? I think not. Depending on the individual and their equipment, many can't tell the difference between the CD and the mp3 file. The same thing applies to movies and TV shows, with higher (though still negligible) costs in terms of bandwidth as the files are much bigger. Novels are even more obvious in this regard, as an eBook is only a few MB in size, perhaps 1/2 or 1/3 the size of a single compressed mp3 tune. This makes the bandwidth costs minuscule. Yet the publishers still want to charge £10+ for a tiny file. Is this value for money? Does it reflect the costs? I think not.

Remember, the value to the consumer in all of these is the feeling they get when playing, watching or reading them, not from the physical media themselves. This is where the various creative industries go wrong, they count sales of products, while the fans have an emotional attachment to something which is not real but lets them live outside themselves for a while with others and share in something.

When fans of a TV show are outraged that Fox (it's usually Fox) have cancelled their show after destroying it from the start with irregular time slots and virtually no promotion, that's powerful. When fans are engaged enough to set up fan sites, write fan fiction, make fan movies etc that's power. They've made an investment in the characters, the story and the outcome, and all they mean to the executives in boardrooms is "wallets to be emptied".

Fans are a built in audience, when a new TV series, spin off show, album etc is released, those are the spearhead of the marketing department; and they do it because they love it. They also do it for free. Yet those are the very people who are being ripped off the most, when corporations decide to re-release something with a couple of new extras, or a new track and a rearranged track listing. Those are the people who are double, triple or quadruple dipped to buy stuff they already have, just to get some extra little titbit to help complete their knowledge of their hobby.

Why? Simple really, they know the fans will stump up the cash regardless of how badly they're treated. They know plenty will have strong opinions, but they'll still stump up the cash. You only have to look at how many different versions of the Star Wars Trilogy George Lucas has released to see that.

Of course companies need to make a profit from their investments, the creative people at the heart of the process also need compensated for their work. There's a difference however between being fairly compensated and ripping the consumer off. Large corporations in all of these sectors have been doing just that for a long time now, and are reaping what they've sewn. They face a growing number of people who simply don't see any value in the mass produced, expensive physical media, or the digital files priced the same and almost always crippled with DRM. It's why they choose to share files illegally. They know that whatever the sales price, the vast majority goes to greedy rich people who have nothing to do with the creation of the work they've made an emotional attachment to. They know the creative minds behind them get a pittance per sale.

As we grow more online, these industries know they are the excess in the process. Plenty of bands and writers release their work on their own or community websites, bypassing the industry people and their cut of the profits, directly to their fanbase. This will only increase. At least the fans know that a much larger portion of a reasonable price goes directly to the people creating the stuff they love.

The penny is dropping for more and more creative people that you'll never stop people sharing copies of your work, and those who do were never your customers in the first place. They may still be fans however which will pay off on other ways, like concert tickets, word of mouth promotion etc When you start to introduce DRM to try and stop it, the only people you're affecting are your genuine customers who are inconvenienced by the limits you've imposed on them, or flaws in the technology you've used if it's not compatible with their software or hardware. Those who share your stuff illegally will strip that DRM off and have an uncrippled copy.

A video game developer (not being a gamer, I can't remember who or which game)recently had issues where the players had to be online all the time to be authenticated in order to play even a single player game. When those servers had issues, the only people who couldn't play the game they'd bought were the genuine paying customers; the people who did not download it illegally. Those who did play illegally downloaded versions had no problems and continued playing, server downtime or not.

More and more people are figuring out that the best way is to embrace it, to use the internet to build a bigger fan base rather than fight it. It's going to happen whether they like it or not, Time does not travel in reverse, regardless of how much money corporations spend lobbying governments or presenting intentionally exaggerated and deceptive sob stories. The bigger the fan base, the more people give them money.

Many industry lobbyists try to portray file sharing as stealing. It's not. It's duplication of a file without paying the copyright holder. It does not deprive the owner of the file. If you steal a CD from a store, you deprive the store of selling it. If you steal a car you deprive it's owner of driving it, selling it, or giving it away. The same does not apply when you make a duplicate of something. Considering that every creative product has one master copy, and they themselves press, distribute and sell copies they should understand this.

It's also funny to note that they are "sold" while the DRM retains some rights as to what you can or can't do with them. This means you are not the owner, you just bought a licence to use that media within the limits of what they allow.