October 10, 2007
When Everyone's an Advertiser Where Does the Money Go?
Posted by Dorian Benkoil
http://rebuildingmedia.corante.com/archives/2007/10/10/when_everyones_an_adv
ertiser_where_does_the_money_go.php
You've probably heard that for its album "In Rainbows" released today,
British band Radiohead is taking what industry watchers are calling a
revolutionary step: letting fans determine the price they'll pay for it. But
it isn't so revolutionary, if you've been watching media and business
trends. It's not just that other, less famous bands have tried the same
thing before or the half-failed attempt by Prince in 1998, when fans
complained they didn't get his disc for months after ordering it direct from
the artist.
What's happening to the industry is monopolistic advantages created either
by regulation or severe limits on distribution are being shaken up by the
new distribution platforms. If someone charges too much, a lot of the
audience will get the music or programming for free - laws be damned. Marc
Cuban quipped at a conference that he doesn't bother paying to put copy
protection on DVDs of movies he funds that any six year old can crack. TiVo,
YouTube, BitTorrent, Kazaa - the names are legion, and will be endless.
iTunes was perceived as offering a fair price and great model, until NBC
said recently they wanted flexible pricing for differentiation.
We're often taught that competition is great, but in fact capitalism can't
function with perfect capitalism. If every piece of content, every ad spot,
every song, every product is up for auction, and the disruptive technology
of the Web flattens all profits, margins will be cut razor-thin, ad space
become commoditized, and the ad industry loses -- except for those few
breakout creative pieces that people will really be willing to pay for to
show appreciation, or because that creative distinction is a differentiator
that allows charging of a higher price. So much today is up for a
"pay-what-you-want" or auction model. Auctions on eBay and competitors,
keywords on Google and others, brokers who sell ad remnant inventory and the
like.
What Radiohead, a highly acclaimed if not superstar band, is doing is not
only using the technology to reach out to their core, not only using the new
technologies to end-run the recording industry, but also working on new
models for making music and making money. It's been pointed out that we're
in a new music industry model, one in which, rather than making money off
CDs, artists make money through add-ons and concerts. Concerts can take in
hundreds of millions of dollars at $100 per ticket. Radiohead's site,
through a very simple interface, says "It's up to you" what to pay, and
later get a download code. They're offering the music for free, but offering
upsells for more: a package with the CDs in a special box, another disc of
songs, two vinyl records, lyrics, artwork and so on costs 40 pounds (about
$80) that will be available in December. The latest Prince concert, gave
away CDs, and took considerable flak for giving yet more away as a newspaper
insert.
Radiohead's site crashed last week after they couldn't handle the demand.
Their initiative is seen primarily as promotion. Within 36 hours after the
announcement, Radiohead had reached #3 on Billboard's "Buzz 100" list of
most blogged bands. But it's more: The band gets names and contact info of
people who subscribe, all of which have a lifetime value. And they get
marketing information: How much will fans actually pay for an album? And
releasing the album this way doesn't preclude negotiating a conventional
record deal later; that deal could be more lucrative once they've proven the
music's popularity beforehand. (CDs still account for about 80 percent of
music sales.)
How long, too, before sites like Radiohead's are seen as place to show ads?
And there we begin to create yet another long tail disruption. If everyone
who can aggregate an audience, especially an audience with a specific bent
or demographic profile, begins to serve ads, begins to offer itself to
advertisers, we'll start to see all these niche sites (perhaps in
Radiohead's case it should be called a "mass niche") that get ad dollars in
addition to all the other revenue streams. We'll also see if marketing
budgets can sustain so much mainstream media that appeals to less targeted
mass audiences.
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