Special Report: Creative City

The Future of Creative Industries: Openness and Abundance or Innovation-Killing Legal Monopolies?

By collapsing the cost of creating and distributing content, computing and the internet could usher in a golden age of creativity - if only the creative industry can learn to embrace openness as a business model.

By Ryan McGreal
Published July 03, 2009

If Hamilton is going to cultivate a new economic sector around creative industries, we need to understand just how the environment for creative work is changing as scarcity in the production and distribution of creative works gives way to abundance.

(Aside: it's probably impossible to have a really solid understanding of the transformative power of new communications media without reading Clay Shirky's excellent book Here Comes Everybody. It provides the foundation for the analysis that follows. I wouldn't even be offended if you skip reading this and just pick up Shirky's book instead. I've also drawn some of this from Jeff Jarvis's new book What Would Google Do? It's not as tightly written or as tersely argued as Here Comes Everybody, but it does provide valuable insights into how businesses can leverage freedom and openness as business models.)

When a resource - say, a printing press or a recording studio - is scarce and expensive, it becomes necessary to make sure that the resource is used as effectively as possible. This leads to professionalism: professionals become the gatekeepers who control access to the scarce resource and determine what gets processed through it.

When it is prohibitively expensive to operate a printing press, you need professional journalists, writers and editors to filter and control what gets published. No one can afford the luxury of publishing crap that no one wants to read.

Professionals add value through their ability to decide in advance what the market is willing to pay for, so the huge fixed investment of the printing press yields enough revenue to pay for it and turn a profit.

Similarly, when it's prohibitively expensive to operate a recording studio or to distribute physical media (vinyl, 8-tracks, cassettes, CDs) to stores, you need professional A&R people, producers, session musicians and so on to find promising musicians, record and produce their music, and then promote it to the buying public.

What the widespread adoption of personal computing and the internet have done is to transform a scarce, expensive commodity (publishing, recording, producing, etc.) into a cheap, abundant commodity. This is profoundly transformative.

Cheap and Abundant

If anyone can publish a blog that costs almost nothing to operate, you no longer need professional gatekeepers to decide who gets published and who doesn't. In short, the cost of "failure" - of producing content that hardly anyone wants to read - has collapsed, and so we can afford the luxury of widespread "failure".

"Failure" is entirely relative. When you need cash flow to cover the huge financing and operating costs of a physical printing press, a publication that only a few people want to read is a disaster. But when you can publish that same publication for free on Blogger or for a few dollars a month on a personal web server, it doesn't matter that only a few people want to read it.

Since the potential audience for your content is far huger than any physical market - as distance is not longer an issue for distribution - it becomes possible to write for a large, distributed niche audience.

A few things happen as a result of this.

1. Amateurization

The business of producing content starts to become amateurized - open to non-professionals - as the economic value of professionals filtering content progressively erodes.

Imagine Europe before Gutenberg invented movable type. Books were so scarce that there was a professional class of scribes whose specialty was to read books and copy them by hand. After printing became widespread, reading was amateurized - anyone could learn to read because books were cheap and abundant.

2. Distribution Dries Up

The ability to earn money from distribution also erodes, since anyone can distribute content almost for free across the internet. Why pay $20 to buy a CD from a store when I can download the audio files for free?

When the music industry tries to prevent people from downloading songs, they're not trying to protect intellectual property - they're trying to protect their business model as the distribution gatekeeper.

3. Publish, Then Filter

Instead of filtering potential content before publication, it becomes more important to filter existing content after publication.

When anyone can produce content, the amount of content will necessarily explode, and no one has time to read through all the tens of millions of blogs out there looking for stuff. An abundant landscape of content needs to be searchable - and specific content needs to be findable.

The primary searcher and finder today is, of course, Google, which ranks potential results of a search query by determining their relevance and popularity among the aggregate online content that humans have already produced, weighing the value of an online document by how many other online documents link to it (and weighing the value of each of those inbound links by the number of links pointing to those documents, and so on).

The reason Google ate Yahoo's lunch is that Yahoo still thought of itself as a gatekeeper - fitting content into categories and ranking it based on what professional editors thought was worth reading. Google has utterly amateurized the business of content ranking (and in turn, professionalized the business of developing ranking algorithms - the next bottleneck that some future upstart will figure out how to overturn).

Personalizing Search

Beyond Google search, social networks are able to take filtering and weighing of specific content types to an even finer grain by capturing and aggregating individual, personal choices about content.

Making the basic unit of social networks the person (where individual tastes persist) and not the link (which gets lumped in with every other link) leads to very fine-grained 'recommendation engines' (think of the Amazon.com feature, "People who liked this product also liked...") based on cleverly aggregated individual feedback.

It's no longer simply a popularity game, which is more or less how the conventional music industry works (i.e. all the marketing money goes toward pushing the new Britney Spears album while more interesting, idiosyncratic musicians languish in obscurity). Internet-based filtering is not a mass market phenomenon but a niche market phenomenon.

Once you have enough people on a network, it becomes possible for people with niche interests and tastes to find each other (directly on forums or indirectly through recommendation engines), in the same way that niche subcultures can form in a large city but not in a small town.

Instead of having, say, A&R people decide which band gets signed or editors decide which story gets published, you can find new content by discovering what other people who like the same kinds of content as you also like. You also help make the recommendation engine work better by sharing your own tastes.

Positive Network Externalities

This creates what's called a positive network externality, which is a fancy way of saying that every additional person who joins the network makes it work better for everyone else.

Think of the fax machine: if you're the only person in the world with one, it's useless to you. If one other person has a fax machine, you can only communicate with each other. But if millions of people have fax machines, it becomes a very effective tool for passing documents around.

Just think: the fax machine was invented in the 19th century, but didn't cross the threshold to mass adoption until the late 1980s.

Email is another positive network externality - and it reached critical mass a lot faster than fax machines. Email systems were invented in the 1960s/70s and crossed over to mass adoption in the late 1990s.

Of course, the internet itself is the biggest positive network externality of them all, the content-neutral meta-platform on which all these other networks (email, search, social networks, filesharing, etc.) operate.

Lingering Scarcity in Music

Publishing is farther along in this than music, and here's why: the cost of recording and producing music has come down, but is still nowhere near as dirt-cheap as the cost of publishing. Anyone can write an essay in a free WYSIWYG (What You See Is What You Get) editor and upload it to a website, but we're still waiting for a free 'WYHIWYG' (What You Hear Is What You Get) music editor that anyone can use.

In other words, there's still a lingering scarcity in the music industry, and hence a lingering role for professionals. However, two trends will ultimately collapse even this lingering professionalism.

  1. The cost of both computer hardware and music editing software is falling steadily. Sooner or later a free or very cheap virtual recording studio will incrementally emerge onto the market that has all the features of a professional studio and will be easy enough for an amateur to use.

  2. As the economic barrier to recording and producing music falls, more people will make music. Just as in publication, it will eventually no longer matter that most of it is stuff that only a few people would want to listen to. The important thing is that it will be possible for individuals to find music that appeals to their tastes.

When that happens, music will be amateurized just as journalism and writing are being amateurized. It will be necessary to find new ways to make money, but musicians will have an advantage over writers in this regard, since they can still charge for live performances. A live performance is inherently scarce and so its value will persist.

Eventually, bands may make most of their money playing live, selling merchandise, licencing their music for other uses, and so on, rather than selling tracks to listeners.

Cheap Licencing or Monopoly Power?

For now, I think it's reasonable to charge listeners enough money to pay for the modest cost of distributing music. I would be willing to pay 25 cents per song for the benefit of a fast, comprehensive music search engine that delivers high-bitrate MP3s. That would beat the opportunity cost of messing about with file sharing networks and downloading five copies of a song to eliminate the bad rips, low bitrate encodings, trojans, decoys, and so on.

As it stands, there's no way I'd pay a dollar or more per song to download a crippled audio file in a proprietary format with Digital Rights Management (DRM) that limits how I can store and play back the file. I wouldn't buy an album that only played on a certain brand of record player.

For the time being, I'd rather buy CDs, which are priced comparatively with iTunes (per song) and store the music in a very high quality, open and lossless format. This is unfortunate, because it entails a lot of unnecessary waste: the manufacture and distribution of a CD that I'm just going to rip to my computer anyway.

Filesharing is a tragic missed opportunity for the music industry to dramatically extend its reach to potential listeners - and potential customers. Just as free radio play increased music revenue and cheap videos increased movie revenue, free or cheap music filesharing could also have increased music industry revenue - if the industry embraced it instead of resisting it.

As Cory Doctorow argues in a compelling recent essay, by throwing up legal barriers to filesharing instead of cheap licencing, the creative industries have inadvertently handed the control they sought to preserve over to those media companies with deep enough pockets to pay for access.

By suing and settling instead of licencing, the creative industries have granted de facto monopolies to the new media companies big enough to wrangle a deal. If another company wants to compete with, say, Apple to distribute music or with Google to search books, the legal barrier to entry is now huge.

The scarcity the internet destroyed is artificially restored, but now the scarcity is in mere access to content rather than the means to publish and distribute content, shifting control from content producers to the legalized monopoly in search and distribution. That's insane.

This results in anti-competitive monopolies, strangled innovation and slower economic growth, as economists Michele Boldrin and David K. Levine argue in a new book.

In that environment, everyone loses: creators, labels, and consumers.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By OPP (anonymous) | Posted July 03, 2009 at 14:37:17

Newspapers and record labels are the Medieval Scribes of the modern age. And just as quaint and irrelevant.

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By makejump (anonymous) | Posted July 06, 2009 at 11:14:41

If you are referring to bigger record labels, then yes. However there are plenty of small record labels that cater to niche markets, and they remain relevant to the area of music they choose to do business in. Take Rune Grammafon or Arts & Crafts. These labels seek to produce content that fits easily into one category, which in turn makes them very successful within what is, for the most part, a deflated industry.

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By faragol (registered) | Posted July 15, 2009 at 12:47:17

I just read a very good article in the July 2009 issue of Wired Magazine. It is called "Waste is Good" and it speaks to the same ideas you have mentioned in this article.

There is also another good article called "And Data for All" which is about the USA's new CIO and their open source initiative.

I found them interesting and just thought I would share.

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By Undustrial (registered) - website | Posted July 15, 2009 at 14:33:30

(I hate to get all Marxian about things, but there are times where his analysis is somewhat useful.)

This is an issue of capital. When control of capital is centralized, those who control it are able to exact a larger profit margin off the transactions between producers and consumers. This pretty well describes the record industry for the last few decades - owning radio stations, record presses, recording studios etc. But home computing has changed all that. First off all, it creates a frontier so vast and chaotic that it is nearly unpolicable. Sure you might get busted for running a giant child molestation network or stealing thousands of credit card numbers (and sadly, most don't), but downloading an album or two is safer than jaywalking. Since property is a function of the state (both in its regulation and enforcement), and because the state is utterly impotent in this area, music has become free for virtually everyone. When you combine this with that fact that home recording software and hardware has come down in price and gone up in capabilities, and enter networking sites like Myspace which allow music downloads, you get a revolution in music.

In the immortal words of NOFX, "Dinosaurs will die".

While big record companies have been devestated by filesharing, independent musicians are now able to reach audiences around the world. I've known homeless train-hoppers able to record full albums for musicians and master the recordings themselves, and countless more who are able to print and distribute their own albums (spray paint and stencils, the original lightscribe).

Technology is always a double-edged sword.

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By iforget (anonymous) | Posted June 02, 2010 at 07:14:12

I'm confused about how you see this working positively for the workers who produce literature, journalism etc. It seems to leave us in a bit of a bind; as it is, we do lots of work for free or for less than livable pay, just to establish the portfolio we need to secure higher-profile underpaid work and the occasional gig that pays well, so how are we helped by a business model that pushes us farther from stable, sustainable employment and deeper into an employment culture of cutthroat competition, free "blogger" work, random paycheques and self-branding? I'm not saying I'm a fan of media as it exists, but this amateur-and-entrepreneur market is really hard to work in, if you also like to do things like eat, get your prescriptions filled, sleep indoors, and pay off the student loans you took out to become a highly skilled professional. What kind of support do you envision that would make this business model livable for the people who produce content in it? Where would professional ethics fit in to this model, in an industry that pressures writers to produce "competitive" content at all costs? How would ideas that diverge radically from dominant culture be integrated into a google-style search? How would young workers get started in this model? How would we collect payment for our work? Would experimental writers be able to earn an income?

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