Pay for what’s worth paying for

My friend Sam over at WrongBot has a piece up about the disconnect between price and value, focusing on how it concerns piracy. I have a lot to say in response, which I felt merited a post of its own.

Sam sets up a dichotomy between price and value, which he defines as, respectively, “how much you pay for [a good or service]“, and “how much a thing is worth”. The former varies quite a bit for a given good or service; the latter, for the most part, does not. He then goes on to describe a disconnect between the two, and how in recent years it’s gotten worse:

We now live in a world where the minimum price you can expect to pay for a piece of music is zero dollars. And if people have trouble telling price and value apart, which I think it’s clear that they do, then there are a lot of people who think that recorded music isn’t worth anything at all. Now, this is an obviously erroneous belief, because these people listen to music, and therefore it has value to them. But they don’t realize that. They think that the value is the price, which is nothing. And by “they,” I mean “all of us.”

The problem with this argument is that it’s too narrow a description of what people are willing to pay for. This argument views buying a album of music as a straightforward money-for-music deal. The real market isn’t that simple. There are other factors to consider: what can I use to listen to this music? What does it cost me in terms of time? Am I limited in any way in how I use it? Am I in danger of legal trouble for using or having it?

From the purest standpoint of a consumer, what piracy ultimately boils down to is a different distribution method, which has its own conveniences and drawbacks. Let’s take CDs as an example. Clear costs are in red (since some are debatable). A CD’s features are:

• Can be played in portable CD players or computers.
• Must be physically retrieved to be used.
• Can be optionally encoded to a computer.
• Can be easily shared with friends.
• Comes with art and lyrics and possible other features.
• Costs around $10-15.
• Requires either a trip to a brick-and-mortar store, or a several day wait to acquire.

Now let’s look at pirated music through the same lens.

• Costs nothing.
• Requires no physical storage.
• Can be easily shared with friends.
• Instant or very fast gratification.
• Can be played on computers and PMPs, or optionally encoded onto CDs.
• Requires users to organize their music themselves.
• Carries a minor risk of legal reprisal from authorities such as the RIAA.

It’s hard to argue from those lists that CD’s are a superior format, no? Takes up little to no space, can be played on any device (including much smaller ones than CD players), and it costs nothing! Not to mention, so few people have been sued by the RIAA that the lawsuits that have happened have served more to piss people off than scare them into paying for things.

When piracy first became a viable option for the masses–that is, when Napster became popular–the music industry’s response was to try to defend their operations by attacking it. For whatever reason, their thought was not “here’s a new opportunity, let’s learn how to make money from it”, it was “this threatens our business model, let’s destroy it”. And let’s be clear: this is a service that was better. Yes, it being free was a factor in that, but CD’s don’t offer instant gratification and will always require physical storage.

It took a few years, but music distributors figured this out. They know that instant gratification is very, very, very important if you want to get someone to pay for something. That’s why the iTunes Music Store is the largest music distributor in the world–it provides music straight into a user’s iTunes library in just a few clicks (effectively a music package repository). Amazon understands this with their MP3 store, which can automatically export its downloads into a user’s iTunes library or Windows Media Player.

And it’s also why streaming music is changing everything now.

I’m talking about Pandora, last.fm and Spotify. I’m sure we all know the former two–the latter third has made a tremendous splash in Europe, and will undoubtedly make a similar one once it makes its way to the USA. It’s basically like iTunes, except all of its music comes straight from their servers on demand, ad-supported or for a monthly fee. Let’s look at the feature list for that:

• Costs nothing.
• Allows personalized choices of music on demand.
• Instant gratification.
• Requires no physical storage.
• Can be played on computers and increasingly common internet-conneted portable devices.
• Costs money to remove ads.

This is better in almost every way, for nearly all use cases.

Economics has been called the Dismal Science for a reason: it’s amoral. It assumes that people don’t do what’s right: they act in their self interest. But there’s an upside to that: it means that piracy can be beaten by offering a better product. In the early days of piracy, it’s true that the technology didn’t exist yet for making current and emerging distribution methods practical–but it’s constantly getting cheaper, and as it does it’ll only become easier to make services like Spotify profitable.

For other examples in other media, there’s Audible.com, Netflix and Steam–all services which clearly have something to lose from piracy, and yet are doing pretty well. These businesses have all come up with ways to be better options than piracy for at least a lot of people, and they’re quite rightly doing well for it.

So yes, there may be a disconnect between what’s right and what happens in practice. But that’s no excuse for anyone to dig their heads in the sand and refuse to innovate. The world changes; if that threatens your business, then change your business. Draconian measures to protect a demonstrably inferior business model will not halt progress.