Artificial Scarcity and Entitlement

A response to a post by kapowaz.

The dawn of ubiquitous computing and communications has had a disruptive effect on numerous previously-stable business models. Those affected most are usually those which relied upon the scarcity of a resource, be that news, music or television programs.

Each one in turn has found itself confronted with a paradigm shift leading away from scarcity, and typically has failed to adapt to the new order that develops. What began with Napster in the late ‘90s has led to everything from news pay-walls to Digital Rights Management on movies and music. When these measures inevitably fail new legislation is lobbied for to plug the gaps, but by that point it’s too late to change perceptions: the resource is manifestly no longer scarce.

Once this becomes apparent to the general populace, the value of that resource tends to drop rapidly. Music once had an intrinsic value, but clearly it was tied to the scarcity of the medium — you could lend a CD to a friend and until they returned it you didn’t have that CD to play yourself.

Once the physical medium no longer played a part in that transaction and one could make a perfect copy at no cost it was only natural that people would share these copies with one another. Big media like to portray this as theft, but in reality, just as with the Replicators in science fiction, the scarcity has been replaced with abundance and with it the business models that rely upon it have become obsolete.

This sentiment isn’t the same as entitlement: it’s a natural reaction to artificial scarcity, and those that attack this reaction are simply struggling to rationalise what is in effect a significant transitionary point in civilisation. As Clay Shirky wrote in Cognitive Surplus, “When a resource is scarce, the people who manage it often regard it as valuable in itself, without stopping to consider how much of its value is tied to its scarcity.” There is no law written that states that every business model is entitled to exist in perpetuity.

In part, I disagree. The intrinsic value of music is in flux and is trying to find a steady state. It’s safe to say that value will be greater than 0, but what that value will be and how we get there I don’t know.

Anyway, I disagree that “[the] sentiment isn’t the same as entitlement”. In the case of Spotify it very much is. The scarcity, the limits they have recently imposed will directly relate to the inherent expense of being a music streaming service. Taking aside royalties for a moment, the costs will be bandwidth, hardware, hosting & staff, which is still significant. Royalties costs, something outside their control, are very much higher still and will make up the lions share of Spotify’s expenses.

Fundamentally it’s a question of cost vs revenue, if the former is unsustainably higher then Spotify will cease to exist. They chose to reduce costs (the alternative being increasing revenue, though they’ve done this by proxy) by limiting the loss from their loss leader, ad-supported radio. The funny thing about “ad-supported” is that it rarely is, off settings internet advertising (even heavier media ads) against streaming costs rarely turns a profit, but for Spotify that let’s people try the service before buying a subscription. I know nothing about the internal policy of Spotify but I imagine that too many people didn’t transition to the subscription model and “free” was being used in an unsustainable way.

Fundamentally I can’t understand the “it should be free” mentality. Spotify are clearly reacting to market pressure,

Perhaps the common online model of loss-leading to gain users is to blame, setting a poor expectation. A common difficulty of sites/applications looking to charge is that tacking on a subscription package on an existing product is hard. In some ways it’s better to charge from the start, better managing expectations and generally avoiding the “everything must be free” crowed altogether. Side note, this has been the theme of a number of discussions i’ve seen around pricing, don’t be afraid to value what you’ve built.

Ultimately why should you pay for Spotify? You can go download torrents easily (actually, most people can’t but we’ll ignore that here), you can listen to songs on Youtube, getting music isn’t that hard. But Spotify make it much easier, the service they’re providing is utility and easy of use. At a party you don’t want to be dicking about with a torrent client, or searching Youtube to play a track, you want to have a nice interface to all the music every and treat it like a jukebox. The hard work Spotify are doing is making that experience good, that’s what you should be paying for.

The true unreasonableness of the entitled group is that they don’t have to use Spotify. Don’t want to pay? Go pirate it instead, it’s cool, have fun. But some people feel entitled to the ease of use provided by Spotify. The scarcity you are paying for is not the music itself, but the way it is made available.

As a side note, that last point is more dangerous to Spotify (or any other streaming service) than anything else, that you risk becoming a commodity, a service layer that is swapped as easily as a real world utility provider. Making it possible for someone else to come along do it better and leaving little incentive for your users to stay with them. But ultimately this will happen, I fear. The entire online music industry has been an act of leap-frogging for a decade, each new company makes a little more progress than the last (which usually suffer a sad fate).

Case in point, the royalty deals made to Spotify will have been more an improvement those to, and whatever follows Spotify will be better again. This ties with the value of music approaching a steady state, but until we get there the change is going to be slow going, with many small steps - short of revolution, of the major labels (and large indies, and aggregators) all crumbling, which is a popular idea, but an unlikely one.

As a second side note, I couldn’t help but laugh at some of the article’s comments. The ignorance is unsurprising but still enraging. One sensible comments points out that royalty rates have increased significantly over time, but then makes this utter blunder:

….then they could have negotiated for higher ad fees

I mean really. The solution is to ask advertising companies for more money? You don’t think perhaps ad revenue is already at market rate, that there is no room to say “can we have a bit more please”?