Experiments in cultural markets

As some of you know, comedian Louis CK has been in the news of late because he sold a DRM-free copy of his recent comedy special direct-to-fans, from his website, for only $5. And he’s now made a million dollars. And gotten rid of most of it. Allegedly, the idea sprung from Louis’s frustration selling copies of shows through DVDs or iTunes sales in the past; he’s among the many performers who complain that these products make profits for producers, but not the artists. So, he spent time and money building a simple interface website, and self-producing a high-quality video of a show at New York’s Beacon theater and sold it himself. The website text explained the file had,

“no regional restrictions, no crap. You can download this file, play it as much as you like, burn it to a DVD, whatever.”

Of course, the risk was that copies would soon be distributed “for free” over the internet, and fans would not pay the $5 to purchase directly from the website. Economists are a fan of these sorts of experiments–to see under what conditions people will pay for a service that they could use for free, when the expectation is that users should pay. The one I know best I think of as “the bagel experiment,” and there’s a nice, reader-friendly description of it here, by Dubner.

Louis went on Jimmy Fallon’s show last night to announce sales had topped $1 million. His website now includes a screen shot of the paypal page showing these sales, and a statement including the following:

I wanted to let you know what I’m doing with [the money from sales-. People are paying attention to what’s going on with this thing. So I guess I want to set an example of what you can do if you all of a sudden have a million dollars that people just gave to you directly because you told jokes.

So I’m breaking the million into four pieces.

the first 250k is going to pay back what the special cost to produce and the website to build.

The second 250k is going back to my staff and the people who work for me on the special and on my show. I’m giving them a big fat bonus.

The third 280k is going to a few different charities. They are listed below in case you’d like to donate to them also. Some of these i learned about through friends, some were reccomended through twitter.

That leaves me with 220k for myself. Some of that will pay my rent and will care for my childen. The rest I will do terrible, horrible things with and none of that is any of your business. In any case, to me, 220k is enough out of a million.

I never viewed money as being “my money” I always saw it as “The money” It’s a resource. if it pools up around me then it needs to be flushed back out into the system.

It is interesting to see how cultural markets react in the face of customers having an enhanced understanding of the principles on which they are founded. As we understand more about how internet-based markets work, our decisions are impacted, and the markets change in response to us.

One thing I haven’t seen yet is a groupon-style market (where a reserve number of purchases needs to be met) where price is variable. That is, the provider of the service (say, an album, or a comedy DVD) defines in advance the cost of that service (e.g., $500K for labor, overhead, talent, etc.), and the cost to consumers cannot rise above that amount. What is left to vary is the number of users that bear the cost. In this hypothetical, 500,000 users would pay $1, 250,000 would pay $2 and so forth. How many people would participate? What other variables would need to vary in order to impact participation levels? What if, for example, consumers had only a week to decide if they would participate, but had no knowledge of how many others would do so? What if users had 2 months, but could see a counter of people who had agreed to pay into the pot? What if the size of the total cost was hidden, and users could only see the current per-person rate?

Curious as to your thoughts, on the Louis CK thing, earlier similar events by Radiohead and others, and my hypotheticals.

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2 Comments

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2 responses to “Experiments in cultural markets

  1. I think one reason users pay in these scenarios is because the events (Louis; Radiohead) are still pretty rare. I remember when Radiohead did it, I gladly forked over my money because I felt like I was doing something for the good of society. I was fighting against the man by donating money to Radiohead to get their record. It didn’t feel like a purchase – it felt like a statement. It helps, of course, that I like Radiohead and Louis CK (and in the former case I would have bought the album anyway), but the rarity and uniqueness of those purchases give them more personal meaning to the user.

    I think if everyone started using this as a business model it would lose its meaning and significance to the users. People would say, sweet, free cash on the floor! Even Radiohead did their little experiment only once and then they went back to a traditional pricing model. What would happen if everyone started distributing their stuff like Louis is doing? I think this will work for Louis in the future because he’s already developed a huge fan base, but I’m not sure if every artist has the marketing power/image to carry it off.

  2. Jenn Lena

    I completely agree, and it was this hypothesis I was driving at in suggesting that we see market effects when users have new information. As the novelty of this approach to distribution wears off, and we see our participation in such events less as “a statement” and more as “a purchase”, free ridering should become more common. This hypothesis is one of the reasons I got to thinking about some novel form of the existing model (existing model = Radiohead, Louis CK) that might produce less theft than I expect we’ll start to see as more entertainers try DRM-free digital distribution.

    What do you think of the Groupon-style model–under what conditions would it work?

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