Stop, Thief!

There’s an extraordinary, almost frightening passion in the way film and music executives talk about people downloading their products for free. It’s a moral position. Their fervor is genuine. These normally pretty bland, very business-languagey guys—suits—become incredibly intense and bent out of shape on the file-sharing issue. The ferocity of their counter-offensive—in lawsuits, in government lobbying, in semi-demented technological-protection schemes—also seems as personal.

This is real pain—and real fury.

The disconnect here occurs on several levels. For one thing, it is very strange to have entertainment executives—generally regarded as among the most amoral, conniving, and venal of all businessmen—taking the high ground. And yet here they are delivering heartfelt defenses of artists, and even art itself—they see the very essence of the nation’s cultural patrimony at risk. And you really don’t sense a phony or opportunistic note. Rather, these guys actually seem to be losing sleep over this. It’s right and wrong they’re arguing about here. Good character versus a virtual barbarian deluge. They believe, with feeling, that bad or sadly misguided people do this digital pilfering. Every time I get buttonholed—Peter Chernin, the COO of News Corp., gave me a very convincing what-for not long ago—I find myself feeling incredibly guilty and resolve to have a word with my children about this whole downloading issue.

The other odd thing is that these guys who have built their careers and their industry on trying to give an audience exactly what it wants—no matter how low and valueless and embarrassing—are now standing with a high-church rectitude against the meretricious desires of this same audience. It is a bizarrely out-of-character role: holding the line. Censuring the public. Suing the public! Indeed, branding the great American mass-media audience as a craven and outlaw group.

And, personally, I find the technology aspect of the discussion funny, too. Almost all of these guys are salesmen and promoters and talent tenders, with a limited grasp of the actual mechanics of the products they produce and amazingly short attention spans for most detail-oriented issues. But now, when they buttonhole you, you get an earful about encryption and magic keys and electronic watermarks and digital policing (it’s mad-scientist stuff). It’s a new, determined, almost messianic belief that the technology that caused all this trouble is what’s going to save them now.

Obviously, self-interest is the driver of this new effort at radical reformation of the American audience. The music business, which ignored this consumer revolution, is in a crisis that almost no one expects it to fully recover from. It has gone from the traditionally most profitable and desirable sector of the entertainment business to the most troubled and reviled (Vivendi’s plans for the disposition of its U.S. holdings are complicated by the fact that almost no one wants its music company—which actually remains the largest and among the most profitable in the world). Film executives believe that without Draconian measures, they are the likely next victim. So they’re going to war—by whatever means necessary.

But it’s not just a selfish crusade. Rather, they think they’ve seen evil of a kind. It’s like Bible Belters in the face of the sexual revolution. It’s the end of civilization. It’s everyone’s reason for being that’s under attack. It really isn’t just business.

They don’t see file sharing as just a change in the nature of the transaction: a fundamental, but not unfamiliar, discrepancy between the ask price and the bid price.

But here’s the merciless trend (which obviously has big and heartbreaking implications for weakened media conglomerates): The price of content keeps falling.

This trend is sweeping and across-the-board. It’s not just in music, where the bid price approaches zero. It’s in cable television, where hundreds of channels and premium-programming offerings are only incrementally more expensive than the price of a handful of channels (while the consumer often thinks he’s paying more, on a per-hour-of-programming basis he keeps paying less and less). And it’s in the new market-share-grabbing retail strategy of low-price DVDs, as well as the longtime practice of dramatically discounted (indeed, nearly free) magazine subscriptions, and the relentless downward price pressure on once-expensive specialty databases. Information in all its forms gets cheaper and cheaper.

“Every time I get buttonholed by a music executive about digital pilfering, I find myself feeling incredibly guilty and resolve to have a word with my children about this whole downloading issue.”

And this isn’t just a simple one-cause effect.

There’s the Internet, of course, which, flooded with free content, has undermined (to say the least) content value. It has also, as dramatically, altered the idea of the content package—being able to take only what you want and leave the rest has a powerful negative pricing impact. But then, too, there are the desperate or overeager music companies, which have marketed and licensed music so that it has become ever more freely atmospheric. Music stars, often as part of great synergy plans, saturate TV shows, movies, and advertising; in addition, since movies and television are seldom scored anymore, cuts from CDs (otherwise for sale) become incidental background music. Music itself, in other words, is now Muzak.

And then there are magazines, which, to court advertisers, became not just cheap but virtually shoved down your throat. And there are mass-market-media retail chains—Barnes & Noble, Blockbuster, the warehouse clubs—which have a Wal-Marting effect (as psychological as it is economic) on books and videos. What’s more, the ever-falling price of consumer electronic equipment, instead of creating more and more platforms for expensive content, may also have contributed to the general sense of deflated entertainment value.

Ubiquity became the main media standard.

So this is elemental: The more available content is, the inherently less valuable it is.

In some sense, the anomaly of music and movies is not that they are, suddenly, in free circulation but that they have existed for so long, against the trend, as paid, premium items. What’s more, that the cost of movies (at least in theaters) and music, on a unit basis, has continued to go up instead of down is, in fact, an odd and exceptional business model—which a prudent person should have logically assumed would never last.

Related Stories
Tommy Mottola’s Tune
By Phoebe Eaton
For fourteen years, Tommy Mottola ruled Sony Music like an independent duchy and lived the life of a pasha, marrying pop tarts, surrounding himself with a small army of bodyguards, buying lavish properties like so many trinkets while earning as much as $20 million a year. But as the asteroid known as file-sharing cratered the music business, Mottola began to look more and more like a dinosaur. (March 3, 2003)

Facing the Musc
By Michael Wolff
Rock stars and music-industry execs once ruled the earth, but now – in terms of size and profit margins – the music industry is becoming the book business (minus the literacy). (June 10, 2002)

While the movie and music people see their lost revenues as a moral issue, everyone else is feeling the pain, too, and trying desperately to buck the trend.

Much Internet business talk is now all about putting content back “behind the wall” and getting people to pay for it. Everybody is dreaming of electronic subscription services (the plan to save AOL seems to be mostly based on the idea of making it the HBO of the Internet). Alas, there are virtually no examples (except porn) of content subscription services working anywhere online. Even the Wall Street Journal online service, which has always been the grail of Internet paid-for content, is little more than a break-even operation—and it’s had to curtail original-content-creation efforts in order to reach break-even.

In the magazine business, the most coveted number is the newsstand number, even as cheap subs (and, arguably, free Internet content) progressively erode that business. There is, too, a kind of Utopian talk about getting the consumer to pay for actual content value—but I don’t know of anyone who really believes that after two generations of subsidies (and now with infinitely greater and cheaper information distractions), consumers would now pay full fare.

The great cable scheme for restoring some kind of parity between content consumed and content compensated for is pay-per-view. Indeed, on my Time Warner system, the relatively feeble pay-movie offerings are being replaced by the kind of vast, play-anytime, choose-anything-you-want system that we used to check into hotels for. The problem is that, so far, nowhere on any cable system in the U.S. has there been any meaningful use of pay-per-view stuff (even for sports it hasn’t developed into anything more than a marginal business). We just don’t do it. We don’t pay for content.

Notably, Europeans do. They slice and dice and pay for content in droves. From the TV, from the cell phone, from the PC. (Although the online WSJ is careful not to break out its subscription sources, some analysts suggest a significant number of its subscribers come from outside the U.S.)

But paying for content—at least content for content’s sake—has become an un-American trait. We believe in getting it all. A bigger and bigger bundle for a lower and lower price. The flat fee rules (we don’t even pay for long-distance telephone calls anymore). And a flat fee is very close in function and perception to no fee.

It’s easy to understand why for the movie and music guys it’s primal-scream time. They maintained a very basic relationship with the consumer—we make, you buy—which suddenly was messed up, not least of all by the media empires to which the movie and music business belonged.

The West Coast movie and music guys have always had a simpler view of the world than their New York counterparts. Indeed, their New York counterparts have always treated the movie and music guys like dimmer cousins. Just off the farm in many ways.

They just didn’t understand how the whole media view came together, how synergy happened. In the empire’s view, consumers had to be made to consume—growth depended on media being everywhere, media being transparent, a utility. And as with a utility, it was better that you not really even be aware of how you consumed the product. It would just be on and available all of the time. The way to do that was to commodify the product and to make it ever cheaper—or in the case of the Internet, to make it free—and then to figure that with a giant audience and vast brand awareness and utilitylike dependency and this incredible cross-platform cross-marketing apparatus and an instant star-making and self-promotion machine, you couldn’t help but make a big pile of money for the conquering empire. (“DISNEY TO PUSH RETAIL GEAR TIED TO ITS TV SHOWS,” read an ever-hopeful headline in last week’s Wall Street Journal.)

The thing that I always try to say to the movie and music executives frothing at the mouth about this stealing issue (accusing my children and, one might fairly suspect, their own) is that everybody can’t be an outlaw. If everybody does it, it’s normal rather than aberrant behavior. It’s not so much the consumer who is on the wrong side of the law, but the entertainment industry that’s on the wrong side of economic laws.

For better or worse, the media business has created a world where consumers feel content is worth less and less and they are entitled to more and more of it. And now the chickens have come home to roost.

The veins on the necks of these execs are distended and throbbing, and they really have a hideous look in their eyes.

Stop, Thief!