The Curve

The Curve, by Nicholas Lovell, is a fantastic piece of writing, which tackles a very current issue today, piracy and the musicl industry, amongst other things, with a very complete economical and pshychological analysis. I highly recommend giving it a look. Advance readers beware, it may get a bit slow and repetitive at some point which makes it perfect for beginners.

The issue it tackles is: How are producers of goods such as music or films supposed to make money, when the equilibrium point of these items is tending towards 0? By this I mean, that any musical or filmic content can be accessed for free on the internet.

The Curve, is a reference to the demand curve. The demand curve, is basically an aggregate of the demands of different consumers. The problem, Lovell says, is that music producers are stuck in the past, looking at the low end of the curve, which is that beneath the equilibrium price. The secret to success in the modern world, is the opposite, you have to target the people who are willing, and wanting, to pay more for that product. The high end of the curve.

What Nicholas Lovell is pointing out here, is that these firms need price discrimination. One price doesn’t fit all. Never mind those people downloading stuff for free, target those who want to pay more. He then develops this idea, talking about the importance for artists of building an audience that is made up of commited fans. He then uses Lady Gaga as an example of this. Lady Gaga made 100 million+ last year according to forbes, less than a fourth of this was in record sales (and these are some of the most sold records in history), the biggest income earner is live shows. Her content may be unlimited, and freely available, but her time isn’t, and people are going to pay for that.

The invention of the internet, has changed the world of shopping and distribution, making distribution costs virtually zero for media content. There has in fact been a complete reversal in our environment.

Think about the following example. When TV was invented, there were only two channels, content was very limited. Nowadays content is unlimited, what is scarce, is our time.

The internet, has also changed the role of editors, and music labels. Before, these firms acted as guardians of the door to the world of publishing. The only way someone could spread his content around the world, was if one of these firms chose him. This is no longer the case.

Counter-intuitively, perhaps, the loss of this form of “monopoly”, will not mean that the quality of music will decrease. Quite the opposite, this has created an explosion of creativity. And while the internet is flooded with junk content, the truly good content can make its way up there too.

Back to what I was saying about scarcity, this is an example of a way in which humans are “maladapted”. From an evolutionary point of view, for most of our life, humanity has been subject to scarcity, and this also favoured traits made to deal with scarcity, for example, being attracted to foods containing high levels of sugar.

However, this is no longer the case, we now have an excess of sugar and fatty foods. The evolutionary advantage would be not to want to consume these, but we can’t. We are still wired in the way that our ancestors the hunter-gatherers were, this was determined by the harsh environment of the time, but we have been so adept at changing our environment, that this is no longer the case.

For this reason, it is hard for some people to dissociate the price of a good, with its production cost. Meaning by this, that just because the production of music is free, that doesn’t mean it doesn’t have value, or that people will only buy it for free. The question is no longer, is this available? But instead, for how much is it available, and, is it any good?

A good example of this, is Starbucks. Starbucks, charges an enormous mark-up on its coffee. You may pay as much as ten times what it would cost you to consume that coffee at home. This wouldn’t make sense, if you thought of coffee shops as a competitive market, pushing the price down to the marginal cost and all that. But Starbucks doesn’t just sell coffee, the good, it sells coffee, the commodity. Starbucks offers an experience, which its customers value. A more simple way of saying this, is product differentiation, or branding. Many people may choose to buy “brands” when in fact, they could buy cheaper versions of what is a homogenous product. However, the simple fact of the matter is, that people want to pay more! Why wouldn’t they? Like I said, there is no longer an issue of availability, we can have everything we need, the question is, having the things that you want.

It’s the next stage in human development, and whether you think that this is good or that people are “brain-washed” by advertising and brands, at the end of the day, the beauty of the free-market is that you can choose.

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