1.2 Eroding scarcity
This model seems antiquated already, and yet it is one of recent history. The first ‘attack’ it suffered was that of online ordering, through the likes of Amazon. The small storage space of the local record shop was no longer a limiting factor, and entire back catalogues were available at the click of a mouse. The necessity of travelling to the shop was removed, and although there was no restriction on when you ordered, there was still a delay in receiving the physical goods.
The changes brought by the advent of online shopping were significant, but essentially it was the same model for the music industry but with an improved shop front. The structural change to the industry arose when the format of music changed to the digital file, which could be freely distributed online. In this model talent is still scarce, but the act of locating it has changed. The artists can promote themselves; listeners locate music through routes such as LastFM and playlists without the intervention of a record label. For the consumer the availability of music is instant, the granularity alters, and if the individual uses bit-torrent-type downloads then entire back catalogues are as easily downloaded as one track. This changes the consumers’ relationship to content; their own time and attention become the key scarce resources now.
Responses to the digital era can be classified as ‘abundance’ and ‘scarcity’ responses. The former takes the assumption of new abundance and tries to work it to their advantage. The Freemium model is one such example, as realised by Flickr, for example. Here users get a good level of service free, to attract sufficient numbers. The additional value that requires payment only attracts a small percentage of users (estimates vary between 5 and 10 per cent of Flickr users who convert to ‘Pro’ customers), but with a large base it becomes significant. As Chris Anderson (2008) puts it, Freemium as the opposite of the traditional free sample: instead of giving away 1% of your product to sell 99%, you give away 99% of your product to sell 1%. The reason this makes sense is that for digital products, where the marginal cost is close to zero, the 99% cost you little and allow you to reach a huge market. So the 1% you convert, is 1% of a big number.
Chris Anderson also coined the term ‘long tail’ and this too can be viewed as an ‘abundance response’. The long tail argues that with an abundant stock range, businesses make money not by selling large quantities of a few items (the blockbusters) but by selling small quantities of a large number of items.
Other models include giving away the digital object free, and where one exists, charging for the physical object. This is a model being explored by publishers such as Bloomsbury Academic. Where no physical object exists, then it is associated services which attract a cost; for example, while many users download and install open software solutions freely, a small number are willing to pay for consultancy services around these. The most widely deployed abundance response is to use advertising revenue to allow free access to content. It still remains to be seen how successful many of these approaches will be; these are after all, transitory times.
Scarcity responses, however, seek to re-establish, or retain, the existing economic model by introducing scarcity into the digital content. An obvious example is that of digital rights management (DRM), which attempts to encode legislation and usage within the content itself. For example, iTunes limits the number of computers that you can have accounts on and restricts the devices you can associate with an iTunes account. DRM is often backed up with strong legal enforcement, where we have seen recent examples of the founders of torrent sharing site Pirate Bay being fined 30 million Swedish kronor and receiving a jail sentence for encouraging illegal file sharing. In the United Kingdom, the Digital Economy Act was passed in 2010, which will identify copyright infringements and then require the user's internet service provider to issue a notice. In many of the arguments put forward for such approaches analogies are made to rivalrous, scarce goods or services; for example, Paul McCartney, commenting on the Pirate Bay case, said ‘if you get on a bus, you've got to pay. And I think it's fair, you should pay for your ticket’. Paywalls and subscription models can also be seen as an attempt to re-establish the scarcity of content.