Tuesday, July 19, 2011

Why Free Is So Misunderstood

Every musician wants to be paid for their "art," and there's an understandable reluctance to give it away, regardless if it's being pirated or not. Sometimes giving it away is one of the best marketing tools you have at your disposal though, even though it might seem counter-intuitive. We see a form of this every day in supermarkets and department stores with "loss leaders" at prices below cost to get customers in the door to buy products at regular price.

One of the basic tenants of Music 3.0 is a business theory called “The Economics of Free” (or EoF). In M3.0, EoF encourages content owners to give some of their products away for free because, if done correctly, you can increase your market size greatly. This theory is very misunderstood, since there's more to it than simply giving your music away though. In this excerpt from Music 3.0: A Survival Guide For Making Music In The Internet Age, you can see how and why EoF works.
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"You, the artist, have two types of products: infinite products and scarce products. Infinite products would be your music, especially in digital form. Physical products like CDs don’t fit in here, because it actually costs you money to produce them (the CDs, not the music on them). Digital music is easy to copy and steal, and just as easy to give away.

Scarce products are tickets to live shows, access to musicians, signed merchandise, backstage passes, private concerts, custom CDs, CD box sets, time spent with you, writing a song for a fan willing to pay for it, and anything else that has a limited supply.

So to take advantage of the Economics of Free, the artist must do the following:

1. Set the infinite products (or just some of them) free. Put them on a Torrent site, Facebook, YouTube, and anywhere you can. The more you get it out there, the greater the publicity and the wider the visibility. This makes the scarce products more valuable.


2. Because of the free infinite products, you can now charge more for the scarce products. Before Number 1 is implemented, access to the artist or backstage passes might not be worth anything, but now they are. Before Number 1, maybe no one wanted your CDs or vinyl albums, but now they’re valuable as a collector’s item, as are the box sets.

Setting your infinite products (your music) free expands your tribe. As your tribe expands, the demand for your scarce products grows. In M3.0, an artist that sticks to the ways of M1.0 through 2.5 will be relegated to a small audience forever."

For additional excerpts from this book and others, check out my website.
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1 comment:

wabaus said...

Thanks for demarcating the line between infinite and scare and its relationship to EoF in such clear fashion.

In "Free: The Future of a Radical Price" http://www.amazon.com/dp/1401322905/ Chris Anderson ends with "Fifty Business Models built on Free".

He took his own advice and launched with the eBook and audiobook editions both "free" for a limited time. He took full advantage of that "stunt" to grow his brand, get radio and TV interviews, and promote speaking engagements -- his scarce commodities of increasing value.

Your book and blog apply these EoF principles specifically to the music biz. Thanks for all the great content, both infinite and scarce :)

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