Sunday, January 31, 2010

Are You Willing To Pay For Social Media Content?

Due to the popularity of the original Napster and other early file sharing services, a large segment of the population believes it should not have to pay for the rights to digitally download music, movies, or other forms of Internet accessible entertainment. The Recording Industry Association of America has led the fight to stop the wholesale theft of intellectual property rights from its members. According to the RIAA's website, global music piracy causes more than $12.5 billion dollars in economic losses every year and the loss of more than 71,000 jobs.

Love or hate Apple, the company created an easy to use device, the iPod and set an unofficial price point of $.99 for each entertainment segment that is downloaded. In 2007, Radiohead provided fans the opportunity to pay whatever a fan wanted for the right to download their songs. Recently, Linkin Park was a driving force behind another pay what you want effort for non-profit Music For Relief that supports the Haiti relief effort. This business model may work in some cases, but the free rider dilema where too many people don't want to pay a fair price for a product or service is still a challenge that social media content providers must confront.

Amazon recently tried to replicate Apple's business model and industry position in the book business with their price point of $9.99 per Kindle download. However, major publishing house, Macmillian has refused to accept Amazon's price point and a legal dispute may be in the works.

As an active user of social media, I am fully aware of the cost of content creation and usage. Most social media websites are financially supported by advertising. Some have paywalls that offer a teaser before requiring a user to pay and others are fully subscription based. In the pornography industry, there are group subscriptions where belonging to one site automatically enables you to access other sites with your subscription or provides a reduced rate for membership.

The newspaper industry is on life support and it appears that Senator Cardin's proposal to allow newspapers to become non-profits has not been embraced by the marketplace. In contrast, Rupert Murdoch has been preaching about charging for his newspaper's content. As a Wall Street Journal subscriber, I believe the paper is one of only a couple of news organizations in the world that offers content that its users are willing to pay a subscription premium for. However, if I was offered a flat fee to access premium content for 25 of my most visited social media websites, I may be willing to pay for it if it was priced correctly. This subscription model would be based on the way cable companies offer premium channels on top of their basic packages.

There may be antitrust issues if a group of the most popular news organizations/social media content providers formed an entity and began offering their content in a pooled subscription. The Sports Broadcasting Act enables professional and collegiate sports leagues to package and sell pooled broadcasting rights. Even though member teams/schools are individual entities, Congress has carved out an exemption for this industry.

Why can't Congress carve out the same type of exemption for news organizations and/or social media and/or entertainment entities that would enable them to pool their resources? If professional sports leagues and NCAA member schools enjoy this type of special exemption why can't the news and/or the social media/entertainment industry also receive a special exemption under the law?

The bottom line is that content creation is not free and imaginative business methods must be utilized that may require new laws or a rethinking of some of our current laws. I believe now is the time for the business, legal, and political community to come together to draft a plan that accounts for this change in how people view, price, and protect intellectual property. To learn more about these issues you may contact me

Copyright 2010 by the Law Office of Bradley S. Shear, LLC. All rights reserved.

1 comment:

  1. We face these issues with our digital clients almost everyday (some of whom you referenced in your post) and it is clear that there is no one answer. The exemption may be a good idea but it will take a great deal of time to get the industry--let alone Congress--to fashion the appropriate law.

    Moreover, there is no one size that fits all: In some cases, the "fremium" model can work either for a site or for a particular type of content--say, a TV series. Once a brand is established (in simple terms, meaning that it receives or could receive a lot of traffic), then charging can be an optimal model.

    Online (and mobile) advertising has been given short shrift, frankly because it has been priced too low and its promises have been for the wrong metrics. Online advertising is like a billboard or a magazine ad: It is used to build Mindshare, not necessarily to increase sales. Thus, it is part of the marketing budget. However, most ad dollars are moving towards the sales budgets--promos, coupons, POS strategies.

    Online advertising will make a comeback, especially if the potential in mobile advertising is realized. Advertisers and their gatekeepers will have to recognize the vast audiences that online advertising can generate and at a fraction of the production costs. True, for many companies the digital dimes are not sufficient to support their business models, but the success of companies such as Google (small amounts of revenue from billions of sites) suggests that it is the business model, and not online advertising, that is flawed.

    James C. Roberts III