With Chris Anderson's next book "Free" due to be previewed on the front cover of Wired magazine next week, there's a lot of chatter about how the way to make money in the future is to give stuff away. That's a gross simplification of the economics of free, but it basically sums it up.
Kevin Kelly argues that since the internet makes it easy to copy digital content (whether that's writing, music or anything else) then you can no longer rely on charging for that content (or, to be more precise, you can no longer charge purely for the content). That's certainly something that the majority of the music industry has been finding out for the past few years (although the RIAA refuses to accept it, and is trying to build a business model out of suing music fans).
Kevin proposes eight areas (he calls them generatives) where you can make a living if your content is free (I won't explain them in detail here - he does a much better job on his blog post).
The whole theory behind this is that since digital content can be copied and redistributed an infinite number of times at a near-zero cost then trying to charge for it is increasingly futile. In the words of the new economists, there is an abundance of digital content, and when you have something in abundance then its financial value approaches zero - you can only make money out of scarcity.
Everyone usually uses the music industry as an example, but I'm going to use the (book) publishing industry instead. Firstly because I'm contrary, and secondly because that's where my day job is.
In the dim and distant past (by which I mean the 1980s and earlier) book publishing companies converted type-written manuscripts into neatly arranged, carefully edited, professionally typeset words on paper, bound them between two covers, and used expensive printing machinery to mass-produce their books. The process and materials cost a lot, so they had to spend even more money on marketing (brochures, getting well-placed reviews etc.) to recoup the costs, make a living and pay the original author.
Once exposed to modern technology, that scarcity is removed - an ebook can be infinitely copied and distributed.
Publishers have tried to artificially impose scarcity by shackling the ebook files with DRM (and trying to forget the inconvenient fact that every variety of DRM gets cracked within a couple of weeks by a bored 15-year-old).
The alternative tactic was to refuse to create an ebook version of a book, in order to prevent the book becoming digital content in the first place. This tactic has been slightly more successful than the music industry's attempts, since creating an ebook of a book was much more time-consuming than creating a set of MP3 files from a CD. I say "was" because a work colleague sent me a link to a news item earlier today about a book ripper that will convert a 500-page paper book to an ebook in about an hour. Sure, the technology costs $3600 at the moment, but as my colleague commented, that'll drop rapidly over a couple of years.
So, faced with their content becoming infinitely abundant, how can book publishers make money?
Books can come with additional online supplementary resources. There are a multitude of ways in which these resources can be made to generate money, including (but not limited to) subscription charges, ad revenue, and licensing. The supplemental online resources model is most visible with textbooks, but even a novel could come with online extras (an author's blog, background on "the making of" the book, etc.) supported by ads.
Another, more traditional, answer is in hardback books (or cloth-bound books, as they're called in the US). Given that the hardback version of a book usually costs twice as much as the paperback, why on earth do people buy hardbacks? Why does putting 300 pages between two sheets of thick card cost £15.99, when the same 300 pages sandwiched in thin card costs just £7.99?
One answer is immediacy. The hardback binding of a book is frequently published before the paperback binding, and customers who really want that book as soon as possible are prepared to pay the premium. However, when the "book ripper" technology mentioned above becomes cheap and abundant, then the immediacy value of the hardback binding will cease.
Another reason for the increased value of hardback bindings is what Kevin Kelly calls embodiment:
PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good.
Kevin Kelly, Better Than Free
As an artist who has a fascination with texture, tactility and books as artwork (altered books, handmade art books, etc.) I can immediately understand this. While a typical hardback binding of a book isn't bound in gilded leather, its weight and solidity makes it feel somehow more special.
I'm wondering whether expensively tooled and gilded book-bindings will make a comeback when the written content becomes infinitely abundant. It reminds me of a passage from a (wonderful) book by Gene Wolfe called The Shadow of the Torturer where the protagonist Severian is listening to the reminiscences of the old blind Librarian, Master Ultan:
"I was sitting there, as I said, and had been for several watches, when I came to me that I was reading no longer. For some time I was hard put to say what I had been doing. When I tried, I could only think of certain odors and textures and colors that seemed to have no connection with anything discussed in the volume I held. At last I realized that instead of reading it, I had been observing it as a physical object. The red I recalled came from the ribbon sewn to the headband so that I might mark my place. The texture that tickled my fingers still was that of the paper in which the book was printed. The smell in my nostrils was old leather, still wearing the traces of birch oil. It was only then, when I saw the books themselves, when I began to understand their care."
His grip on my shoulder tightened. "We have books here bound in the hides of echidnes, krakens, and beasts so long extinct that those whose studies they are, are for the most part of the opinion that no trace of them survives unfossilized. We have books bound wholly in metals of unknown alloy, and books whose bindings are covered with the thickest gems. We have books cased in perfumed woods shipped across the inconceivable gulf between creations—books doubly precious because no one on Urth can read them."
Gene Wolfe, The Shadow of the Torturer
And so, Ultan's blindness (which creeps up on him later in his narrative) proves no obstacle to his profession of caring for the books (and therefore the understanding of their value), which does not require the ability to read them, but rather an appreciation of the book as a tactile objet d'art.
Marginalia: literature fans will recognise that the blind Master Librarian Ultan is a reference to Umberto Eco's blind librarian Jorge of Burgos from The Name of the Rose, who in turn is a reference to the Argentinian writer Jorge Luis Borges. But I digress...
Books bound in kraken-skin or cased in exotic alien woods are, unfortunately, somewhat beyond the means of publishing companies at the moment, but a return to the application of tactile aesthetics to book packaging may well come soon (note also the increase in the analogous use of textured cardstock Digipaks in audio CD packaging).
However, the main worry for publishers would be whether the sales of these much more expensive bindings would compensate for the explosion of free digital content (free content which would satisfy most of the customers who currently pay for the cheaper paperback bindings).
The answer is "probably not", although I think there would still be a market for paperbacks for some time. Tim O'Reilly's seminal blogpost Piracy is Progressive Taxation seems to agree:
The availability of free online copies is sometimes used to promote a topic or author (as books such as The Cathedral and the Bazaar or The Cluetrain Manifesto became bestsellers in print as a result of the wide exposure it received online). We make available substantial portions of all of our books online, as a way for potential readers to sample what they contain.
... Interestingly, some of our most successful print/online hybrids have come about where we present the same material in different ways for the print and online contexts. For example, much of the content of our bestselling book Programming Perl (more than 600,000 copies in print) is available online as part of the standard Perl documentation. But the entire package—not to mention the convenience of a paper copy, and the aesthetic pleasure of the strongly branded packaging—is only available in print. Multiple ways to present the same information and the same product increase the overall size and richness of the market.
Tim O'Reilly, Piracy is Progressive Taxation
But eventually, as ebook-readers become better (think full-colour e-ink displays) and more commonplace, I think the paperback market will start to decline.
Mike Masnick's Grand Unified Theory On The Economics Of Free states that you should "set the infinite components free" (in my example, the words of the book) and realign your business model to "charge for the scarce components". In Masnick's example of music, the infinite (-ly reproducible, and therefore abundant) component is the MP3 file. The value of scarce components will rise:
Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.
Mike Masnick, Grand Unified Theory On The Economics Of Free
So returning to my example of book publishing, author events—readings and signings—should rise in value and (if authors catch on) will be far more ubiquitous in bookshops around the country. I'm sure other scarce components could be identified.
One mistake I hope the publishing industry doesn't make is the disingenuous "calculation" made by the music industry's army of lawyers: that every free mp3 file downloaded is a "lost" sale.
People are far less discriminating when consumption is free. If every show on television was pay-per-view then I wouldn't automatically switch it on when I got home from work - my viewing would be far more discriminatory (and massively reduced). Similarly file-sharers report that their downloading of pirated MP3 files isn't happening instead of them buying CDs, but rather in addition to their music purchases - they're trying before they buy, free-sampling a much wider range of possible purchases before choosing those for which they are prepared to pay for an embodiment in the form of a CD (with its physicality, cover-packaging and booklets).
So, an abundance of free ebooks should vastly increase the potential market for the added-value paid-for scarce components. But this will only work if the publishing companies (and the authors) have positioned themselves to make money out of those generatives.