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in Filmmaking
on Jan 31, 2009

I’ve posted previously on this blog about The Long Tail author Chris Anderson’s recent series of articles (and forthcoming book) on the economics of free. Briefly, Anderson’s proposition is that digital production and delivery, which decreases the marginal cost of goods, drives their purchase price down to zero. For most, this means adapting to the idea of distribution being ad-supported in some way, and this type of revenue scheme is what has dominated Anderson’s previous writings on the subject. But as I noted in a previous post on the Google Book Settlement, the problem with free models for the producer is that they drive the revenue per consumer way down below what truly devoted consumers would pay for the same product. That’s fine if free distribution picks up enough consumers to allow ad revenue to offset the pricing decimation, but for many products this type of audience expansion is not possible.

Now, though, with ad dollars in free fall, it’s obvious that the free model could use some tweaks. Said tweaks are provided by Anderson in a piece posted at The Wall Street Journal that argues that, in the end, content producers have to find a way to get consumers to value their product enough to pay for it. Here’s the final paragraph, but read the article for his commentary on what the ad bust will mean for Facebook, Twitter and the old model of the internet start-up.

Does this mean that Free will retreat in a down economy? Probably not. The psychological and economic case for it remains as good as ever — the marginal cost of anything digital falls by 50% every year, making pricing a race to the bottom, and “Free” has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid. Just as King Gillette’s free razors only made business sense paired with expensive blades, so will today’s Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them — free is still great marketing and bits are still too cheap to meter — but enough to pay the bills. Free may be the best price, but it can’t be the only one.

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