The Illusion of Free Stuff

Yesterday’s New York Times offers a very well-articulated editorial by media writer David Carr on the larger economic cost of free media.  Using an example of buying fresh fruit at a neighborhood stand, Carr questions his own instinct to undervalue the price of a bunch of grapes in context to the way in which so much access to “free stuff” has skewed his own perceived value of goods and services in general. In a market like ours, value is reflected as price and always traces back to labor, someone’s labor somewhere.  So, I think Carr is right to ask whether or not the steady stream of free stuff in digital space corrupts our perception of value in other sectors of the economy, which can only have a cannibalizing effect on the value of our own labors whatever they may be.

We are taught in basic economics that goods have intrinsic value (i.e. cost of production + some margin of profit), and that they have perceived value (i.e. what the market will bear), with perceived value determining how wide that margin of profit can be.  I never formally studied economics, but it seems to me that when perceived value drops below intrinsic value, prices become “artificially” low in the sense that what the market will bear can no longer sustain production of the goods in question.  This, of course, depends partly on one’s definition of “sustainability.”  If, for instance, the price of socks at Walmart is “artificially” low because it can only be sustained by outsourcing sock production to a country with poverty-level wages and few workers rights, then this is certainly one kind of sustainability, but it is one that includes hidden costs we privileged consumers tend to ignore until it affects us directly.  The closer it gets to home (e.g. when we read about Walmart’s own employees working below the poverty line), we pay a little more attention.  A little.  And of course, prices can also be made artificially high based on perceived value. As anyone who’s ever marketed luxury goods can tell you, a wealthy buyer’s ego is worth several percentage points of mark-up.

One can extol the virtues of technology, invoke examples of historic transformations like the printing press, and cry Progress! from the rooftops in stream-of-consciousness editorials like this one by Bob Leftsetz, whose criticism of Carr reminds me of a slightly demented Kerouac, if Kerouac had hated music.   But if we clear away the smoke and dust from all that bluster, we might address the central point which is that the perceived value of a song (and we’ll let song stand for all media) has unquestionably reduced prices (or rates) to unsustainable levels for supporting the production of music itself.  So, the consequential question is whether or not we actually care.   Quite simply, the perceived value of recorded music was first reduced to zero by piracy (which is neither economic nor technological progress), then it was briefly and only partly resuscitated by digital downloads, and then it was dropped back to effectively zero by streaming services.  And one reason we know the perceived price is zero or near zero is that so many tech-utopians keep saying it is while they offer numbskull suggestions like more merchandise, more touring, and “adding value” to replace the inescapable loss of revenue from disappearing  sales.

When it comes to products like albums or motion pictures, prices are almost always flat so that the financial success of a given product is based entirely on volume of sales (i.e. popularity) and not on perceived or even intrinsic value (i.e. pricing) of each unique product.  But in a technological paradigm that has driven prices in the entire category to zero or near zero, champions of the “new models” are quick to say that producers of media will share smaller bits of a much bigger pie because the Internet makes the whole world a potential customer for no more than it costs to reach a local market.  Sounds good except for the fact that ten million times almost zero is still…y’know.  This argument always reminds me of the old joke about the guy selling cordwood for less than he buys it wholesale and figures the reason he’s losing money is that he needs a bigger truck.

But of course it’s all just progress, right?  Technological innovations that improve efficiency and availability of goods always lower prices for consumers, and there is usually a period of revenue shift from one class of workers to another.  It’s an unfortunate byproduct of change, but change is inevitable, so why shouldn’t we just embrace it and quit whining as Lefsetz and others insist we should?  Because the transformation is not holistic and because the initial and persistent, catalytic force of piracy normalized a black market, with which no legitimate industry in any sector can ever compete.

Both legal and illegal disruptions to media sales occur solely at the distribution end of the supply chain.  If the Lefsetz-like utopians were to say that the folks who used to package and ship physical CDs are just victims of natural progress, I’d have to agree; but further upstream in the supply chain that ends with a song in your ear or a movie in front of your eyes is a production process where all the costly labor, expertise, and capital are invested.  And when we devalue or become disconnected from the labor, expertise, and capital behind any product in any sector, this has that ripple effect to which I think Carr alludes in describing his gut reaction to the price of a pack of grapes.

Last week, songwriter/composer Van Dyke Parks wrote this editorial about the value of a song in the age of streaming, and I figured a guy like Lefsetz would go for the too-obvious criticism of this quote:   “Forty years ago, co-writing a song with Ringo Starr would have provided me a house and a pool. Now, estimating 100,000 plays on Spotify, we guessed we’d split about $80.”  The myopic reaction to a quote is to think either that a song should not be worth a house and a pool or that Parks and Starr have enough money; but both reactions entirely miss the economic implications of Parks’s point. If technological change drops the trade value of a popular good from a house and a pool to, say, a really nice car, then we might be looking at a modified but still sustainable market.  But if the trade value of a popular good drops from house and pool to less than a basket of groceries, sustainability has been eradicated, and I personally think anyone who views this as virtuous is the same kind of fool as the guy in the joke hauling cordwood.

Utopians like Lefsetz will say that the popular music and popular artists will still make plenty of money, and guys like Mike Masnick at Techdirt will preach the need for creators to embrace new lines of revenue.  And indeed, both are right in a way I personally wish they were not.  According to this brief post on Gawker, Grammy-winning pop star Pharrell not only performed at a recent Walmart shareholders meeting but apparently asked the crowd to “put your hands together for Walmart, guys, for making the world a happier place.”  In light of Walmart’s track record for its labor practices, my friends and I twenty years ago would certainly have called Pharrell a sell-out.  But today, anyone who loves free or almost free music and would still call him a sell-out is not only a tad hypocritical, but isn’t paying attention to what the market looks like when we break the transactional relationship between consumer and producer that ties price back to labor.

Pharrell is just one example.  We’re seeing a trend of popular artists take gigs to perform for sponsorships, corporate events, or private parties for wealthy individuals; and this move toward patronage by the elite is a direct response to the fact that we the people are no longer a source of revenue.  This will probably have the unfortunate effect of turning executives at Walmart or Pfizer or Shell Oil into the new tastemakers, which just personally makes me miss even the sleaziest producer who ever worked for a record label.  I don’t know whether or not a PR or communications person from Walmart fed that line about making the world happy to Pharrell, but my experience in corporate communications tells me it could have happened that way.  What’s for sure is that such  exchanges between execs and pop stars will happen soon, and  the pop stars will no longer dictate terms to these big patrons, who are their only paying customers.  I find it interesting that as angry as we seem to be over ceding political power to corporate interests because they can buy influence, that we are unwittingly going to cede cultural power as well, simply by abdicating our ability to vote with our pocketbooks.

© 2014 – 2018, David Newhoff. All rights reserved.

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