Nicholas Lovell is the founder of Gamesbrief, a blog dedicated to the business of games, as well as the author of a growing list of books about making money in the games industry and other digital media.
“Martin Mills is a successful entrepreneur who has built the Beggar’s Group into a successful global music label with international stars on his roster. That’s why it is so depressing to see him using his Midem stage to press for governments to resist the tide of change in the consumption and distribution of music.
The changing business models of music is a thorny topic. It is becoming an us-and-them dialectic, pitting evil technology behemoths against the creative life-and-soul of humanity (if you work in the creative industries) or seeing evil, stagnant monoliths using their corporate litigiousness to stifle innovation, creativity and the widespread sharing of ideas, entertainment and education to the benefit of all society (if you are a technologist).
The creation of these artificial battle lines help nobody. It doesn’t have to be that way.
My background was first in finance and then in the games industry. Games is an industry that is embracing technological and business-model changing faster than any other media industry, and so far it is working. Sales of games in boxes may have peaked in the West in 2008, but new ways of making money from games – whether those games are on Facebook, on browsers, on smartphones, on tablets or played on downloadable clients – are rapidly filling in the gaps.
The new business models have one thing in common: they are capable of taking advantage of the variable demand curve. That’s a fancy way of saying that each person has a different amount that they are prepared to pay for something. The businesses that understand the twenty-first century opportunity know how to make it possible for their consumers to spend nothing, to spend a dollar, to spend ten, hundred, a thousand, even ten thousand dollars. They will find a way to maximise the curve.
How does it work? The first thing to realise is that the value to consumers of being able to access a piece of content is going away. Let’s take the example of a book. For 490 years, the book was two things wrapped in one: an access device for ideas, and the ideas themselves. The distinction between the two elements was of interest only to philosophers, because no one could separate them in reality. Until the ebook.
The current top seller chart on Amazon is dominated by bestsellers selling for 20p (admittedly because Amazon is in a price war with Sony to maintain market share of ereaders). Of the top 10 titles, eight of them are 20p. Only one is over a pound.
On the AppStore, the numbers are even more stark. In June 2012, 68% of the 100 top grossing apps were free. Another 16% were paid with in-app business models. Only 16% had the increasingly outmoded business model of charging the consumer upfront for access to the content, with no additional way of letting them spend money over time. That number is only trending more towards the free apps.
Just a reminder: that is a percentage of the top grossing apps that are free. Not the most popular, but the ones making the most money. Supercell, which has two apps (Clash of Clans and Hay Day) in the top 10, is making over $500,000 every day.
The secret lies in using the variable price curve: use the power of free to get your content into the hands of as many people as possible, then build one-to-one relationships with your biggest fans and let them spend lots of money on things they truly value.
If they don’t value access to music (because they can get it for free, whether legally or illegally), what can you sell them? That is where the innovation needs to happen. The obvious answer is gigs and touring, but touring is tiring, and it has hard to create content when you are on the road. So the real answer lies in creating bespoke offerings that lets 15% of your audience pay 50% of your revenue, or more.
It lies in expecting everyone to have access to your digital (cheap to share) content, while charging a substantial premium for expensive, limited edition, signed, numbered, exclusive, special editions. It involves invoking people’s desire for self-expression, for status, for belonging, for standing out, for expressing their taste, or ability to spend cash.
If you want ideas, look at Kickstarter. Not because it replaces the need for a publisher (it does for some people only), but because you can see what fans are prepared to spend hundreds or thousands of dollars on. Use that to spark ideas for what consumers really value.
So entrepreneurs like Martin Mills can spend their time lobbying for government to protect them from change. Or they can spend their time doing what entrepreneurs really do: find new products and services that people want and will pay for, and find ways to get them into their hands.
I know what I would rather see Martin do.”
Nicholas is currently writing a book, The Curve, about how to use the web to give stuff away from free, to build relationships with your biggest fans and to charge them lots of money for things they value. It will be published by Penguin in late 2013.