Three Musts of Digital Content Biz (3) Redefining Ownership

What does it mean to own a file?

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The traditional thinking of selling the "container" has everything to do with consumers' psychological need to "own" something. I own a car-race game software when I can buy it and take it home. I own a music CD when I can buy it and stash it at home.

The seller offers the container for consumers to purchase for ownership. In an equation like this, it's only natural that the seller/producer will hold the completeness of the contents in the container in very high regard. For a music album that has ten songs, the ten songs must be in uniform in style and be arranged in a specific order, not to mention the design of the CD case and the wardrobe choice of the artist him/herself.

The same is true of newspapers, magazines, movies, PC games, curricula, you name it. The effort on the part of producers to edit or, if your will, compose the content and then have it wrapped up nice and neat in a package serves to endow the product with commercial appeal to consumers, who whip out their wallet when whey find the commodity standing as an indivisible item and a keeper.

This way of handling content, however, are being seriously challenged in the Internet age. After all, this is a time when a consumer will demand the option buying any three out of the ten songs from an album. By making such a demand, the consumer is rejecting the seven other songs that's not music to his/her ears as well as the CD case. However, by setting the music files free from the CD, people are making it possible to file owners to share them on the Internet at will, sometimes illegally.

What's being described here is a scenario in which consumers have narrowed down their unit of ownership to a song, instead of an entire CD album. With this change, the ownership of the songs tends to be diminished. It's so easy get hold of these three songs in electronic files via the Internet that people succeed in doing so won't think much of the transfer.

It used to be when a famous singer released an album that featured unique appearance and a set number of CDs released around the world, fans will go all out to get one. Even if the songs are bound to fall out of the Billboard rankings in due course, such CD will still appeal to collectors.

However, it's a far cry from that with the digital content, which can be copied an infinite number of times and then spread as far as the Internet can go. Compared to tradition existence of music on CD and movies on DVD, music and movie files, even when protected by copyright, can seem so ethereal that its ownership feels like nada.

The music downloading service has become a hit in Europe and US because it sells every song for US$0.99, which is considered cheap in Europe and US, and the files sold there are protected by copyrights. However, such a business model should run into trouble pretty soon.

How did you handle the old music CDs in your home? Those has-beens that were popular at the time and bought on the spur of the moment almost always ended up alone in a corner, never to be listened to again. Before you know it, there is a mountain of such CDs in you home, and you don't know what to do with it.

In a parallel universe, where you paid for ten music files by three recording artists every time, you will also soon become the owner of hundreds of songs in digital form. Again, new songs will keep on coming out to inundate your hard disc and push your old songs under wraps of memory, will you simply erase them or just leave them alone?

Same question, Alternatively put. If you are not a collector or someone whose heart is set upon starting a digital library since digital files hardly qualify as collectibles, what's the point of having the music download into your PC hard disk to take up storage?

Let me refresh your memory of the three musts of digital content business. They are monthly fees, community, and real-time connection. Image a place on the Internet where you can pick out songs to hear whenever you want, all the while no music files are downloaded onto your PC.

That is, all the songs are stores in a remote server, which delivers the songs you order to you only on request. When you're done listening to them, no files will be left behind in your PC. For such an all-you-can-hear service, one might be charged an annual fee of US$13 or so.

As a subscriber to such a service, you will always have the newest songs to hear and you will never need to buy any CDs, download any files, and clean out you hard disc again. ADSL broadband connection is already a household fixture now. Music is almost automatic whenever a PC is turned on. That is, it makes no difference if you have the files on your disc. They are yours on request.

This is what real-time connection is capable of. Scraping the obsession of selling containers started with giving up selling the compact disc and went on to giving up selling the files. At a time when bandwidth is no longer an issue, when music files are available through several mouse clicks, selling the music files seems simply pointless.

Earlier on, other types of digital contents have been revolutionized. Take audiovisual programs for example. Right now, Internet TV operators in Taiwan have all launched monthly fees that come in US$8-9 for an all-you-can-watch subscription. They have almost all turned profitable.

Subscribers do not need to download these programs onto their hard discs. Instead, they watch via video streaming. When they're done watching, there will be no digital leftovers in their PC. For one thing, audiovisual files are too big to be downloaded. Sure. But the truth is eBook and digital music can also find this mode of business applicable.

Only in one situation will the consumers want to download the files. That is, portable device owners might sometimes want the music files on their MP3 players or eBook files on their PDAs.

Even that may soon become redundant as future portable devices improve in capability of being connected to the Internet. In fact, almost all PDAs are Internet-ready, some via WLAN, other via GPRS nowadays, rendering it unnecessary to download digital contents on PC and then transfer them onto PDAs, as PDAs have Internet connection of their own.

When digital content is at one's fingertips any time on request, consumers virtually own the content. For people who still find this virtual ownership unacceptable, they can still fall back on CDs, books, DVDs, whose value as collectibles remains undeniable. (
2004/09/26 - By Digitalwall.com - Way to
China Internet/Telecom )

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- Today in History

The Web 2.0 Revolution (5) Search 3.0 - 2006/09/24

Crime and Punishment of P2P (1) Liberalization of Power - 2005/09/25

Three Musts of Digital Content Biz (3) Redefining Ownership - 2004/09/26

Corporate Website a Handful (1) Accountability Where? - 2003/09/28

Three Musts of Digital Content Biz (2) Stop Selling "Containers"

No business beats printing bills to collect fees at set internals.

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In the digital content industry, PC game companies are among the first to stop selling the "containers," realizing what the Internet is all about. Earlier on, PC game companies made and sold games for playing on a standalone PC. That was a time when consumers got carton-packaged games, had the game installed, and played it by themselves at home.

Like I said, it could cost quite a lot to dispatch the containers through the retail network. A game software could thus easily cost up to US$30 or more, a price pretty daunting to students that made up the bulk of game consumers. This then gave rise to an army of pirated softwares circulating on campus for students to "share."

In the online game era, a software disc sells for only a tad more than US$1, meaning the game company practically gives away the disc free of charge as the price barely covers the costs of distribution and packaging. But the disc contains only software for consumers to install at home. To play, they must pay for connection to the game server by purchasing stored-value card or a monthly-fee card.

Since emergence of this business model, piracy has been snuffed out, as in this case, the purchase of the packaged game discs marks not the end of a transaction but the beginning of what should be an extended span of stable monthly fee inflow. Such customer relation can go a long way in helping pay for game development and content updates.

In fact, the new online game business model is a picture-perfect example of the convergence of the three musts of successful digital content business, which are a monthly fee, a community, and a real-time connection. The monthly fee helps companies rid themselves of the habit of selling containers; the existence of a community helps make players stick around, and the real-time connection helps consumers get over the obsession of tangible ownership.

Among other examples of success, Global Chinese Competitiveness Foundation (GCCF), founded by Dr. Zi-yi Shi, specializes in the provision of corporate management know-how to newsletter subscribers who pay an annual fee of US$80 or so for the right to search and read from a pool of over 10,000 continuously updating articles. This service has been in existence for over four years.

As to the question of whether newsletter makes a profitable business, many creative attempts have been made to find out. It'd be hard to argue against the reasoning that if a newspaper can be sold for a price, there is no reason why newsletters can't. However, any one who has tried would tell you that it's really difficult, if not impossible, to profit from sales of newsletter, especially when you try to sell them on a copy-by-copy basis.

Just imagine. If GCCE had attached a tag price to every single digital copy of newsletter, as in US$3 for a copy of newsletter on the topic of "six-sigma" and another US$3 for a copy of newsletter on "paradigm of leadership", you do the math, this business would not have gotten this far.

Another case in point is the IT Home newsletter that goes back a long way in Taiwan. Previously known as PC Home newsletter, IT Home newsletter's subscriptions hit 380k at one point before tapering off. What made the difference was the presence and absence of charge.

Following the traditional way of newspapers, IT Home newsletter should have been charging a daily fee the way daily newspaper charges US$30 cents a copy. But IT Home knew better and charged an annual fee of some US$50, which guaranteed daily delivery of newsletter to the subscriber's appointed e-mail account.

The annual-fee strategy proved a success as IT Home newsletter broke even in 2001. Other than the annual fees, IT Home newsletter also profited a great deal from leasing out ad spaces. IT Home newsletter's prevail corroborates my forecast five years ago. That is, I have foreseen that only newsletters that charge for reading can only boast ad spaces that are valuable. The rationale is simple. Only when the viewers are paying to read will advertisement clients take this media seriously.

Can news stories be sold on the Net for a price? If past experiences are any guide, the answer is yes. In 2001, UDN.com, a website maintained by a widely-circulated newspaper United Daily in Taiwan, launched a pay-to-use database service that provides access to back-number newspaper stories for an annual fee of some US$70. For that much money, subscribers can try your luck at finding reports and photos that might be of interest to you during the past 15 years in Taiwan.

What most consumers are not aware of is that while a newspaper contains many stories, there is inherent logic as to how these stories are arranged and picked as headlines. That is, a newspaper in print form is an integrated existence that can not be randomly.

These stories, once close-knit on conventional paper carrier, have to be broken apart on the Internet. When stories concerning earthquake during the past 15 years are retrieved from the UDNdata.com, they all stand independent of the daily edition of newspaper to which they originally belonged.

Given this nature of digitized existence of news stories, charging an annual or a monthly fee is the only plausible option for digital news newsletter business. Since consumers are looking after a standalone story instead of a whole digital copy of newspaper which contains many other stories that he/she doesn't want, selling an entire digitized newspaper to him/her would be out of the question.

The honors of pioneering in the field of pay-to-read digital magazine in Taiwan goes to cite Publishing's electronic magazine publishing net, which works by digitizing contents of paper-based magazines and having consumers pay to download these digital contents to read via reader software.

As these digital magazines are merely intangible copies of the real magazines, consumers are therefore offered the options of buying a whole magazines' worth of contents or subscribing to the digital magazine service for six months during which time one can search the texts and make personal notes on the virtual magazines, something not allowed by reading the paper-based magazines. The one thing that these various digital magazines have in common with their real-world twins, besides their variety, is that they cost about the same. That is, just because it weighs nothing does not mean that it costs nothing.

Interestingly, the electronic magazine publishing net also sells back-number magazines. Like in the real world, these outdated digital magazines also come in lower prices than the latest edition. I must point out that the whole idea of selling back-number magazines on the Net is a bit ridiculous if your memory of what I mentioned earlier is still fresh, because there is no reason why the news stories printed and stapled together as a magazine in the world still need to remain in one another's company now that they do not take up physical space any more, unless the seller is still bound by the belief in containers.

Something that also should not hold back digital magazine sellers is inventory. The paper-based magazines can take up a lot of space in the warehouse if they remain unsold till the end of the month. That's why sellers sometimes go on sales to clear them out in cheaper price. But in the case of digital magazines, the hassle of inventory simply does not exist if you ask for one. Given that, the thought of selling back-number magazines, at a lower price, makes little sense.

The reality that there is a demand for old magazines is due in large part to the fact that readers need access to one of the articles in a particular issue of a magazine that he or she missed. If this is true, then forcing people to buy the whole thing, especially a digital one, is undesirable, even if there is a discount. The sales of past issues of magazines, if necessary, should consider having the contents broken down into individual articles and then regrouped into one big database to which the access will be charged for a fee.

Old-school content businesses relied so long and so hard on selling via such hardware as paper and compact discs as content carriers that it never occurred to them that they had the option of dividing content into smaller units for sales. They have been in the company of the hardware, which can't be divided and cost a price to make and transport, for too long, that they treat content the same way one the Net.

If the aforementioned examples have taught us anything, it's that digital content sellers should give up the mentality that their products must be sold packaged in a "box" or "container." Sellers of any type of digital content, music, movie, book, course, you name it, must help themselves to the freedom of Internet, and the sooner the better. (
2004/09/19 - By Digitalwall.com - Way to
China Internet/Telecom )

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Prev : Three Musts of Digital Content Biz (1) Content is Cheap


Next : Three Musts of Digital Content Biz (3) Redefining Ownership

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- Today in History

The Next Step for Web 2.0 (3) Collective Will Is the Cornerstone of Everything - 2007/09/16

The Web 2.0 Revolution (4) the Google Paradigm - 2006/09/17

The Web 2.0 Revolution (3) Advertising Revenue is Not Enough - 2006/09/10

Envisioning China's 3G Market (3) Systems & Markets - 2005/09/11

Three Musts of Digital Content Biz (2) Stop Selling "Containers" - 2004/09/19

Three Musts of Digital Content Biz (1) Content is Cheap - 2004/09/12

Three Musts of Digital Content Biz (1) Content is Cheap

Producers of digital content, despite their key roles, are seldom sufficiently rewarded.

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If I dare say it out loud that "human wisdom is valuable but can not be put on sale for a price," I might be laughed at, lashed out at, or left unnoticed. Enlighten me on which is worse. However, with the following analysis, I intend to convert some of the readers into my believers.

Ever since the dawn of the Internet age, when all were looking for a viable business model, I have reasoned that one can not charge for information disseminated on the Internet, since throughout the history of human consumption, we have never really paid much in exchange for information.

At a free-access seminar, where a world-renowned guru had been invited as the inaugural keynote speaker, two thousand people applied for admission, which, thankfully, was not a problem as the organizer had prepared for a capacity crowd.

As there was no charge for admission, the venue, the cost of flying the guru in including board, lodging, and traffic, the remuneration for the speech itself, the compensation for the staff, not to mention advertising, including newspaper ads and print materials for on-site distribution, were almost entirely paid for by a number of corporate sponsors.

A closer look shows that of all the sponsorship, only about 10% went to the guru's speech, meaning venue, wages, ads, and travel took up 90% of the sponsorship. Considering that the guru's wisdom was the only thing that justified all the trouble of holding such a speech, this cost structure didn't really make much sense.

That is, has the organizer spent too much on things other than the wisdom of the guru? Think again. Ninety percent of the sponsorship went to facilities and advertisement, leaving only 10% as rewards to the key figure that made the whole even possible.

However, this anomaly is hardly rare in the realm of education and training industry . In fact, people have gotten so used to this anomaly that they have started to see it as normal. For a training course that lasts 36 hours for 30 trainees, its common for every one enrolled in must to pay a fee of US$600-700, of which, again, only 10% is headed for the lecturer's wallet.

Where has rest of the money gone? One must ask. The answer is the venue, the printed materials, and the advertisement. These costs and compensation to the lecturer deducted, the organizer is still left with some slim profits. Things have always been this way in the world of training and education industry .

An even more convincing example is with the publishing industry, in which a writer has to rack his brains to get a book out and be rewarded with a royalty of 10%, give or take, depending on the level of fame this particular writer enjoys. That is, if the book sells for US$6-7 a copy, the author will be cut a share of less than US$1.

That brings us back to the same old question of where has the rest of the dough goes. A closer look will reveal that there is the cost of print materials, the cost of paper, the wages of administrative staff with the publishing company, the cost of advertisement and promotion, the cost of transporting book (yes, no such thing as a walking book), the cost of warehousing (unless you own the warehouse), and finally, the publishing company would not say no to some profits.

The same situation is true of the recording industry, where lyricists and music writers get the smallest shares of the big pie, as most of the US$10 tag price that consumers pay to get the CD album goes to the compact disc, the packing, the transport, and ads before the little that's left can trickle down to those that make the product even possible.

The movie industry is no exception to the rule that content is cheap. Do you think that by buying tickets at cinemas you are being supportive of the cinematic creation? Pardon my French, but…you wish. The cruel fact of life is that most of your money is used to rent the movie theater, maintain the facilities and pay for the utilities.

For hundreds, if not thousands, of years, people have grown accustomed to such uneven distribution of profits. They don't feel a thing any more. Content might be "priceless," but there is a price for content, a low one, on the market. In the worst case, when detached from the container, content becomes really priceless, this time literally.

We have encountered too many examples of this on the Internet. At the dawn of the Internet age, someone made the first ever attempt to sell news stories on the Net, the first time in human history when news was completely detached from its paper-based carrier. The result proved disastrous as plenty people would pay 30 cents for paper, but no one would pay anything for news on the Net.

Right now, around the globe, governments are encouraging development of digital content, which is good, because once content in books, music albums, movies, and educational curricula is digitized, the transfer of it can be done through the Net to save a great deal on hardware.

Companies will no longer need to dispatch CDs over to retailers and save on packaging and transport by adopting sales of digital music; neither do companies need to ever print the wisdom of authors on paper again as there is the convenience of eBook. For educational event organizers, venue will stop being a source of cost; instead, they can channel what financial resources they have into getting as good lecturers as they can afford by providing digital learning.

However, one little thing still stands in the way to that digital paradise. Consumers' emotional attachment to containers, that is. In a world where things without something wrapped around them can hardly have a price, how can one convince consumers to whip out their wallet and pay? For people who have learned to appreciate music only contained in a CD, how can we teach him to give music in files as much credit?

The absence of hardware cost means that price can be driven down. But this is hardly enough to induce change in consumer behaviors. In fact, in an age when content is removed from containers to be sold as pure electronic files, people in the content business must have themselves undergo a makeover of thought by flushing the idea of selling things in a container down the drains and embracing a business platform built upon monthly fees.

The take-off of digital content industry hinges upon consumers' will to pay. And for consumers to pay, three pieces must fall into place. They are monthly payment, online community, and real-time connection. All three must start with online businesses' willingness to quite the obsession with selling stuff put in containers. (
2004/09/12 - By Digitalwall.com - Way to
China Internet/Telecom )

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Prev : PDA in Siege (2) Bottlenecks of the Smart Phone


Next : Three Musts of Digital Content Biz (2) Stop Selling "Containers"

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- Today in History

The Next Step for Web 2.0 (3) Collective Will Is the Cornerstone of Everything - 2007/09/16

The Web 2.0 Revolution (4) the Google Paradigm - 2006/09/17

The Web 2.0 Revolution (3) Advertising Revenue is Not Enough - 2006/09/10

Envisioning China's 3G Market (3) Systems & Markets - 2005/09/11

Three Musts of Digital Content Biz (2) Stop Selling "Containers" - 2004/09/19

Three Musts of Digital Content Biz (1) Content is Cheap - 2004/09/12