“Free” is the future of business

The cover of the latest Chris Anderson is one of the most influential new media thinkers in the world. His book The Long Tail has transformed the way we look at the economics of media distribution, and now he’s working on a new book that will certainly get everybody’s attention: “Free! Why $0.00 Is the Future of Business.” As he did with The Long Tail, Chris has begun this project with a 6,000-word article in the magazine he edits, Wired.

In addition to being a compelling title, it’s also another longtailesque concept that media companies everywhere need to understand. Anderson told me by email that media types certainly should.

I think the message to media executives should be clear: the business model you already understand better than anyone has become the dominant business model of the digital economy, from software to services. The world has come your way!

But do we really understand it? I’m not so sure.

If Viacom understood the concept, it would not be suing Google/YouTube. If NBC understood the concept, it would never have pulled its early content from YouTube. HBO announced this week that it is creating a YouTube channel. Confused yet?

If the networks understood it, they’d follow the advice of a new white paper from market research firm Parks Associates and the Entertainment Technology Center at USC titled “How Hollywood Can Out-Apple Apple.” The paper suggests that the studios and TV networks should offer free content for cell phones as a way to prime the pump for tomorrow. “In the end, ‘advertainment’ becomes content in and of itself,” the report says, “and a profitable way to provide consumers something to watch when they find themselves in situations where a little diversion is welcomed,”

Free is a strategy, not a business model.

The problem with “free” is when it runs into the bottom line, and this is especially true in the world of traditional media. Our content has value to us, but that value is directly tied to the economic laws of scarcity, whether we’re asking people to pay for it or using scarcity to create a mass that our advertisers seek. In the world about which Anderson writes, however, abundance replaces scarcity, so a business strategy based on the latter falls flat on its face. What is the real value of “content” in a world of abundance? This is what mass media executives can’t or won’t understand, because we automatically — and in an old media sense, rightly — assume that the only currency involving content is money.

So Anderson is right in saying that we “should” understand the new model, but the truth is we don’t. This has to change or we’re going to continue to fall behind smart people who really do understand.

(Originally published in this week’s newsletter)

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