When your Product is “Free” it has to be “Priceless”

(The following is lightly edited and reprinted from Doug Erickson's blog with permission)


Chris Anderson's Free is a good book.  It will force you to think harder about some important issues that the broadcast industry is facing right now, which is why Free should be on your bedside table ASAP. 

Consider this excerpt from the NY Times Sunday Book Review of Free, by Virginia Postrel: 

…the marginal cost of digital products, or the cost of delivering one extra copy, is approaching zero. The fixed cost of producing the first copy, however, may be as high as ever. All those servers and transmission lines, as cheap as they may be per gigabyte, require large initial investments. The articles still have to be written, the songs recorded, the movies made. The crucial business question, then, is how you cover those fixed costs. As many an airline bankruptcy demonstrates, it can be extremely hard to survive in a business with high fixed costs, low marginal costs, and relatively easy entry. As long as serving one new customer costs next to nothing, the competition to attract as many customers as possible will drive prices toward zero. And zero doesn't pay the bills…Obscured by the breezy tone of Free is a sobering message. 'Everybody can use a Free business model,' Anderson admits, 'but all too typically only the Number 1 company can get really rich with it.'

The largest consolidated radio companies find themselves in this terrible position not because radio has inherently high fixed costs. To the contrary, radio has very low operating costs compared to most other media. But Clear Channel, Citadel, Cumulus, Entercom and CBS are paying high fixed costs just to service their massive debt. If they hadn't leveraged themselves so absurdly, radio would be doing pretty well, even in this recession. 

It has long been my contention that I am much more likely to willingly pay $50 to see the art works in the Louvre than I am to spend my valuable time, but no money, to see the drawings in my neighbor's garage. Anderson raises an interesting point: As content itself becomes ubiquitous, time is what increases in value. No one has the time to see each new video posted on YouTube. No one has the time to check out every new and interesting web site. No one has the time to listen to every new artist and song posted on MySpace. And there is money to be made in (1) being the trusted filter, and (2) providing such remarkable content that it is worth paying a premium to get it. Hulu gets this. Seth Godin gets this. The Louvre gets this. 

As choices for information content proliferate to the point of infinity, and attention becomes more and more scarce — and thus, valuable — what is your station doing to deserve my attention and time? What can I hear on your frequency (or stream) that I can hear nowhere else? And, is that exclusive content remarkable enough to sustain itself through a premium subscription, or by building a large enough tribe of enthusiasts that you can monetize it and still make an acceptable profit margin after paying the talent that produced it? 

If not, welcome to the United Airlines business model. The line to speak with the bankruptcy attorneys is getting very long…

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