Music – the value is in the services around the content

By December 23, 2008 6 Comments

Last week I wrote about Universal making millions from music videos, largely via YouTube, and then this morning I read on Techdirt that Warner is going the other way.  It’s content is now starting to disappear from YouTube after it failed to reach agreement on terms with Google.  It is unclear which side walked out of the talks, but it is pretty clear to me that Warner is the bigger loser.  Both YouTube and Warner are desperate for revenue at the moment – but Warner is the only one that is potentially in terminal decline.

As Mike on Techdirt says this is consistent with earlier behaviour from Warner where they overvalue their content – and he refers to earlier examples of the same phenomena.  The one I like best is their complaint that they don’t see enough money out of games like Guitar Hero and Rock Band.  Warner, and presumably others in the music industry misunderstand where the value is created.  Techdirt puts it well:

The industry simply assumes that, if something makes use of their content, all of the value is in the content. That’s incorrect. Yes, the content is a part of the value, but it’s the game that’s making that content valuable.

It is the experience rather than the underlying content that people pay for.  This is true for music – think concerts, merchandise, games, and even watching videos – and also for other forms.  To borrow some thinking from Techdirt experiences are the scarce good which you can charge for.  Content wants to be free.

I think that everything we are watching play out in music will follow in TV, movies, games and even books.  In many ways these other industries face greater problems than the music industry as the experiences components are less obvious.