Philip Schlesinger on the “creative industries orthodoxy”

This blog is a long-time fan of the University of Glasgow’s Philip Schlesinger, so it was with great interest that we stumbled across his 2015 lecture to the London School of Economics on that most controversial of cultural ideas, the “creative industries”.

I’ve embedded the video of it below but I’ll make a couple of quick points here:

  1. Schlesinger’s analysis is not new (there have been plenty of descriptions of the way the idea of the “creative industries” has infiltrated many aspects of cultural policy making from the last 1990s onwards)
  2. But it is an excellent summary of the development of the idea and the current state of play. (No doubt critics of this kind of analysis like Terry Flew might beg to differ).
  3. Make sure you watch to the end, because you get a bonus discussion from Angela McRobbie.

 

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$7 billion of neoliberalism

The Stationers' Company mark

The Stationers’ Company: an early example of government cultural policy. Image: Wikipedia.

Australian economist Jason Potts has restarted an important debate about cultural policy in this country with an article entitled “You’ve got $7 billion – so how will you fund the arts?“. I just wish he hadn’t analysed Australian cultural policy from the sort of instrumentalist, neoliberal position we find so familiar in many other spheres of policy debate.

I’ll say right up the top that I’m a fan of Potts’ work, and think him a pretty clever fellow. His work on evolutionary economics is in its own way quite heterodox, and a far cry from the sort of automatic and reflexive market worship we often associate with both the RMIT Economics school, and the Institute for Public Affairs, which he is apparently doing some work with.

On the other hand, his op-ed in The Conversation on cultural policy  is not one of his more perspicacious efforts. Justin O’Connor has already written a useful response, but I thought I’d add a few points of my own, set forth below.

Let’s start by setting forward Potts’ argument. Then we’ll move on to a critique.

Last year the Australian Bureau of Statistics did the maths – government spends about A$7 billion annually in Australia on arts and culture. The exact dollar figure varies depending on what we count, but it includes heritage, broadcasting and botanical gardens, along with all the usual suspects: performing arts, literature, film, visual arts, and so on.

This is apples, oranges and all sorts of random fruit.  “Heritage” funding, for instance, includes such things as war memorials, botanical gardens, zoos and some national parks expenditure. That’s a pretty different sort of thing to grants to game design companies or tax incentives to Hollywood movie studios. Does it actually make sense to treat all of these things as the same sort of expenditure?

Anyway, moving on:

To make this exercise fun, let’s suppose that no political horse-trading was involved in reaching this figure. Let’s assume this figure is the result of disinterested economic calculation of the size of the positive externality in the production of a public good, all wrapped in willingness-to-pay studies, and tied with a big bright cost-benefit ribbon.

So what’s next?

Do we put away our box of shiny economic tools and turn to grubby political compromise to allocate the exact market-failure correcting amount of public funding?

In Australia, as in Europe, this is more or less what we do. Economics to justify an economically efficient level of spending – and politics to implement it.

Really? Last time I looked, in most nation-states, including most democracies, politics is almost always the over-riding factor in the way  budget priorities are set. Sure, politicians and lobbyists and ordinary citizens use economic arguments to make the case for this spending increase or that tax cut. But the process is always and by definition political. On the really big picture stuff, economics arguably can’t really help us. For instance, how much should Australia invest in national defence, or climate change mitigation? The answer depends on inherently political judgments, such as whether you think global warming is real, or the likelihood of a major war.

Indeed, ‘economic efficiency’ is itself an inherently political argument, because it applies a very particular set of assumptions to public policy — namely that Pareto efficiency can actually hold in the first place. In markets in which there is imperfect information — and cultural markets are amongst the most opaque of all — Pareto efficiency may well be impossible. Potts knows this, which is why his quip about the “exact market-failure correcting amount of public funding” strikes me as disingenuous.

So let’s get to the guts of Potts’ argument:

… modern economics suggests that it would be better if we turned the process upside down. Let politicians determine the level of funding in a given area – and let economists determine the allocation.

Why? The political model of funding allocation is very bad at creating – or even recognising – new knowledge. In fact, political allocation mechanisms cause incentives that reward lobbying and punish experimental or innovative thinking.

Only by weakening those incentives can arts and cultural funding seek to be more than a rearguard preservation exercise or sinecure for vested interests.

I suppose it’s something of ad hominem attack to point this out, but it’s just a tad ironic that the person making this argument is a Federation Fellow of a publicly funded Australian university. A person writing for a website, by the way, also funded by universities and the government, using a medium — the internet — that was created almost exclusively by public investment in research.

“Political allocation mechanisms”, by which I think Potts means governments making budget decisions, certainly create incentives that reward lobbying. Then again, so do market mechanisms. Markets require the state to provide a level playing field via such basic institutions as property rights, police forces and courts of law. All of these create incentives for vested interests to plead their cause.

This is no trivial point, by the way: the cultural industries are completely dependent on intellectual property rights such as copyright and patents. The very fact that many cultural goods are non-rivalrous and non-excludable creates huge incentives for content industries to lobby governments to create and strengthen IP regulations — as has been well documented by researchers such as Lessig. When property rights become unenforceable, digital goods become a whole lot less valuable. Anyway, Potts’ claim was that public spending creates lobbying, which is bad. On this analysis, many of the cherished market mechanisms of the cultural industries must also be bad, because they were created via lobbying.

This points to a further naievete: the implicit belief that cultural goods and services are just like any other industrial product.

Even a moment’s reflection shows us this isn’t true. The products of cultural industries are not like any old widget or commodity: they are not even really the same thing as an iPhone or an operating system. Cultural industries produce symbols, and symbols are powerful (or at least highly influential). An aluminium ingot or a wind turbine cannot affect the democratic judgment or voting intentions of millions of citizens. A newspaper empire or television network can.

It doesn’t really matter whether you think that the power of media companies to swing elections is illusory. The history of modern media policy tells us that governments certainly do think symbols are powerful. Media has generally often been heavily regulated, sometimes on the grounds of public interest, but more commonly for naked reasons of political expediency. Even in the US, with its famous First Amendment, successive Washington administrations have had no qualms about controlling spectrum, imposing stringent copyright regulations, and spying extensively on their citizens’ communications. Hosni Mubarak turned off the internet in Egypt for a reason. Whether it’s internet filters or the Stationers Company, the political nature of cultural industries means they can’t be divorced from questions of power.

This curious ignorance of the symbolic reality of culture is often found amongst unsophisticated approaches to cultural economics — much as economics as taught in the modern university tends to ignore key aspects of sociology. As a result, when economists issue prescriptions for cultural policy, they tend to propose cures that are far worse than the supposed disease.

Perhaps this is why Potts misconstrues key facts about real-life cultural policy. For instance, he seems to think arts funding is about “inputs, not outputs”, when in fact nearly all Australian government arts grants are legal contracts specifying outcomes, allowing the government to recoup the funding if not properly acquitted. He also equates prizes as some sort of gold standard of outcome, which is strange because prize committees show exactly the sort of “bullshit” he decries in grant panels.

Similarly, when he argues for “tax credits to anyone – private citizen, corporation, foundation or NGO alike – for spending on arts and culture”, he seems to imply these don’t currently exist. In fact, they do. An individual donating to a DGR-status cultural organisation already receives a tax credit, while a non-profit NGO or foundation already pays no tax beyond the GST.

The “three faces of time” in arts participation

Andries van den Broek has a really cool new paper in Cultural Trends this year. It’s entitled “Arts participation and the three faces of time: A reflection on disentangling the impact of life stage, period and socialization on arts participation, exemplified by an analysis of the US arts audience

It’s a really neat way of thinking about the temporal aspects of culture, and completely original as far as I know (though van der Broek points out that analysis of generational cohorts goes back to Comte).

Here’s a taste of his argument:

This is the history of the arts participation of a fictitious character, Pete. At the end of 2013, he’ll be 50 years of age, which implies he was born in 1963. He is not particularly keen on visual arts or theatre, though he visits the odd exhibition and performance. He is more into rock concerts, but also attends the occasional classical music concert and art house movie.

How come his cultural repertoire is like that? Is this typical of his being 50? (Do other people at the same life-stage typically display a pattern like that?) Or, is this typical of 2013? (Does it reflect what is the cultural offer that year?) Or, is it typical of someone who grew up in the 1970s? (Does it relate to a taste pattern acquired in that era?) It’s probably the case that Pete’s cultural repertoire is affected by all three (and, of course, by many other factors too). But, which aspect of Pete’s cultural repertoire can be attributed to the fact that he is 50; which aspect relates to it being 2013, and which aspect to his having grown up in the 1970s?

van der Broek goes on to do some stats on the effects of these three frames, using US data from the NEA’s Survey of Public Participation in the Arts. This allows him to tease out the differences between, say, the formative cultural experiences of generational cohorts from, say, the effects of their life-cycle in determining their participation patterns. Overall, he finds that people are not participating in as much culture as they used to, and that the composition of artforms does change.

And what is that change? One of the main ones is that fewer people are interested in classical music. Younger generations are not replacing the cohorts of classical lovers that are slowly dying.

Most importantly, though, van der Broek finds that arts participation (at least as measured by the NEA) is declining in the US. “All in all, the upshot is that the future of arts participation is not threatened by the cultural behaviour of recent (or future) as compared to earlier cohorts, but by a general decline in arts participation irrespective of cohort (and of age).”

In summary, a really interesting paper and one that I expect I will be returning to.

Why AFACT’s piracy statistics are junk

Yesterday, the Australian Federation Against Copyright Theft (let’s call them AFACT or perhaps ‘Big Content’ for short) lost their appeal in the long-running and important copyright infringement suit against Australian ISP iiNet. As usual, some of the best commentary can be found by Stilgherrian (who really does need a second name, don’t you think?):

If you came in after intermission, you’ll pick up the plot quick enough. AFACT said iiNet’s customers were illegally copying movies, which they were, but iiNet hadn’t acted on AFACT’s infringement notices to stop them. AFACT reckoned that made iiNet guilty of “authorising” the copyright infringement, as the legal jargon goes. iiNet disagreed, refusing to act on what they saw as mere allegations. AFACT sued.

In the Federal Court a year ago, Justice Dennis Cowdroy found comprehensively in favour of iiNet. It was a slapdown for AFACT. AFACT appealed, and yesterday lost. Headlines with inevitable sporting metaphors described it as  two-nil win for iiNet.

But read the full decision and things aren’t so clear-cut.

One of the three appeals judges was in favour of AFACT’s appeal being dismissed. Another was also in favour of dismissal, but reasoned things differently from Justice Cowdroy’s original ruling. But the third judge, Justice Jayne Jagot, supported the appeal, disagreeing with Justice Cowdroy’s reasoning on the two core elements — whether iiNet authorised the infringements and whether, even if they had so authorised them, they were then protected by the safe harbour provisions of the Copyright Act.

There’s plenty of meat for an appeal to the High Court, and that’s exactly where this will end up going. Wake me when we get there.

As I argued today, also in Crikey, it’s ironic that Big Content seems to be about the only business lobby group in the country arguing for more regulation and red tape.

But the copyright case also comes in the wake of an interesting little micro-controversy about piracy statistics, released by AFACT late last week. Aided by an economics consultancy and a market research firm, AFACT released an impressive-seeming report that claimed that movie piracy was costing Australia $1.4 billion and 6,100 jobs a year.

Electronic Frontiers Australia made some pretty valid criticisms of the research, including the following:

1. The assumption that 45% of downloads equal lost sales is unproven and insufficient evidence is provided to support it. The survey method cited is better than assuming 100% of downloads are lost sales, but there is better analysis in other studies – for example this piece by Lawrence Lessig. If the study was correct, sales of DVDs and attendance at cinemas would be much more reduced than the reported industry figures. In fact, the movie industry is making record profits.

2. It can’t be ignored that downloads have an advertising effect both on the product downloaded and future releases. To the extent sales may be lost, these must be offset against other gains from advertising.

3. Gross revenue is not the relevant metric, due to variables such as investment in capital, distribution and costs of sales. Many of the movies downloaded may not have been available to view or buy in Australia. Profit is the metric of importance, but this is never studied.

4. Flow-on effects to other industries are wholly speculative, and lost tax on profits assumes the entities pay Australian company tax on sales pro-rata to revenue, which is not intuitive or evidenced. It also assumes that money not spent on movies is lost to the economy, instead of helping to create jobs in other sectors.

5. Peer to peer file sharing is merely the latest in a sequence of technologies since the 19th century which have been claimed to be the ruin of the creative arts. See chapter 15 “Piracy” by Adrian Johns (University of Chicago Press 2009) – the copyright owners said the same thing about copies of sheet music, tape recorders, every iteration of personal recording system and indeed public radio. However, “home piracy” acts not only as a loss to industry but also as a boon to distribution, bypassing censorship and limitations on sales by official outlets.

6. The report suffers, as have other industry-funded studies, from “GIGO”. With an assumption that “downloads = losses” unproven, all conclusions estimating the size of the loss are equally unproven. What if a vibrant sharing culture increases total sales for media respected as quality by consumers, but reduces sales of hyped media? (Research has shown that the biggest downloaders in fact spend more on entertainment than non-downloaders.)

7. The call-to-action of this report is obviously to “crack down on piracy”, shifting the cost of file-sharing from the industry to the taxpayer via increased law-enforcement. No industry, let alone the foreign-dominated entertainment industry, deserves a free ride for its business model. If instead, the industry noted that the report says 55% of downloads created a market for sales, much of which is unsatisfied due to current restrictive trade practices, then its future profitability would be in its own hands.

8. Repeated studies have demonstrated that the entertainment industry vies for money and commitment of time with all other forms of entertainment. The Internet, computer games and mobile telecommunication applications take “eyeballs and dollars” away from DVD and CD sales, but also sports arenas, sales of board games and printed works. Magazines are also suffering from a reduced value proposition with the Internet, and some forms of entertainment and some businesses in the industry will no doubt find it difficult to remain vibrant. Change is consumer-driven, and it’s futile for the industry to try to hold fast to a business model and methods of content distribution which are dying with or without fierce law enforcement of copyrights.

Unsurprisingly, AFACT  have responded, attacking EFA’s arguments.

Notably, AFACT replies that:

“The study does not assume that ‘downloads = losses’. As stated above, some 32 per cent of respondents said that they viewed an authorised version of a movie after watching the pirated version. As a result, 32 per cent of ‘all pirate views’ were removed from the ‘lost revenue’ calculations and were treated as ‘sampling’.”

This is a valid argument. AFACT has indeed removed these later viewings from their lost revenue calculations. But, as I’ll explore below, this doesn’t mean that AFACT’s methodology is sound.

AFACT’s other replies are far less persuasive. Take this line:

“It should be clearly noted that in almost all of these cases government or technology provided a barrier to prevent continued rampant infringement. In the case of public radio, legislation provided statutory copyright royalties. VHS and cassette tape may have been efficient technologies for recording, but in terms of cost and quality (analog degrades with time) they proved not to be efficient for distribution at that time. Laws were also designed to prevent mass distribution of pirated VHS tapes. Solutions, whether legislative, technological or otherwise are currently required to prevent or deter the unfettered digital distribution of pirated versions of copyrighted content.”

Not to put too fine a point on it, this is a rubbish argument. Statutory copyright royalties for broadcasters were not barriers to listeners – they were income streams to publishers. And, in fact, as EFA point out, radio proved to be such a powerful marketing tool for music labels that record companies regularly resorted to payola and other measures to get their songs on high-rating radio stations. This argument is a classic tautology: because AFACT believe that regulatory barriers are necessary to prevent infringement, they argue that the reason previous technologies didn’t lead to “rampant infrignement” was because they were strictly regulated. You don’t need a degree in logic to spot the flaw in this argument.

So who’s right?

On the whole, EFA has the better of the exchange. Indeed, there are plenty more holes you can pick in AFACT’s methodology if you wish. To start with, let’s examine their laughable “Annex 1” in the full report. This purports to explain how ABS input-output tables are used to generate a final figure for total piracy impact in terms of lost sales and job losses.

I’d like to say I carefully checked their methodology for its econometric accuracy. Unfortunately, I can’t – because the authors at Oxford Economics and Ipsos don’t publish their equations; nor do they publish their raw data.

Just as an exercise, I downloaded the ABS input-output tables and attempted to match the ABS data to the AFACT report. It’s impossible. The data tables in the AFACT report which might allow that kind of scrutiny are missing.

What Annex 1 does tell us is that Oxford Economics and Ipsos have made all sorts of behind-the-scenes calculations to do with the exact value of the multipliers they use and the precise allocation of various ABS industry data to various categories of their assumptions. But they don’t tell us how these figures were arrived at. To get a flavour of the opacity of the modelling, here’s their full explanation of two of the the multipliers they use:

Type II multipliers of 2.5 (Gross Output) and 1.1 (GDP) were estimated. This covers activity in the Australian motion picture exhibition, production and distribution industries as well as TV VOD, internet VOD, downloads of motion pictures and the retailing of these motion pictures

There is no further explanation of how the numbers of 2.5 and 1.1 were “estimated” and no equation which shows us what they multiply. Hence, it is literally impossible to verify, cross-check or otherwise scrutinise these figures. Indeed, the full report contains no true methods section. In other words, the academic credibility of these figures should be zero.

This rubbish is just another example of how lobby groups use consultants-for-hire to create vocal scare campaigns based on fictitious figures. It’s junk modelling, ordered up for the express purpose of industry rent-seeking.

Crikey’s Bernard Keane explained it helpfully for us in relation to climate lobbying in 2010:

This what you do:

  1. Commission a report from one of the many of economics consultancies that have broken out like a plague of boils in the past decade.  This should feature modelling demonstrating the near-apocalyptic consequences of even minor reform.  Even if your industry is growing strongly, you should refer to any lower rates of future growth as costing X thousands of jobs, without letting on that those jobs don’t actually exist yet, and might never exist due to a variety of other factors.
  2. Dress up the report as “independent”, slap a media-friendly press release on the top and circulate it to journalists before release, with the offer of an interview of the relevant industry or company head.
  3. Hire a well-connected lobbyist to press your case in Canberra.  When the stakes are high, commission some polling to demonstrate that a crucial number of voters in crucial marginal seats are ready to change their vote on this very issue.

The Australia Council’s recent Arts and Creative Industries report

The following article appeared in Crikey on February 4th. There’s been quite a bit of debate over at Crikey in the comments pages of this article, so head on over to see the discussion.

The plan to provoke a profound shake-up to the arts

In a week where so much has happened in the world, it’s not surprising a report from the Australia Council has not made the news. But in the rarefied atmosphere of arts policy, the release of a report entitled Arts and creative industries will make waves — the document, if followed to its logical conclusions, implies a profound shake-up to the current status quo. 

Authored by a team of QUT academics led by Professor Justin O’Connor, Arts and creative industries is a long, detailed and rigorous examination of the context, shape and setting of arts and cultural policy in Australia. It’s not quite the Henry Tax Review, but it’s certainly the most academically informed piece of research to be released by the Australia Council in a long time.

Beginning with a historical overview of 19th century culture and the genesis of “cultural policy” in postwar Britain, the report then examines each of the issues that has bedeviled the arts debate: the role of public subsidy, the growth of the industries that produce popular culture, the divide between high art and low art, and the emergence of the so-called “creative industries” in the 1990s. It’s as good a summary of the current state of play as you’re likely to find anywhere, including in the international academic literature.

O’Connor and his co-writers conclude that “the creative industries need not be —  indeed should not be — counter posed to cultural policy; they are a development of it” and that economic objectives (in other words, industry policy) should be a legitimate aim of cultural policy.

Taken as a whole, the argument has big implications for the way Australia currently pursues the regulation and funding of culture. For instance, it argues that “the ‘free market’ simply does not describe the tendencies of monopoly, agglomeration, cartels, restrictive practices, exploitation and unfair competition which mark the cultural industries” and that this in turn justifies greater regulation of cultural industries like the media. That’s a conclusion that few in the Productivity Commission or Treasury — let alone Kerry Stokes or James Packer — are likely to agree with.

The report also argues the divide between the high arts and popular culture has now largely disappeared, and that therefore “it is increasingly difficult for arts agencies to concern themselves only with direct subsidy and only with the non-commercial”. This is an argument which directly challenges the entire basis of the Australia Council’s funding model, in which opera and orchestral music receives 98% of the council’s music funding pie. No wonder the Australia Council’s CEO, Kathy Keele, writes in the foreword: “This study proposes to challenge many of our current conceptions, definitions, and even policies.”

Intriguingly, the report stops short of any concrete policy recommendations. Perhaps this is because some existed, but were excised from the report. Or perhaps it’s because any recommendations that genuinely flowed from this report would imply the break-up or radical overhaul of the Australia Council itself.

As Marcus Westbury this week observed in The Age: ”While the Australia Council isn’t backward in promoting research, reports and good news stories that validate the status quo, there is not much precedent for it challenging it.”

That’s because the real guardian of the current funding model is not the Australia Council, but the small coterie of large performing arts companies and high-status impresarios that are its greatest beneficiaries. It won’t be long before a coalition of high arts types, from Richard Tognetti to Richard Mills, start clamouring to defend their privilege.

The worsening woes of the (recorded) music industry

From the Guardian‘s inestimable Charles Arthur comes a must-read post on the gloomy future of the record industry. Because it’s so good, I’ve re-posted here in full:

Bad news for the music industry. And it comes in threes.

First, Warner Music (which might be thinking of buying EMI from Citigroup?) reported its numbers for the fourth calendar quarter of 2010(which is actually its fiscal first quarter). Oh dear. Total revenue ($789m) down 14% from 2009, down 12% on constant currency basis (ie allowing for exchange rate fluctuation); digital revenue of $187m was 24% of total revenue (yay!), up 2% from last year (oooh), but sequentially down by 5%, or 7% on constant currency.

Operating income before depreciation and amortisation down 20% to $90m, from $112m a year ago. All of which led to a net loss of $18m, compared to a net loss of $17m a year before. In other words, things are still bad there. And it’s still got some heavy gearing: cash is $263m, long-term debt is $1.94bn. Warner might want to buy EMI, but it would put a hell of a strain on it. And the music business isn’t exactly looking like a place where you’d want a bank putting your money.

Second, Fred Wilson, a venture capitalist who spends upwards of $60 per month – and by his estimate around $2,000 annually – on music and music subscriptions was forced to turn pirate in order to get hold of the new Streets album:

“searched the Internet for the record. It was not even listed in iTunes or emusic. It was listed on Amazon US as an import that would be available on Feb 15th, but only in CD form. I’m not buying plastic just to rip the files and throw it out. Seeing as it was an import, I searched Amazon UK. And there I found the record in mp3 form for 4 pounds. It was going to be released on Feb 4th. I made a mental note to come back and get it when it was released. I got around to doing that today. I clicked on “buy with one click” and was greeted with this nonsense “

Which was Amazon saying that because he wasn’t in the UK, he couldn’t buy it. Unable to find a VPN that would let him masquerade as a Briton, he took the next step:

“So reluctantly, I went to a bit torrent search. I found plenty of torrents for the record and quickly had the record in mp3 form. That took less than a minute compared to the 20+ minutes I wasted trying pretty hard to buy the record legally.

“This is fucked up. I want to pay for music. I value the content. But selling it to some people in some countries and not selling it to others is messed up. And selling it in CD only format is messed up. And posting the entire record on the web for streaming without making the content available for purchase is messed up.”

Well, you could argue that an inability to actually wait for the few weeks, perhaps a month, before he could hear the songs via a licensed US label was what’s messed up. Is there no other music in the world that he can hear first? Nobody else? True, it would make sense if contracts were signed so that everything happened at once. But the record industry is still rather like the book industry: because it generates most of its money from physical things, it organises itself around those things.

And finally to Mark Mulligan, music analyst at Forrester Research.Writing on the Midem blog, Mulligan points out that “Digital music is at an impasse” because “it has not achieved any of its three key objectives”, specifically:

1 – to offset the impact of declining CD sales
2 – to generate a format replacement cycle and
3 – to compete effectively with piracy.

Mulligan notes that

“the divergence between emerging consumer behaviour and legitimate music products is widening at an alarming rate. And consumers are voting with their feet: Forrester’s latest consumer data shows digital music activity adoption is flat across ALL activity types compared to 1 year previously (in fact the data shows a slight decline).”

The hope on the part of the music business that the iPod, and the iTunes Store, and then digital music stores of all sorts, would be its saviour has turned out to be false. As Mulligan notes,

“all music activity is niche, except for video. Just 10% of Europeans and 18% of US consumers pay for digital music. Only music video has more than 20% adoption (and only in Europe at that): YouTube is digital music’s killer app.”

(If you are, or know, any young teenagers you”ll know that this is absolutely true. YouTube, and of course in Europe also Spotify. The problem with Spotify being, in the eyes of the record companies, that it simply doesn’t pay them enough. Whereas in Spotify’s eyes the record companies have for too long demanded too much.)

Mulligan adds that the “transition generation” – the 16-24 year-olds – aren’t the future. Instead, the future lies with the 12-15 year olds.

“In fact, when you look closely at the activities where 16-24’s over-index [do more than other age cohorts], you can see that their activity coalesces around recreating analogue behaviours in a digital context. The 16-24’s started out in the analogue era. They are the transition generation with transitional behaviours.

“The 12-15 year olds, though, don’t have analog baggage. All they’ve known is digital. Online video and mobile are their killer apps. These Digital Natives see music as the pervasive soundtrack to their interactive, immersive, social environments. Ownership matters less. Place of origin matters less. But context and experience are everything. The Digital Natives are hugely disruptive, but their disruption needs harnessing.”

So why does this matter, asks Mulligan? Because

“current digital music product strategy is built around the transition generation with transition products to meet their transitional needs and expectations. Neither the 99 cent download and the 9.99 streaming subscription are the future. They are transition products. They were useful for bridging the gap between analogue and digital, to get us on the first step of the digital path, but now it’s time to start the journey in earnest. We’d be naïve to argue that we’re anything close to the end game yet. But the problem is that consumer demand has already outpaced product evolution, again.”

It’s time, he argues, for the music companies to deal with the world as it is, rather than as it used to be or as they liked it. Many in the business will tell you that that is exactly what they are doing; and nothing that Mulligan says in any way detracts from the (real) efforts that are being made by many record executives, who are not as clueless or uninformed as many would like to think. Instead, they’re frequently dealing with institutional and sector-based inertia that’s hard to get moving. Plus if Simon Cowell can discover a singer on a talent show and propel her to the top of the UK and US album charts (the first British act since the Beatles to achieve that), selling millions of CDs, well, is his strategy so wrong and everyone else’s somehow so right? Realities like that give even the most digital executive pause.

Back to Mulligan, who points out that

“the digital natives have only ever known a world with on-demand access based music experiences. …And the experience part is crucial. In a post-content-scarcity world where all content is available, experience is now everything. Experience IS the product. With the contagion of free infecting everything the content itself is no longer king. Experience now has the throne.”

So what’s needed? He thinks future music products need “SPARC” (no, not the Sun processor architecture). Digital music products, he says, must be:
• Social: put the crowd in the cloud
• Participative: make them interactive and immersive
• Accessible: ownership still matters but access matters more
• Relevant: ensure they co-exist and joint the dots in the fragmented digital environment
• Connected: 174m Europeans have two or more connected devices. Music fans are connected and expect their music experiences to be also.

His parting shot: “Music products must harness disruption, that isn’t in question. What is, is whether they do so quickly enough to prevent another massive chunk of the marketplace disappearing for good?”

I think Warner may have answered that already, actually.

My commentary: after reading this, if you were a music industry executive you’d probably want to slash your wrists. But things may be both worse and better than it seems  for the big music publishers. Here’s why.

Firstly, experience can be excluded, branded and sold. The predominant form of musical experience today is not the download but the live music festival or concert. Large multinationals are already aggressively into this space (think LiveNation) and we should expect this to continue. Secondly, experience can be a good as well as a service: that is, really well produced and packaged vinyl can be an experience (although only a niche experience – but then again, all music is niche now anyway). Finally, certain aspects of the music market are not being disrupted in the same way as downloadable songs – for instance, royalty streams where the end customer is large enough to warrant legal pursuit by collection agencies.

On the other hand, in some ways, things really are as bad if not worse than the Forrester report suggests. Free music is not going away, and today’s teenagers really don’t expect to pay for it. That battle is over. So the future for recorded music may really be truly non-excludable and free. That’s a challenge that no-one in the industry seems willing to face up to, even those advocating streaming or subscription models. Finally, the recent history of the music industry suggests that music publishing executives – indeed, musicians themselves – struggle to understand the new paradigm, even twelve years after Napster.

The Times paywall: what do the numbers tell us?

The preliminary numbers on The Times paywall are in … and no-one quite knows what to make of them.

Paid Content argues that while web readership has fallen off a cliff (as expected), the modest number of ongoing subscribes offers some hope for the future.

Roy Greenslade says its early days but the numbers probably don’t add up:

I am told that iPad numbers are “jumping around” all the time.

But there has been no attempt to counter my source’s view that there has been a measure of disappointment about online-only take-up.

Many people who tried out access in the early weeks have not returned. However, it is also true to say that some daily subscribers have been impressed enough to sign up on a weekly basis.

And it is also the case that the Sunday Times‘s iPad app has yet to launch. It is hoped that this will boost figures considerably, though I have my reservations about that.

I think, once we delve further into these figures, they will support the view that News Int’s paywall experiment has, as expected, not created a sufficiently lucrative business model.

Clay Shirky argues the paywall means a retreat from broad-based newspaper-style publishing to narrowcast newsletter publishing:

One way to think of this transition is that online, the Times has stopped being a newspaper, in the sense of a generally available and omnibus account of the news of the day, broadly read in the community. Instead, it is becoming a newsletter, an outlet supported by, and speaking to, a specific and relatively coherent and compact audience. (In this case, the Times is becoming the online newsletter of the Tories, the UK’s conservative political party, read much less widely than its paper counterpart.)

Murdoch and News Corp, committed as they have been to extracting revenues from the paywall, still cannot execute in a way that does not change the nature of the organizations behind the wall. Rather than simply shifting relative subsidy from advertisers to users for an existing product, they are instead re-engineering the Times around the newsletter model, because the paywall creates newsletter economics.

As of July, non-subscribers can no longer read Times stories forwarded by colleagues or friends, nor can they read stories linked to from Facebook or Twitter. As a result, links to Times stories now rarely circulate in those media. If you are going to produce news that can’t be shared outside a particular community, you will want to recruit and retain a community that doesn’t care whether any given piece of news spreads, which means tightly interconnected readerships become the ideal ones. However, tight interconnectedness correlates inversely with audience size, making for a stark choice, rather than offering a way of preserving the status quo.

This re-engineering suggests that paywalls don’t and can’t rescue current organizational forms. They offer instead yet another transformed alternative to it. Even if paywall economics can eventually be made to work with a dramatically reduced audience, this particular referendum on the future (read: the present) of newspapers is likely to mean the end of the belief that there is any non-disruptive way to remain a going concern.

 

Strong Aussie dollar hammers Australian screen production

Pop star Rihanna in uniform on the shoot of Peter Berg's Battleship. The big-budget movie was scheduled for production in Australia but was moved to Louisiana owing to the strong Australilan dollar and attractive production subsidies from the US state.

When Alex Burns and I set out to examine the past two decades of Australian screen policy, we concluded that the biggest influence on the success or failure of the Australian film industry was macro-economic factors like currency fluctuations – and not the perceived quality of Australian writers or directors.

You can read that paper – “Boom and Bust in Australian Screen Policy: 10BA, the Film Finance Corporation and Hollywood’s ‘Race to the Bottom‘” in the August issue of Media International Australia, reposted by Alex in proof version here.

Recent developments have only reinforced our findings. Yesterday, for instance, the Australian Financial Review published a feature-length article about the serious trouble posed for that the export-intensive parts of Australian screen industry by the strong Australian dollar, which briefly reached parity with the US dollar last week.

You can’t read the AFR article (by Brook Turner, entitled ‘Dollar dampens local film production’) online, so I’ve transcribed important sections below:

 

 

 

For the first  time in decades there are no major American films being made in Australia, and none in the pipeline, a clear sign of the devastation the dollar has wrought on a $2.3 billion business.

NSW hasn’t had had a major US  film since Wolverine wrapped at Fox Studios in mid-2008, Victoria since Don’t Be Afraid of the Dark in September last year, Queensland since Narnia last November. The Sunshine State is hanging in thanks to local production and Steven Spielberg’s 13-part, $150-million TV dinosaur epic Terra Nova. But there are fears that may go the way of films such as Green Lantern and Battleship, which migrated back to the US with their $US150 million budgets ass the dollar rose, as estimated $200 million loss to the Australian industry.

“This is unprecedented”, Ausfilm’s chief operating officer Tracey Vieira, said this week from Los Angeles, where she has the job of enticing US production to Australia. “We have always had a good momentum of production inquiry about filming in Australia; I’ve never been in a position where we haven’t had a US production that is seriously considering Australia. And there’s nothing in sight.”

Ausfilm hass asked the federal government to at least double Australia’s production offset – a 15% tax rebate on local expenditure on foreign films – to bring it into line with North American, UK and European competitors as part of the government’s independent film sector review, due later this year.

The article reinforces the problems faced by Australia’s screen industry, which features anaemic levels of locally-financed production and is heavily reliant on “runaway production” from Hollywood studios. As we pointed out in the paper, Australia’s foreign-financed production is highly vulnerable to currency fluctuations and “race to the bottom” competition from other jurisdictions offering their own generous production subsidies.

Subsidising paid digital content: cultural policy, French style

Ars Technica notes that:

France has decided to try something… novel. The country will attempt to prop up the digital music industry by subsidizing legal music consumption by young people. Under the initiative, citizens between 12 and 25 years old will be able to purchase a “carte musique”—a prepaid card  usable on subscription-based music websites. The card will come with €50 worth of credit, but customers only have to pay €25. The rest will be paid by the French government.

It is interesting to see a national government try a subsidy where out-and-out regulation has failed. But will it work?

The long-tail of publishing

The following post first appeared on the website of The Wheeler Centre for Books, Writing and Ideas, on October 4th 2010.

When was the last time you bought a CD?

If you’re like most young Australians, the answer is: a while ago. The advent of digital file sharing technologies has completely transformed the music publishing business. Since Napster was invented in 1999, CD sales have plungedmajor record labels are struggling – butconcert and festival attendances have boomed.

Now it’s the publishing industry’s turn to feel the destructive gale of technological change. A recent article in the Wall Street Journal is only the latest of many to chronicle the declining fortunes of traditional book publishers, particularly in fields like literary fiction:

From an e-book sale, an author makes a little more than half what he or she makes from a hardcover sale. The lower revenue from e-books comes amidst a decline in book sales that was already under way. The seemingly endless entertainment choices created by the Web have eaten into the time people spend reading books.

 

Publishers and authors face declining revenues and profits in the digital world. Source: LJK Literary Agents, Wall Street Journal

 

The sea-change in the publishing industry illustrates the new economics of digital distribution. It’s a phenomenon dubbed “the long tail” by Wired editor Chris Anderson. (Anderson borrowed the term from technology economist Erik Brynjolfsson).

The long tail is illustrated in the image below. The “tail” is simply the long rightwards sloping end of the curve. Inside the long tail are all the unpopular and obscure titles that never used to get published – but that can none-the-less sell in small numbers online. Aggregated together by a business model such as Amazon’s, this vast global back-catalogue can add up to real profits. In a nutshell: falling costs of publishing and distribution have allowed an avalanche of content to find new audiences. They are small audiences, but they are real.

 

MIT economist Erik Brynjolfsson analysed sales data from Amazon and found that 30-40% of Amazon book sales are titles that wouldn’t normally be found in bricks-and-mortar stores. Source: Erik Brynjolfsson, Jeffrey Hu and Michael Smith (2006) “From Niches to Riches: Anatomy of the Long Tail.”

 

What this means for writers is beginning to emerge. The long tail contains nearly everything that isn’t a commercially-viable proposition: in other words, most writers, bloggers and poets. But these new technologies can also help once-obscure writers and bloggers to connect directly to audiences, and even allow them to make a modest but sustainable living from their craft. As technology writer Kevin Kelly has observed, artists and writers may only need “1000 true fans” to build a career, and cheap and easy access to blogging engines globally makes this easier than ever before.

The ability of technology to put publishing in the hands of writers won’t create many superstars, but we’re already seeing its potential to allow amateurs to reach meaningful readerships and journalists, academics and other literary professionals to add second strings to their bows. Increasingly, writers are making money the way musicians are: bymonetising their speeches, presentations and merchandise. Theinter-connectedness of blogs, which rely on many reciprocal links between a community of interest in a particular niche, help this process.

Bottom-line: the long tail economics of blogging might be unsettling for writers and publishers used to the old models, but it’s a trend that’s here to stay.