Friday, July 03, 2009

Gladwell: Free is pretty expensive

Malcolm Gladwell's review of Chris Anderson's latest book, Free! The Future of a Radical Price (Hyperion), is out in this week's New Yorker. As with all things Gladwell, it's smart and insightful. Above all it stresses the practical and conceptual limits of "free," as in this pithy excerpt about how Anderson misunderstands the economics of YouTube:
So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. For Anderson, YouTube illustrates the principle that Free removes the necessity of aesthetic judgment. (As he puts it, YouTube proves that “crap is in the eye of the beholder.”) But, in order to make money, YouTube has been obliged to pay for programs that aren’t crap. To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.
You can find the review -- which is indeed worth reading in its entirety -- here. Chris Anderson responds to Gladwell on his blog, The Long Tail. Seth Godin (siding with Anderson) chimes in here.

I'm still gathering my thoughts on the subject, though I'm quite persuaded by Gladwell's infrastructural (as opposed to Anderson's artifactual) orientation. I suppose that's why The Guardian recently labeled me a "distribution nerd." Anyway, more to come....

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