Steal This Essay 3: How to Finance Content Creation
"If consultants had been hired to evaluate the market for printing a decade or two after its invention, they would have concluded that the new technology was vastly overrated. Scribes were already producing the important books efficiently, and the new printers produced mainly the same old texts, such as the Bible, which were readily available to the tiny minority who were literate."– Ithiel de Sola Pool
Who will pay for something "free?" It seems obvious that content creation has to be funded somehow, since the next Jurassic Park won’t be developed during some teenager’s free afternoons. Economist Arnold Kling says that "The central paradox of our times is that information wants to be free but people need to get paid."
Pure public goods have been funded by various means for the last several hundred years, so there should hopefully be some insights by now into how the makers of pure public goods can be compensated for creating their works. For if these options aren’t realistic, it is unclear why authors such as this one will continue as ink-stained wretches (well yes, this essay was typed directly into the computer, but you get the idea).
There are four basic ways to fund a public good: the government, micropatronage, funding from non-profit organizations or corporate philanthropy, and the sale of atoms associated with the bits. These are in no way exclusive – it’s entirely likely that any given public good may receive funding from more than one of these sources.
Government Support — Although few people like the idea of the government getting to decide which artists and writers "deserve" to be funded, government support has been the traditional manner to fund public goods. Given the political histrionics surrounding the U.S.’s National Endowment of the Arts, it seems unlikely that this model will scale to fund a much larger supply of content. Neither the public at large nor Jesse Helms himself want to live in a world where the Senator decides which situation comedy or hip-hop band is most deserving of funding.
However, there are alternatives that could enable much larger government funding of content creation without involving the government in picking winners and losers. These measures would be based directly on popularity, so that creators of popular content would be compensated for doing so. For instance, a commercial service called MediaMetrix currently calculates the most popular Web sites, just as Nielsen’s delivers ratings on the most popular TV shows. A new government program could offer grants to the authors of the top 1,000 most popular Web sites, MP3s, movies, and so on, encouraging innovation not just in the creation of new content but also in its successful promotion.
Micropatronage — Don’t confuse micropatronage with micropayments, which make no sense for pure public goods. Specifically, if anyone who pays $1 for a New York Times article can redistribute that article endlessly, why would anyone else pay the dollar? Plus, people are mistrustful of the ways micropayment systems have been proposed thus far, due to the fear of fainting spells when reviewing the bill at the end of the month.
Micropatronage entails a return to the content creation system of the 15th century, namely art patronage. The downsides are that artists are open to influence from their patrons (though arguably less than they are by their publishers today) and that content creators need to be matched up with patrons. The advantage is that with the near-zero cost of information distribution, finding patrons becomes simpler, as does having one artist supported by numerous patrons. Thus, rather than the Medicis funding Michelangelo’s works, an artist such as Aimee Mann with a small, passionate following could probably find 1,000 individuals willing to donate $100 a year or more. (The main difference between modern micropatrons and the Medicis is the dramatically smaller likelihood of going from being a patron of the arts to becoming the Pope.)
Is there any model of micropatronage in action today? Yes, public broadcasting. Fund drives for PBS and NPR run into a basic difficulty that they are trying to raise money for a pure public good that is available to everyone. But large numbers of individuals still seem to find the money to donate, even though they could not be excluded from future content for not doing so. (Or phrased differently, their guilt from enjoying PBS or NPR outweighs the economic certainty that no single person’s contributions will have any effect on whether they get to continue enjoying this nonexcludable good.)
Mickey Kaus’s personal news Web site recently declared profitability (although this is misleading given that he is not charging for his own time), where he is relying on an Amazon-based system to enable readers to become micropatrons. Even TidBITS uses micropatronage, with over 700 contributors to date.
More generally, almost all charitable giving today falls under this model, in which the charitable services (e.g., the Salvation Army or your school’s alumni association) are equally available to you whether you contribute or not, but you still choose to do so. In situations in which there is no downside for any given individual to be a freeloader, it is amazing that so many charitable services continue to survive on donations alone.
Non-profit Foundations and Corporate Philanthropy — Another way that pure public goods such as medical research are funded today is through non-profit organizations such as the American Cancer Society. These raise money for a single larger goal and then distribute it to the uses they believe are worthiest.
This approach could easily apply to content as well: imagine a National Country & Western Foundation, or an American Society for Horror Flicks. That is, some potential micropatrons (especially companies) may wish to fund a genre as a whole, and have the experts employed by non-profits decide which established and up-and-coming artists are most deserving of their funds.
The Web magazine Slate’s current financing seems to fall into a similar category, whereby a (very) for-profit corporation, Microsoft, apparently feels that the respect and gratitude it garners by funding a high-quality magazine is worth the $20+ million a year that it spends to operate Slate.
In fact, nearly all influential news and opinion magazines are financed by individuals and/or companies that appreciate the respect that seems to rub-off from financing top rate content. Examples include The New Yorker (Si Newhouse’s Advance Publications), The Weekly Standard (Rupert Murdoch’s News Corp.), and The New Republic (Marty Peretz). They certainly are not run on any generally understood financial principles, since they all lose money.
As content becomes less excludable (meaning mainly that people are reading or listening via digital devices rather than through paper and CDs), many new such foundations will likely be needed.
Sell Atoms Associated with Certain Bits — Finally, one system that is beginning to work for funding a public good is to charge for physical items associated with given content. That is, even though bits are becoming impossible to charge for, many people will be willing to pay for the atoms associated with those bits. The most obvious are concert t-shirts, or micropatron plaques with a signed thank you from the content creator. Since (all but open-air) concerts are by definition excludable, fans will continue to pay real money to attend them. In the case of concerts, the atoms that fans are paying to be in proximity to are those of the artist herself.
Are there really enough funds available from these four methods – even combined – to pay for the next Madonna CD or an episode of The West Wing? Only time will tell. But, just as technology is nearly eliminating the cost of distributing information, so too is it drastically reducing the cost of creating content. The dinosaurs that took 50 people and dozens of supercomputers to create in the original Jurassic Park may soon be reproduced by a 16-year-old working after school on her home PC. The symphony that Mozart had to assemble an orchestra to hear can now be authored (and iterated, and iterated again) with a free music program in an afternoon (presuming the talent), with no musicians to train or pay. Of course, even these teenagers will need to pursue some combination of these funding mechanisms if they want to have their art be more than a hobby.
And those four options are it. Although I (and numerous hungry artists) will continue looking for new funding innovations, I can’t currently envision many other ways that pure public good content could be funded. Which leads to the question addressed in the next essay, of whether all of this is fair.
[Dan Kohn is a General Partner with Skymoon Ventures. His writings are announced through <[email protected]> and can be discussed through <[email protected]>.]