Record Labels Waged War On Human Psychology…And LostThe major record labels and the RIAA could have averted a PR nightmare and saved themselves millions of dollars by hiring a few behavioral economists instead of lawyers to advise them. The basis of all human economic transactions are psychological. Our animal spirits animate markets. The lawsuits the RIAA waged against consumers several years ago were designed to prevent people from downloading free, illegal music. They largely had the opposite effect. The obvious stupidity of the strategy is that you’re beating people over the head, then saying “Now, buy my product!”
The more profound aspect of that is that the RIAA could spend every last penny they’re worth and they still wouldn’t stop the inevitable death of the CD . Not because people don’t want to pay $17 for a CD, but because $17 doesn’t make sense anymore in the context of how human beings make rational choices. The whole file sharing phenomenon (and legal music downloading) is largely driven by a powerful psychological aversion to being cheated.
It turns out that free is so powerful not because it’s free, but because it allows us to minimize the risk of being cheated. Duke University behavioral economist Dan Ariely conducted an interesting experiment to understand “free”, which he writes about in his book Predictably Irrational. First, he and his colleagues sold random college students two kinds of chocolates. One was Lindt Truffles from Switzerland. The second was Hersheys Kisses. The truffles were 15 cents and the Kisses were 1 cent. The students reasoned that the difference in price between the two chocolates was due to quality. 73% chose the truffles and 27% chose the Kisses.
Then Ariely did something interesting. He introduced free into the experiment. He lowered the price of each chocolate by 1 cent, so the truffles were now 14 cents and the Kisses were free. All of a sudden, preference for the Kisses skyrocketed.
Ariely concluded that free is so enticing because it eliminates the risk of buyer’s remorse, or what I like to call the “Oh, crap!” factor. Nobody wants to buy something and then discover that it’s not what they expected. Even if the price of that thing is just a few cents, the psychological aversion still exists. When something is free, that risk is eliminated entirely. It may still not be what you expected, but at least you didn’t lose anything by paying for it.
The world of marketing is largely based on the concept of convincing people to overcome their natural aversion to being cheated. Companies hire high-priced consultants and agencies to help them craft brands that people will trust. Money-back guarantees are another popular tactic to get people to buy risk-free.
You can see examples of the “Oh, crap!” factor in everyday life. In his spectacular book Free, Wired Magazine editor Chris Anderson gives the example of zappos.com. Most people still prefer to buy shoes in stores because they want to try them on and make sure they fit and look good on their feet before buying . Zappos became a multi-billion dollar company by eliminating the psychological barrier to buying shoes online by letting people try out and return shoes as many times as they want. So it’s even better than buying shoes in the real world because some of the other costs associated with buying shoes like getting in your car, dealing with traffic, talking to a rude cashier, etc are eliminated.
The record industry has fared so poorly largely because it sells a high risk product that competes with copies of the product that carry far fewer risks. Everybody knows that labels fill CD albums with fluff. And everybody hates it. Sites like Amazon that let you sample albums for free before buying them take some of the risk out of buying. But why would you buy the entire album if you only like a few songs on it? That’s where the whole buy-one-song iTunes model has become a powerful force. Buy what you want, ignore the rest. Or even better, download it for free on some file sharing site.
But free isn’t completely free. Just because something doesn’t cost money doesn’t mean there aren’t other hidden costs. If you download a free mp3, you could be dealing with poor quality, viruses, problematic file formats or maybe the wrong song. And then finding a good version takes time. That’s a cost too.
The reason Steve Jobs and Apple have been so spectacularly successful at reinventing the music business is because they’re the only ones who’ve managed to invent a hardware and software platform that mitigates the risk factors involved in owning music. And they made it sexy and stylish. Apple didn’t win on technology. Nobody does, ultimately. They won on business smarts. And business is based largely on manipulating psychology.
Many younger people get all their music from free file sharing sites. Part of the reason is that they have less money and more time than older people, who’s busier lives encourage them to pay for things that save them time. Younger people are willing to spend time to understand technology and deal with the costs that come with free music. I think free music has also become an expectation for younger people. There’s an entire group of people under the age of about 30 who believe that music should be free because that’s the world they’ve grown up in. So that’s where the future lies.
The labels lost because they waged war on human psychology. Apple won because it adapted to human psychology.
May 11th, 2010 at 10:47 am
This is a fantastic viewpoint. Being a musician I continually try to have the medium (CD) and its disadvantages share some of the responsibility but you have altered my perspective on this subject. Thanks for sharing! You just got another follower!
May 11th, 2010 at 11:00 am
And the hammer hits the nail DEAD-on!! Kudos! Thank you for pointing out the obvious. I remember as a wee middle-schooler, arguing with my dad about the advent of the .mp3 and the labels’ war against Napster. I told him, “either the industry will win [which is unlikely], or my generation and those close to our age-group will fight back & file-share to our hearts content.” We have all seen the results; I may not be a prophet, but I called that shot before my voice changed, so I do feel a bit proud, LOL.
As an indie artist, it’s a REALLY tough market to sell music for any type of money. It just is. The perk of being indie and having control over your content is that you get to delegate where and how that content is distributed, so there’s less of a chance of initial freebie-jeebies happening. However, mirroring the article above, even my generation (who is well-aware of the CD days of yore) and those who support me are more likely to stream my music online & not purchase at all. This is with the admission that I have hundreds of listeners and supporters. So the question we must all ask ourselves is…what’s next?
Sigh…well, anywho. If you’d like to listen to my tunes and stream them (for FREE…LOL), you can do so at http://firstdraftonline.com/ with no strings attached. Should the desire to support the music well up within you, LOL, by all means you can purchase the music (in any format) for simply $5, or $1/single. Take care yall!!
Peace & Music,
P. Murray
May 11th, 2010 at 11:04 am
I can’t see iTunes enduring with the pay-per-track business. In my opinion, you get the same remorse from buying a single track as you do with a CD. When users start using subscription services like mog.com they will realize how awful iTunes is. I’ve heard rumors iTunes might be looking into a subscription service, but I don’t know anything more about that.
I agree with your post though, consumers have evolved past the CD era (those who shopped at Sam Goody took a bit longer to evolve than others). I think the trend is positive.
Unfortunately there doesn’t seem to be any repercussions of the RIAA being complete assholes to their customers. They will transform to the new models and keep on making money.
May 11th, 2010 at 11:35 am
I think this is a very interesting take on how music went digital. Well done.
May 11th, 2010 at 12:59 pm
Good post, but I take issue with a key point: you imply that labels created the current free-mania by offering only high risk products. You then go on to imply that the future will have to be free because the beast is out of the box. I disagree with this latter point fully. With better policies all around — from licensing through to retail choices — free would give way to free markets and appropriate pricing. Actually, I think this is already happening, but damn it’s slow!
http://www.jeffshattuck.com (free streams!)
May 11th, 2010 at 1:14 pm
While I take your point, and for me it has been obvious since 2004, there is a major point being overlooked here. In the experiment with chocolates, the initial reaction was that one was of better quality and so they bought that. when something is ‘free’, more than likely it’s quality is very poor. Hence the glut of crap that is being passed as music available on the internet. While you may have gotten a few songs that didn’t match up to the ones you liked on the CD, I’ll gander they were better than the ‘free’ ones now available on the internet. As an artist and audio engineer I must make another point completely missed here: if artist never make any income from their intellectual property that took much time and effort to create, they cease doing it. And what’s left is of poor caliber. You reap what you sow.
May 11th, 2010 at 1:18 pm
It also shows just how unrepresentative the charting hits are these days. It basically represents the people too stupid to work out how to download the music for free.
May 11th, 2010 at 4:15 pm
“There’s an entire group of people under the age of about 30 who believe that music should be free because that’s the world they’ve grown up in. So that’s where the future lies.”
Absolute nonsense. At least 3 generations of people before that ALSO grew up with music that was mostly “free”. It was called RADIO. (Before the advent of subscription radio like Sirius, of course.)
The only “free” thing that is different today is control (legal or otherwise) of your own copy of the music. Thus the ability to control when and where you hear it, for the same cost (free). I am deliberately leaving the “cost” of advertising out of the equation, because most people who were used to it ignored it anyway. It was not commonly perceived as a “cost” of listening to the music (even though it really was.)
So the situation facing this generation is not so different from the past after all. You can get a copy of music that is of better quality than recording it off the radio, for free. Illegally. Big deal. I don’t think people — even young inexperienced people — are really naive enough to think that they can expect musicians to perform for free. However, they don’t see the point in paying a large, conservative, demonstrably greedy music studio or production company for the privilege of listening to said musician. Nor should they.
To say that the future is in free music because that is what young people are used to is a gross oversimplification — not to mention distortion — of the real situation. Markets still exist. Listeners have demonstrated that they ARE willing to pay a fair rate for something they actually want, as opposed to the mentioned CD full of fluff. $1 for 1 song they like as opposed to $17 for 16 songs, most of which they don’t like. That’s fair. And that’s real business. It’s not free at all.
If you actually tried to build a music industry around “free” performances, you will find that it doesn’t work. Just as people in the past who HAVE tried it, found out.
May 11th, 2010 at 4:20 pm
And to Chris Cooper, above, I say: the majority of music has ALWAYS been crap. Sturgeon’s Law (“90% of EVERYTHING is crap”) has always applied. The difference is that today, people get to hear the crap music before they buy. As opposed to only hearing a hit or two and hearing the crap only after they bought the album or CD.
I will say that there is an exception, and that is that it is easy today for anybody to publish on the Net. So there is, in fact, a veritable flood of crap. But that’s not really “commercial” music.
May 11th, 2010 at 8:22 pm
Well at the end of the day, record co’s are about making money out of artists and the new deals now being made in the live concert arenas are pushing up the prices of live concerts and once again filling the record companies coffers. I doubt they care where the money comes from.
May 11th, 2010 at 11:08 pm
@Ann, when I say that the future is going to be based around free, I’m not talking about everything being free; mostly the music itself. But music-related experiences like concerts shouldn’t be. In fact, the concert industry is booming.
May 12th, 2010 at 5:38 am
That’s an awesome breakdown/analysis of the situation.
What would the record industry be like if this was written 10 years ago and all the majors listening and adapted?
May 12th, 2010 at 6:00 am
As I was reading this post yesterday, first I thought that the “Oh, crap” factor is reduced by the chance to listen before buying.
But the “natural aversion to being cheated” was something I could not stop thinking about.
My thoughts:
In the past decades (main stream)music is becoming more and more a sort of fast food. It follows simple patterns and trends mostly driven by marketing, strategy and of course labels.
So the feeling of being cheated does not pop up directly after buing a cd. I think this feeling is something that could pop up many years after buying, a physical music carrier.
You see this cd and you could think “.. how stupid I’ve been at that time because of buying such stupid music…”
An mp3 is something you can hide good so it is harder to get reminded.
May 12th, 2010 at 1:43 pm
It’s so hard to have a clear opinion on that matter, because there are many subtle elements that complicate the story.
It is normal that majors suffer. They spent millions on everything but the artists because there was money to win—and I have nothing against money. But in the end, what more superfluous than music ? (especially standard music you can hear everywhere for free) In the end, what more superfluous than the artists ? I mean, I could die without water but I would only be bored without music. You might want to believe that the western world advocated cultural venues after the war because there was money to take from it. After all, art existed before museum and concert halls. Maybe art should be just a hobby, a necessity. If not, maybe it could be free.
May 15th, 2010 at 6:13 pm
Kudos to Chris Cooper
A point well made. I don’t know anyone selling $17.00 CD’s anymore FYI…Reality is if know one gets paid it’s pretty hard to produce more music.. They’ll be no studios (with real gear) and no one willing to shell out money to promote band’s music.. So “the next generation” will have to sift through a whole bunch of “chaffe” to find the one’s willing to eat top ramen on a daily basis.
The upside is bands are more attentive to their fans now than they used to be. They understand the conditions and put out more effort to let them know how much they appreciate them. So we got that going for us
Best,
~S~
May 15th, 2010 at 7:49 pm
Mika,
As a longtime reader of yours, I’m not necessarily saying that I completely ‘disagree’ with some of your points above, but rather more ‘confused’ & ‘disheartened’ you might say.
I mean, first off (and with all due respect) – I’m getting a bit confused at ‘why’ you continue to write about this same issue with the record companies, over & over again? I understand parts of what you’re trying to say in general, but this is probably the 9th or 10th article that you’ve written (in the past several months now) where you continue to boast & rave about ‘How the record companies screwed-up royally”, or “Why the record companies ‘lost’ to free-internet streaming”.
I think the point has been well made & established by now, but where I really seem to have an issue with all of this, is the fact that you’ve kinda ’shifted’ from or writing less about any ‘questions’ of what real, ‘working artists’ out there should ‘do’ or expect from all of this in order to sustain a living by what they do or create?
You have said numerous times that the record companies have ‘failed’ severely, crappy CD’s are dead, and that the future of all music is now ‘free’ to everyone, therefore it’s a great time to be a musician and we should all rejoice by downloading everyone’s music without paying anything for it, while roasting old, boring CD’s over the dead corpses of ex-major label executives.
(I simply don’t see where ANY of this ‘great’ for the hard-working musicians of today) – but fine, ‘the king is dead, off with his head, and steal all of the music that you can find, etc………..’
But ‘How’ exactly is this supposed to be ‘great’ for the music industry itself or any of todays indie-artists that are trying so hard to hopefully make somewhat of a living out of creating music? – especially with so much of it being constantly given away for ‘free’, more & more?
I see WAY too many artists that come into our recording studios down here, that put in a LOT of hard work, effort, (and yes, money) into making their records, but then never hardly even see a dime in return for making them now (which has also caused MANY recording studios across America to close down as well by the way, which is another bad loss for not only the industry, but for the engineers who helped create those same records who don’t have jobs now.) But even for the artists who record their own material at home, STILL have to pay for the computers, the recording software, gear, time, etc, etc – only to see most of their efforts & products given away or ‘taken’ for free.
I understand that this is basically inevitable for the most part, and again, you’ve made that point pretty clear in many of your articles (so I’m not even going to debate that)
But what I am going to ask again, is both “How exactly is this ‘good’ for the starving artists out there who are ‘trying’ to create a living for what they do?” – and with that said, “How or ‘what’ should independent artists do from here, in order to be successful?”
(and please don’t just say that “free music is great for publicity!” – That phrase is becoming an old song & dance and basically just sounds great in ‘theory’, but at the end of the day that same ‘publicity’ is more of an ‘excuse’ or optical illusion & certainly doesn’t put any money into the artists pockets.)
I just simply want to know ‘How’ is the future of independent music (or the independent musician) suppose to ’survive’ if nearly all of their music is to be given away for ‘free’? (this ‘used’ to make-up a fairly large portion of their income.)
In the past, most artists had 2 ‘main’ ways of creating their income – ’selling records’, along with constant gigging. Now, you say it’s narrowed down to ‘just’ playing gigs alone? (again, ‘how’ is this a ‘great’ thing for the artists?) And I’m sorry, but most small clubs or venues nowadays ‘pay’ very little to a single band or artist. You also state that the concert industry is ‘booming’ – but it’s only ‘booming’ for the very ‘top’ acts out there (U2, Lady Gaga, Madonna, etc) – NOT for the independent artists.
I also have to disagree with what’s said above in regards to ‘the album’. First off, it’s usually NOT the record-industry who puts ‘fluff’ (or ‘crap’) on the album – that’s generally a result of a band or artist who can’t write more than one or two decent songs on an album, because they simply suck at song-writing and choose to focus on their ‘one-hit-video’ song. But you should also remember that there are FAR too many great albums out there, in which the best material on that album is usually NOT the ‘hit-songs’. Again, this is another big ‘hurt’ for musicians & bands alike, because if everyone starts to ‘only’ download the ‘hit-songs’ vs. purchasing the entire record, then not only does that band or artist continue to lose more financial income, but worse yet – there’s going to be countless ‘great albums’ lost or ignored because of this. (imagine if ‘Sgt. Peppers’ or ‘Dark Side of the Moon’ were picked apart like that back in the day for example? Multiply that by every ‘great’ & ‘complete’ album ever made, and that’s a HUGE loss for the music industry.)
Bottom line: if you or your band ‘chooses’ to record some songs on a laptop while getting baked in your school dormitory and then give away all of your music for ‘free’ so that you can brag to your friends about getting played on YouTube – that’s perfectly fine – but that’s NOT what I consider to be a ‘working-class’ band or an artist that’s desperately trying each & everyday to make a living or profession out of their work and what they do with it.
Musicians and/or artists alike have always had a tough time in being able to sustain a career out of playing & recording music. But the fact that one of their main ’sources’ of that career income is now constantly being ‘given away for free’ (or even stolen in some cases), says that it’s NOT a ‘great’ time to be a musician or artist.
– it may be a ‘great’ time to be a ‘listener’, but not near as much for the working musician.
(and even then, the ‘listener’ is eventually going to get screwed as well, because like ‘Chris Cooper’ mentioned above, the overall ‘quality’ of ‘free’ music is going to continually decline & worsen as it goes on. You keep stating how bad the record companies screwed up, and screwed the working artist in the past – but I don’t see how it’s much different from what the ‘greedy listeners who refuse to pay for anything’ are doing right now.)
Seriously, I’d love to hear or read some more about ‘newer ideas’ for what the independent working musicians of today can ‘do’ or ‘try’ in light of all this ‘free music for all’ business, in order to better their chances of sustaining a career or living in this newer, ‘internet-world’ of music we’re entering now – vs. wasting time by continually bashing record companies & the old age of CD’s.
May 15th, 2010 at 9:11 pm
@ b morris,
I appreciate what you’re saying. But I think if someone had the magic bullet, we’d all know about it. It’s tough for a lot of people who depended on the traditional music industry right now. There have been about 5 major computing cycles over the past 6 decades and we’re going through a massive one right now. They cause a creative destruction that affects just about everything else…especially media. That’s the context we should approach the music industry with. It’s neither good or evil. And we all have to adapt.