The Left Side of Normal Airplanes, The Internet, and Everything Else

As I've mentioned here before, I'm a regular contributor to ServerFault, a site for system and network administrators run by the same crew that runs Stack Overflow (which is for programmers).  They've recently begun to spawn some additional sites, and the latest one to go into private beta is sure to be a winner as well.  A week from now, the Pro Webmasters site will go into public beta.  This new site is meant for professional webmasters and those who's lives revolve around HTML and managing websites.  I'm jumping into the private beta and helping to seed the site with questions and answers.  For anyone who works on websites for a living, this site is sure to be a hit.  Come check it out next week when the public beta opens.

Summer is here, and it's brought daily rain showers and thunderstorms with it.  One of the joys of living in parts of Florida is the constant glitches on the power grid. Last week our power was out for a few hours due to a problem with something on the pole right outside our house.  FPL was out fairly quickly to diagnose the problem, and when the fixed the problem and reconnected the line there was a heck of a spark.  Here's the FPL repair technician working on the line.

For a couple of days after that we had random brownouts where the power would drop off for a few seconds and then come back on.  This isn't a big deal unless you're doing something that can be interrupted (like watching a DVD like we were doing at home yesterday evening).  Even at work this morning the power flickered for a few minutes shortly after I arrived.

To combat these issues, I generally put battery backup units on the electronics.  Our Verizon FiOS box has a battery built in, but it only powers the telephone portion of the box (which we don't use), so I have my own battery backup on it to keep the Internet alive.  I have another in the office to run the cable modem and computer monitor, and yet another on the TV, cable box, and DVD player in the living room.  Unfortunately, some of my boxes are several years old and the batteries are worn out (as we found out yesterday).  So, it's time to make a trek out to Batteries Plus and acquire replacement batteries for my backup systems.  Hopefully the rain and storms will give us a short reprieve so the electronics won't get too stressed from all the interruptions (the lawn could use a few days to dry out as well).

I saw this story on Slashdot today which reminded me of a discussion I had with some co-workers over lunch recently.  We were discussing the cost of content on a physical format vs. the cost of the same content in a digital format.  The article linked on Slashdot has a gem of a quote from Ian Bramley, Ipsos MediaCT's director, who conducted a survey on the matter: "People's perceptions are that they're not prepared to pay as much for digital content - they make the connection that it's not a physical disc and therefore it should be cheaper."

He mentions "perceptions" here as though they are just something that people dreamed up.  Yes, content has a production cost (whether it is a television show, movie, record, or a video game as this article was focused on).  Yes, that production cost is the same regardless of how the content is distributed.  Yes, the actors, musicians, producers, studio, copyright holders, etc. all need to be compensated for their efforts and risk to produce the content.  However, it seems to defy logic that the end result should cost the same when downloaded in a digital format over the Internet as it would it if were purchased on physical media at my local Best Buy or Wal-Mart.

Logic says that physical media should cost more.  There are a lot more factors at work with physical media than there are with digital media.  Some manufacturing facility has to produce the blank media to hold the content (CD, DVD, etc.).  The content has to be physically pressed or burned into the physical media, a manufacturing process that takes time and energy.  The physical media then has to be packaged in a box of some sort (another physical process).  It then has to be stored, consolidated into bigger boxes, put on a truck and shipped hundreds or thousands of miles (cost of fuel, labor, trucking equipment, etc.), and then warehoused, unboxed, and delivered to stores in each region.  There the media will take up shelf space, have to be organized by store employees, and finally have a transaction that will usually be handled by a live cashier at the store.  There is also the profit margin for each of the businesses involved (manufacturing, shipping, warehousing, retail, etc.) which can vary wildly.  A retail markup of 25-30% by itself isn't unreasonable for many products.  In recent years, retailers have been cutting back their CD inventory and slashing prices, primarily because people looked at an $18 CD and decided to just go download it from the Internet for free instead.  Apple's iTunes Music Store offers many tracks individually for around a dollar.  Most people used to buy an entire $18 CD just to get one or two songs, and when they realized they could just go to Napster and its descendants and get those two songs for free, the bottom fell out for the music industry.  Instead of fighting back with a legal way to purchase songs online for a reasonable amount, they fought tooth and nail to save their old model, even resorting to filing suit against grandmothers whos grandchildren had used their Internet connection to share a few songs.  They treated their customers like crap, and their customers responded by abandoning traditional purchase methods (CDs) even more.  Then Apple came along.  With their huge iPod market, they nearly single-handedly slapped the industry into the 21st century.  Apple makes TONS of money on iTunes sales.  Their track price around a dollar and album price around ten bucks is reasonable, in most people's eyes, and well below the $18 suggested retail price that CDs were going for.  Apple leveraged their digital infrastructure and meets people's needs at reasonable prices well below what the physical media used to cost.

For Bramley to suggest that a digital download, whether it's a game, a movie, or a song, should cost nearly the same as the same content on physical media is just laughable.  Sure, it has to cost at least as much as the production costs and leave some room for profit, but if you lower your expenses by 40% and think you can keep the difference for yourself, either your customers will eat you alive or you will be buried by competition.  The RIAA and MPAA act like cartels and essentially have no competition, and their customers aren't as stupid as they'd like.  Fools like Bramley are just pandering to what the industry wants everyone to believe.  If he, or anyone else, can show compelling evidence that it really does cost nearly as much to offer a digital download as it does to manufacture, package, ship, and retail physical media, I am certainly willing to have that discussion and change my mind.  Yes, servers cost money, use electricity, and have to be housed in a data center with lots of cooling, bandwidth, and technical staff to watch over it all.  Computing resources and bandwidth are becoming incredibly cheap, however.  It's estimated that Facebook operates upwards of 60,000 servers in multiple data centers around the world (I've heard they're even building their own data centers now as well).  Facebook does this with revenue estimated between $700-$800 million and serves 400 million users.  The recording industry had revenues of around $8.5 billion in 2008.  Even if it were half of that, they could easily build out a digital distribution channel and retail directly to customers, or partner with an existing retail giant to do it for them (as Apple has done).

If the electronic game industry wants to move to digital and improve online sales, they need to cut back their margins and pass along some of their cost savings to their customers.  People realize that digital content should be cheaper than its physical counterpart, and continuing to charge the same prices for digital versions of content will just be a repeat of what's been happening in the music industry.