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

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.

I weighed myself this morning and did not like what I saw on the scale.  For the last several years I've maintained a (somewhat unhealthy) 220 pounds.  I've been fairly neutral about my weight, not seeking to diet or lose any, but also keeping an eye on what I eat trying not to make that number any larger either.  I'd be happy (for now) to stay put.  Over the weekend I noticed that some of my shirts felt a little tighter than usual and didn't think much of it.  This morning I decided to step on the scale and weighed in at just over 227 pounds.  This is the highest I ever recall seeing, and that worries me a little bit.

It also happens that not including the current week, there are 27 weeks remaining in 2010.  Through better eating, less snacking, and even a little exercise now and then, I'm going to push to lose 27 pounds by the end of the year.  That's one pound a week, a reasonable goal even for someone as busy as I tend to be.  There will be challenges, though.  I'll have a week off in July for summer vacation, I'm getting married in November, then Thanksgiving, a cruise in the Caribbean, and then Christmas, all of which will involve eating more than usual.  I should probably just throw out those weeks from the equasion and push for higher losses during the non-holiday periods.  I'll try to check in here on the blog with weekly status updates to keep me motivated.

If I can be at or below 200 pounds by January 1, 2011 that will put me within striking distance of my "ideal" weight for my height by this time next year.  Wish me luck!

I was just wondering last night when the new version would be released, so you can imagine my delight this morning when I logged into the blog administrator and saw the prompt to upgrade to 1.5.  The automated update process took about three seconds and so far everything appears to be working perfectly.  Thanks Laura!