Dan Ariely's Proposal for Reducing Piracy

Behavorial economics is the study of how psychology affects people's behavior in economic situations, and Dan Ariely is one of the discipline's susperstars.

Three days after releasing his new book, The Honest Truth about Dishonesty, he discovered it had already been illegally downloaded over 20,000 times. Being a scientist, his primary response was curiousity as to why people steal intellectual property.

He describes his process of understanding in this blog post:

My first insight came with a personal conversion. Before it was my book being illegally downloaded, I was more on the “Information wants to be free” end of the spectrum. The sudden, though predictable, shift in my feelings when I found my own work being downloaded for free was a jarring experience. Maybe Information finds complete freedom too threatening, I thought, and maybe it would rather be a bit more protected. It was a very clear example of how my own views of morality are biased – as are everybody’s — based on our immediate perspective.

Somehow I don't find it hard to believe that the more time, money, and effort you've spent on your album, the less likely you'd support giving it away for free.

He continues with another gem:

Once people start seeing a particular behavior—such as illegally downloading books, music, and movies—as a very common behavior, there is a chance that this sense of social proof will translate into a new understanding of what is right and wrong. Sometimes such social shifts might be desirable—for instance, being part of an interracial couple used to be considered illegal and immoral, but now we see such couples all around us and it helps shape our understanding of social approval. However, the behaviors we most often observe and notice are ones that are outside of the legitimate domain (e.g., doping in sports, infidelity by politicians, exaggerated resumes by CEOs) and in these cases the social proof can change things for the worse.

In other words, piracy is the new speeding on the highway.

So how does he propose we attempt to solve this sticky problem?

He suspects it's about confession:

How can we stop such trends toward dishonesty (in this case, broader acceptance of illegal downloading)? The problem is that if someone has acquired 97% of their music illegally, why would they legally buy the next 1%?  Would they do it in order to be 4% legal?  It turns out that we view ourselves categorically as either good or bad, and moving from being 3% legal to being 4% legal is not a very compelling motivation.  This is where confession and amnesty can come into play.

What we find in our experiments is that once we start thinking of ourselves as polluted, there is not much incentive to behave well, and the trip down the slippery slope is likely.  This is the bad news.  The good news is that in such cases, confession, where we articulate what we have done wrong, is an incredibly effective mechanism for resetting our moral compass.  Importing this religious practice into civic life was effective in the Truth and Reconciliation Act in South Africa, where acknowledging the many abuses and violations of the apartheid government allowed the South Africans to forgive past sins, and start fresh.

While I applaud new ideas of anti-piracy that aren't "sue them into oblivion", I do see a few potential snags this method.

First, if there's not enough political capital to push through complete amnestry for those who admit to piracy, the actual policy that would pass could become a "temporary stay of prosecution" instead of full forgiveness. For example, Obama's pledge to not deport young immigrants for two years was described by Homeland Security Secretary Janet Napolitano as "It is not immunity; it is not amnesty. It is an exercise of discretion."

A reversable immunity is a worthless immunity.

Second, this method would require pirates to register their personal information in a database. Given how closely piracy advocates align with privacy advocates, this will be a very tough sell. If you were a regular offender, would you want your name on an offical list?

As always, I must note that I DO NOT SUPPORT PIRACY. But, given that piracy has become the new speeding on the highway, I write to help your band understand how to live in the new music industry.

Adapt.

Practice, Record, Gig

Once again, Bob Lefsetz outlines the new music landscape.

Used to be you practiced in your parents’ garage, got gigs and eventually recorded. The recording was the icing on the cake.

Now it’s reversed.

Now you record first, and you may never ever play a gig. 

First and foremost because there’s nowhere to play.

Second, no one wants to pay.

Third, no one wants to hear you be lousy.

So today, if you want to make it, buy a Pro Tools rig and not only figure out how it works, spend endless hours perfecting your recordings (after taking endless hours to write your songs!)

This is the opposite of everything you’ve been told to do. Not only did you have to establish a live base, supposed professionals said they could hear through a demo, it didn’t need to be perfect. Now if the recording isn’t close to perfect, forget it.

Is the Album Really Dead?

I'm conflicted.

I love albums. That's how we've all grown up listening to and understanding music. It's a milestone upon which a band builds its mythology and expresses a grand vision. Albums allow for extended storytelling that couldn't fit in a single song. (Could you imagine The Wall being released as a series of singles?)

However, after I've given most albums a listen, I move the tracks I like to a genre/emotion-based playlist and move on to the next band. Very few albums get a complete repeat listen from me.

This is not uncommon.

The landscape of the music industry has irrevocably changed, and there are compelling arguments in favor of releasing singles instead of albums.

1. The number one listening platform for music among teens is YouTube.

More than radio, iTunes and CDs, YouTube is where the next generation of music obsessives (teens) get their music. It's free, streaming, and instant access to any song you could ever care to listen. With the prevalence of smart phones and 4G wireless, this a better service than CDs or MP3s for these listeners.

As Lefsetz puts it:

You want to know how they listen?

They pull up your track on YouTube. Whether in an authorized version on Vevo or a bootlegged take posted straight to YouTube. And they instantly decide whether they like it or not. And if they don’t, they forget about you. Just that fast. It’s like they’re carrying your album straight to the dumper. As if you walked into McDonald’s, sniffed and left and they threw all the food out and closed the doors. As for listening to all twelve of your tracks, are you nuts! Don’t tell me people have a short attention span, hell, they’re marathoning “Breaking Bad” as I write this. They just don’t have time for what is not exceptionally great, and if you can tell me ten albums from the last two years that are good from beginning to end, I’m all ears.

Listening has changed. It used to be entertainment options were limited. You bought little and played that which you owned. And it’s not only music, newspapers are competing with blogs, TV is competing with YouTube, everything’s changing, are you?

You’ve got to step up your game. You’ve got to focus on excellence.

The album isn't center stage on YouTube.There's no need to buy an album full of mediocre filler tracks anymore. Two clicks and you're listening to the song you want, for free. 

2. We're moving towards an access-based music model where owning albums is irrelevant.

Ownership isn't always best, and the music consumer is beginning to realize this.

Think about all the CDs & MP3s you have that sit around collecting dust. Other than earning "cool points" for having stacks of music lying around (guilty), is there any additional value to having piles of stuff? If it's about having access to your music, streaming beats owning. Streaming gives you an infinite collection that you can access instantly, without having to search through poorly labeled MP3s or polish scratched CDs. Streaming gives you all the access of ownership without any of the hassle.

We systematically over-value ownership for countless other knicknacks, too. The US spends $22.45 BILLION on storage space to keep all of our stuff that won't fit in our house. Everyone I know has a "crap room" that happily houses mountains of junk that "had" to be owned. How often do you dig around in your storage space / attic / crap room? Wouldn't it make more sense to skip the price tag of ownership and only pay when you actually need a Gene Simmons costume?

This is the direction businesses are heading.
 
Entertainment services like Spotify, Steam, and Netflix aren't alone in moving toward access-based services The software industry long since figured out the real value in Software-As-A-Service (SaaS) as a business model. Even items that traditionally were owned are moving to access-based services. Startups like car-sharing service Zipcar allow people all the benefits of having a car to get around without any of the annoying maintenance or registration.

Derek Thomson and Eric Weissmann at The Atlantic elaborate on the Millenial generation turning down ownership:

The typical new car costs $30,000 and sits in a garage or parking spot for 23 hours a day. Zipcar gives drivers access to cars they don’t have to own. Car ownership, meanwhile, has slipped down the hierarchy of status goods for many young adults. “Zipcar conducted a survey of Millennials,” Mark Norman, the company’s president and chief operating officer, told us. “And this generation said, ‘We don’t care about owning a car.’ Cars used to be what people aspired to own. Now it’s the smartphone.”

Expect access-based services to continue growing. Just don't expect people to understand how they work.

3. In an access-based marketplace, profit comes from utilization (listens) instead of album sales.

A Hypebot interview with D.A. Wallach explains how Spotify sets up it's payments:

We feel the metric of success should be based on how many people are listening to your music over a period of years, as opposed to looking at how many units are shipping in one week. People are used to seeing big numbers from a unit-based model, but that’s really front loading what is happening. Comparing iTunes sales with Spotify payments over a two month period of time is not a great way to look at things.

What we are trying to create is a system in which you earn royalties forever for good music, and the time horizon is simply different than what folks are familiar with now. One can actually think about a download sale as a down payment on all future listening that a fan will do. If you took the effective per play rate that I’ve paid for every time I’ve listened to my Dark Side of The Moon CD, it would be trivial compared to what I’d have generated if I’d done all that listening on Spotify. 

This is fascinating.

This new pay structure rewards musicians who create music with longevity over those who create one-off sales. Even if the band hasn't released new music in years, dedicated fans keep royalties flowing to the artists simply by continuing to listen. This is great news for bands making classic albums, not so much for bands relying on hype to make a splash with first week album sales.

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While I don't forsee the complete demise of the album format, I suspect that they may become a niche release strategy (like prog rock concept albums) as opposed to the dominant music paradigm.

Time will tell if this is good or bad.

(For more about new music strategies, see my previous post Electronic and Hip Hop Better Suited to the New Music Industry)

When Should You Quit Your Job? (2 of 2)

(Part 1)

When (if) you decide to make the leap into being self employed, you'll want to be as prepared as possible. It'll be stressful adjusting to your new job now that your electric bill depends on success. A band is a startup company, and 60-70% of startups fail within six years.

Lets think through some considerations that will help you figure out when the time is right.

1) Figure out your burn rate.
Also known as your monthly expenses. This number will determine whether you're sinking or swimming in your new career. If you've got dependents, they need to be factored here in too.

Its a simple concept, but bears repeating. If you earn slower than you burn, you'll burn (out).

2) Build up an emergency fund.

Since you'll be self employed now, there's no such thing as paid sick days. If you get struck with a bad case of the AxlRoseitis, you won't be pulling in any cash. What if your van breaks down the day before a tour? Or what if you have to post bail to get out of jail in Prague?

Random bad luck is inevitible.

An emergency fund is the difference between an inconvenience and a catastrophy.

At bare minimum you want at least two months worth of living expenses saved up before taking the plunge.

3) Figure out your expected income.
How much will you realistically make in the span of a month? Estimate this by seeing how much merch and music you sell, your income from shows, and any side income like teaching or session playing.

Now try estimating how much you'd make during a tour. Since you won't always be on tour, estimate your monthly expected income somewhere between the two numbers.

4) Figure out how to increase your expected income.
This is where the hustle comes in.

Yes, you can cut your monthly expenses to make it easier to start making money, but that's a temporary solution. There's a limit to how much you can cut but there's no limit on how much you can make. (shout out to Ramit Sethi's excellent money blog I Will Teach You To Be Rich)

Should you do vinyl releases? Private house shows? Festivals? Song licensing? Keep your eyes and mind open.

There's a million other considerations to make before going full time, but the hard numbers of "can I support myself and my family?" underly everything.

This post isn't intended to dissuade you from going full time, its about information. If you're going to make the leap, it helps to know where you want to land.

When Should You Quit Your Job? (1 of 2)

Musicians I talk to seem to view being a full-time musician as the be-all, end-all metric of success.

I get that. Playing music all day is a big slab of groovy in my book.

But we're defining success in the wrong way.

Defining success as having music as your only job is dangerous. Going full-time as an artist before you're financially ready will wreck both your art and your sanity. What you've effectively done is given up a low-paying stressful job with a low-paying stressful job without benefits or stability. Music is not an easy living. Unless your creativity is fired solely through desperation  making yourself miserable because you didn't plan ahead is silly. Ask anyone who has let The Hunger consume them.

Real success is about being happy with your only job being music.

Before you decide to make the leap, consider a few things.

1) Stability allows you to be more experimental with your music.
Experimenting with new sounds and styles in inherently risky. Failure is a very real prospect. Once the band establishes a "sound" and becomes full time musicians, everyone's ability to pay the bills relies on that sound. Would it be easier or more difficult to completely revamp your sound if your rent depending on success? (This is strictly conjecture, but I suspect this may be one reason why some bands peak on their first album.)

2) Growth eats cash
This is a cardinal rule of business. Even if going on tour will score you a tasty lump of cash, you have to pay expenses like van rentals, merch, promoters, and venues before you're able to earn that cash. You've got to eat and pay for places to sleep while on tour. Will you burn all your cash before you can earn it? Yes, you can use credit cards to delay paying for a month, but mistake with credit cards are expensive and eat into your profits.

3) Burnout
Working at a restaurant can kill the joy of its food with boredom. The same could be said of playing your top 3 hits for years on end. For some, music is an escape from boring reality. Changing music from an escape to an obligation can have a profound effect on how you view your music. The life of a full time musician is about hustle. If you're not naturally inclined to that lifestyle in addition to the process of creating and performing music, it'll be easy to get burned out.

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Before making a big decision like this, you need to do serious soul searching into what you actually want out of your music.
   -Do you like writing and recording but hate performing?
   -Do you value stability over creativity?
   -How much am I wiling to cater to my fans?
   -Will I only be happy with a sold out stadium, or would I be happy having a few dedicated fans buying music through bandcamp?
   -Would I actually enjoy the musician lifestyle?

There are big questions.

Next week we'll talk about how to prepare.

(Part 2)

Evil Works

As does good, but it's easy to overlook that fact.

True Change requires force. Structures and habits roost upon study foundations of inertia and fear. They won't be moved except through sustained, herculean force.

Often, the only tactics that comes to mind to clear blockage are conflict-driven. You can't smooth talk a form, so getting angry at red tape at the DMV seems like the most obvious solution.

But there's a selection bias at work here.

We view our world through the lens of stories. Naturally, more memorable stories affect us more than the boring ones simply because we can recall them easier (aka cognitive fluency). .

Conflict is far more interesting than snuggling.

In fact, a 2010 Wharton study confirms that

“the most powerful predictor of virality is how much anger an article evokes” [emphasis mine]. I will say it again: The most powerful predictor of what spreads online is anger. ...

...Anger has such a profound effect that one standard deviation increase in the anger rating of an article is the equivalent of spending an additional three hours as the lead story on the front page of NYTimes.com.  (Except from Trust Me, I'm Lying: Confessions of a Media Manipulator, via Barking Up The Wrong Tree

It's easier to recall famous artist meltdowns than it is to recall skillful mediation, leading us to more easily make the connection between "aggression" and "success".

Throwing a guitar at your band mates in the recording studio makes for a fantastic story, it's "emotionally loud". Sitting down with your bassist over drinks to talk about what's been bugging her lately and where her creative block came from makes for dreadfully boring reading, it's "emotionally quiet".

You can accomplish great things by being a jerk. I'll be first to admit, that sometimes you have to get aggressive to break past resistance.

But pay attention to the leaders you admire and you'll begin to pick up on their methods. Sometimes all you need to get someone to put forth their best effort is to get them to publicly commit that they'll put forward their best effort. (see my Negotiation Without Being A Jerk series for additional tactics)

Real, positive leadership power isn't about using deception and coercion to meet your ends. "Light Side" persuasive methods use soft force, so that even if the target of the message understands exactly what you're doing, they wouldn't be mad at you. The same could not be said for gaslighting, an effective but terribly manipulative method of planting false memories and instilling doubt.

As you dig deeper into management and psychology, you'll begin to see the framework that managers act within. Most are of mixed style, only rarely will you see a pure-evil or pure-good individual.

Be aware that people are naturally attracted to others like themselves.

The strategies you use will create your environment.

Brainstorming Doesn't Work

Johan Lehrer's article in the New Yorker lays it out bluntly.

...Keith Sawyer, a psychologist at Washington University, has summarized the science: “Decades of research have consistently shown that brainstorming groups think of far fewer ideas than the same number of people who work alone and later pool their ideas.”

This provides some interesting insight into the dynamics of group creativity. This further develops my earlier thesis describing changing social dynamics as the primary cause of "lame supergroup-itis".

But there's more nuance to this story than outright dismissal of brainstorming. One of the defining factors of brainstorming, according to it's creator, is not allowing negativity as it supposedly stifles creativity. This is wrong.

According to Nemeth, dissent stimulates new ideas because it encourages us to engage more fully with the work of others and to reassess our viewpoints. “There’s this Pollyannaish notion that the most important thing to do when working together is stay positive and get along, to not hurt anyone’s feelings,” she says. “Well, that’s just wrong. Maybe debate is going to be less pleasant, but it will always be more productive. True creativity requires some trade-offs.”

Sometimes blind positivity isn't the best answer.

As the article continues, researcher Brian Uzzi studied Broadway musicals to develop a measure Q of how familiar different artists were with one another. The higher the Q, the more familiar the artists are with one another and vice versa. After running the data to analyze Q scores with relation to the success of these musicals, the results were stunning.

When the Q was low—less than 1.7 on Uzzi’s five-point scale—the musicals were likely to fail. Because the artists didn’t know one another, they struggled to work together and exchange ideas. “This wasn’t so surprising,” Uzzi says. “It takes time to develop a successful collaboration.” But, when the Q was too high (above 3.2), the work also suffered. The artists all thought in similar ways, which crushed innovation.

...The best Broadway shows were produced by networks with an intermediate level of social intimacy. The ideal level of Q—which Uzzi and his colleague Jarrett Spiro called the “bliss point”—emerged as being between 2.4 and 2.6. A show produced by a team whose Q was within this range was three times more likely to be a commercial success than a musical produced by a team with a score below 1.4 or above 3.2.

If these results were to hold true across the creative spectrum, they could explain countless musical phenomena.

• Could this be why so many "legendary" acts tend to flame out after producing their masterpiece instead of producing two masterpieces many years apart?
• Is this at fault for the sophomore slump?
• Is there an optimal creative lifetime for a band?  I suspect yes.

Profound food for thought.

Is it time to reevaluate some of your band's procedures?

What Can Music Learn From Video Games?

In an interview at a recent tech conference, Gabe Newell, co-founder of Valve (the video game company behind Half-Life and Portal), gives some fantastic hard data on the economics of sale pricing and freemium models of digitally distribution.

For those of you who aren't gamers, Value has a web service called Steam where you can purchase a game online and have it download directly to your computer instead of having to buy a physical copy of the game. You can download the game any number of times, but you have to be signed in to your account online to play. Simple, unobtrustive DRM (digital rights management) that protects creators but doesn't screw legitimate customers.

Beautiful.

With an estimated 70% of the digital game distribution market, Steam has access to more data than you could ever ask for on pricing and consumer behavior.

And they decided to share some insights with us. Groovy.

From the Geekwire transcript of the talks, Gabe Newell on piracy:

One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates. For example, Russia. You say, oh, we’re going to enter Russia, people say, you’re doomed, they’ll pirate everything in Russia. Russia now outside of Germany is our largest continental European market.

...the people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russia. … So that, as far as we’re concerned, is asked and answered. It doesn’t take much in terms of providing a better service to make pirates a non-issue.

Pay attention to your customer's wants and needs and they'll pay you for the effort. This business knowledge is far from new, yet it's also ludicriously easy to overlook. Don't do draconian DRM as it'll chase off paying customers and move them to less-hassle piracy.

Software-as-a-service / cloud platforms such as iCloud and Spotify seem to be the way forward as they balance DRM with customer service and price. However, royalties from these sources are small and will remain so for the foreseeable future. Use them as entry-level services for new fans but don't put your entire catalog on them.

Gabe goes on to talk about the company's pricing experiment by making Team Fortress 2 a free-to-play (aka freemium) game:

Why is free and free to play so different? Well then you have to start thinking about how value creation actually occurs, and what it is that people are valuing, and what the statement that something is free to play implies about the future value of the experience that they’re going to have.

And then the conversion rate, when we talk to partners who do free-to-play, a lot of people see about a 2 to 3 percent conversion rate of the people in their audience who actually buy something, and then with Team Fortress 2, which looks more like Arkham Asylum in terms of the user profile and the content, we see about a 20 to 30 percent conversion rate of people who are playing those games who buy something.

So that’s a fairly surprising and fairly recent statistic, which is that there seems to be something about the content that significantly changes how your monetization occurs, with apparently much broader participation than you would see out of something like FarmVille.

They first get the customer interested in the product, then increase the value they offer to the customer as the customer become more commited. Again, it's a simple concept that's simple to forget.

No matter whether your're talking about video games or music, It's all about making it easy to become a fan.

Why Being Polite is Overrated

Negativity as a tactic is severely underrated.

We're taught to say something nice or not say something at all. After all, art is subjective so even if we don't like something, we don't have the right to critique, right?

But what do we do when the execution of the song is obviously flawed?

Sometimes, however, the best thing you give someone is a piping-hot plate of uncomfortable truth.

Steve Jobs was notorious for his outbursts of anger, but there's not a person in the world who wasn't affected by the inventions he shepherded into the market. He busted heads because he had to bust heads in order to release high quality products.

To make a masterpiece you must be willing to disagree.

Sometimes forcefully.

In fact, arguing and sarcasm make you more creative by forcing you to view concepts in a different light. Negativity improves group performance on idea-generation tasks. Competitive tasks improved creative output, (like Eric Clapton competing for the love of Layla). Moderate rule breaking is positively correlated with number of leadership roles. Anger at people who slacked off can make them up their effort (assuming they cared in the first place). Being angry also makes you process information more analytically. 

Being negative will also help you be more persuasive.

Negative reviewers were perceived as more intelligent, competent, and expert than positive reviewers, even when the content of the positive review was independently judged as being of higher quality and greater forcefulness.

However, don't storm into your next band practice, punch a hole in the wall, and go full-on Ghaddafi expecting magic to happen. A willingness to be negative when needed is different than oppressive pessimism. As anyone who has worked in a dictatorship of a job knows, pervasive criticism without positivity leads to learned helplessness. This is about the necessary balance between being emotionally sensitive to the needs of your band mates and being assertive enough to push through hard decisions to get serious work done.

Negativity is a tactic, to be used in some situations where strong analysis or action is needed. Breaking deadlocked negotiations, evaluating new opportunities, critiquing new songs: all of these are times where a little negativity might be needed to push through resistance. Trying to write new songs, improvising, networking or marketing: these activities would be much better served by positivity.

The next time you're stuck, step back and ask:

Should I be using a soft or firm touch to solve this problem?

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*Shout out to Eric Barker at Barking Up The Wrong Tree, almost every link referenced was from research he found.

Food for Thought

For less than $20 a month, you can get unlimited streaming songs (Spotify) and movies (Netflix) whenever you want.


Twenty years ago this would get you one CD or one movie a month.

Has your band adjusted to this reality yet?