tag:blogger.com,1999:blog-19346366.post5134045367447421764..comments2024-03-28T21:56:51.675-04:00Comments on Face to Face: Is Redbox the next parasitic technology?agnostichttp://www.blogger.com/profile/12967177967469961883noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-19346366.post-76381617311950901422009-12-08T14:56:49.073-05:002009-12-08T14:56:49.073-05:00Paul Graham created a web store. In the middle of...Paul Graham created a web store. In the middle of the dot-com bubble. Sold it to Yahoo for $45 million in *STOCK*.<br /><br />Two years later, the Yahoo stock, which crashed by 95% two years later. Incidentally, that web store that he created? Well, it's no longer in use. Yahoo threw out his LISP code and rewrote the whole thing in C++.<br /><br />When there's a lot of hot money going around, anyone can look like a genius.Tomnoreply@blogger.comtag:blogger.com,1999:blog-19346366.post-7028871713148675882009-09-20T07:06:57.862-04:002009-09-20T07:06:57.862-04:00Barbour:
"Graham is not really saying that t...Barbour:<br /><br />"Graham is not really saying that they aren't selling "content and quality." "<br /><br />Read the second paragraph, where he says that explicitly:<br /><br />"In fact consumers never really were paying for content, and publishers weren't really selling it either. If the content was what they were selling, why has the price of books or music or movies always depended mostly on the format? Why didn't better content cost more?"<br /><br />He uses the price near-uniformity to support his argument that publishers weren't selling content that varied in quality (hence his use of the word "better").<br /><br />He is wrong. The price near-uniformity has to do with lack of predictability of demand, not with publishers selling paper, film, or some other medium.<br /><br />Because this is the lynch-pin of his argument that the stuff sold is the medium rather than content, his argument has no leg to stand on, especially when it's so obvious that buyers and sellers of newly released movies, songs, books, etc., obsess mostly over the content and in particular its quality level. <br /><br />And later Graham says:<br /><br />"If audiences were willing to pay more for better content, why wasn't anyone already selling it to them?"<br /><br />This is the second time he's emphasized this point. Of course audiences will pay more for better content -- that's why they'll pay more for a good than a bad movie that's just been released on DVD. You can also bet that they'd pay more for a physical copy of the NYT that first broke the JFK assassination than a randomly chosen issue from that year. It's more valuable to them because of its role in history.<br /><br />It's only when things haven't been widely appreciated -- a new movie, or today's newspaper -- that consumers don't know what they want, and thus why sellers don't charge wildly different prices. It has nothing to do with consumers not being "willing to pay for better content." That's too obvious to merit comment.agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-34135993938076657102009-09-20T06:44:27.006-04:002009-09-20T06:44:27.006-04:00The video game example is not arguing that price d...The video game example is not arguing that price differences reflect quality differences. (Although they happen to in this case.) Rather, it is to show that price variation increases a lot once the buyers and sellers have a better assessment of how good a video game is.<br /><br />No new video games vary from 1 or 2 dollars up through 50 or 60 dollars, but that's typical for second-hand games, even when the physical condition is the same, since most of those involved know which are the fun and boring games.<br /><br />For example, sellers can look up Super Metroid on the GameRankings website, or they could see that it consistently shows up in "best video game" lists, that it was one of the best-selling games for its system, etc. And buyers know this from their own experience, word-of-mouth, or the above sources.agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-67561800425935208962009-09-20T05:57:41.107-04:002009-09-20T05:57:41.107-04:00Graham never says that quality can't vary. Co...Graham never says that quality can't vary. Comparing <i>Time</i> and <i>The Economist</i>, he finds that <i>The Economist</i> is cheaper per page and specifically notes that "Better journalism" in this case, that is the higher quality of journalism in The Economist, is slightly cheaper - basically equal to the inferior Time.<br /><br />Graham is not really saying that they aren't selling "content and quality." He says that "Almost every form of publishing has been organized <b>AS IF</b> the medium was what they were selling, and the content was irrelevant. Book publishers, for example, set prices based on the cost of producing and distributing books." He's just saying that as far as the economics of publishing, that is the supplying of content, is concerned it's basically equivalent to selling the medium. In setting prices suppliers generally end up converging towards the cost of producing and distributing the medium. Graham doesn't delve into explaining possible reasons for why this is the case; he simply notes that the prices of content in various media, whether paper, CDs, tapes, etc., tends towards the costs of supplying the media.<br /><br />In fact I don't think Graham would necessarily disagree with "the real reason" you provide for why "those prices are so close to uniform." He may have something to add or may alter it somewhat. But it's not really that relevant to his discussion insofar as it's merely a longer way of saying that the suppliers of content are almost completely ignorant of the demand for their product. He would agree with the fundamental point that demand for content is virtually unknowable by the supplier and that this is partly why the prices of content tends towards uniformity and towards the costs of supplying the medium.<br /><br />And your example with the video games is flawed. You hold the mistaken assumption that prices are supposed to reflect "quality" (whatever that means). And you're trying to prove or support the idea that prices reflect "quality" i.e. high quality will lead to or causes high prices, but you already assume this in your premise. Video game vendor knows that Super Metroid is of higher quality than Madden - so sets price of Super Metroid higher than that of Madden - Super Metroid price is higher than Madden - thus Super Metroid is "superior in quality." It's a circular argument.<br /><br />The fact that Madden costs less than Super Metroid is no indication of relative quality (whatever that means). The prices here are at set at the margin. There might be only one copy of Super Metroid left in the world. Or all the video game consumers might hate football or sports. The demand side is completely subjective. There's no objective "quality."<br /><br />You're committing a classic fallacy in economics by harping on "quality" (or more commonly "value") and believing that prices are supposed to somehow reflect "quality." The prices of two different goods don't reflect the "quality" or "value" of the class or idea of the particular goods. The prices are set at the margin.Barbournoreply@blogger.comtag:blogger.com,1999:blog-19346366.post-54020841351056447642009-09-19T20:08:24.237-04:002009-09-19T20:08:24.237-04:00Ha, venture capitalists -- they totally saw throug...Ha, venture capitalists -- they totally saw through the dot-com boom, didn't they? They are the Dick Morrises of business. He sold something to Yahoo! in 1998 -- so he's good at suckering fools, but that's it.<br /><br />I'm not arguing that one person should be trusted over another because of reputation or experience -- I said that you should trust those who know enough basic economic principles and real-world knowledge on what they're talking about.<br /><br />Graham has proven that he has zero real-world knowledge of movies, books, or songs -- else he would know why prices are so close to uniform upon release (although not so much when they are sold second-hand). I do know that -- and so could anyone who's picked up a popular-audience econ book in the past 5 years.<br /><br />That he is still ignorant is telling of his lack of curiosity. He can just see the answer.<br /><br />And again, anyone who's picked up a newspaper and read about the financial state of newspapers would certainly know that ad-only is doomed to failure, while those who are profitable charge for access -- WSJ and FT.<br /><br />What does it say about his insights that a grad student armed only with an internet connection and library access can so thoroughly destroy his arguments?agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-92066511237923449202009-09-19T19:15:46.906-04:002009-09-19T19:15:46.906-04:00"As a general rule, all tech geeks should be ..."As a general rule, all tech geeks should be ignored when it comes to economics or business. They know nothing, and have studied nothing on these topics, and are flying by the seat of their pants."<br /><br />I hate tech geeks as much as anyone.<br /><br />Paul Graham is a tech geek, but he's also an entrepreneur who founded and sold a company for tens of millions of dollars, and he's an experienced venture capitalist.<br /><br />You're a grad student who's business experience consists of selling blog posts.<br /><br />Why Graham "should be ignored," and you listened to on business and economics topics is beyond me.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19346366.post-68498553426377049062009-09-19T15:56:06.591-04:002009-09-19T15:56:06.591-04:00Paul Graham is breathtakingly stupid and totally l...Paul Graham is breathtakingly stupid and totally lacking in imagination.<br /><br />Why are movie prices so similar? He *knows* the answer -- they cannot vary that much in content. Has he ever watched movies at all? Of course they vary in content or quality -- enormously. Probably more so than do products that have greater variation in prices, such as cars.<br /><br />And it's obvious that that's what they're selling -- the content and quality is why people are interested in books, movies, and songs. He'd see that if he weren't profoundly autistic.<br /><br />The same is true for books and songs -- obviously there is huge variation in quality, with little variation in price.<br /><br />So, this is a puzzle to be solved by someone with a brain and curiosity. Graham simply denies an obvious truth -- that movies, songs, and books vary tremendously in quality or content -- in order to run on and on about... something or other.<br /><br />Here's the real reason, among many other important reasons, why those prices are so close to uniform -- none of the producers know what the quality of the product is before they release it to the public. They only learn about that over the long-term as one movie sells more tickets than another, one book generates lots of buzz while another doesn't, etc.<br /><br />Also, each of their products is completely unique -- no movie is the same as any other, and ditto for books and songs. Therefore, they have no idea what the audience's demand for their product is (this is related to their ignorance beforehand about quality). They have no similar cases in the past upon which to base current estimates. Or rather, they have a guess, but with an infinitely large error bar.<br /><br />Here's a neat test to show that Graham is wrong: what are prices like in markets where the quality or content of books, movies, and songs, *is* known? Say, when movies are released to DVD, or especially in the used / second-hand markets for movies, songs, books, and video games?<br /><br />The reason that Madden '94 (or whatever) costs less than a dollar, while Super Metroid costs $35 *used* is that the latter is superior in quality to the former.<br /><br />At this stage, sellers know a lot more about how good or bad their product is, and so how in-demand it will be among buyers. This allows them to vary the prices accordingly, and that's just what we see.<br /><br />There are wrinkles of course, like why don't theaters start charging more when they find out a movie is a blockbuster. It could be due to inflaming fairness concerns among viewers, or other things.<br /><br />But the key reason why prices are so uniform for "content" industries is that their products are unique, and therefore neither the buyers nor the sellers know how good they are until they're released and people try them out, and spread their judgments.<br /><br />By the way, newspapers using ad-only business models -- how's that working out for everyone *except for* WSJ and FT? As a general rule, all tech geeks should be ignored when it comes to economics or business. They know nothing, and have studied nothing on these topics, and are flying by the seat of their pants.<br /><br />They (like all pundits) suffer no consequences for being catastrophically wrong, so they have no incentive to get it right on-the-fly. They simply make shit up that comports with their overarching geek worldview, where Linus Torvalds is the light god and Bill Gates is the dark devil. No matter how remote the connection, it all traces back to hating on Microsoft.agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-27585036847023548832009-09-18T18:24:36.523-04:002009-09-18T18:24:36.523-04:00agnostic, did you see this recent article from Pau...agnostic, did you see this recent article from Paul Graham that's somewhat related to your post here:<br /><br /><a href="http://www.paulgraham.com/publishing.html" rel="nofollow">Post-Medium Publishing</a><br /><br />here's the intro:<br /><br />"Publishers of all types, from news to music, are unhappy that consumers won't pay for content anymore. At least, that's how they see it.<br /><br />In fact consumers never really were paying for content, and publishers weren't really selling it either. If the content was what they were selling, why has the price of books or music or movies always depended mostly on the format? Why didn't better content cost more? [1]<br /><br />A copy of Time costs $5 for 58 pages, or 8.6 cents a page. The Economist costs $7 for 86 pages, or 8.1 cents a page. Better journalism is actually slightly cheaper.<br /><br />Almost every form of publishing has been organized as if the medium was what they were selling, and the content was irrelevant. Book publishers, for example, set prices based on the cost of producing and distributing books. They treat the words printed in the book the same way a textile manufacturer treats the patterns printed on its fabrics.<br /><br />Economically, the print media are in the business of marking up paper. We can all imagine an old-style editor getting a scoop and saying "this will sell a lot of papers!" Cross out that final S and you're describing their business model. The reason they make less money now is that people don't need as much paper.<br /><br />A few months ago I ran into a friend in a cafe. I had a copy of the New York Times, which I still occasionally buy on weekends. As I was leaving I offered it to him, as I've done countless times before in the same situation. But this time something new happened. I felt that sheepish feeling you get when you offer someone something worthless. "Do you, er, want a printout of yesterday's news?" I asked. (He didn't.)<br /><br />Now that the medium is evaporating, publishers have nothing left to sell. Some seem to think they're going to sell content—that they were always in the content business, really. But they weren't, and it's unclear whether anyone could be."Innesnoreply@blogger.comtag:blogger.com,1999:blog-19346366.post-28075146869169053682009-09-16T22:32:55.397-04:002009-09-16T22:32:55.397-04:00The degree to which your argument is correct depen...The degree to which your argument is correct depends on the elasticity of the demand for films. If films cost $1, will people simply rent more films more often? The marginal cost of a person watching a film is relatively small, so it is definitely a possibility.Alhttps://www.blogger.com/profile/17327836181389523648noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-40067322797329994682009-09-16T22:01:14.005-04:002009-09-16T22:01:14.005-04:00There is the thought that less quality art will re...There is the thought that less quality art will result if the big studios/labels are hurt. Production values will definitely take a hit.<br /><br />But honestly, fuck both Transformer movies. Avatar looks like utter shit as well.<br /><br />If either industry becomes a whole slew of people doing it themselves I think there'll be a flowering of creativity.<br /><br />Plus, what Hollywood and the record labels have realized is that the cost of making music and film has been drastically reduced with everything going digital. Film and two-inch tape are extremely expensive (and time consuming which adds greatly to costs).<br /><br />With the technological improvements made in the last ten years, I don't think it's going to be that big of a hit quality wise. Sure, you're going to lose out on sets and costumes and the like but if that's the price paid I say so be it.<br /><br />I'm not worried in the slightest. You'll just have to dig a bit more to find the music and films you like.RF Interferencehttps://www.blogger.com/profile/06824235785025755787noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-75492387887796257222009-09-16T19:38:13.377-04:002009-09-16T19:38:13.377-04:00"the delivery of the good and how it is marke..."the delivery of the good and how it is marketed/packaged/produced may change, but the product will continue to exist as long as the market remains."<br /><br />No, the good is produced by movie studios, so if they are no longer profitable, there will be no new product for Redbox, Blockbuster, or Wal-Mart to sell or rent out.<br /><br />There is demand for all sorts of things -- hover-boards, for instance -- but the supply is 0 because the product is not feasible or is too costly for revenues to off-set the costs.<br /><br />"Do you really think the anti-monopoly hysterics are going to allow them to try again?"<br /><br />I know the primarily problem is the government and antitrust. That's why I suggested a solution for "in the meantime" -- make Redbox operate like movie theaters or Blockbuster, where some percentage of revenues from a given movie go back to the studios.agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-9546811242544527762009-09-16T16:12:12.832-04:002009-09-16T16:12:12.832-04:00"So how do we keep from heading toward that d..."So how do we keep from heading toward that dystopia? The best solution is to allow movie studios to vertically integrate with distributors and rental / purchase stores, along with movie theaters."<br /><br />The problem with that is that the government is not going to allow it. The movie industry started out as vertically integrated, with theaters owned by the production companies. The <a href="http://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures,_Inc." rel="nofollow">Paramount Case</a> ended that. Do you really think the anti-monopoly hysterics are going to allow them to try again?Ferdinand Bardamuhttp://fbardamu.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-680873177833482182009-09-16T15:28:39.313-04:002009-09-16T15:28:39.313-04:00i disagree somewhat, the delivery of the good and ...i disagree somewhat, the delivery of the good and how it is marketed/packaged/produced may change, but the product will continue to exist as long as the market remains. besides, most of the stuff in redbox is lower end budget films, with lower production costs, as compared with a store like blockbuster that price gauged with late fees until netflix and others made them revamp their product model or fall by the wayside. ie: like how the SUV market crushed many a car company. adapt or die. i'm all for it.*** ********https://www.blogger.com/profile/17712494111698782889noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-11722407390975467002009-09-16T13:13:09.035-04:002009-09-16T13:13:09.035-04:00"If videos don't rent or sell, the studio..."If videos don't rent or sell, the studios get nothing."<br /><br />That's actually an incentive for studios to make good movies -- else they make no money.<br /><br />And that has been the way studios made money for decades. The theaters bid for the right to show the movies -- one says it'll give 30% of box office revenues, another says 35%, etc. If this model has survived for decades in an incredibly competitive industry, it means it's probably better than obvious alternatives like paying a flat fee for each movie reel.<br /><br />Indeed the flat fee per reel / DVD wouldn't get the studios much money at all because they really make most of their money from the blockbusters. If they'd only gotten a flat fee from the theater / rental store, they'd completely miss out on that. In contrast, getting, say, 35% of revenues allows them to cash in on superstars.<br /><br />The same goes for the rental store or theater -- they don't want to pay a flat fee because if it's a dud, they're out that money. Paying based on popularity protects them as well as the studio.<br /><br />Anyway, Redbox keeps the studios from getting a percentage of the revenues from superstar movies (at the box office, or new DVDs, or DVD rentals), which is the studios' main source of revenues.agnostichttps://www.blogger.com/profile/12967177967469961883noreply@blogger.comtag:blogger.com,1999:blog-19346366.post-54116122328605714792009-09-16T10:17:32.505-04:002009-09-16T10:17:32.505-04:00Where does Netflix figure into this?
PeterWhere does Netflix figure into this?<br /><br />PeterAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-19346366.post-92208524542259825472009-09-16T09:42:06.452-04:002009-09-16T09:42:06.452-04:00"After all, they don't create any of the ..."After all, they don't create any of the content that they provide."<br /><br />It's not about creating content, it's about renting content. They're replacing minimum wage workers with robots.<br /><br />"For one thing, they charge $5 per rental, not $1."<br /><br />If you've ever seen the breakdown on what what cut goes where when a product is sold in a physical store, you wouldn't be surprised that there is $4 in overhead.<br /><br />"And for another, the movie studios get a cut of Blockbuster's revenues, somewhat like the studios getting a cut of the box office revenues from the theaters that show their movies."<br /><br />This is actually a reason why Redbox can be better for studios. Marc Cuban explains <a href="http://blogmaverick.com/2009/08/05/the-ultimate-movie-paradox-redbox-vs-downloads/" rel="nofollow">here</a>.<br /><br />The key reasons is this: everyone besides Redbox operates on the consignment model. The money they give the studios is the only money the studios get. If videos don't rent or sell, the studios get nothing. If some of the product breaks or is otherwise unusable, the studios eat the cost. In contrast, Redbox pays up front with no returns. Helping to mitigate revenue risk is a very valuable service.Anonymousnoreply@blogger.com