The best things in life are free

In Free: the Future of a Radical Price (2009), Chris Anderson predicts that games will soon be 'free'.

He writes (p 145):

"Games are one of the last digital products that are mostly sold [in stores] and that model is nearing its end. Just as music and software is becoming primarily an online market, so will games. And once you move from shipping atoms (plastic boxes and discs) to transmitting bits, free becomes inevitable. Over the next decade, this $10 billion industry will shift from primarily a traditional packaged goods business to an online business built on entry prices of zero."

The first step towards this zero entry price was reported yesterday in The Times[1]. The latest version of the football game, Championship Manager, has been made available for a month online for as little as 1p. This is an adaptation of the innovation introduced by Radiohead last year, when they invited their fans to pay what they wanted to download their "In Rainbows" album.

How can this make economic sense? The business strategy being employed by Eidos, the supplier of Championship Manager, is what Anderson has called "Freemium". The basic game is available at 1p+ for anyone who wishes to use it. But, those who wish to keep up-to-date throughout the season will have to pay £5 for the six downloadable updates containing "all the latest statistics, scores, competition standings, player transfers, player stats, bookings and major injuries plus much more from the 10 leading countries in Europe"

The marginal cost of distributing digital product approaches zero. The costs are all associated with producing it. But by giving the game away for nearly free will probably boost the take-up of the game and, correspondingly, the number paying for the premium service. It is also likely that there will also be cross-subsidies. Enticing players to use this free game might encourage them to purchase other products from the company. This is was how Radiohead made their money from Free.

According to Anderson (p 154), In Rainbows became Radiohead's most successful album. It sold 3 million copies (some of which were physical copies); they made more money from the downloads than they made from the previous one; it was followed by their best-selling tour with 1.2 million tickets sold.

Notes

[1] King I (2009) Honesty is the best policy, The Times, August 18 2009

[2] The title is a quote from the song "Money (that's what I want)" released by the Beatles on their 1963 LP, "With the Beatles". The full verse is: "The bset things in life are free, but you can keep them for the birds and bees, now give me money, that's what I want".

Love is free, free is love

Chris Anderson, in his new book Free: The Future of a Radical Price, argues that people under the age of 30 no longer expect to pay for news, music, TV, films or social networking. He suggests two models for digital media businesses to adopt if they are targeting this age group: 'freeconomy' and 'freemium'.

Businesses operating the freeconomy model, such as Google, provide content for free and generate revenue from advertising on the site. However, Anderson acknowledges that this model has lost its appeal since the onse of the credit crunch. He states "From the middle of 2008, it became clear that advertising was going to be limited. It was not going away, but it was not going to float all boats."

The other 'free' business model is freemium, in which the basic service is free and subscibers are encouraged to upgrade and pay for additional services. Fickr, the photo sharing site, adopts this model. Basic subscribers can upload images for free, but they are restricted to 100mb storage a month and access to smaller-sized images. Premium (pro-account) subscribers pay approx £17 per annum to store an unlimited amount of photos and are able to download images in their original resolution.

Spotify, which has been discussed in this blog twice previously, is an interesting case as it mixes both models. Subscribers can stream music for free, with ocassional adverts between tracks. But, by paying £10 per month, they gain access to the premium service and can listen to the music uninterupted by adverts and can also use Spotify on mobile devices.

Of course, the major battle that has raged over recent years, as a result of this changing social demand for free digital media, has been between the companies who own the rights to popular music and the generation which is using BitTorrant sites to share free copies of the music. Pirate Bay, with 20 million users, has been at the forefront in this battle. In April this year, its founders were jailed for breaking the music copyright law. Would this event signal defeat for free file sharing? It appears not. Pirate Bay has just been bought by Global Gaming Comapny for £4.7 million and has devised a new free business model. More of that next time.

Note:

The title is a line from the John Lennon song Love from the Plastic Ono Band LP (1970)