“In the long run, we are all the Grateful Dead”

… says Paul Krugman. And I’m in a session at the CEA confence on Keynes where the original quote just came up.

Nothing new here to readers of this blog, but I like that Krugman is using his pulpit to deliver the message at a time when the Canadian government is on the verge of introducing legislation that would allow US entertainment companies to sue people engaged in the act of file sharing (currently legal in Canada) and sign a trade agreement that would turn border guards into copyright police. All for the benefit of US Big Media companies (see here for one commentary by prominent critic and blogger Michael Geist).

Here’s Krugman, echoing the line that producers of digital content need to get new business models not sue their customers:

In 1994 … Esther Dyson made a striking prediction: that the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away. Whatever the product — software, books, music, movies — the cost of creation would have to be recouped indirectly: businesses would have to “distribute intellectual property free in order to sell services and relationships.”

For example, she described how some software companies gave their product away but earned fees for installation and servicing. But her most compelling illustration of how you can make money by giving stuff away was that of the Grateful Dead, who encouraged people to tape live performances because “enough of the people who copy and listen to Grateful Dead tapes end up paying for hats, T-shirts and performance tickets. In the new era, the ancillary market is the market.”

Indeed, it turns out that the Dead were business pioneers. Rolling Stone recently published an article titled “Rock’s New Economy: Making Money When CDs Don’t Sell.” Downloads are steadily undermining record sales — but today’s rock bands, the magazine reports, are finding other sources of income. Even if record sales are modest, bands can convert airplay and YouTube views into financial success indirectly, making money through “publishing, touring, merchandising and licensing.”

… Now, the strategy of giving intellectual property away so that people will buy your paraphernalia won’t work equally well for everything. To take the obvious, painful example: news organizations, very much including this one, have spent years trying to turn large online readership into an adequately paying proposition, with limited success.

But they’ll have to find a way. Bit by bit, everything that can be digitized will be digitized, making intellectual property ever easier to copy and ever harder to sell for more than a nominal price. And we’ll have to find business and economic models that take this reality into account.

It won’t all happen immediately. But in the long run, we are all the Grateful Dead.