One bad decision: making money in networks

14Nov11

The music industry almost had it right. Almost. Early on, major labels learned that controlling the channels of music distribution would cut down on cost. In addition, it allowed labels to control and monitor the product flowing to record stores and radio stations, ensuring the content they created had first priority, and competition from independent labels and self-producers was limited. The problem of course, as illustrated by Bilton, is that content is not king. The record label’s attatchment to specific content  proved detrimental as the internet became a viable option for consuming music. Instead of opting for control of content distribution, they opted for control of content. The problem with specific content is its temporality. Sure, old content will clog up bookshelves, harddrives, and server space, but the relevancy of specific content wanes as time goes on. Firms in the content industry must continually produce relavant content in order to turn a profit, a difficult task for labels with substaintial overhead.

Bilton states that the question is shifting from what to produce to how to distribute? For content creators that is definetly the case. For those looking to make gobs and gobs of money,  the secret is being the answer to that question. The major record labels should be kicking themselves. They had the chance to choose between distribution and content, and they chose content.  Content is risky, temporal, and only occasionally successful. Controlling distribution alleviates that risk by allowing content creators to assume that risk, while distributors charge for access to their distribution channels. Major labels made the wrong choice.

In the digital era, distribution channels look more and more like networks. The idea isn’t necessarily to get product to consumers, because those boundaries are being blurred, but to circulate content through a network to ifluence the greatest amount of nodes. The nodes here don’t matter, the links that connect the nodes do. As Lovink and Rossiter note, the question for creative industries is how to deal with networks. Managing networks isn’t so much managing the content that flows through networks, but mangaging how content circulates.  The success of Google, Facebook, Apple, Comcast, Verizon, AT&T, Amazon, and the like  is largely related to their ability to monetize (or in some cases create) networks. By chargingfor access to networks, charging for content within the networks, or selling advertising, to support networks, firms avoid the risk and precarity of managing content in favor of managing the circulation of it.

As Lovink and Rossiter acknowledge, networks are temporal, existing across space, but not necessarily through time. While this is true, networks remain relevant for longer periods than content, making them a safer, and more lucrative business venture. However, new networks do inevitably form, and the massive amount of capital held by the major players allows these companies to buy the rights to control access to new networks , creating an oligopoly of network control

Apple currently takes 1/3 of all sales on iTunes. If the record labels could choose again, I bet they would choose distribution over content.

-Mike Lang

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