In the Creative Economy, There is No Such Thing as ‘Free’

Introduction

In this paper I will explore the economic trend of giving away ‘free’ products and the impact this specifically has on organisations within the creative economy. I will investigate why audiences and consumers have an expectation of procuring products for zero price, what has driven this phenomenon and how it can be exploited by the creative industries operating within the creative economy to derive value and subsequently profit. I will draw on examples from across the creative industries, and will conduct an interview with Jonathan Evans, co-founder of Lumo Developments to attempt to align my academic findings to recent developments in the games industry. I will also explore the theory that in order to survive in the modern creative economy, creative individuals and organisations must aim towards ensuring that the statement ‘there is no such thing as free’ is true.

The Creative Economy, Creative Industries and Free

The 2010 Creative Economy Report, defines the ‘creative economy’ as “an evolving concept based on creative assets potentially generating economic growth and development.” (UNCTAD, 2010, p.10), it also declares that “the scope of the creative economy is determined by the extent of the creative industries” (UNCTAD, 2010, p.4) and subsequently describes the creative industries as being central to the creative economy (UNCTAD, 2010, p.9).

The UK government defines the ‘creative industries’ as “those industries that have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property” (Department for Culture, Media and Sport, 2001, p.5). For the purposes of this paper, this definition is apt, as it refers to the commercial aspect of creativity. The Oxford English Dictionary definition of ‘industry’ is “a particular form or branch of economic or commercial activity” (Oxford University Press, 2014a) and ‘commercial’ is defined as “having profit rather than artistic or other value as a primary aim” (Oxford University Press, 2014b).

Based upon these definitions, it is reasonable to assume that in order for an artist or organisation to be considered a part of the creative economy, there needs to be an element of commercial activity and that it is not sufficient to produce creative works solely for their artistic merit and value. Therefore to be included in the creative economy, an organisation must generate creative products or services which have an economic value (Howkins, 2001, p.x).

In the context of this discussion, I will use the Oxford English Dictionary definition of ‘free’: “given or available without charge” (Oxford University Press, 2014c) and I will explore two variants of this definition of ‘free’. Firstly, the ease of copying and distributing creative products by internet users, with or without the consent of the creator or owner (Newman, 2013). Secondly, Anderson’s (2009, p.13) concept of “Freeconomics”, in which organisations within the creative industries intentionally make their products and content available at zero price.

The Changing Economy and the Drive Towards Free

One of the major contributors to the drive towards free content has been the advancement and increasing ease, cheapness and availability of technology and the internet since the 1980s (Howkins, 2001), (Rifkin, 2000), with 89.9% of UK households, 70.5% of the European population and 40.4% of the world’s population having internet access in 2014 (Miniwatts Marketing Group, 2014), (Real Time Statistics Project, 2014).

The costs of processing power, bandwidth and storage continue to reduce over time (Newman, 2013), (Howkins, 2001), and subsequently, the cost of producing digital content and distributing it online continues to reduce. Anderson (2009, p.13) states that, “the trend lines that determine the cost of doing business online all point the same way: to zero” and traditional competitive pricing economics dictate that a product price will trend towards the marginal cost of that product (Farchy, 2011, p.247).

However Towse (2011, p.127) stresses that whilst the marginal cost of reproducing digital content is “very low, even approaching zero”, the “fixed cost of producing the original master copy is high”, reemphasising that to succeed within the creative industries, an organisation must monetise content which is provided to the user for zero charge.

The increasing amount of ‘Free’ content

In addition to reducing the costs of digital content distribution, technical advancements have also increased what can be delivered digitally, increasing the variety and quantity of creative, and potentially zero-priced, content available online. (Tuckerman, 2008).

Shirky (2010) argues that human nature centres around the need to create, share, collaborate and participate in a group and with the advent of the internet, anyone with access can create and distribute content quickly, easily and at near zero cost (Newman, 2013, p.1424)(Handel, 2011). In addition to this, advances in personal and home technologies allow amateur and hobbyist creators access to widely and cheaply available professional-level content-creation tools, meaning that the content produced can be high quality (Newman, 2013).

Whist there are copyright laws in place to attempt to reduce the amount of content being illegally copied and shared, Newman (2013) argues that the consumers and creators of this illegal content do not perceive a significant risk of litigation as a result of creating or accessing free, illegal content online. The ease of producing pirated material and the perceived minimal risk of repercussions, also increases the amount of free content available, particularly impacting the music, television and film industries (Newman, 2013), (Towse, 2011), (Smith & Telang, 2009).

The Reluctance to Pay for Creative Content

The ability to easily and cheaply produce and distribute free content and the appetite to do so provides a supply of ‘free’ content and causes an increase in the amount of content available. But there is also a demand, driven partially by the ease and extensiveness of supply, but also by other social factors.

There is an expectation, especially with younger generations, that content available online will be free (Farchy, 2011), (Anderson, 2009, p.5). Farchy (2011, p.247) calls this the “historical lock-in effect”, where user perception is that the internet equates to free, as access to content on the internet has been provided as a free resource since the emergence of public Internet Service Providers in the late 80s and early 90s (Zakon, 2014). This timing aligns to Anderson’s theory that the attitude towards ‘free’ differs by generation, with those born pre-1978 having less expectation and more suspicion of ‘free’ products, and those born after 1978 having an expectation that “everything digital is free” (Anderson, 2009, p.5).

Other such attitudinal factors have increased consumer reluctance to pay for content and furthered the trend towards ‘free’. Anderson (2009, p.59) introduces his “penny gap” theory, which dictates that charging even a few pence can significantly reduce the chances of a transaction. Attitudinal reasons for this include a perceived reduction in risk associated with a zero-price ‘purchase’ and the perceived inconvenience of a financial transaction for a positive-priced product. Therefore, when marginal costs are just above zero, there are greater benefits to rounding down to zero than attempting to cover the minimal product cost.

Newman’s (2013) findings support this and he argues that zero pricing contradicts many economic trend theories. When given a choice of two products, research has proven that a potential consumer will choose a free product over one with a charge, even where the free product is of inferior quality and where the cost gap is a matter of pence (Shampanier, et al., 2007). This is evident in the Free-to-Play games market, with zero-priced games significantly out-selling moderately-priced, superior-quality games from the same creative studio (Evans, 2014). This is referred to as the “zero-price effect” (Shampanier, et al., 2007, p.749)

I also believe that a reduced consumer appetite for spending, caused by the global recession of the late 2000s, may have further exacerbated the ‘Free’ trend, coupled with the growth of functionality allowing internet users to search for the cheapest, or zero-priced, version of the content they require quickly and easily (Handel, 2011).

There is also evidence that the perceived value of creative content is less when it is presented in an intangible, digital format, which may contribute to a reluctance to pay for digitally distributed content (Styvén, 2010, p.1089).

How is the ‘Free’ trend affecting the Creative Industries?

Increased Competition

Traditionally a content creator would require an intermediary to reach an audience, however it is now possible for content creators to independently generate creative content, self-publish and distribute it online. For emerging artists there is an opportunity to reach a global audience with their material and to gain significant exposure, often through giving it away for zero-price. With this comes independence from traditional intermediaries such as publishing houses, record labels and media groups, who find themselves in competition with the artists they may have formerly represented (Fuchshuber, 2013) (Higham, 2006), (Kretschmer, et al., 2001).

For established artists, whilst there are opportunities to gain value from ‘free’, the ease of content production may cause financial loss when their content is illegally reproduced and distributed for free. Many music industry representatives blame the downward trend in music sales, an estimated 38% decline between 1998-2008, on online piracy (Sinha, et al., 2010), with over 30 billion illegal songs being downloaded on file sharing networks between 2004-2009 (RIAA, 2014). With illegitimate copies often offering equivalent or superior quality than the legitimate copy, they are providing genuine competition within the industry, (Newman, 2013, p.1434), (Sinha, et al., 2010), (Smith & Telang, 2009).

Within the ‘free’ economy, all creative content producers, whether motivated by business sustainability through profit or by artistic fulfilment, are competing for the same, limited consumer attention. As the amount of content increases, so does the competition in the marketplace, resulting in commercial profit-seeking entities competing directly with amateurs and hobbyists, the latter who are free from fixed business costs (Shirky, 2010), (Anderson, 2009, p.187), (Goldhaber, 1997).

Reduced Economic Value

Another impact of ‘free’ is what Anderson (2009, p.127) refers to as the “de-monetization” of traditional industries within the creative economy. In 2006, Craigslist, the free classifieds website, was blamed for the $236m decline in American newspaper classified advertising revenue, however Craigslist itself only earned an estimated $40m in that year. The financial value of the business that moved from traditional print classifieds to Craigslist reduced and as such the industry became ‘de-monetized’, arguably because Craigslist does not seek the large profits that the American newspaper companies have traditionally sought. (Seamans & Feng, 2014), (Anderson, 2009, p.127).

Similarly, Farchy (2011, p.251) argues that the control of the value of the creative economy is changing, with large organisations setting market prices for the products of creative industries to which they do not belong. Apple have introduced a globally-accepted price of £0.79 for a digital music download, however their core business is not the music industry which is affected by this, but is in the technology which needs to be purchased in order to play the music. Farchy (2011, p.250) also argues that the money generated from ad-supported free creative content may no longer remain within the creative economy, but rather is transferred to those organisations outside the creative industries who use cultural products as loss-leaders by placing advertisements and utilising the free creative content to capture buyer attention.

Adapting to Derive Value from Free

Based on the evidence discussed so far in this paper, it seems that ‘free’ is unavoidable in many industries within the creative economy. To survive in this new ‘free’ economy, creative individuals and organisations need to adapt their approaches in order to “compete with ‘free’” or to “use ‘free’” to their advantage (Anderson, 2009, p.14). Anderson (2009) introduces four business models which he claims will enable organisations and individuals within the creative economy to monetise ‘free’.

“Direct Cross Subsidies” are often used within the creative industries to monetise ‘free’ content by giving away something for zero-price to create a demand and market for another product (Anderson, 2009, p.23). Monty Python created a YouTube channel, giving away high quality videos of their material in response to the many poor-quality videos being circulated by internet users. They also displayed links to their Amazon store, where viewers could buy their DVDs and merchandise, resulting in a 23,000% increase in sales (Herman, 2014), (Anderson, 2009, p.2), (Doctorow, 2009).

The “Three-Party Market” (Anderson, 2009, p.24), or the “ad-supported” market (Newman, 2013, p.1439) has its origins in the traditional media model utilised by newspaper and broadcast organisations. Microsoft provides ‘free’ Outlook email accounts, but users are exposed to targeted advertising banners, based on their recent browsing history. The free account and functionality are subsidised by the advertiser paying Microsoft to use screen space and to share the user’s attention (Farchy, 2011), (Anderson, 2009).

“Freemium” (Anderson, 2009, p.26) can be defined as a content provider providing a zero-price version of their offering, “(typically with fewer products, more advertisements, bandwidth limitations, or some combination of the three), while offering a premium version of the platform at a positive price” (Newman, 2013, p.1439). Spotify allows users access to a large catalogue of music to stream at zero-price, but with limited functionality and regular advertisements being played at intervals during the users’ listening. Their online promotion for ‘Free’ Spotify openly states, “made possible by ads” (Spotify AB, 2015), whereas their Premium offering costs £9.99 per month and gives access to a wider selection of songs, no advertisements and increased functionality, such as allowing users to download songs to their devices.

In each model, there is a cost to the user, or a proportion of users, within their interaction with the ‘free’ content and subsequently a value gained by the content owner. In all of the above examples, the ‘price’ of ‘free’ is the user’s attention and for those that are influenced to buy any advertised products, the cost of those products. In the ‘three-party market’ and ‘Freemium’ examples, this product-price will include a contribution to the costs of placing the advertisement. In the ‘Freemium’ example, there is also an opportunity to add a price through the user’s desire for increased functionality and removal of the intrusive adverts (Anderson, 2009).

In these examples there is a transparent approach to monetising the zero-priced content or service offered, but what of content created without financial motivation? Anderson (2009, pp.27-29) sub-categorises his fourth model of “Non-Monetary Markets” into the “Gift Economy”, “Labor Exchange” and “Piracy”.

Both Shirky (2010) and Anderson (2009) explore the concept of what Anderson (2009, p.27) refers to as the “Gift Economy”; content creation for self-fulfilment or altruistic reasons. This could include an emerging band self-publishing and giving away free material, a Harry Potter fan copying and publishing the series as free PDFs to be read on Kindle, as well as millions of people blogging, tweeting and posting status updates.

Whilst in many of these cases, there is no financial value requested, required or gained by the creator, there is a cost to the user by way of their attention and potentially their labour through subsequent sharing of the content. For the creator, whilst there is no immediate monetisation, there may be an increase in circulation, free distribution, reputational gains, industry exposure and artistic fulfilment and it may be that these hold a higher value to the creator than a financial gain, depending upon their original motivations for creating the content (Shirky, 2010).

These outcomes may ultimately translate into a financial value, for example attracting advertising or investment from a third party or providing promotion for other paid creative content by that individual (Carter, 2012) (Shirky, 2010) (Anderson, 2009) (Goldhaber, 1997), as demonstrated by the games company Monster & Monster;

“Winterwalk from Monster & Monster is free of charge, but it gives them brand promotion and promotes their commercial game Deep Loot. It also enhances their portfolio, which they can use to attract investment and they own the Intellectual property, the game and the character. It’s free, but it generates a huge amount of value.” (Evans, 2014)

Anderson’s (2009, p.28) concept of “labor exchange” centres on the content consumer providing labour in exchange for ‘free’ content or services. As users interact with the ‘free’ Google Search, data is collected regarding their activities, including YouTube videos watched, pages accessed, their browsing history and their behavioural patterns when interacting with Google’s products. This data is then used by Google to analyse user behaviours and trends to improve ad-targeting and the algorithms used in the organisation’s products, such as Google Search (Google, 2014) (Google, nd). In exchange for the ‘free’ Google service, each activity carried out by the user provides Google with a small amount of free labour, contributing to a huge repository of user intelligence, allowing Google to carry out market analysis and further enhance their products (Anderson, 2009).

Finally, Anderson (2009, p.71) refers to piracy as “a form of imposed free”, where the content creator may not have intended the product to be free of charge, but has had little control over it. Many argue that there is no positive impact of piracy on the economy, no value to be gained from it and that it is directly to blame for the decline of the film and music industries (Sinha, et al., 2010) (Smith & Telang, 2009) (Leyshon, et al., 2005). However YouTube claim that there may be benefits to copyright owners allowing content that contravenes their copyright, including promotion and linked sales (Gould-Stewart, 2010). Rather than blocking the YouTube video, “The JK Wedding Entrance Dance” (YouTube, 2009) for its illegal use of Chris Brown’s ‘Forever’, Sony added links to the track on iTunes. The song re-entered the iTunes chart at ‘#4’, enabling Sony to create value from this illegal ‘free’ distribution of their content.

It may be necessary to understand the content creator’s intention to attempt to identify what model, if any, they are employing and subsequently what value they gain from giving away content for free. When Nine Inch Nails gave away The Slip for zero price, there was speculation as to the motivation behind it, with theories ranging from it being a gift to fans, a declaration of independence from Nine Inch Nails’ record label, through to an attempt to cross-sell concert tickets (Burns, 2015). The band may have been applying a combination of the above models, whether intentionally or unintentionally as it may also be that as a result of an initial altruistic non-monetary motivation, a cross-subsidy resulted.

Indeed examples of ‘free’ rarely fall neatly into a distinct economic model. The games and software industries’ “Free to Play” and “In-App Purchase” model, falls somewhere between the ‘cross-subsidy’ and ‘Freemium’ models and Spotify’s model combines ‘ad-supported’ and ‘Freemium’.

Whilst much of this discussion on ‘free’ has concentrated on how organisations have adapted their business strategies to derive value from the ‘free’ economy, there may also be changes which can be made to the content itself to maximise the possibility of monetising zero-priced content. Hollanders (2014, p.10) discusses how video-game design within the “re-monetization model” of free to play is not solely a creative process, but the game dynamic is designed as a marketing tool to maximise potential profit from In-App Purchases. Evans concurs, stating that “providing new content as well as responding to the players’ likes and dislikes is essential for success” (Evans, 2014). Future research could investigate how content changes could be, or are, used to increase the value derived from offering content at zero price in other creative industries, such as film, TV and literature.

Attention and Information

In this paper, I have alluded to attention being a cost to the consumer and a value to the provider of content. Both attention and information are explored in many texts as being valuable assets, commodities or even currency in the modern economy (Shirky, 2010), (Rifkin, 2000), (Stewart, 1998), (Bailey, 1997) (Goldhaber, 1997). Referring to the earlier definitions of the creative economy, I stated that monetisation is essential, but it may be that alternative values that can be derived from ‘free’, such as reputation, attention and information, are necessary interim steps to monetising ‘free’.

Shirky (2010) explains that as the world becomes increasingly rich in information, with a surplus of content available, attention becomes a scarce and desirable resource. Indeed, advertisers place greater value on creative content that captures a large audience: those which have a higher proportion of the available attention (Anderson, 2009).

As an individual has only limited attention available and numerous demands for that attention, an organisation faces the challenge of steering a share of that attention to itself and its products. Once that attention is captured, they can then attempt to monetise it (Shirky, 2010). Monty Python’s YouTube channel did not immediately provide a revenue stream, but it did divert the consumer’s attention away from the competing videos. Monty Python were then able to use this attention to sell other products and raise the consumer’s awareness of the brand.

But there may still be additional value to be derived from this attention other than financial value. Shirky’s (2010) theory of Cognitive Surplus explores the concept that in the modern digital world, individuals have an increased amount of spare time and the ability and resources to easily become online content creators. Providing free content can both attract attention and trigger positive emotions in consumers, potentially to the extent that individuals are inspired to create content on behalf of the organisation and even become brand advocates with a global audience.

Therefore, attention currency can be converted; into publicity, marketing, distribution, even free labour, as well as reputational value (Shirky, 2010). This is often seen on Facebook, with companies using ‘Like and Share’ competitions to increase their exposure and the attention they gain online. When each individual likes, shares or comments, that organisation’s post is visible on the user’s ‘Timeline’ and their friends’ ‘newsfeeds’. This activity keeps the organisation fresh in people’s minds, creates desire for their products and provides exposure to the brand to prospective customers. This activity captures a small portion of many people’s attention (Carter, 2012), (Shirky, 2010).

The information that can be gained from giving away a product for zero price is another value that can be derived from ‘free’. Stewart (1998, p.143) argues that a loyal customer base is the most valuable non-tangible asset for an organisation. Gaining information on customers, their activities and their interaction with the organisation’s content therefore becomes essential to ensure the product offering continues to meet customer needs to maintain retention and to enable accurate targeting of promotions for other products and services (Napoli, 2011), (Stewart, 1998). When downloading the ‘free’ Facebook app, the consumer is asked to agree to Facebook accessing their location, online activity, device information, IP address and demographic information, in addition to logging when they access certain websites. Not only do Facebook sell this information to third-parties, they use it in-house to further develop the product to better align to customer preferences, increasing the desirability of the product and the ongoing engagement with existing users (Facebook, 2015) (Napoli, 2011).

The Future of the Creative Industries in a ‘Free’ Economy

Despite Anderson’s optimistic statement that “there are countless ways to make money around Free” (Anderson, 2009, p.242), many organisations have yet to monetise the attention and reputation gained from the free content they distribute, or have failed to gain the profit that would have been seen in the traditional variant of that market (Farchy, 2011, p.252). Spotify announced net losses of $80 million in 2014, despite reporting 15 million paying subscribers and 60 million total users in 2015 (Spotify Ltd, 2015), (Brustein, 2014), (Cheung, 2014).

 Conclusion

There have been significant, disruptive, sometimes negative, impacts of the ‘free’ trend on the creative economy. These include a reduction in perceived consumer value of creative products, de-monetisation of some creative industries, changing industry structures and “a transfer of economic profitability” (Farchy, 2011, p.250) within the value chain or outside of the creative economy. These issues raise a question for future research as to the sustainability of the creative industries within the ‘free’ economy.

I have established that zero-priced products can be directly monetised, through the use of advertising or cross-subsidy. However in many cases, the value derived is non-monetary, with a customer paying for content and services with attention, their labour, information, even their loyalty and advocacy and with content creators being rewarded in reputation, promotion and artistic fulfilment. As creating this non-monetary value may need to be an interim step between publishing free content and monetising it, the lead time to monetisation could be longer for organisations who are forced to compete in the ‘free’ market.

If we refer back to the concept that ‘economy’ and ‘industry’ requires that revenue is generated, it is apparent that whilst non-monetary ‘payments’ do carry a legitimate value, they are not sufficient on their own. Organisations operating within the creative economy must adapt and employ approaches to ultimately monetise this non-monetary value and indirectly their creative content, otherwise creativity fails to become an economic product and an organisation will fail to be sustainable within the creative economy. If an organisation wishes to survive as a commercial entity and be categorised as a part of the creative economy, monetisation and subsequent revenue is essential and so that organisation must ensure that there is ‘no such thing as free’.

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