Fast Company

Memo to: Media Monopolists

And you thought moguls had it made? Turns out, trying to hang on to a monopoly these days is enough to make anyone miserable, even Rupert, Michael, and Sumner. We feel their pain -- and offer some help.

It must be hard to be a one-name mogul, burdened with the task of meeting so many of the public's entertainment needs. I'm writing to let you know that I feel your pain.

I can tell you're miserable. You're feeling the anguish that comes when you find yourself between a rock and a hard place.

On one hand, you hate your customers. Which is entirely understandable. After all, they keep stealing your products. Then, after they steal your products once, they form global clubs to make sure that everyone else has your products too.

On the other hand, you hate the talent who actually make your products. Which is why your bands are suing you to get free, your writers are posting their ideas on the Web for all to see, and your actors are looking for ways to remove you so that they can talk directly to their audiences. No, it certainly isn't easy being a monopolist.

Here's what you're up against. Rafael (not his real name) is a criminal. Like the vast majority of people living in Mexico, he buys his music from one of the 12,000 street vendors who rove the country. Every time Rafael uses his hard-earned money to buy a CD, he buys a pirated bootleg. The New York Times says that more than half of the albums sold in Mexico are pirated.

Todd is a criminal as well. Every time he uses the computer in his dorm room at Tufts (not his real university) to download a DVD, he's violating the law.

Lois isn't a criminal, but every time she goes to the movies, she risks being kicked out. Uniformed guards search Lois and other movie patrons as they come in, confiscating energy bars (not her real snack), bottled water, and other contraband that cut into sales at concession stands.

So how do you and your cohorts respond to such threats? It appears that you believe that the best thing to do is to make more criminals. Make Steve Jobs a criminal for selling iPods. Call Michael Dell a felon every time he sells a laptop with a CD burner in it.

But the reality is that if you monopolists would stop thinking like the robber barons of old and start thinking like the entrepreneurs of today, you would encounter another path. Because there is another path. It's the path of Steve Jobs and Bill Gates and a few other profit-maximizing individuals who are smart enough to know when to fight the market -- and when to embrace it.

The Death of Scarcity

Why can't Nike charge $500 for sneakers? Because there are easy substitutes. In almost every industry, consumers have countless choices. And unless a product is truly unique, they can take their money elsewhere.

The media business has always been different. At its heart, the media business is actually about the prospect of being a monopolist -- and about getting paid a lot more than your products cost to make. A few years ago, if a couch potato (God love 'em) wanted to watch TV, there were only three channels he could choose from. If a moviegoer wanted to see Butch Cassidy and the Sundance Kid, there was only the William Goldman version, and she had to buy a ticket to see it.

The point is this: The media business was built on scarcity. Scarcity of spectrum. Scarcity of hits. Scarcity caused by copyright and limited shelf space. Consumers hate scarcity. But you and I know that monopolists love scarcity. When consumers have fewer choices, a monopoly thrives.

Scarcity made it easy to get fat and happy. But almost overnight, the scarcity on which you built your media monopolies started to disappear. All of a sudden, there are about a billion channels available on the Web. There's a movie theater in any home with a DVD player. Amazon.com has infinite shelf space, so retail market power is now a myth. It's hard to charge take-it-or-leave-it prices when the consumer can just leave it.

The Birth of Ubiquity

The real-estate mind-set of many of your fellow media monopolists started disappearing a few years ago. That's when some of you guys adroitly shifted to a star mentality. After all, stars are scarce, and if you have a star, you can still win. Like it or not, there's only one Austin Powers, and if you've got his next movie, you've just cornered the market.

Alas, consumers have discovered that there's a free alternative to buying their media (and seeing your stars): They can take advantage of the person-to-person sharing that is inherent in our culture (and the copyright law) and spread digital copies of just about anything. Scarcity? It has been replaced by ubiquity. The last and best defense of your media company is crumbling.

There is no scarcity of spectrum or retail space. And now there's no scarcity of easy ways to duplicate something that has already been purchased. It's easy to share with friends (and strangers). The result: Just because media companies enjoyed an 80- or 90-yearlong ride doesn't mean that it will last forever. It's over.

This must really piss you off. So let me be the first to welcome you to a new century. In this new century, all businesspeople have the same goal: to establish a direct and positive relationship with the end user.

It sounds easy. But it's not. It's scary. And it's likely to wreck your business before it saves it. Feel like checking out the new rules? First, go to www.stickyflicks.com . David Burke, a creator of animated whacko content for TV, has assembled a few brilliant scoundrels and put up a site filled with juvenile humor and neat animation. Oh, and by the way: People are flocking to it.

Then visit www.publisherslunch.com, and fill out the subscription form to receive Publishers Lunch, a daily newsletter chronicling what's going on in the book business. It's free, of course, always interesting, and occasionally juicy. Oh, and did I mention that it's written and distributed by one guy, who increases his power by talking to more than half of the influential people in the book business every working day?

Finally, go to www.live365.com -- a site that lists more than 40,000 different radio stations. Every station is on right now. If one station chooses to run a lot of commercials, how hard it is to find one that isn't? Imagine that you're a station manager in, say, Chicago, and you're used to competing against 2 or 3 stations with a similar format. What happens when you have 5,000 nearly identical competitors? And when my car radio can pick up Internet stations?

Here's the problem: You monopolists appear to believe that you have a right to business as usual. You believe that if the rules of the marketplace change, it's not fair. You believe that you somehow deserve the private planes, the great parties, and the obscene profits. You also seem to think that if your monopoly were to go away, so would all of the good ideas.

The truth is, the supply is in terrific shape, thanks. In fact, there's never been more to choose from. The only thing that would go away would be your profits. Ouch.

The Path to the Future

Your response? An overwhelming desire for the monopoly to remain exactly the way it is. This feeling is not original. Nor is your solution original. Since the days of Teddy Roosevelt, members of the monopoly club have always done the same thing: gone directly to Congress.

The government has a long history of helping monopolists. And try as it might, in every single case, Congress has failed. Why? Technology, capitalism, and consumer demand destroy just about any monopoly that can be destroyed. Legislation can prolong the pain, but sooner or later, the monopoly loses. The fascinating lesson is that once the monopolies disappear, they're almost always replaced by markets that are more profitable for more companies (and better for more consumers) than the old monopolized market ever was.

Look at the record business for a second. Here's the good news: Artists can make a record with hardly any cash. Online retailers have infinite shelf space. There are thousands of Internet radio stations that sap the power of a small number of program directors. Near-instant file sharing can help spread a great song across the world. (Check out www.cdbaby.com to see this system working wonders.)

Why isn't this a scenario for tremendous commercial innovation? Isn't it possible that there will be more music, at lower cost, for more consumers? Isn't it likely that many people who would never have made an album will do so now?

There are plenty of winners in this new world. Rickie Lee Jones wins when she can self-publish her new CD (the CD that she really wanted to publish, not her overproduced live-hits Warner Bros. Records CD) at www.rickieleejones.com . If she sells 20,000 copies, she's way ahead of where she might be if Warner Bros. had published it. Better still, Jones and her team could build an entirely new and different business, where the music is free but the concert tickets cost money. With a million fans around the world (enrolled in her email fan club, even!), she could sell out concert venues anywhere on the planet.

Or consider this possibility: I might be wrong! Maybe there's no way at all for her to make a fortune. Perhaps she needs to get a day job. Is that going to force her (and thousands who would like to be her) to retire? Somehow, I don't believe that sucking the money out of the music business will eliminate the musicians. I do believe, though, that it will change the middlemen.

Is this "the answer"? Who knows? But I can tell you this: If it's not the right answer, it's certainly the right direction.

But what about Arnold Schwarzenegger? you ask. How will he be able to make $100 million movies if they're pirated on DVD? Maybe he can't. Maybe a society filled with consumers who pirate doesn't deserve $100 million movies. Perhaps they go away, just as ornate Broadway musicals are a rarity or the June Taylor Dancers are no longer able to get work. Somehow, I think we'll all survive without Terminator 10.

The disappearance of the $100 million dinosaur gets to the heart of your misery, doesn't it? You're in love with your version of the world. You can't imagine that people might actually want to trade what they have now for free, ubiquitous access to entertainment. You're likely to use power, money, and leverage to forbid us from even considering making the trade. But please remember: Copyright was invented for consumers, not for producers. Copyright is there to make sure that there's plenty of stuff for all of us to read and watch. Despite the name, copyright is not your right.

Senator Fritz Hollings, warrior on your behalf, feels your pain. He views the technology companies and their customers as not much more than thieves. Apple makes money from the iPod -- on the backs of the artists who aren't getting compensated every time we listen. Steve Jobs must be torn. On one hand, he makes iPods. On the other, he makes Monsters, Inc.

Think about that for a second. Steve Jobs has two jobs, and one of them could bankrupt the other (if your rhetoric is to be believed). He's not dumb. He gets it.

And Jobs isn't really torn. Why not? Because he has learned not to think like a monopolist. He learned the hard way. Apple had a monopoly on the personal computer. After just a couple of years on top, it started acting like it was the only game in town. With Apple playing the bully, IBM and Microsoft snuck in and trounced the Apple II with their own version of the PC. Apple could have immediately created a better computer. Instead, it whined and moaned, like all monopolists, and watched as the industry it built got taken away.

Jobs came back with the Macintosh -- way, way better than the PC. Apple got traction. It seemed as though it might be on its way to becoming a monopolist again, so it started acting like one. Instead of licensing the Mac OS far and wide, it tried to control the market. Microsoft (it takes one to know one) saw the monopoly mind-set and shrewdly used Windows to take the moment away again. Jobs, now an underdog for the third time, seems to have learned.

Microsoft can teach something to you and to all of the other monopolists. It's not about Washington lobbying or long court fights. It's about attitude. Microsoft is great at being a paranoid monopolist. It is delighted to extract every penny it can from any market it can monopolize. But as a company, Microsoft is insanely paranoid. It expects every monopoly to disappear at any moment, and it always has a backup plan. Microsoft is happy to embrace the new and to encourage a market, because it knows that if it starts now, it has an even better chance of monopolizing that market when it grows.

One last thing: I'm not saying that I want the markets to be the way they are. I'm not saying that pirating is right. But I am saying that it exists and that it's going to become more widespread. So here are your basic choices: You can whine, lobby, sue, and then cripple your product so that it can't be copied. Or, maybe, just maybe, you can stop thinking like a monopolist long enough to find new business models, new markets, and new strategic plans.

You're not going out of business tomorrow. The structures that you have built and perfected are going to stick around for a long time. But it's not going to get better, more profitable, or more fun. It's only going to get worse.

Bill Gates has a backup plan, guys. What's yours?

Seth Godin (sgodin@fastcompany.com) is a Fast Company contributing editor.

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