Making Micropayments Micro Enough


July 12, 2001

I am sympathetic with Scott McCloud and think his article (cartoon?) is one of the most persuasive arguments in favour of micropayments to come around for some time. But I don't agree with it. And I think that content producers (writers, articsts, musicians, educators) who support mircopayments, or similar revenue generation schemes, are backing the wrong horse.

Giles Turnbull suggests that, with micropayments, "Creative people would be able to claim a greater share of the money and earn more in the long term. Consumers would get stuff much cheaper. Everyone would be happy." I don't agree. Turnbull forgets that the current cost of online materials is zero. As in free. A "greater share" of that is meaningless. And no consumer will pay less for content unless they were actually paid to read online.

Turnbull assumes that there is some sort of pot of money available that consumers are willing to pay for content. Is this pot of money akin to the money a person pays each time he hears a song on the radio? The payment he makes each time he watches a M*A*S*H rerun? Is this the money he pays to the publisher each time he re-reads a news clipping? Or each time he listens to his favorite Elivis song on his now well worn LP?

From the consumer point of view, content is free: it has been for several generations now and will continue to be free in the future. Sure, the consumer will pay money for access to that content: he will pay for a cable connection, or a wax disk, or a radio receiver. But once access has been paid for, the content comes, uninterrupted, usable once or as often as he wants, all for the same access costs.

In some underlying sense, Turnbull knows this. As he recognizes, "The recording industry started out as a plastic manufacturer. It made plastic disks and recorded sounds on them, and sold them at a profit. What it became good at was making disks in large numbers, and distributing them world wide." But he needs to take that leap: the record company sold wax disks; it offered free sounds on them as an inducement for people to buy these disks (and the machines to play them with, sometimes also sold by the same companies).

True, the recording industry is now trying to change the rules of the game. It is now trying to say that what it sold all along was the music on the disk. But nobody believes that, not when that very same music could be heard for free over the airwaves. Micropayments offer, as Turnbull says, a "sensible solution." But only if you're the record company. For the consumer, it makes no sense at all.

It is very easy to mislead onself in this debate. Consider Napster. Napster was a success not simply because it made getting hold of the music easy; it was already easy (except for those few poor souls living nowhere near a radio station, MTV or a music store). Napster was a success because it made music available for free. The way consumers are used to obtaining music. McCloud points out that the people who used Napster did not intend to be pirates. Of course not! They were doing what they've been doing all along: it is the music industry, not the Napster users, that is changing the rules.

Turnbull cites Clay Shirky as saying that micropayments won't work because they force the buyer to stop and think before clicking and downloading. He is right in saying that micropayments are a disincentive. As Turnbull says, people do not stop and think before making a phone call or sending an instant message. That is because, once you have a telephone, local calls (local content) is free. People do stop and think before calling long distance. Otherwise, companies that sell cheaper long distance could never gain an edge in the marketplace.

The different between micropayments and access fees, such as we currently pay for the telephone or cable, is the different between metered use and flat rate. Metered payments are used for some commodities, such as water and power. It works because the suppliers are essentially monopolies; you don't need to track what sort of water you used, and who should be paid for it. And these commodities are metered because they are relatively scarce: we want people to stop and think before leaving the lights on or the faucet running.

But content is not in limited supply. Once a song is recorded, it can be duplicated and transmitted an infinite number of times without affecting the supply of that song. There is no need to limit access to songs, no need, that is, except to create an artificial shortage of the song, which is the only justification recording companies can charge for the use of that song in the first pace.

Indeed, the method of payment we use for the creation of content is odd and artificial. If I build someone a house, I do not charge them a fee every time they use the living room. If I sell them a hamburger, I do not continue to collect royalties on a per-burp basis.If I make a bed, I do not collect a fee every time it is slept in. It's actually quite unusual to have to continue to pay for a product time and again each time it is used. Only in an envrionment where artificial scarcity is created could such a system flourish.

Turnbull thinks that the key lies in making the payments small enough. In this I agree: but my definition of small enough is "free." If I have to pay even two cents to listen to a song on my computer, I'll just bring in my radio and listen to an endless stream of songs for free. There is no price that is competitive with free. None.

OK, enough beating around the bush. The real purpose of Turnbull's article - and McCloud's, for that matter, is not to ensure that the music publishers stay in business. Nobody cares about that. The real purpose of the article is to devise some mechanism whereby content creators get paid for their work. Right?

So let's use a little logic here: if the creator must be paid (and he must), and if they consumer won't pay (and he won't), then somebody else must pay. Otherwise, as the doomsayers say, there would be no content, and clearly, there should be content.

Well - imagine a world in which the world wide web had no content. Who would use it? Nobody! The content is what makes people use the web. Create better content and more people will use the web for longer periods of time. Create even better content and they will go out of their way to use it, or even spend money on wireless access to they can use it wherever they are.

Now, who suffers if nobody uses the web? Not the consumer, so much: he or she merely goes back to other forms of free content, and especially radio and television. No, the people who really suffer are the people who sell access to the internet. These break down into three major groups: bandwidth providers, such as ISPs; software vendors, such as Microsoft; and hardware providers, such as Dell or Conpaq. If people stop using the internet, these companies suffer. Big time.

It is worth money - a lot of money - for these companies to keep people using the internet. To date these companies have gotten a free ride: people want to use the internet because of the content, and so many people have provided free content! But if there is a content gap - if the amount and quality of content on the web declines to the point where web usage is affected, then these companies must step in and fill the gap. They must produce content to keep the users coming back.

I think that the music recording industry - and content creators in general - would have a much better chance of survival if they were to market directly to ISPs, software vendors, and hardware vendors. If they were to tell them, as an industry, that if they provided a certain percentage of the revenues of the sale of internet access to support content, they would make this content free of charge to the consumer.

I think as well that they could market their content directly to commercial websites. Nobody today visits the IBM website, the AOL website, or even the CBS website, simply because they want corporate information (well, very few, anyways). People are drawn to these sites because they offer content. If IBM wants people to view their new machines, they should start offering U2 streams from the IBM website. Another sale for the content industry: and it didn't cost consumers a cent.

A lot of educational content can and will be paid for in the same way. Why should people pay in order to learn how to use Microsoft Word? They've already paid for the software: it only makes sense for Microsoft to pay for the creation of quality educational materials and to offer them for free over the internet. And because they want people to be able to find this material where and when they need it, they should encourage sites all over the web to run MS-Word tips, or similar educational content.

National governments, who have an interest in educating their citizens, should pay for and distribute content for free. This is the easiest and most efficient means of ensuring that quality educational materials are available to all citizens. Where possible, national governments should pool their resources and produce global learning materials, available to all. It would even be reasonable to add a tax or surcharge on internet access providers in order to procude this content, much as cable companies are required to provide educational television today.

Now it's true: it all gets charged back to the consumer in the end. Individuals pay taxes, they pay for content through access fees or software costs. Just as they, in the end, pay for radio, television or telephone use.

But it's a lot cheaper to buy in bulk. It's a lot cheaper to have single billing for content. The cost of tracking and accounting for micropayments would by itself be more than the cost of acquiring and producing content. Indeed, consumers would be paying mostly for the billing system! The very product they don't want! The billing system would replace wax or plastic as the *real* product sold by record companies.

Even then, merely creating a billing system will not be sufficient. The competition must be crushed! There is no *real* shortage of content, not even a shortage of high quality and specialized content. For every news agency that charges five cents an article, there will be a news agency that distributes that article for free. For every musician that charges two cents per song, there will be a musician that will offer some music for free. For every high priced online learning material offered online, an equally high quality free alternative will be offered instead. Haven't people learned anything from the success of things like the apache web Server and the Netscape browser?

This will happen because people have many motives for creating content: money is only one motive, and not even the most compelling motive. people create content because they have a message they want to convey (as is the case withn this note). People create content because it serves the public good. People create content because it provides an introduction to services they want to sell (MIT's free course content online, for example, is best viewed as advertising for the personal services of its well known professors). People create content because it's fun, they get fame and recognition, nice emails, the acclaim of friends and acquaintances. The content-for-hire people face this overwhelming weight of competition, and if they depend for their livlihood on the sale of content, then they will have to stifle this flow of information. This may be possible (that's debatable) but it won't be cheap and it will create a lot of ill will.

Professional content creators are not merely competing against web sites. They are competing against email, instant messaging, bulletin boards, list servers, and any number of ways people exchange free content with each other, directly, without intermediary. And the argument that only professional (paid for) content is of high quality won't wash. An email from my mother is worth more than any article published in the New York Times, and complaining about the 'quality' of her message won't change that. You have to produce a lot of quality to offset free, and I don't think that content creators have it in them to be that good.

I don't think that content creators can compete against free. That means they must become free. And the only way to do that is to get a third party to pay for it. The internet access industry. Corporations. Governments. That's the only hope for professional content on the web.

Obviously in this note I haven't covered every aspect of content creation and distribution. But I would hope that my main point is made: there are alternatives to charging users by the slice, and that these alternatives have some attractive features. Including one, essential, attribute: they would be accepted by consumers in a way that micropayments would never be accepted.


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