Freeconomics!

Last month, the Chronicle published a story on the new indieconomics of the music industry, precipitated by the emerging market of niches defined as the Long Tail.

The Long Tail, a term coined by Wired editor Chris Anderson, describes the new, distended economy based on endless storage and free distribution, essentially the marketplace created by the World Wide Web. This month’s Wired features a new manifesto from Anderson, extending his theory of the Long Tail to its logical conclusion: “Free!: Why $0.00 is the Future of Business". The cover story is a preview of Anderson’s upcoming 2009 book, which will likely stir a re-evaluation of traditional economics even more than the Long Tail.

Anderson’s primary thesis is that the internet exploits an ever-growing capacity of storage, processing power, and bandwidth that virtually bottoms overhead and production/distribution costs in a way that shifts emphasis from the monetary economy to one more defined by the scarcity of attention and reputation. “Basic economics tells us that in a competitive market, price falls to the marginal cost,” writes Anderson. “There's never been a more competitive market than the Internet, and every day the marginal cost of digital information comes closer to nothing.”

This effect can be seen in any number of areas, from Google’s ubiquitously free web applications to newspapers like the New York Times finally offering free Web access. The product is offered for free in exchange for the consumer’s attention, which becomes a commodity monetized through ad sales. It’s a familiar media marketplace, yet one that is increasingly extending into actual products. After years of watching physical sales tank, the music industry is finally beginning to experiment with freeconomics in ways that will likely transform not only the business, but the art as well. As former EMI exec Ted Cohen recently declared, “Music 1.0 is dead."

Already we can see new possibilities for a free musical economy emerging, for better or worse. Artists undoubtedly cringe at the notion of not being paid directly for their product, but giving away the music to promote live shows, merchandise sales, and new revenues through licensing is already a reality. Websites like RCRD LBL are at the forefront of an ad-supported model of free music for consumers, while the dominant framework to emerge will likely be based on a subscription-type service – perhaps as an entertainment package that includes database access to music, movies, TV, etc., from entities springing from current telecommunications companies.

The underlying reality so astutely plotted by Anderson is that free seems the inevitable destination for the web-economy, as companies and artists compete less for your money and more for your attention. The secondary economy has become primary.