| HN Mirror

You know that old aphorism "If a tree falls in the woods and nobody hears it, did it make a sound?" For "younger artists" that is code for 'nobody knows who they are.' And that is a very important concept to internalize if you want to understand the economics of information.

Lets say you offer to sell someone an 800 page hardcover book about a wizard for $35 [1]. If they have never heard of the author they are going to politely decline. Why? because they can spend $35 on a book from an author they know they like and for whom perhaps their latest book was also read by their friends who liked it. As an economic actor in this transaction they act in their own self interest, to spend their earned income on entertainment for which they have some prediction of enjoying it. Give them a $35 coupon good for any book at Amazon and they might buy it on a whim, make them work half a day to earn that much and they won't.

So your observation about Neil Diamond is absolutely correct, there are a lot of people who have heard his music, like it, and will buy it. More importantly because there are a lot of people who have heard it and like it, the probability that a person knows someone directly who has bought it and likes it is higher. The the perceived risk of the purchase is lower.

So now imagine that you've got got an artist producing a product. Initially, there is this huge barrier to them selling their product because there are many known artists out there (and the new artist is initially unknown), and there are many 'purchase experience' consumers who are reinforcing the quality analysis of the known artists. So our new artist has no way to communicate their value to their potential customers.

So to overcome that lack of exposure, a new artist has to 'be heard' (if we're talking about music) and they do things like play bars, clubs, go to 'amateur night', and try to get a local group of people that like to hear what they play. If they are successful at that they might be able to 'open' for a famous act at their concerts, be the band that 'warms up' the crowd. Now they get to expose themselves to the people who like the main act (and presumably their musical style is similar so they feel they might be liked too) and if enough folks do like them then maybe they can be their own 'headliners'. Of course when you open for Neil Diamond and people are paying $75 to see Neil, not a whole lot of that is going to you, the warm up band.

This whole 'getting the word out' is a process that was filled by radio for years and years. It was so successful in fact that music labels would actually pay the radio stations to play their signed acts music. It was a huge scandal. But instead of thinking the money they paid the radio stations as 'lost profits' they considered it a marketing expense. And they were right. They knew, and pretty much anyone who has tried to market an 'art' product (which is to say a creative work), that people don't buy things they don't know about.

So you can ask what a new artist's work is 'worth' compared to an established artist. And to understand that you have to include the cost of making the set of customers who would buy this new artists work aware of the existence. That is a huge sunk cost, and one that used to be born by a book publisher or a record label. Once the artist is over that hump of course things are much easier. What Neil has recognized is that 'piracy' as defined by the record labels and book publishers is creating more artist awareness these days than the older channels. That is a really really important change, and it is one that artists, especially new artists, have to internalize.

Perhaps in the 'old' days your publisher would pay you $4K for a book, and if that book took off they would make a huge 'profit' on it and you would not see another dime. But on your second book with them you could negotiate better terms. There are many examples of 'hollywood accounting' or 'record label accounting' which show how they do this. The artist doesn't get any benefit early on, and only after being established to they have any leverage in those business negotiations. The 'new' way may be that the early works of the artist get 'pirated' like crazy and spread far and wide. People get exposed to them for 'free' and while the artist gets no monetary remuneration, they are offsetting that barrier of not being a known entity. As they develop exposure they will get more and more pricing control over their work, up to and including the point where people will pay millions in advance to be the first to get their next novel/song/movie what have you.

But the key to understanding this is understanding that 'value' is composed of two parts 'awareness' and 'quality.' And they are multiplicative. So if either is zero, value goes to zero. The thing that makes it still work is that the marginal reproduction cost in a digital ecosystem is also nearly zero.

[1] http://www.amazon.com/Harry-Potter-Deathly-Hallows-Book/dp/0...