Today the CD called "In Rainbows" by Radiohead (a British rock band) goes on sale, and the sales figures will provide an exhibit in the relationship between free downloads and retails sales. the New York Times covers the issue here, but I think we all know what the results of this little experiment will be. CD sales will be amazing.
Now, obviously, Mises.org has a strong interest in this subject because this site gives away for free just about everything we can, while still making the hard copy available through the store. The idea is about service here: getting the good out to people in every form possible. Now, the Mises Institute is a non-profit educational organization so our incentives are not the same as a regular business. Even so, there are lessons that apply in many directions.
There are two issues here that are getting mixed up. One relates to copyright, the mercantilist law that forbids the perfectly peaceful action of spreading around a good of infinite supply, whether that good is a sequence of notes or an arrangement of letters or pixels in an image. The second issue relates to an empirical question of what constitutes good marketing and entrepreneurship.
What's been happening up to now is that copyright issues have encouraged and spread what is essentially an entrepreneurial mistake: the failure of many publishers and studios to take full advantage of electronic media as a means of marketing their wares. They have believed that giving stuff away kills the market for sales, when the reverse might actually be true.
I can recall talking with an ice-cream entrepreneur a few years ago who was actually under the belief that his copyrights, trademarks, and patents were the source of his success — and not even he seemed to fully grasp that the reason for his success was in in fact that his ice cream is good and customers are willing to buy it! So it is for music. People will buy this CD because they want to own the CD, not because the digital content has been withheld pending payment.
Another error has been to assume that the possible market for a product is fixed and limited rather than vast and expandable. Perhaps only one person in ten thousand who downloaded the Radiohead CD will buy the thing but that might still be more than would have bought it had the CD never been distributed online.
The critical thing here is that a digital download is not the same good as a CD. I can imagine that there are times when they interact as substitute goods but there are also conditions under which they interact a complementary goods — and much depends on the individual consumer.
So, no I'm not arguing that giving something away for free guarantees that it will sell later. In fact, it probably makes matters a bit tougher for the entrepreneur. The point is that the best form of marketing is to get the word out to as broad an audience as possible. When it comes time to ask people to pay, you have to be prepared to offer something of value in exchange. In this way, commerce depends not so much on withholding but on generosity.
At some point, publishers and sound studios etc. are going to catch on and realize that their obsessions over "intellectual property" are blinding them from seeing and acting on the greatest marketing opportunity in the history of the world.
