Electronic goods markets: end-to-end wins?

Hypothesis: As industries of cultural production adapt to digital distribution, content publishers in each industry will follow, with minor variations, the four-phase pattern set by the music industry:

1. Denial: Publishers pretend that digital distribution does not exist, attempting to salvage business models based on distribution of physical media. In some cases, publishers use the legal system to try to make this fantasy a reality. Regardless of the legal outcomes, this proves unsustainable in the long run. During this phase, publishers may make halfhearted forays into digital publishing, which invariably fail because they are deeply and deliberately user-hostile.



2. Faustian Bargain: A technology company designs a system which disguises computers' fundamentally general nature with a fig leaf of DRM. The disguise allows this company to strike a deal with major content publishing cartels to distribute content. Because a technology company has taken control of the technology, the system finally works in a way that doesn't make customers want to tear their hair out. The DRM system fails to prevent widespread copyright infringement, but it provides a hook for the technology company to build a vertically integrated stack which is somewhat inconvenient for customers to exit.



3. Clash of the Titans: Publishers realize that they are in a weakening bargaining position with respect to the technology company, which has acquired considerable monopsony power due to its control of the platform. Publishers butt heads with the technology company over prices and other contractual terms. This, too, proves unsustainable.



4. End-to-End Wins: Publishers realize that architectures which embed control in the distribution mechanism put more power in the hands of middlemen than endpoints. Conversely, end-to-end architectures, wherein the endpoints negotiate the transaction and any number of interchangeable mechanisms carry data between them on a best-effort basis, place power in the hands of endpoints rather than middlemen. Publishers furthermore realize that publishers and customers are the endpoints; that in the long run both are best served when the customer can purchase a bundle of data which is not bound (even weakly) to the sales channel, the software stack, or the physical device, all of which are intermediaries between the content and the customer. Publishers finally offer their content in a portable format via multiple sales channels.

This is just a hypothesis. I'm not sure I believe it. However, as evidence that expecting the final stage is not laughably utopian, I offer Sony and Warner's deals with eMusic and the introduction of MP3s on iTunes as evidence that stage 4 is already happening for music.

Detailed application of the above model to current hoopla in the e-book market left as an exercise to the reader. However, I will note that one reason I bought a Kindle is that I thought book publishers were so ornery, retrograde, and technophobic that they'd never progress to stage 4 unless they had an obnoxious would-be monopsonist (viz., Amazon) to frighten them through stage 3.

(A counterpoint to the above argument would be to observe that certain goods, like streaming video and computer games, appear to be evolving in the direction of fairly strong architectures of control. Neither Netflix streaming nor Steam give you much freedom w.r.t. your "purchase". It's unclear whether this means their respective markets haven't progressed far enough yet, or there's something fundamentally different about these media.)

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