Hyper Competition

Richard Kramer:  Welcome to Bubble Trouble, conversations between economist and author Will Page, and independent analyst Richard Kramer, that's me, that lay out some inconvenient truths about how financial markets really work. Today, content creation and hyper competition. More in a moment.

Welcome back to Bubble Trouble. We're going to turn the tables a little bit today and it's going to be myself, Richard Kramer, interviewing the rockonomist Will Page. Hi Will.

Will Page:  Great to be back Richard.

Richard Kramer:  So Will has famously described himself as a rockonomist, now aside from mangling the English language...

Will Page:  [Laughs].

Richard Kramer:  ... in a rather brutal way...

Will Page:  Prone to do that as Scotsman.

Richard Kramer:  ... can you explain where you came up with this terrible term, and why we should apply it to you in some sort of benign or favorable way?

Will Page:  Now, the role of a rockonomist can summarized in five words: have a rocking good time. And that's literally what I've tried to do for the past 15 years. That is, you can parade yourself as some charlatan, competent economist who understands what calculus is... I didn't, I asked what all these [inaudible 00:01:19] were doing... and by doing so, [inaudible 00:01:21] your way into as many concerts as possible, with as much free drink as possible, and have rocking good time doing it. And occasionally drop a few droplets of intelligent speech into the narrative of where media's going next.

But seriously, rockonomics is merging passions. It's about merging your passion for music, which has been with me since my teens, with that of economics, which has been with me since my dad taught me how to teach economics from the age of 11. So it's, that's what we're doing here, we're bringing economics to a subject that has never been addressed before. You can bring a horse to water, or water to a horse.

Richard Kramer:  But it's pretty amazing given how many dire situations the music industry has gone through over the past years, that they've been able to actually gainfully employ an economist to be a rockonomist.

Will Page:  I'm grateful to Adam Singer, eh, who was then the chief executive for the performing rights society, for giving me that chance. And that was exactly his point. I mean, back then the business was looking at piracy as the end of copyright, essentially. What happens to copyright when you lose the right to control copying? And it was Adam Singer, to his credit, which made the point of, "Do you know what it means when you have a product where there's no piracy happening for it? It means there's no demand for it."

You know, we can learn from piracy. And that story will be told in future podcasts, but either way, abstracting problems that's something an economist can do, or a rockonomist to use that horrible expression, Richard. Abstracting problems as opposed to seeing them in black and white legal jargon, you can work solutions. And I think that's rockonomics has given us.

Richard Kramer:  At least we can agree it's a horrible term.

Will Page:  [Laughs].

Richard Kramer:  So, let's move on. What I really want to get it is, and I'm really trying to understand this, this notion of content creation. Let's not talk about obscure economics texts, but I want to understand content creation in the modern age. And I want to understand it from the perspective of the creators, the distributors, and the consumers. I mean, what's happened with this explosion of content that we've seen just al- all over the place, in every field. And it's, and it's in the visual art. It's in music. It's in video. It's everywhere. Help us understand that a little bit.

Will Page:  Well, I think some history will help put the, the explosion into context. The way I'll put this together is if we go back to 1984, a suitable year to refer to, in 1984 the British music industry put out 6,000 new albums. Today, on streaming services, we're seeing 75,000 new songs a day being uploaded. So we're seeing more content being supplied to the platform in one day than was back then supplied in one calendar year.

So we just, you have to kind of drop your jaw and realize just what that explosion of supply means. And you were right, you said, "It's not just music. It's across the map." You look at podcasts, there's a new podcast happening every two minutes now. That's not a new podcast episode, that's a brand new podcast brand. Eh, you look at originial scripted drama TV content, Hollywood's putting out, you know, one a day.

If you look at across the board, what you're seeing here is the barriers to entry have fallen and supply is exceeding demand. This explosion in the supply has outpaced demand and that creates some interesting dynamics everywhere, not just media, but everywhere.

Richard Kramer:  Hmm. Is that just because the means of production have been so radically democratized that... In 1984, I presume you have to check into a recording studio which costs an absolute bomb to book out for a few hours, just to press your first single. And now, you obviously have millions of people doing that in their bedroom with a, a bit of software that's, that's free to download.

Will Page:  Yeah, so back then you had upfront costs, which meant up front risks, so there was never enough recording studios to meet pace with demand. But see, you needed the cash to get there, so you were very, very dependent on the record label or the intermediary to pony up that cash so you could get into the studio. And the way the contracts were designed, you know, every minute the producer was in there recording you, he'd be taking money out of your advance, which is why the producer always said, "Let's take one more take. Let's take one more dollar out of your pocket."

Now, that kid in the bedroom can record music, use something like DistroKid which is, you know, $30 a year, a fixed cost, retain 100% of their copyright and see 100% of their revenues. And we just saw today, DistroKid putting out some figures, where a company with less than 80 staff was responsible for one third, a third, of all new music supplied to music platforms last year. It's quite incredible how a company with a fixed cost model, you know, like paying for a bus as opposed to a taxi, you pay $30 up front and you get access to all these streaming services. And one in three new songs released last year came out of DistroKid.

Richard Kramer:  Hmm.

Will Page:  The world's gone mad.

Richard Kramer:  But how much is the quality gap between that kid in the bedroom and the full-blown recording studio that you can imagine the top artists at the top labels are, are getting access to? Because one of the things I, I recall seeing was how on one of the big distribution platforms they were proud that there were 800 artists that were making a million dollars a year each in terms of gross revenue from the royalties from playing their songs on the streaming platform.

But they had something like 180,000 artists that were struggling to make $1000. And then obviously millions more that were making nothing. So ho-

Will Page:  About 8 million more.

Richard Kramer:  Yeah, so how is it that you can have such a skew towards the very top for all the revenues when you have such a democratization of the supply?

Will Page:  Let's kick it. So I think that the interesting thing here is well back when we were boosting about 40,000 new songs, onboarding on to a platform, yeah [laughs], you know, today we're almost 80,000. We've almost 2x-ed that. But when it was 40,000, I met the head of a, a very large record label and explained to him that 40,000 new songs every day were onboarded onto this platform, competing for the attention with the 40,000 that were released yesterday, and will be competing for the attention of the 40,000 being release tomorrow. And his reaction was, "40,000? 40,000?" And then he took a long pause and said, "They must all be crap," which is a very [laughs] interesting way of thinking about the quality dimension.

Now, on that point, it's interesting to think about not only has the barriers to entry fallen, not only has supply exceeded demand, but you now have algorithms which are essentially free of those old school arguments about who gets a shop window in the High Street store, searching for content. So the way that that field is grazed, to use a farming analogy, is different today from how it used to work as well.

Richard Kramer:  Hmm.

Will Page:  So that's not to say that everybody gets a shot at getting to the top, but there is an algorithm which it can graze that field far further than any human could, exploring all of that new content as well. So this does produce some interesting long tail dynamics. And I think the one thing that listeners need to grab here is the difference between absolute value and a percentage.

So I'll just use some round numbers, for the sake of simplicity. Let's say one percent of all the songs, or one percent of all the podcasts, or one percent of all the TV dramas, make up 99% of all the revenue. And everyone's aghast that a small number can make up such a big number, and the inequality is upsetting, and we want to redistribute wealth, and this model is broke. What you got to remember is, when you're dealing with 75,000 new songs a day, when you're dealing with platforms with 60 million songs upon them, when you're dealing with two new podcasts happening every minute, when it's the supply has exploded, when the x axis on a long tail chart is widened that far, one percent is actually quite a lot of content.

There's a lot of content in that one perc- there's far more content in that one percent than there every was available in the High Street bricks and mortars stores.

Richard Kramer:  Mm-hmm [affirmative].

Will Page:  So I think the observer has to wrestle with the percentages, which tell one story, and absolute values, which tell another.

Richard Kramer:  But I guess if I draw the analogy to sports, and whether it's your beloved English, uh, Premiership, or Scottish Premiership, or my favorite sport which is ice hockey, I mean, you really have 20 or 30 teams and they have 20 or 30 players. You really, at the pinnacle of these sports, you really only have seven or 800 players who actually get on the pitch at all and, or, or get, get any playing time and you...

Will Page:  It's like a tournament.

Richard Kramer:  And yet, there are thousands and thousands of, of millions of people who are trying to get to that pinnacle stop. Now, we might agree that 800 people making a million dollars on one of the platforms is pretty good and, but what you're saying is we couldn't all listen to 800 different artists all the time to justify that million dollars that they each make.

Will Page:  Right, supply has exceeded demand.

Richard Kramer:  And so, what do we learn from that in this notion of hyper competition, about how do we cut through all that supply? I can't keep up with all the avalanche of supply that's competing with the time and attention of me wanting to revert to the stuff I listened to as a teenager. Isn't everybody facing that problem?

Will Page:  I guess it's almost like a, a Red Queen race, if I quote, the, from the famous book Alice in Wonderland...

Richard Kramer:  Hmm.

Will Page:  ... where you got to run as fast as you can just to stand still.

Richard Kramer:  Right.

Will Page:  And I think you, you mentioned hyper competition. If we unpack that for a second, when you have supply exceeding demand to the extent that we're now seeing, in podcasts, in music, in TV and filming, gaming... Gaming especially, as well. But when you have this, the competition of the participants to get on that platform, to get noticed on that platform, I would argue perhaps adds value to the platform as opposed to the creator themselves.

In my book, Tarzan Economics, I say, "It's easy to make money off the long tail, it's hard to make money in the long tail."

Richard Kramer:  Mm. So really, it's just an audition to get to the notice of the front of the stage...

Will Page:  [Laughs].

Richard Kramer:  ... to, to get yourself pushed to, to being one of the, one of the folks that's featured by one of these platforms. Um-

Will Page:  Yeah, audition is a good term, or I like to say, the room is getting increasingly crowded, regardless what the crum-, the room is serving, whether it be podcasts, music, video, games, or TV. The room's getting increasingly crowded, but it's getting harder and harder to talk to those people at the back.

Richard Kramer:  Mm.

Will Page:  I think that's a great way to start to think about what hyper competition could mean here.

Richard Kramer:  Great. Well, I'd like to come back after the break and dig into this notion of hyper competition, and try to marry it up with our thinking about bubbles and whether we're, what we're experiencing right now is a massive bubble in culture production that's going to get unwound, or this is just the new norm that we are all now creators.

For Will Page, I'm Richard Kramer and this Bubble Trouble.

Welcome back to part two of hyper competition, a Bubble Trouble podcast looking at the tremendous explosion in cultural production. And I'm here with Will Page to try to understand a little better, Is this a bubble? Are we now all creators, each of us uniquely empowered to be video artists, musicians, podcasters, chat show hosts, you name it? Or, is this bubble going to burst and are we going to see the market winnow down to a few glittering stars of quality?

Will, what do you think? Which direction is it going to go? Because I certainly cannot process all of these tremendous options that I'm being presented with every day and, as you said in the previous part, there's new ones coming on tomorrow, the next day, and on and on.

Will Page:  You framed the question well, and I, I think we can unpack it in a couple of ways. I think firstly, Where are the bubbles? And secondly, How do we avoid the troubles?

So think what we're seeing with hyper competition, with this explosion in supply of content, where supply is clearly exceeding demand, nobody is marching down the street saying, "We want 75,000 new songs tomorrow." Nobody is campaigning to their politician saying, "Give us two new podcasts every day." So given that, I think the bubble can be found in the advertising sector. I just do not believe that the ad dollars are going to cover the bills for creators to make a living of their work. We have too much supply, too much competing for space for the ad revenue to, to back it up and we have an imbalance in the economy.

When you start to look at the growth of sort of micro-subscription models, I think it's fascinating. And I'll just give you a couple of examples. I think Substack is a very interesting proposition for journalists. If you worked for me, Richard, as a newspaper journalist and I was your boss and I fired you, 10 years ago you had no options. Now, you can go over to Substack, take your readers with you, like the hairdresser who takes their clients to a new salon, and monetize them better, from a direct benefit. And have more freedom to write about what you think, and feel. You have no editorial controls. So, what's not to like about getting fired from a newspaper in 2021?

I think that's beginning to happen, that microcosm is beginning to s- happen elsewhere. And if you look at what's happening in, what we're doing right now, podcasts, you're seeing growth of subscription based podcast models. I think there is clever. This is... If you look at what Apple's done, because of hyper competition, because of two new podcasts coming on board every minute, because supply is exceeding demand, they're treating podcast creators just like app developers. It's a very clever way of, uh, hyper competition reversing, or turning the tables on who's the buyer and who's the seller.

Richard Kramer:  But, but Will, let me push back on two specific points here, because I don't want to call BS on you on this, but on the one hand, I really struggle with the notion that we're all going to be walking down the street tossing fivers out in every direction to any piece of content that takes our fancy.

So are we really each, as individuals, going to be supporting half a dozen Substack journalists, three of our favorite podcasters, our 12 hot music artists for the month? Are we really all looking at reallocating our entertainment spend in that way?

And then my other question is, What about the power of the gatekeepers? Now this is a topic that's been raised with respect to big tech a lot, but you would think that whether it's the platform providers in videos, or, or music, or what have you, or the record labels... They've gotten pretty good at figuring out what of that content is, what of the cream is going to rise to the top. What's going to be the viral hit? What artist do they want to back, and promote, to become the next top 10 hit? Or what show is going to capture the imagination of the population out of the oceans of content that they develop?

So, are we all really going to be supporting dozens and dozens of creators? And what's the role of those platforms folks in deciding what sort of stuff will be offered as an option to support?

Will Page:  I feel like, uh, an ice hockey goal keeper with pucks coming at from different directions here. Let me take them one by one. So firstly, let's go back to that trajectory that you portrayed in the first point that you made. Is it going to be the case that every single person is going to have tens, hundreds, of little micro-subscription accounts of all the people they consume? No. Nobody's saying that. But I think the pendulum is swinging away from the bundle and down towards micro-payments.

I mean, remember, from paying one bundle to your cable company to now paying for Netflix, and HBO, and Disney+, and Amazon Prime, we are seeing in the streaming video market a scenario where people pay for many different services one by one, as opposed to one service which has the many. So we've seen the pendulum swing in that direction, and I think it's possible, and plausible that it's going to swing in that direction for other sectors too. So you will, perhaps, give up on your Financial Times subscription, and instead subscribe to the two or three ch- financial journalists that you know and trust instead. So I think that's plausible. It's not going to go all the way, but it's going to go some of the way.

Equally, and I want to be balanced here [laughs], if you think about what Apple's done with their $30 a month bundle, as you call it, they've thrown the kitchen sink at you. You've got Apple News, you've got Apple Fitness, you've got Apple Games, you've got Apple TV, you've Apple Music, you've got Apple Podcasts, and you've got two terabytes of storage for every member of your family, like we all work at NASA. They're actually trying to do the re-bundling revolution, which is clever too. I mean, it's clever from Apple to try and trade convenience as opposed to the inconvenience of looking at all these direct debits on your bank statement, if that is indeed a problem. But equally, they get signals as to what matters most. Maybe the future is Apple News. Maybe it's not. Maybe it's fitness. Maybe fitness is going to be worth 10 times what gaming is worth.

Richard Kramer:  Hmm.

Will Page:  But they'll get those signals as well. So, think of it like a pendulum and it's swinging away from like the bundle, towards an unbundling solution, especially as these creator tools come onboard and give this opportunity for creators to try a different way of d- going it alone and doing it themselves, essentially.

Richard Kramer:  So not to drive you into a dilemma or a dichotomy here, but I'm going to drive you into one anyway.

Will Page:  [Laughs] okay.

Richard Kramer:  On the one hand, this might leave a lot of power to the platform folks who get to help you curate, or select, the quality content to support. And on the other hand, it might empower the creators to bypass those gatekeepers that, I know in the case of the record labels, you'd say that a lot of artists feel hard done by with a contract that they signed ending up with all of their masters owned by their masters at the record labels, and not a lot of choice over their future.

So is this going to be good for the curators who are helping us sift through this ocean of content, or is it going to be good for the creators themselves who finally get to throw off the shackles of those big algorithmic monsters that have been controlling their fate?

Will Page:  Right. The first point is, the pie is growing. That is, the money flowing into media, be is music, podcast, gaming right now, it's growing, so it is possible for both sides to win. And that might sound like a cop out to you, Richard, but it's true. The mathematical, you know, example here would be my share of the business has fallen from, let's say, 30% to 25%. But because the business has grown 20%, I'm actually taking home more money. I've lost, but I've won. I've lost a battle, but I'm winning the war. So you can lose, but win. And it's possible for both sides to win.

And I want to cut into that here. So, on, on the curator's side, when you have more noise in a market, because the long tail has lengthened like we never would have imagined, it still pays if you can work out how to stand above that noise. There's still going to be value in standing above that noise. There's still going to be value in talking to that increasingly crowded room, and being able to reach the people at the back, to be able to gather all these people, millions of people at one instantaneous moment. I don't expect the ad rates for the Super Bowl Halftime Show to go down anytime soon. Those moments still are precious, they still have value.

But on the creator's side, what I think you can say is that the old model was built around this term called cross collateralization, which could a podcast on it's own, but essentially... I hate sticking to music here but it applies to all other forms of media. I'll sign 20 bands and hope that one succeeds, and it'll offset the loses of the other 19.

Richard Kramer:  Right.

Will Page:  That means when you win, you win big. But when you lose, you lose hard. And 19 of those 20 lose hard. Now, I think we're in a creator economy where those other 19 don't need to lose so hard.

Richard Kramer:  Mm-hmm [affirmative].

Will Page:  And that's good.

Richard Kramer:  Well, it sounds like your favorite Scottish football team, which loses hard quite frequently. But, we'll skip that one for a second.

Will Page:  We got promoted.

Richard Kramer:  Ah, [laughs], uh, you know, every dog must have it's day. So we'll...

Will Page:  Always the bridesmaid, never the bride. That's a-

Richard Kramer:  Let's, uh-

Will Page:  ... good expression for my club.

Richard Kramer:  Let us, uh, let us move on as we close out here to a couple of smoke signals in looking at this explosion of content creation, and trying to understand whether it's a bubble.

What are the couple of things you'd look out for to say, "Well, yeah, we've really gone too far," whether it's 75,000 songs uploaded a day, or however many thousands of books are published every day? What are the smoke signals to look out for? Give us a couple.

Will Page:  First one, Paradox of Choice, a book by Barry Schwartz.

Richard Kramer:  Mm-hmm [affirmative]. Great book, great book.

Will Page:  And inside that book you'll... It is, I know it's a really, really easy, fast read. And he comes with some fresh thinking which has stood the test of time. And there in that book, there's an expression that he has and I coin it all the time, which is to remind ourselves that some choice is better none, you're not advocating Communism here, but more is not b- necessarily better than some.

Richard Kramer:  Yep.

Will Page:  And it's an optimization question.

Richard Kramer:  You know where I learned that lesson is walking in the aisle of a US supermarket and trying to pick a mustard.

Will Page:  [Laughs].

Richard Kramer:  Because you have no idea how many hundred of varieties of mustard that can be presented to you in a large US supermarket.

Will Page:  And it's not-

Richard Kramer:  Eric, our producer, I'm sure is nodding along-

Will Page:  [Laughs].

Richard Kramer:  ... when he thinks about all the varieties of mustard you never imagined.

Will Page:  Well, the origins of that is not mustard, but it's jam. It's an experiment that a supermarket carried out with a jam promotion. As people walked into the supermarket they said, "Here's our top three types of jam. Take a sample and get a dollar off against your purchase." And because there's only three, the vast majority of the people walking into the supermarket took a sample, and the vast majority of them went on to make a purchase.

Then some bozo comes into it and says, "Let's change the promotion around. Instead of having three types of jam greeting the customer as they enter the supermarket, let's change it around. Let's, let's have 28 types of jam." And do you know what? The presentation of this excess level of choice, the minority of people going into the supermarket took a sample, and a minority of them went on to make a purchase.

Richard Kramer:  Mm-hmm [affirmative].

Will Page:  Some choice is better than none.

Richard Kramer:  Okay.

Will Page:  Three is better than one. But it doesn't actually follow that more is better than some.

Richard Kramer:  Okay.

Will Page:  20 is not better than three.

Richard Kramer:  So-

Will Page:  So the first sign of bubbles, is that paradox of choice.

Richard Kramer:  Mm. Well, we've certainly hit that already. Give me another smoke signal.

Will Page:  I think the second one, I'm going to reiterate something I said in the first half of this podcast, it's just to remember where value is accruing. And this what hyper competition is telling us. And hyper competition, you know, I'm going to give Paul Saunders, a colleague from [inaudible 00:23:29] the credit for this term here, and it's still a work in progress theory, but I think it comes down to, Is it easier to make money off the long tail, that is off the offering of all of those choice, than it is to make money in the long tail? That is, it's easier to make money than being one those niche player trying to make those pennies, nickles, and dimes add up.

And I think you're beginning to see signs that that might be the case. We have this panacea of choice, some is better than none but it doesn't necessarily follow that more is better than some. And when we have too much choice, the benefits accrue to the platform and away from the creator. And I'll just say this as a provisional smoke signal for bubbles and troubles, but I think we're beginning to see that where this imbalance of supply exceeding demand benefits a platform more than the creator. But we'll have to see how that plays out.

Richard Kramer:  I want to thank my colleague Will Page. And remember, this week's bubble is next week's trouble. I'm Richard Kramer.

If you're new to Bubble Trouble, we'd encourage you to follow the podcast wherever you listen. Bubble Trouble is produced by Eric Newsome and Jessie Baker at Magnificent Noise. You can learn more at BubbleTroublePodcast.com. See you next time.