Sunday, July 03, 2011

Content Aggregators

This is an interesting article in the Atlantic from last week about the rise and success of Netflix. Netflix has been an enormously successful business operating on a model of aggregating content (TV shows, movies, stuff like that) and making it available for a fee to folks who want to view it. It turns out they've been a lot more profitable doing that than experts expected, indeed a good bit more successful than the produces of the content. According to the article this comes as a bit of a surprise to experts, expecting instead that the content produces would be mostly making money off of the content they produce.

Now the article points up a number of reasons why this expectation would turn up wrong and describes circumstances in which aggregators can be expected to be very profitable. It seems to me thought that the points I've been raising could play a role as well. Success as an aggregator of content depends upon a number of things, one of which is copyright. To be able to make money off of selling (or renting) content you need to be able to make sure that no one else can sell (or rent) that same content at a lower price. Given that the marginal price for providing content is about zero, the price competition would quickly doom any hope for a large revenue stream.

So this copyright protection service is really important, and copyright is provided only by the government. Given our recent passion for providing these government services for free (or as close to that as we can manage politically), business that rely upon them will be at a competitive advantage. The major inputs for a content aggregator include copyright, so given that it is provided at a rate far below market the aggregator can expect a higher return on investment than a business that must pay market rate for all the inputs to its business. A business like content producers for example.

There really are huge distortions to the economy if we are going to have the government provide these extremely valuable services and not charge money for them.

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