Don't fight against lower distribution costs; take advantage of them. Reduced distribution costs offer you a significant advantage by allowing you to promote your product more effectively.
Giving Away Your Content
The story so far......
Sellers of information have always been always had to come up with ways to deal with the problem of information qualifying as an "experienced Good" -- consumers don't know its worth to them until they have experienced it. Example
Right Advertising Internet Model: "Infomercials". You can tell people about your product, even give them pieces of it, while comfortably residing at home.
Problem:
Producer of physical goods don't worry about infomercials cutting into their sales, an image of the shirt is quite different from he actual shirt.
Producers of digital content differ. An image of a photo 'is' the photo. (So owners of photo libraries are quite reluctant to post their libraries on the web.) How can they make money if they are giving away their product for free.
Obvious Answer: Give away only part of your product. (Like offering free samples.)
The beauty of the information age is that it is particularly easy to give free samples of something that has zero marginal cost of distribution.
The trick is to break your product up into components; some you give away, others you sell. The parts are given away as advertisements (Infomercials) for the parts you sell. (A Twist on the Versioning Strategy)Example
Demand For Repeat Views
Some times repeated plays are important. (Take Music for instance) Example
Option Value: The CD version add value by permitting users to play songs when, where, and how they want. (Not so with the DJ version) Option value permits users to exercise the option to change their usage parameters to their liking.
Example Contrasting Cases:
Consider the desire for repetition is common among children.
Case #1: Barney The Purple Dinosaur -- Barney wasn't the creation of a conglomerate, it was a truly grass roots effort by 'Sheryl Leach' a former school teacher, who created Barney in the late 1980's. Leach found it easy to produce the programs, and the tapes and even to get them into the stores on consignment. The problem was getting people to buy them.Then Leach had the inspiration: If customers wouldn't buy Barney, she would give him away. Leach started sending free videos to daycare centers and preschools near the retail outlets that carried Barney products. Each free video had a note telling parents where they could purchase copies of the Barney tapes for their children. Strategy: Bribe one party to 'Lock-In' another party. She offered Barney free to the true decision makers (The Children) and effectively locked-in their agents, who (supposedly) locked in the money, (Their Parents).
Case #2: The Disney Corporation -- According to 'John J. Tormey' a Disney attorney based in New York; "We peruse all known infringements of our rights". In their view, there's no such thing as a 'Mickey Mouse™' lawsuit. Disney has taken several daycare centers to court for showing Disney videos without their proper license. Lawsuits like these are pervasive in the Disney legal arena. Disney is perfectly within its legal rights to engage in such actions. It must actively defend its trademarks or risk losing them. Authors: "It's not the proprietary of Disney's actions that we question -- it's their profitability.
Authors View: It would make a great deal of sense if Disney would at least experiment with some marketing campaigns directed at the day care centers and preschools along the same lines at Barney. The videos shown at the preschool would be very effective at advertising themselves, creating a demand for home viewing.
The instinct to seek out and charge all those who use the copyrighted material runs deep and can easily cause otherwise sensible executives to defend their rights past the point of economic return.
Similar, But Not Identical, Products
Another Strategy having to do with giving away samples to sell similar but not identical products.
Example
Point: Make sure that free samples direct customers back to you: It's makes sense for producers to give away some of their product as long as people associate it with their brand.
The strategy of giving away a sample isn't limited to images. Example
Authors Notes: Free samples of information are effective for two reasons:
Consumers need samples to see what it is you are selling (The Experience Good Effect)
It costs you almost nothing to provide these extra bits (The Zero Marginal Cost Effect).
Question: How can you convince freeloaders to become revenue generators?
Answer:Versioning: Your low end version is free, but limited in scope, convenience, quality and/or quantity.
Complementary Products
One attractive strategy is to give away an index (or table of contents or search engine to content) and then sell access to the main material. This exploits the obvious complementary between the contents and the content. Example
Sometimes it's the other way around: the content is free and the organization is what is valuable. Example
Illicit Copying
They call it 'Bitlegging'! And it can't be ignored. Defined as the pilfering of the stuff that you want to sell.
Compensating Factors:
Information that is timely, or that people tire of quickly, is less susceptible to illicit copying. (Examples: Sports information, financial information, gossip)
Bitleggers have the same problems that any other sellers of contraband material have: they have to let potential customers know how to find them (which includes the police).
This puts a natural limit on the size of for-profit, illegal activities: the bigger they get the more susceptible they are to getting caught.
Author Conclusion: Digital piracy can't be eliminated any more than any other kind of illegal activity, but it can be kept under control. All that is required is the political will to enforce intellectual property rights.