Lessons in Externalities from the Entertainment Industry

An externality (this is an economics term by the way) is a cost or benefit that is not transmitted through the prices of goods and services in that it is incurred by a party who was not involved as either a buyer or a seller of the goods or services.

Please take note that when cost is incurred, it is regarded as a negative externality and when benefits are given, it is regarded as a positive externality. In both cases, prices do not reflect the full costs or benefits of producing or consuming the products or services.

This means that when producers can produce goods and services at a fraction of the cost, they over produce and in turn under price the goods and services. And when they discover that the goods and services are delivered at less than the overall benefit gained, they tend to under produce and over price.

Now, lets go back to the entertainment industry with particular reference to Music.

When an artist works hard at a song for over a year and releases a hit track (without knowing it) and put it on the internet and a random guy who did not pay for studio sessions or crack his brain to create the lyrics picks up the song at the least cost, he tends to over produce the song on CD's and under price it to sell as many as possible. This is a negative externality.

When artists decide to shoot music videos and need girls to dance half naked in their videos and they discover that there are many ladies willing to do so at the least cost, there is some form of over production in that too many ladies now appear in the video that none of them will ever really get recognized or celebrated and of course, they will be under priced. This is a negative externality.


When musicians attend live shows and discover that the organizers are charging up to a million naira for a common table (okay, its covered with table cloth at least), and people are willing to pay, then immediately, they discover that they are actually giving more benefits than just producing songs (concerts are some peoples on source of happiness, the opportunity to show they have arrived, the means by which some companies reward their staff, some ladies would do anything to attend, some guys would have low self esteem if they don't attend) then, the artists (actually, their MBA managers) after discovering all these additional would automatically under produce and over price. Thats how one musician asked me a student to pay 1.5 million for a 15 minutes performance (100,000 naira per minute). This is a positive externality.

Then the creation of the iPod by Apple computers that made music readily available in unbelievable volume to the consumers which came at a huge benefit in the sense that one could now buy only the tracks that he or she liked. You can only appreciate this if you ever used a walkman or a discman and of course, the guys at Apple under produced and over priced. This is a positive externality.

So, it's your turn;

1.) When you listen to music on the radio without paying for it, is it a positive or negative externality?
2.) When communication service providers pay artists to appear on their call cards, is it a positive or negative externality?
3.) When young men and women collapse at a concert because of an artist, is it a positive or negative externality?
4.) When teenagers take to drugs, illicit drinking, reckless dressing, carrying of arms, vulgar language and premarital sex owing to examples is it a negative or positive externality?

Remember, its about the cost or benefit to the third parties.


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Marriage Lessons in a Mergers & Acquisition Class

Just when I expected to hear talk on FRICTO analysis, Exotic Financing schemes, Human resource restructuring, cost efficiencies, assets, liabilities, tax benefits and the like, the facilitator starts by asking a question that changes the direction of the class and of course lightened every form of M&A tension.

Is Marriage a Merger or an Acquisition?

Now this question got the class into a heated argument for the next 10 minute with the guys referring to Marriage as an Acquisition and the ladies referring to Marriage as a Merger and some ladies even added the third dimension of 'A hostile Take Over' and some guys came up with the fourth dimension on 'A Leveraged Buy out'. Of course, everyone had different reasons for their answers and just before the session got out of hand, the facilitator interrupts and gives the much needed additional information.

In Marriages;
1.) A bride price is paid
2.) One surname is changed to another

Then the answer became obvious, Marriage is a/an .... no (I won't be lured into giving an answer), you answer the question yourself (I want no troubles with my future wife).



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THE FREE MODEL

Ever wondered why some stuff sell out while many other stuff do not even see the exterior of the shop in which they have been warehoused..

ANY IDEAS??

Well, before you start giving me all the Business school answers  such as innovation, superior customer service and the like let me tell you that the answer is far from all of that.. This answer is rarely found within the walls of a Business School.

So, lets take a walk into a religious centre.... The first stop is my Church *smiles*. Here, we believe in Jesus Christ who is the only son of God and was sent to earth to die for the sins of man and redeem him from the bondage of sin and death. After offering himself up as a great sacrifice, he offers redemption free of charge. All that we need do is accept Him as our Lord and saviour, become born again and we become free from the hold of death....ALL THESE FOR FREE.

No strings attached, no sacrifices, no hidden charges (at least for the upright worship centres)

Nothing sells like FREE stuff ... But when you are told that nothing goes for free, not even in Freetown, you had better believe it. The free in Christianity comes with huge responsibilities and in the world of business its not a different kettle of fish.

Many technology companies have built successful business empires around this business model that I would like to call the Free Model. It probably started with www.yahoo.com (but can you believe I was made to pay for opening my email in Nigeria), then companies like Facebook attained half a billion followers in a few years and Twitter was not a different story.

But there are TRUST issues coming up, issues of businesses selling the information of their users without their permission and the like.

So, here's my advice for both business owners (Adopters of the Free Model) and user (Benefactors of the Free Model);

Business Owners:
The Free Model is a smart tool for acquiring a large client base
Your job is to redefine the revenue model (advertising is such a lazy approach, try something else)
Respect the privacy of the users of your products or services
Avoid bad publicity
Trust is invaluable, never loose it


User:
The moment you accept free stuff, you accept to take primary responsibility of yourself
Never give away valuable information that could be used to harm you
Never forget that nothing in life is truly free



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