Monday, June 2, 2014

Crazy Cable Confusion: Costless Content Creation

Bottom line up front:  Creating content that consumers are not willing to pay for shrinks the pool of resources available for the creation of content that consumers are willing to pay for.

Too many economists and other educated people assume that just because providing content has zero marginal cost...that creating content must have zero opportunity cost.  Somehow cable content exists in an alternate reality where it's beneficial to disregard the fundamental law of economics.  In this exceedingly fictitious realm...there's an unlimited supply of resources...such as...uh...*checks credits on a random Netflix show*...

  • Supervising producers
  • Co-executive producers
  • Executive producers
  • Creators
  • Writers
  • Directors
  • Associate producers
  • Executive story editors
  • Photography directors
  • Production designers
  • Editors
  • Music composers 
  • Production managers
  • Assistant directors
  • Casting directors
  • Costume designers
  • Set decorators
  • Property masters

Where's Power Child when I need him?  He's my resource listin' cuz.  As you can see...I only managed to list some of the human resources needed to create cable content.

In the real world...the fact of the matter is that resources are not unlimited.  Time, money and other resources spent on shows that consumers are not willing to pay for can't also be spent on shows that consumers are willing to pay for.   Hmmm...there's gotta be a more efficient way of saying this.

  • Linvoid0 = content that consumers are not willing to pay for
  • Linvoid1 = content that consumers are willing to pay for    

Linvoid0 is created at the cost of linvoid1.  Linvoid0 diverts resources away from linvoid1.  More linvoid0 means less linvoid1.

The only reason that linvoid0 is created is because it's bundled together with linvoid1.  Therefore, unbundling cable would shift resources from linvoid0 to linvoid1.  In other words...unbundling cable would free up resources for more valuable uses.

Wow, why do I have to explain this?  Ughhh...these ages are so dark...*shudder*.  Every once in a while I'm struck full force with the primitiveness of the time that I was born into...*heebie jeebies*.  How much better would it have been to be born during a period of time when everybody completely understands the significance of this fundamental principle of economics?

"Aren't you glad we don't live in those times?"  My gf sometimes asks me this question when we're watching some depiction of the past.  My usual reply is, "we do live in those times".

For sure the present could be so much worse...but it could also be so much better.  Please stop stumbling around in the dark trying to find the light switch...it's right here...*points*... let there be light...
You will recall the wonderful image at the beginning of the seventh book of Plato's Republic: those enchained cavemen whose faces are turned toward the stone wall before them. Behind them lies the source of the light which they cannot see. They are concerned only with the shadowy images that this light throws upon the wall, and they seek to fathom their interrelations. Finally one of them succeeds in shattering his fetters, turns around, and sees the sun. Blinded, he gropes about and stammers of what he saw. The others say he is raving. But gradually he learns to behold the light, and then his task is to descend to the cavemen and to lead them to the light. He is the philosopher; the sun, however, is the truth of science, which alone seizes not upon illusions and shadows but upon the true being. - Max Weber, Science as a Vocation  
How can I lead you to the light?  Please try and follow my logic...

The creation of content is never costless.  Every single one of the resources used to create some content could have been used to create some other content.  This means that the use of any resource requires the sacrifice of the alternative uses.  And given that values are super subjective...if we want to maximize value then consumers must be free to valuate the alternative uses.  If we don't know which uses consumers are least willing to sacrifice...then resources can't be put to their most valuable uses.  So the more valuation that bundling blocks...the more value that is destroyed.

Willingness to sacrifice and willingness to pay are the same thing.  Our society is so very primitive because it's widely believed that it's beneficial to create content regardless of whether or not people are truly willing to sacrifice for it.  Limited resources are used to create linvoid0...which is shoveled onto our plates.

The creation of cable linvoid0 is a small fish to fry compared to the creation of government linvoid0.  The large bulk of the linvoid0 on our plates has been created by the government.  People eat it...completely oblivious to the fact that they should be eating linvoid1 instead.  Linvoid1 is better by their own standards.  It's content that they would truly be willing to sacrifice for.  Yet, they unknowingly end up with far less linvoid1 on their plates because massive amounts of limited resources are used to create linvoid0.

Even though unbundling government is a much bigger fish to fry...it really isn't the subject of much debate.  But we are debating whether we should unbundle cable.  On the one hand, it's great because the economic argument is exactly the same.  On the other hand, unfortunately, and unsurprisingly, there are precious few arguments against bundling that are based on the fundamental economic principle that content creation isn't costless.  Will this post of mine change that?  Is this post worth the sacrifice of my time?  Here I am...so clearly I think it's worth the risk.

All this discussion of sacrifice has me thinking me about the bible.  Now I'm pretty much an atheist...but when I was a little kid I had no choice but to regularly read the bible.  Did you have to regularly read the bible when you were growing up?  If not...then perhaps you're not so familiar with the story of Cain and Abel.  From Genesis 4...

1 And Adam knew Eve his wife; and she conceived, and bare Cain, and said, I have gotten a man from the Lord.
2 And she again bare his brother Abel. And Abel was a keeper of sheep, but Cain was a tiller of the ground.
3 And in process of time it came to pass, that Cain brought of the fruit of the ground an offering unto the Lord.
4 And Abel, he also brought of the firstlings of his flock and of the fat thereof. And the Lord had respect unto Abel and to his offering:
5 But unto Cain and to his offering he had not respect. And Cain was very wroth, and his countenance fell.

When I was a little kid...it wasn't quite clear to me why God rejected Cain's sacrifice.  Why would anybody reject an offering of fruits and vegetables?  If you offered some surplus fruits and veggies from your garden to your friend...wouldn't you be surprised if they rejected your offering?  The difference is...Cain and Abel weren't giving a gift to God...they were expressing their gratitude for the gift that he had given them.  As we can see from the first verse...Cain himself was a gift from God.  So Cain owed his life to God.  And if Cain himself was a gift from God...then it stands to reason that Cain's entire harvest was also a gift from God.   Clearly Cain was hugely in debt to God.  But Cain's willingness to sacrifice/pay did not accurately reflect his enormous obligation...which is exactly why God rejected Cain's offering.  We can easily imagine God saying to Cain..."After all that I've done for you...this is how you repay me?  You really should have done a better job of counting your blessings."

So what's the moral of the story?

A. The larger the gift, the greater the obligation
B. Preference revelation is essential
C. Valuations can be incorrect
D. Correct valuations can get you killed
E. People should be free to exit from unprofitable relationships

D isn't the correct answer.  The correct answer is that it truly matters how much people are willing to sacrifice for something.

If you're still interested in reading more about sacrifice...check out this entry... Can Economics Explain Human Sacrifice?

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