Posted on September 8, 2022 in Technology

Does Digital Content Have to Be Made Scarce?

NFTs

The ever-unpopular NFT is a fantastic example of artificial scarcity, and how creating it can be actively harmful. An NFT, or non-fungible token, can be many things as long as it’s non-fungible and also a token. However, the first people to capitalize on the concept ended up creating hundreds of copycats, and what those trendsetters made was profile pictures. Big names in the NFT market create pictures of monkeys and lions with swappable accessories and attach them to a blockchain token, thus making them ‘rare’ and ‘expensive’. Nobody else is allowed to buy the exact orientation of accessories you have on your lion until you decide to sell (in theory – this article isn’t about security or the ethics of just making an identical image on a different token).

However, once you start analyzing this beyond a cursory glance, things start to fall apart.

Firstly, maintaining a social media presence and building hype for a project is more important than the project itself – better art and better ideas fall to the wayside of Bored Apes and Lions, who won the most followers with an ugly but mass-marketable artstyle that’s easily recognized and easily used as profile pics. Leagues of people buy tokens that become worthless once the project creators abandon the project, so buying from new people who don’t have hype and internet fame is riskier than sticking to who’s already known and who wouldn’t be able to disappear (the Bored Apes guys’ names are known).

Secondly, people aren’t in it because they love the art, they’re in it because it’s a business scheme. This was deliberate. The art is often, to describe it charitably, maximalist, not something you’d dump thousands of dollars into unless you thought you could sell it for thousands more.

Thirdly, the blockchain can’t store the entire image in high quality within it, so instead it sort of just acts as a link to a viewing platform. If the viewing platform goes down, so does the NFT. The actual image is usually just a PNG, so when someone saves it as a Twitter avatar, anybody else can come right-click and save the image, and there’s nothing the NFT owner can do to stop them. One party has slightly more rights to use the image for profit (NFT ownership often comes with the creators willing to overlook minor copyright violations because it means free advertising, but this is also a downside because nobody really knows how much freedom they have if it’s not laid out explicitly) but both can look at it, save it, use it non-commercially, etc.

Fourthly, NFTs are not great for the environment – creating a blockchain for a token requires a lot of computing power, and a lot of computing power means a lot of energy consumption. The ones that don’t aren’t really blockchain, and while that doesn’t matter in any sort of real way when it comes to the art (realistically, someone could just write the names of the buyers in a physical notebook and achieve the same “unhackable” record of ownership, although it wouldn’t update without notifying the notebook holder of a sale), it matters to the people buying, who are often targeted because they don’t fully understand what it is they own.

Every aspect of this suuuucks. It’s artificial scarcity in its purest form.

FlexPlay

Flexplay is a close contender for ‘worst idea to make media scarce’. We do have a more in depth article of it, too, if you want to read more about it HERE. Essentially, media during this time period was mostly restricted by play protection on the discs, as well as the existence and quantity of the discs available for purchase. There were a finite number of discs of any particular movie, but those discs could be played effectively infinitely so long as they were stored properly. VHSs were on their way out, so they were often cheap as dirt; DVDs and Blu-Ray, the discs of the future, could cost 20$ for a new movie. Box sets were comically expensive. Movies were popular and plentiful, and rentals filled a valuable niche for content that wasn’t great but wasn’t awful. Buy the movies you loved – rent everything else.

Flexplay popped up in a time where people were shifting more and more towards convenience at the expense of experience. Blockbusters were facing competition from Netflix (which was sending subscribers DVDs through the mail), Gamefly (which did that but for games), Redbox (an automated kiosk for renting discs hassle-free), the internet (although by downloads and not streaming), and a number of startups. People didn’t want to rent something and then drive back to drop it off in two days’ time anymore if they could just get a letter in the mail, or get it from a box in front of the grocery store, and drop it right back off in the same place they picked it up. Flexplay wanted to capitalize on this.

Essentially, Flexplay’s premise was that it would allow people to rent a DVD without having to return it from where it came, something none of the other services could do. The disc, made of a special plastic, would begin to react once the packaging was opened and the disc was exposed to air, changing color until a DVD reader would no longer be able to read it. This would allow people to ‘rent’ the content for a price higher than a regular rental, but they wouldn’t have to return the disc anywhere once they were done with it. They could just throw it away and buy another Flexplay disc.

There are plenty of problems with this. Flexplay lead their sales pitch with the disposability of the discs, but people were beginning to realize the full impact of plastic pollution post Al Gore [RIGHT?] and mid-internet, so they had to pull back once they realized that was bad marketing. But how? The plastic wasn’t the kind you could put in regular bottle recycling, and the disc’s appeal was entirely in that you didn’t have to drive back to the place you got the disc from, so bringing it to a special recycling facility wasn’t the part they wanted to advertise. It was more expensive than Redbox and Netflix by a couple dollars to boot.

Thankfully, the reusable discs that were already in circulation won out big time before Netflix went to streaming and crushed a lot of the competition. Redbox still exists, too – the content doesn’t need to self destruct (or even be returned, really) for the company to make a profit off it. But that’s rentals, not unlimited forever-streaming or owning the disc.

Password Sharing

Speaking of which, Netflix!

Now that media can’t be restricted by the medium it’s in, how do you make money off of it? Netflix’s subscriber-based streaming service was a great deal for consumers, but it has almost always lost Netflix money. When Netflix began to stabilize, it started spending even more money on bigger and bigger projects, pulling people in with dramatic effects rivalling blockbuster movies. Content flowed freely, and money went out as soon as it went in.

But growth can’t be infinite if there aren’t infinite eyes to watch infinite shows. Now, Netflix is trying desperately to trim off programs to survive a recent downturn (as of 2022) but in the process it’s cut a ton of good media (and all of its animated series that were in development) in order to preserve a couple of backbone projects. This is not much different from what Netflix has historically done, unfortunately, and it may not save them. Showrunners and the people putting together a series get an upgraded contract of sorts after their second season, so Netflix almost always cuts the third season of a show unless it’s a wild success like Stranger Things. If you felt like Netflix was kneecapping shows right as they got good, you weren’t imagining it. They were churning through content to boast how big their library was, even if a huge chunk of it was unfinished. That worked great when trying to get people to cut cable by showing they’d still have plenty to watch if they switched, but now that everyone’s got a streaming service, it’s no longer a viable marketing technique. What is Netflix to do? It literally cannot continue to cut. But it can’t continue to produce when watchers are hesitant to get into a show that might not make it more than two seasons – they’ve been burnt too many times before.

They are having to come up with a way to make what they already have seen more desirable while also creating scarcity so they can actually make money. Everyone has a streaming service now, and what Netflix specifically has is no longer special, and their library, as mentioned before, is not better than Paramount’s or Disney’s. The ads announcement didn’t go well, because it’s totally opposed to what Netflix’s whole thing was, and the password crackdown announcement went even worse.

Pushing scarcity of access is the only real way to create scarce digital media, but as Netflix has shown, if you don’t do it right, you can tank your business – and people will pirate. The content itself is not actually ‘scarce’. Consumers won’t tolerate it.

HBO’s recent blunder of deleting a ton of animated content off it’s platform has lost it 20 billion dollars in market cap, and it’s as of yet unclear if it will fully recover (as of late August 2022)

The Overall Scene

Digital content can be replicated near-infinitely given the proper formatting and computing resources. In a world ever-more eager to pirate, from fashion companies stealing indie designs and prints to websites dedicated almost entirely to streaming TV shows illegitimately, what can creators do to ensure they still make profit on their product, or at least break even?

The answer lies somewhere in the middle of all of these problems. Netflix’s subscription model works great for shows but not so great for images; the NFT solution to infinitely replicable, high-quality images leaves something to be desired on almost every front, including illegitimately using indie artists’ work and prints, again. And it doesn’t work for streamed content.

Navigating this tricky future is going to require a focus on equity for the little guys, because if it doesn’t, they’ll be chased out by pirates.