What does the Louis CK Experiment Mean for the Future of Digital Content Distribution?

I remember the last digital content distribution experiment generating this much discussion back in October 2007 when world-renowned band Radiohead decided to launch its new album, In Rainbows, over the web using the highly experimental pay-what-you-want model. Offering its fans free access to its new album under a digital honor system, it was hoped, would generate enough goodwill that people would gladly pay a reasonable amount to download the album. But if a consumer wanted to download it for free they were allowed to do that. At the time, Comscore data showed mixed results. Approximately 3 out of 5 downloaders did so while paying nothing, and the average downloader paid just $2.26. The average among those who paid something was around $6.

What was interesting about the Radiohead model is that despite the fact that it created goodwill with its fans, some music enthusiasts at the time were used to illegally downloading music for free and perhaps felt entitled to download the album without paying for it. The Louis CK experiment did not offer consumers such an option and set a simple and reasonable price of $5, while understanding that some particularly motivated freeloaders could probably find a way to get a copy of the download for nothing. Nevertheless, enough fans clearly found the $5 price point reasonable and made the purchase without a second thought, delivering value to the audience and content producers without as much need for other players in the traditional distribution chain.

I also found interesting CK’s comments about why the economics of this model were so favorable. He noted that his site and that of a major studio have the same bandwidth, which levels the playing field from a distribution standpoint. All of the economies of scale with traditional marketing and distribution channels go away when content gets distributed over the web and the individual content owner/publisher can compete with traditional media companies. Now there is certainly some truth to that, though I would also argue that not every content owner/publisher is able to get the free media exposure that a top comic like Louis CK can attract. In the weeks surrounding its release, you couldn’t help but see him all the late night talk shows or the slew of articles talking about his experiment.

Putting the pure economics of the model aside for a moment, another fascinating aspect of the CK experiment is exactly who paid to download the content. We took a look at the demographic composition of these downloaders for the month of December and found particularly heavy skews towards audiences that are often not easily reached via traditional media channels. In particular, the downloading audience was overwhelmingly male (94%) and between the ages of 18-34 (82%). In addition, most came from middle-income households with the majority (51%) making between $40,000 and $74,999 per year. There was also a very notable skew towards people in the South, which accounted for a majority (55%) of downloaders.

Combine all these demographic characteristics, and you get the profile of a working class 18-34 year old male in Middle America, a segment of the population critically important to advertisers because of the expected future growth in their spending power.

So we have a segment of consumers that is both willing to pay, but also valuable to advertisers, which begs the question of which is more appropriate: a pay model or ad-supported model. I’d argue that if you can get consumers to pay for content that is almost always the better choice, since you would need to reach an audience many times larger to derive anywhere near the same amount of revenue via a pay-for-content model.

Is there an opportunity to maximize revenue using a hybrid model, where you charge consumers but still include some advertising or sponsorship of the content? It’s certainly possible, but in CK’s case I think part of the willingness of consumers to buy was the authenticity with which he presented the choice to buy to consumers. In a message posted to those who might “torrent” the video, he wrote, “Please bear in mind that I am not a company or a corporation. I’m just some guy. I paid for the production and posting of this video with my own money.” Would people heed his message had he also taken corporate advertising money? Perhaps not.

So the economics of this direct-to-consumer model are very interesting, and I would argue, context-specific. What works for the goose may not work for the gander. Because Louie CK comes across as a genuine guy who has worked hard and paid his dues for his success, many of his constituents identify with that fact and are willing to chip in the $5. But clearly not every content producer would engender the same sort of loyalty from his / her fans, so there’s a legitimate question as to how far out this model might extend.

And ultimately, I don’t think we’ll know any better until more entertainers across a wider spectrum of talent continue to experiment and give us more data to analyze. I enjoy seeing entertainers like Louis CK succeed in these efforts, but I suspect many others would not be so lucky. Not every one of them would be able to generate enough free media to make up for the marketing muscle big corporations can provide.

So until we know more, I will just say that in the right instances these models show promise. But, I suspect, they lack the ability to scale in a way that would truly prove disruptive to the current economic model for professionally produced content.

But that doesn’t mean the artists should stop trying…