What is the link between the airline industry and creative works? Having flown five round-trips in six weeks, two of them cross-country trips, I’ve had a lot of chance to think about air travel. (I’m also joining my wife and kids in celebrating my decision to pass on another cross-country trip I originally thought I’d be taking this week.)

On one level there is no difference between a glorified bus service and the creation and distribution of a unique product of a creative mind or minds. But both often involve commercial transactions.

A digital creative work is scarce in the sense that there is only one work of its kind, but not in the sense that it can be replicated indefinitely. A seat on a flight is by definition scarce; FAA rules will only allow so many people on a given craft. But planes fly with empty seats; not as often as used to be the case, as I learned this spring, but with some frequency.

The marginal cost of filling an empty seat with an additional passenger is minimal. The extra weight will not significantly decrease fuel efficiency. The extra person to serve will not prevent the flight attendant from addressing all passengers’ needs. And if it’s like some airlines now where they charge a dollar for a soda, they might even make a few cents even if the passenger flies for free.

So why don’t airlines let you pay, say $50 bucks if you walk up as the plane is completing boarding and there are empty seats?

Because there are tremendous fixed costs with airlines, costs paid before that flight takes off. Purchase of and critical maintenance of the planes. Large numbers of employees, all highly trained and requiring continuing education. Airport gate fees. And yes, those soda cans. An airline needs some assurance of revenues, at a given amount, before a plane takes off. If it were known that one could buy a last-minute seat for $50, everyone not needing to fly at an exact time would hang out at airports looking for the best price. Airlines wouldn’t know what revenues a given flight might earn until it was too late to change the schedule.

Airlines are struggling, for some obvious reasons*, but selling empty seats at marginal cost isn’t a viable answer. That’s because it’s a fallacy to think that airlines, with massive fixed costs, can consist solely on pricing based on the marginal costs of their seats at liftoff.

The same is true for creative works. The studio engineers and musicians on a new sound recording, the hundreds of workers behind a motion picture, the dozens of talented individuals creating the latest video game. These are all human resources costs, added on with the technological investments made in producing these works. Yes, once digitized, they can be reproduced at very little cost. But in order for those investments to be made in the first place, there must be some understanding that the money can be recouped. (There is of course no guarantee, and some flights probably cost more than they received in ticket fees, but that is the gamble of any major fixed cost industry.)

This is, of course, a derivation on my Copyright Canard on marginal cost, Canard # 5 of 10. But some would say that we need to throw out entirely the notion of return on fixed cost through direct sales. Sell that motion picture at marginal cost, and figure out some other revenue streams to ensure the tens of millions spent on making the film.

This is the “free” model, one that some in the free culture movement feel justified in imposing on creative industries, because technology allows it. They say it’s the only way they’ll participate in a legal model because technology has made the old one obsolete.

So by that model, airlines should not charge a dollar for the soda, they should charge $10. After all, they have you captive, you can’t go to a 7-11 at 30,000 feet, right? And they should have kiosks outside the gate where you can buy, say, an American Airlines T-shirt. You want to look cool, right? Maybe they can sell those little plastic wings flight attendants used to give some of us of a certain age when we flew as children.

You know what? Airlines need to recognize that times of changed. They need to adjust to the waves of creative destruction, read Clayton Christensen, and seek revenue streams other than tickets. And from now on, I’m going to start flying for free until they recognize their new reality.

Oh wait. I can’t do that. But hey, I can keep acquiring creative works for free until those industries change. And I’ll just tell myself that because of that technological difference, I feel better about stiffing an artist than I do stiffing a flight attendant, even if the latter have become incredibly testy in recent years and no artist has ever snapped at me for wanting ice with my soda.

For more on the “free” model, read the next post.

* In my opinion, airlines are suffering because of government regulation, particularly antitrust regulation. Yes, airlines were “deregulated,” but there are too many of them for the market, and the government won’t permit sufficient consolidation so carriers can better amortize costs. This artificial government-imposed competition results in poor customer service and airlines going in and out of bankruptcy. If some airlines were allowed to fail, and others allowed to merge, we’d have fewer airlines, but they would be like other large-fixed cost industries, leaner and more competitive. Of course, we’d lose a lot of jobs, which is why government policies around the globe allow us to have too many auto manufacturers as well, but that’s another story and certainly not relevant to the focus of this blog. My apologies for the digression.

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This entry was posted on Monday, May 11th, 2009 at 8:57 am by Patrick Ross and is filed under copyright opponents, creators, economy, internet, market forces, piracy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.