Some Thoughts On The Louis CK “Experiment”
Since the early days of this blog, it has been filled with musings on how creativity will be rewarded in the internet age. It is a theme I've come back to again and again. These thoughts have worked their way into our investment thesis and our portfolio. Investments like Etsy, Kickstarter, SoundCloud, and many others have come from this line of thinking.
So when I saw what Lous CK did last week, I was so excited. For those who don't know, Louis CK is a comedian, a really funny comedian, who made a one hour comedy special and put it on the Internet for anyone to buy/stream for $5. You can "buy the thing" here.
This week, Louis shared the finacial details of his experiment with everyone. Here are some of the salient details:
First of all, this was a premium video production, shot with six cameras over two performances at the Beacon Theater, which is a high-priced elite Manhattan venue. I directed this video myself and the production of the video cost around $170,000. (This was largely paid for by the tickets bought by the audiences at both shows). The material in the video was developed over months on the road and has never been seen on my show (LOUIE) or on any other special. The risks were thus: every new generation of material I create is my income, it's like a farmer's annual crop. The time and effort on my part was far more than if I'd done it with a big company. If I'd done it with a big company, I would have a guarantee of a sizable fee, as opposed to this way, where I'm actually investing my own money.
The development of the website, which needed to be a very robust, reliable and carefully constructed website, was around $32,000. We worked for a number of weeks poring over the site to make sure every detail would give buyers a simple, optimal and humane experience for buying the video. I edited the video around the clock for the weeks between the show and the launch.
The show went on sale at noon on Saturday, December 10th. 12 hours later, we had over 50,000 purchases and had earned $250,000, breaking even on the cost of production and website. As of Today, we've sold over 110,000 copies for a total of over $500,000. Minus some money for PayPal charges etc, I have a profit around $200,000 (after taxes $75.58). This is less than I would have been paid by a large company to simply perform the show and let them sell it to you, but they would have charged you about $20 for the video. They would have given you an encrypted and regionally restricted video of limited value, and they would have owned your private information for their own use. They would have withheld international availability indefinitely. This way, you only paid $5, you can use the video any way you want, and you can watch it in Dublin, whatever the city is in Belgium, or Dubai. I got paid nice, and I still own the video (as do you). You never have to join anything, and you never have to hear from us again.
So Louis' experiment was a financial success. But more than that, it is a business model success. He has recouped his investment, is well into the black, and he owns the rights to his creativity without any limits on what he can do with it. He is able to sell it everywhere in the world at the same time without any DRM on it. And he will continue to make money from this content for many months (years?) to come.
Some will say that Louis can do this because he is a star. That is true. And I sure hope other stars will follow his lead and go direct to their fans. They can also go direct to their fans and raise the upfront production costs on Kickstarter. They can use any number of internet services to process the payments (paypal), host the video (vimeo), and get distribution (twitter). This is not that hard.
But this can also work for emerging artists. They won't make as much money as Louis CK, but they also don't need to make as large of an investment either. And over time, if their work is good, their audience will grow and the investments they can make and the profits they can make will increase.
The business model of going direct to the fans is powerful, it has none of the negative issues of the existing business model (like fucking with the architecture of the net in a naive attempt to quell piracy) and is going to work bigtime. Thanks Louis CK for shining on a huge bright light on that fact for the past couple weeks. And thanks for the laughs you gave me and the Gotham Gal on thursday night.