The Value of Intellectual Capital

Paul Krugman wrote this article, White Collars Turn Blue, in 1996. He made a very canny observation about the future of intellectual capital in the internet era:

How, then, can creativity be made to pay? The answer was already becoming apparent a century ago: creations must make money indirectly, by promoting sales of something else. Just as auto companies used to sponsor Grand Prix racers to spice up the image of their cars, computer manufacturers now sponsor hotshot software designers to build brand recognition for their hardware. And the same is true for individuals. The royalties the Four Sopranos earn from their recordings are surprisingly small; mainly the recordings serve as advertisements for their arena concerts. The fans, of course, go to these concerts not to appreciate the music (they can do that far better at home) but for the experience of seeing their idols in person. Technology forecaster Esther Dyson got it precisely right in 1996: "Free copies of content are going to be what you use to establish your fame. Then you go out and milk it". In short, instead of becoming a Knowledge Economy we have become a Celebrity Economy.

The idea that advertising could produce intangible innovation formed part of the basis of my investment in Ticketmaster. The CD format is not protected when mp3s can be downloaded in seconds--and the gap between mp3 and CD is far smaller than that of CDs and vinyl records--but the live music experience has no substitute. I expect that live music will become increasingly important to bands, and that music lovers will have more capital to spend on live shows, as recorded formats become cheaper and more easily obtainable. Ticketmaster's ability to capture a portion of the proceeds from such events is less certain.