[gb] Studio

Anyone who follows the Quotes section of my blog knows I read the Lefsetz Letter pretty regularly. A quote in one of his most recent posts called Update grabbed my attention:

“Don’t know if you’ve been following the movie business, but the studios have taken back compensation. Rather than give eight digit salaries and profit participation from dollar one, they’re making almost everybody, actors and directors, wait for their money (if it comes in at all!)…”

There’s nothing too earth-shattering about this shift in the movie industry, it’s also happening in other areas like music, as he argues. But I think it’s representative of a more fundamental shift to something I’m calling—for lack of a better term—the Responsibility Economy.

I think we’re seeing more and more businesses, and even individual people, embrace the idea payment on some sort of contingency, like a royalty.

What do I mean? Well, I think we’re seeing more and more businesses, and even individual people, embrace the idea payment on some sort of contingency, like a royalty. Musicians have often been paid like this for their songwriting. Also, in the past they’d receive huge money advances for an album they hadn’t even written yet, or a concert tour that hadn’t even been booked. But it seems that these practices are becoming less and less likely. Record labels are looking for the polished & complete package. The dumb ones are still trying to push crooked deals on musicians, but the smart ones are going to be willing to share more of the long-term gains with an act in exchange for a smaller amount of up-front investment. The smartest musicians are going to say ‘no’ to virtually any deal, go it alone, and earn money directly based off of what they sell and how they perform.

Authors are used to large advances for books. More and more, however, book publishers are looking for the finished product. If they have a choice between a great book idea that requires an advance, and a self-funded book that is close to finished, they’re likely to be more interested in the finished book, even if the idea isn’t quite as good.

In the tech industry, you used to seemingly be able to float an idea for a company and watch investor dollars show up. Or you could even half-build a company and sell it for an amount disproportionate to the work you put into building it. More often than not, these scenarios didn’t work out for investors. Now they’re much more attracted to startups that have already begun to mature and largely bootstrapped their early development.

The public at large seems less and less enamored with CXOs of large corporations that earn gigantic bonuses seemingly unrelated to the overall performance of the company. It is also harder to idolize a sports figure who earns a large paycheck regardless of his or her performance in competition; even more-so when they’re caught doping or otherwise cheating.

What I’m essentially talking about is ownership…

What I’m essentially talking about is ownership—not necessarily in the legal sense, but a growing trend to more closely align compensation with people’s actions or the reality of the markets their operating in.

Like anything else, this isn’t a perfect model or solution to problems resulting from the scenarios I’ve already discussed, but I think it could provide some interesting opportunities.

I have to ask myself, what would I charge up front to, say, design the brand for a company if I had the possibility long-term compensation related to the success of the company? Assuming I’m vetting my potential projects well and still able to cover my immediate costs, my up-front price would be a lot lower and I would be a lot more emotionally invested in the success of the project as it leads to the success of the company as a whole. I’m responsible.

I already practice this type of pricing structure with regard to some of my web applications. Why not do so with design, and other types of projects?

How might your work change if more of your compensation hinged on the success of what you are working on?

What about yourself? How might your work change if more of your compensation hinged on the success of what you are working on? Would it change the type of work your do, or how you view work in general?

I certainly don’t think the Responsibility Economy would work for everything, but I wonder what a fair balance between flat-rate compensation and compensation tied to results might look like for a lot us, even if we’re not making multi-million dollar records are writing books for the best seller list.

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