Life in the hype economy – – Moviepass edition

[Continuing the MoviePass thread]

I have no idea whether it is real or apocryphal, but there's an often referred to study with primates where the they earned tokens that could be exchanged for food. According to the standard version, the subjects soon came to value those tokens more than the treats they could be exchanged for.

The hype economy works along similar lines. The ability to get people talking about something (preferably but not always necessarily in a positive way) is tremendously valuable by most traditional standards. For entertainers, it can bring in large audiences. For goods and services, it can drive sales and help maintain customer loyalty. For politicians, it can be votes. For public policy initiatives, it can generate and shore up support.

At some point though (and it's a point we passed quite a while back) the ability to generate buzz becomes disconnected both from the attributes which are supposed to drive it and the objectives it is supposed to serve. It then takes on a life of its own. Hype becomes the primary if not sole metric by which anything is judged. The television show that no one watches, the business with no real prospect of turning a profit, the research claim that collapses under scrutiny are all seen as successful and important as long as you hear enough about them.

This is a big topic for a short post so I won't try to get into the specifics the damage done by the hype economy. We've already spent countless hours talking about how it  distorts markets, wastes resources, undermines our public policy  and corrupts the research needed to drive real innovation.

As he did with the make-it-up-in-volume fallacy, the CEO of MoviePass provides a perfect example of the hype economy.

Emphasis added.

Pogue: OK, but if I’m paying $7 a month, I’m paying less than half of the price of one ticket. You’re paying the theater double that — so I don’t understand how you can stay in business.

Lowe: Well, have you seen Spotify’s financials? They spent $2 billion more on music content licensing than they brought in in revenue. Netflix has to borrow billions of dollars each year to pay for the content that, over time, they hope to make their money back on. We’re investing in building a huge subscriber base.

Pogue: Originally, MoviePass was $50 a month. What did the membership numbers do when the price dropped down to $10 last fall?

Farnsworth: Well there were about 20,000 users at the time, and Mitch’s deal was that we would have 250,000 in 18 months. He had 18 months to get 250,000. We got there in two days.

To be blunt, Netflix is a marginally profitable company in an increasingly competitive market. Spotify is a money-losing company. Neither is likely to justify the investments that have been made in them, but in the hype economy, that doesn't stop them from being held up as examples to justify a business strategy.