Chris Anderson tries to tally the free economy, counting the money made from advertising, “buy one, get one free” gimmicks, and free services subsidizes by paying customers (like Flickr or MYSQL).  The numbers are huge, talking hundred of billions of dollars in each category, if not trillions.  Anderson’s point is that free has been a business tool for a long time, using infinite goods like TV shows or loss leaders to sell more valuable scares goods.  Companies used to charging large amounts for their goods, like music and movie companies, are finding it hard to understand the free economy and how much money can be made there.

Anderson is promoting his new book, “Free” about leveraging free as a business model and I’m hoping he leads by example, proving the point of his book through his own leadership.  “Free” isn’t due in stores until next year when I hope the book is sold extremely cheaply, subsidized by Anderson’s certain to follow speaking tour.  The promotion from the book would make Anderson a more sought after and thus highly paid speaker (time is a scare good).  Books have a higher marginal cost - the cost of printing, paper, binding, etc. - so some price for production might be need.

Anderson could also release digital copies of the book (and audio) for free online.  Matt Mason is doing just that (at least in book form) with his book “The Pirate’s Dilemma” about how file-sharing helps businesses make more money.

To further prove his point, Anderson could release his four year old book “The Long Tail” online for free (and lower the price on those $30 audio book copies).

This is a man trying to change the way companies think about business and the concept of free. I really hope he thinks about it himself.

Movie companies vs. major retailers. While this may sound like a royal rumble, it’s really posturing of the worthless kind. Wal-Mart is rumored to have plans, which it denies, that will punish movie companies who release films on iTunes and other downloading services. Movie companies seem to be scared of this.

Even as Wal-Mart denied these rumors back in September, stock of Apple and Walt Disney Co., the only movie company with films on iTunes, fell 2 percent (Sept. 22 to be exact).

It seems no one is making the right decisions here. Movie companies seem to be hesitant about releasing movies online for fear of alienating retailers, not making enough profit, and risking more piracy. Retailers want their brick and mortar monopoly to last forever. And shareholders think Wal-Mart’s going to win. They are wrong.

New media and liberalization win in the end, and this benefits movie companies. But it seems movie companies haven’t learned from their failed fight against VHS. The changing media demands changes first by the media companies. This means, unfortunately, a possible dip in stock value over a few quarters until consumers understand whatever changes occur. But, also unfortunately, stock price is everything. Viacom Chairman Sumner Redstone had his 2007 compensation cut with future pay tied to stock prices.

The internet market allows for greater access to more people with specific interests. As Chris Anderson shows in “The Long Tail,” online retailers like Amazon and iTunes are able to offer more products and reach more audiences than Wal-Mart and Target’s brick and mortar stores. But for now, this business model is scary. For non-blockbuster releases (which Anderson shows are no longer as blockbuster-y), revenue has to be looked at long term. A small movie release might only sell 2 copies a month, but over a few years. Wal-Mart and Target would never sell a title that sold that little.

Movie companies need to realize this technology shift provides consumers with more information and this includes information about their entertainment. Choice is empowering, whether choosing how to access, buy, or enjoy entertainment. The result might be less profit per unit (or feature film), but the internet will allow for a greater number of those units. And through online, these will always be accessible to a hungry audience.

Let movies be downloaded. Let them be downloaded inexpensively (as in less than the price of a takes-up-shelf-space DVD). It’s okay to put special editions in stores. Or offer coupons for in-store purchases to be used online, and vice versa. Some how, some way, embrace the new technology. That’s what the retailers are scared of. That movie companies will discover there is a better way to do business.

The Long Tail looks at how technology is helping change business, spreading focus from a few blockbusters to broader niche interests. Anderson, an editor of Wired Magazine, explores how Amazon, Netflix, iTunes, eBay and other online services are helping consumers find new items for purchase as alternatives to the best sellers in stores.

Anderson’s effective argument presents a large problem for the entertainment industry who’s survive thrives on a few choice blockbusters which are now commanding less of consumer dollars. This problem is even more prevalent in the music industry where file-sharing has offered a nearly unlimited source of music to explore, all for free.

What Anderson missed was a conclusion of what to do about this change. How can the entertainment industry, for example, adjust its reliance on blockbusters in the new media age. File-sharing spreads as do broadband and improved compression methods. More downloading services appear offering greater choice, convenience, and price competition with brick and mortar stores. Several services, like Rhapsody for music, GameTap for video games, and cable’s OnDemand for movies offer unlimited viewing of a large library for a monthly fee. Certain items will likely be more popular than others, but with a monthly fee, blockbusters just don’t register.

I believe the entertainment industry will gravitate to monthly services, especially in video games where updating technology and options have higher value. The popularity of massively multiplayer online games is only a beta preview of what’s to come. Now, video games and the systems running them become obsolete. Why play Civilization 2 when I can play Civilization 4? But with Civilization: Online, my small monthly fee allows for a constantly updating and evolving game. But game companies will have to create a balance of games for the casual gamer who doesn’t want monthly fees for each game compared to the avid followers who will pay. Rumor has it, Marvel Comics’ long-in-development MMO will explore this changing world scenario, allowing the game to change as the comic books change.