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Last year, Mike made the point that saying you can't compete with free is saying you can't compete, period. Every business makes a profit by adding value so that customers will be willing to pay above marginal cost for its products. The fact that the marginal cost of content (once it's been created) is zero doesn't change that principle. You can add value to free content just like you can add value to any other product. The New York Times Bits blog nicely illustrates this with a post about the market for public domain content on eBay. Apparently, there are a number of people who make a living by finding obscure, copyright-free content on the Internet, burning it on a DVD or other convenient format, and selling it on eBay. Despite the fact that every one of those customers could have tracked down the video for themselves and watched it on their computers, a lot of people are apparently willing to pay for a DVD version.

This business model actually illustrates two good ways to add value to free content. First is convenience. A lot of people don't have a high-speed Internet connection, don't like watching videos on their computer monitors, or want to be able to take their content with them in a compact format. For those users, a DVD is a much nicer format than a file on their computer's hard drive. DVDs are also a much more convenient format for giving gifts: you can wrap a DVD and put it under the Christmas tree, something that's harder to do with a video on YouTube. Second is filtering and organization. There's way more content out there than any one person could possibly watch. So there's a lot of value in helping people separate the wheat from the chaff. That's a big part of the value we provide here at Techdirt: a lot of the information you'll find on our blog comes from other sites, but we try to highlight only the best and most relevant information, helping our readers to keep up with news in the technology world more easily. By the same token, people who sell public domain content on the Internet create value by filtering and organizing the information so it's easier for others to quickly and easily find what they're looking for.

I won't belabor the implications for traditional content industries. Like it or not, their content is available for free on peer-to-peer sites, and if they want to make a profit they're going to have to find ways to make their content more valuable than what you can get with BitTorrent. Two important principles for doing that are: use formats that convenient and versatile and make sure content is organized in a way that makes it easy for users to find what they're looking for. That means, for example, that you probably shouldn't cripple your products with DRM or sue companies that help people find your content.

Tim Lee is an expert at the Techdirt Insight Community. To get insight and analysis from Tim Lee and other experts on challenges your company faces, click here.

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