Organizing customers

The local youth theatre troupe recently put on a performance of Grease. It was a high-spirited outing, with terrific performances and it was a great way for them to spend a month or two over the summer. I was amazed to discover, though, that the budget for the rights to the play were $3,000. That's pretty steep for a high school production of an old, not particularly wonderful musical script that was only going to be seen by the local community. Should it really cost $7 for every person who watches the play?

The reason fees for licensing plays are so high is that almost all plays and musicals are licensed by just a few firms and the purchasers have no power whatsoever. The sellers have signalled each other and created an artificially high pricing floor. "Take it or leave it" is their motto.

Here's the opportunity that the net provides (in this case and so many others): someone should organize the customers and negotiate on their behalf.

Imagine contacting 3,000 high schools and finding 500 willing to join together and agree to act as a buying cartel. Now, the organizer can poll the directors at these schools and find thirty plays they'd be willing to put on next year. Go to the rights holders of these plays and say, "We're going to pick six of these plays. Each of the six will get a huge number of customers as a result, perhaps twenty times as many as you usually get. But to be among the six, you need to lower your price by a factor of ten."

Now, if you're the rights holder, you have a dilemma (but not a huge one). You can agree to lower your price and thus double your annual revenue on this dusty old play, or you can stay where you are and make zero.


Over time, the cartel will only grow more powerful. Word of mouth will spread, because news that joining this cartel cuts the cost of renting a play or musical by 90% is noteworthy. More will join. The benefits to the rights holders who agree to play along will go up because they'll have the play reach more audiences. The only losers will be those that are stuck on the old model of taking advantage of independent communities with no purchasing power.

While this has been tried in markets where it's very difficult to make it work (like consumer electronics where the margins are small) I think it can thrive in business to business, service and intellectual property markets where market share can easily make up for lowered profits. Universities can join up to push down the price of textbooks by agreeing to adopt the one of the six acceptable ones that's the cheapest–and all the others get zero. The key is frequent communication and solidarity as you go through the dip that will happen when providers resist your initial offers. That's why the net (and free online coordination and messaging) are so critical.

Think of all the tiny vertical markets where this can really pay off.

And of course, the organizer deserves (and gets) a piece of the savings.