No free lunch

“There ain’t no such thing as a free lunch” was the first thing I learned in economics class my senior year of high school. I think Mr. Ravenscroft even had “TANSTAAFL” written on the dry-erase board when we were walking in on the first day of the semester.

TANSTAAFL is perhaps the core principle of economics: Anything with value also has a cost to produce, and nobody — a business, especially — gives away anything of value unless they receive something of equal or greater value as a result.

It’s also a core principle for F3 Technologies’s FargoTube online platform: Musicians, filmmakers and other artists are sick of toiling in the dark for years, only to see their creations pirated and posted on websites that don’t share revenue with them. Many artists play along by posting limited content on “free” websites but have grown frustrated that these sites don’t translate into profit. In contrast, FargoTube lets fans subscribe to an artist’s videos and other entertainment and splits the fees with the artist.

One of the most alarming illustrations of TANSTAAFL is unfolding this week in the pages of the Wall Street Journal, which has been running a fascinating series about marketers’ collection and use of personal data. The series started with an article last weekend about increasingly sophisticated cookies, beacons and other tracking programs installed on our computers when we visit “free” websites and that continue to track us even after we browse along to other websites. Most of us are aware to some degree that this has been happening, but not to the extent reported in the Journal. Several popular “free” websites — including dictionary.com (click at your own risk) install hundreds of trackers on visitors’ computers, and the 50 sites most visited from the US installed an average of 64 such trackers in the Journal study. Some of the trackers help create a profile for each internet-protocol address, which marketers assume to represent an individual user.

From an article that ran July 31:

“Hidden inside Ashley Hayes-Beaty’s computer, a tiny file helps gather personal details about her, all to be put up for sale for a tenth of a penny. The file consists of a single code— 4c812db292272995e5416a323e79bd37—that secretly identifies her as a 26-year-old female in Nashville, Tenn. The code knows that her favorite movies include ‘The Princess Bride,’ ’50 First Dates’ and ’10 Things I Hate About You.’ It knows she enjoys the ‘Sex and the City’ series. It knows she browses entertainment news and likes to take quizzes…

Lotame Solutions Inc. … packages that data into profiles about individuals, without determining a person’s name, and sells the profiles to companies seeking customers. Ms. Hayes-Beaty’s tastes can be sold wholesale (a batch of movie lovers is $1 per thousand) or customized (26-year-old Southern fans of ’50 First Dates’). ‘We can segment it all the way down to one person,’ says Eric Porres, Lotame’s chief marketing officer.”

A Journal article this week called the phenomenon “anonymity in name only.”

I’m not prepared to say that this use of personal data is a bad thing on balance and I can’t quite put my finger on why it feels creepy. Nonetheless, I know that a lot of people do find it creepy, and I understand why a lot people want stricter legal protections for their personal data.

Regardless, I think internet users are going to recoil from it and limit their use of websites that don’t guarantee at least a minimum standard of privacy.

In contrast to most video-centric sites, FargoTube users know upfront what they’re going to pay on a monthly or per-video basis. FargoTube and its revenue partners, the content owners, don’t sell personal data to outside marketers, and content owners can choose to offer limited advertising or no advertising at all.

One of the web’s most popular sites for video, Hulu.com, moved away from its all-free model a couple of weeks ago. A new service it’s calling “Hulu Plus” offers an expanded range of television shows to users who subscribe for $9.99 a month. Following the launch of Hulu Plus in June, CBS, the only major broadcasting network that isn’t already affiliated with Hulu, is talking about playing ball.

We think “Plus” validates FargoTube’s business model and will probably show that people are happy to pay for content when they can’t get it anywhere else or when it’s delivered in a unique setting such as FargoTube, which combines video with social networking and other features that fans find useful.

News Corp., which owns the Wall Street Journal and a 30 percent stake in Hulu, has been at the forefront of media industries’ moves to charge for content. The Journal, for example, allows free access only to articles deemed to have significant public service value, like the current series on privacy.

“The argument that information wants to be free is only said by those who want it for free,” News Corp. CEO and Chairman Rupert Murdoch said several days ago. And even they may stop saying it, once they find out what their money can buy.

This post has been updated to include information about Hulu’s ownership, CBS-Hulu discussions and the Wall Street Journal’s revenue model.