Over at Throwing Things, "Isaac Spaceman" and I have been discussing Howard Stern and the entertainment industry. Adam Bonin started off by suggesting that Paul Giamatti, who had a tiny role in the Howard Stern movie "Private Parts" was now a bigger name than Stern. Poor timing, given that just hours later, Stern received an $83 million bonus from his satellite radio employer.

Me: If I were Paul Giamatti, I'd certainly trade my paycheck for a tenth of Stern's. Stern's brilliance was recognizing that he could use technology to effectively price-discriminate based on the intensity of his fan base, and it's not at all a bad business model to cut your audience down 90% if you can extract 80 times as much revenue per capita from the rest. And I say that as someone who'd have to be paid to sit through a Stern show.

IS: Ted -- I've thought that about music for a long time, and I don't understand why the industry doesn't do it. I also think that's where television is going once on-demand is completely functional. Arrested Development could work in a world where all TV is pay-to-play; you'd just charge three times as much for 1/3 of the viewers. It obviously works in the DVD aftermarket.

Me: It does work that way in music -- that's why we have concerts with $100 tickets and overpriced shirts. On an even more extreme scale, numerous musicians do perform at parties and bar mitzvahs for the fabulously wealthy for six-digit fees.

But you have to build up the mass popularity first, or you can't attract the small subset of the audience with intense preferences. The Mountain Goats came to DC, and they could barely fill a small room with $15 tickets.

Howard Stern could do it because he built the big audience in free radio first *and* had a subset of that audience that had an intensity of preference willing to pay a lot of money *and* the technology was available *and* there was competition for content to fit competing technologies such that Stern could extract most of the rents. Bob Edwards isn't getting rich from switching to satellite radio.

That's even harder to do in television; no star or brand is big enough to attract the audience on spec, and once you have the big audience, your network has rights of first refusal that keeps you from going elsewhere. (And the economics prefers the big audience, because that attracts the syndication paycheck and DVD sales down the line.)

Showtime couldn't (or wouldn't) bring enough money to the table to make Arrested Development continue, even with the promise of DVD revenue, because there wasn't that original fan base. Same thing with Firefly, where the movie barely broke even after DVD sales. Maybe Star Trek:TOS in the late 1970s could have made it happen if the technology was there to support it, but I can't imagine another television show with the intensity of fan base as Howard Stern's radio show. Okay, wrestling and UFC, but wrestling and UFC already work on a pay-per-view model.

As if to confirm my analysis of the music industry, the LA Times reports today that George Michael made $4 million for a 75-minute personal concert for a Russian magnate, among other rock stars making small fortunes for short private shows. So I guess I should have said "seven-digit"; even Hall & Oates make six digits. The claim is that rock stars decided it was okay to sell out like this when Bob Dylan took the plunge.

From Don Boudreaux, an open letter to Lou Dobbs.