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COVID-19 and the experience economy

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Introspective

While all businesses have been affected by the pandemic and its associated lockdowns, certain activities have clearly suffered more than others and must contend with a longer period of recovery — if they ever do. Groceries and other markets for fresh and processed food were among the least affected and functioned at some level even under the strictest quarantine. Manufacturing and construction were given the go-signal owing to their value-added and employment contributions. Even public transport is now gradually being restored (jeepneys being the bellwether of semi-normalcy) and smaller retail and dine-in establishments and even personal services requiring proximity such as hair salons have been allowed to function, albeit at much-attenuated levels.

At the other extreme, prospects continue to be dim and highly uncertain for such activities as mass tourism and accommodation, schools and universities, movie houses, live indoor and open-air concerts, spectator sports, the theater, theme parks, and similar activities. Some of these are not even being considered for opening under the mildest form of quarantine. Nor is the Philippines unique. Some 1,500 UK artists including Ed Sheeran, Dua Lipa, the Rolling Stones, and Paul McCartney last week wrote a letter to their leaders (#LetTheMusicPlay), warning: “With no end to social distancing in sight or financial support from government yet agreed, the future for concerts and festivals and the hundreds of thousands who work in them looks bleak.”

Here at home, the dislocation in these sectors has already been massive. Comparing April 2020 with the previous year, employment in accommodation and food service activities was reduced by 682,000 workers, a fall of 36% accounting for 8.5% of all jobs lost. The arts, entertainment, and recreation sector lost 54% of its employment (236,000 jobs), almost 3% of the loss in the country’s total employment.

Common to many of these activities, but especially to arts and entertainment, is that they share the characteristics of experience goods. Experience goods and the experience economy (i.e., an economy built around the provision of experience goods) are concepts that have been percolating in economics for some time. The term originally pertained to the fact that the quality of some goods just cannot be inspected and known beforehand but have to be directly experienced by the consumer. You can inspect screws and nails before buying them, but you need to buy a ticket and sit through a movie or a concert to know how good or bad it is. The same is true when you choose to enroll in a particular school or college. Expert opinion, informal advice, advertising, and reputation can alleviate the problem but can never fully solve it. In all such situations, the saying applies: “You need to have been there.”

Since then, the fact of consumer experience has been taken as self-evident, and the focus has shifted instead from the experience needed to ascertain quality, towards realizing that experience itself is the great source of value in many activities. In a pure experience good (a simple example is a theme park) the usual goods and services we know (e.g., rides, hotdogs, cotton candy, and photos) are mere inputs into the real “product,” which is the immediate or lasting mental or psychic effects produced in the consumer. Such effects can be “entertaining, educational, esthetic, or escapist.”

From wedding events, to noontime shows, to stage plays, to sporting events, to live concerts, to classroom interaction, to theme parks — many (though not all) experience goods are built on bringing people together, which also means people traveling to venues to come together. The collective consumption of many experience goods is due either to the inherent uniqueness of the staged event (e.g., a wedding anniversary), or the high fixed costs of delivering it (e.g., a university campus) — or both (e.g., a BTS concert). Yet proximity and mobility are precisely the two aspects of consumption that have been most severely impaired by the pandemic — which explains its catastrophic and lasting impact on those activities. Aggravating the impact is the type of labor organization of many people working in this sector. A good number especially in the creative and ancillary professions are self-employed, where “rackets” and “gigs” are the rule. This puts many beyond the pale of conventional employment-retention schemes and formal welfare programs coursed through corporate channels.

In terms of social impact, however, education — and especially basic education — is one of the most severely affected sectors of the experience economy, not because of the immediate displacement of workers (most teachers after all are public employees) but because of the deprivation suffered by its audience. That a child cannot go on a long-planned visit to Enchanted Kingdom is just cause for vexation; but to deprive the same child of the chance to physically attend school to learn and to socialize is a crime. (And to suggest that pupils should simply wait until a vaccine is available is to abet that crime.)

The prize question then becomes whether and how experience goods can continue to be provided amidst a pandemic, and which, if any of them, can survive beyond it. Short of an effective vaccine becoming available soon (always the deus ex machina), any one or a combination of the following is possible:

First, adjustment and accommodation. This means changing protocols to conform to health and hygiene standards that will prevent the spread of disease. Theaters and movie houses, for example, may limit entry and occupancy to allow for safe physical distancing, something hotels and dining establishments are already doing. Some places have experimented with drive-in audiences for open-air concerts (honk your horn to applaud). Here at home some media networks have bravely resumed producing television series on location by quarantining and provisioning actors and entire production crews for months at a time. Similarly, school attendance can also be rationed and physical distancing in classrooms enforced (challenging, given the already large public school enrollment). In another approach, however, Germany has reopened its schools dispensing with any physical distancing, masks, or other restrictions — but with free twice-weekly testing of all pupils and staff.

The big question raised by any of these types of accommodation is always a financial one. Physically thinned-out audiences imply lower revenues. Purposive testing and quarantining, whether of pupils, audiences, artists or production staff, will raise costs. Both will hit the bottom line. Prices could be raised for smaller, more selective audiences, of course, but the question is by how much demand will fall off. It will be noted that faced with this attenuated demand, many establishments and organizations have rather folded up.

A second possibility is transformation, primarily of a digital nature. The most advanced examples can be found in higher (unfortunately not basic) education, where both live synchronous online classes and asynchronous MOOCs hold out some promise as alternatives to face-to-face classes on campus. Similarly, online concerts of even entire orchestras (with performers in different locations) can and have been streamed live and recorded. With proper quarantining and testing of performers and support staff and enough capital, a business case could also be made for streaming and recording live plays, musicals, and other performances. Netflix and its online ilk have shown after all that the collective character of movie viewing (formerly due to high fixed costs) may actually be dispensed with.

In digital transformation, however, the downside will always be the “degradation of the signal” (to use a telecoms metaphor). We are still some way off from Elon Musk’s dream of merging humans with AI, which would allow the creation of immersive collective experiences in the privacy of one’s home. (RPGs are as far as we’ve come.) Purists will argue that the immediacy and authenticity of a live performance (e.g., of a play) before an in-person audience can nowhere be approximated by a streamed version of it (and not just because of your unstable Internet connection and tinny speakers). A basketball team will likely perform differently when it plays in an empty stadium instead of one filled with cheering fans. The same thing goes for live shows, plays, and concerts. Just ask Coco Martin’s fans about the difference between seeing him sa personál versus watching him on the digi box (and even that is now removed). In higher education, as colleagues have found out, Zoom interactions are often stilted and unnatural — and the teacher somehow comes across as less prepossessing. More importantly, however, digital translation and delivery are just impossible in some cases: there is no way of digitally delivering the personal tutoring and socialization that especially younger children need and that they can obtain only from being physically present in school. (For this reason, notwithstanding the rising pandemic hazard there, US pediatricians have recommended in-person schooling for young children this year.)

Then there are the financial consequences to digital transformation. The added cost is obvious but the revenue implications are unclear. The inevitable signal degradation means less can be charged for the experience. For essentially, stripping the product of the experience reduces its value. No one would pay $50,000 in tuition fees to attend a semester of online courses — not even from Harvard. Recognizing this, some colleges here have prudently cut their tuition fees as they shift to distance learning. At the very least, digital transformation will also mean the business case for many offerings must be re-examined.

The final possibility, of course, is extinction and reallocation. This, too, is already occurring and will only intensify as this health-cum-economic crisis wears on and no clear survival plan is forthcoming from either industry or government. Certain businesses and jobs unable to accommodate or transform will simply fold and not come back. It will be thought, in cold-blooded economic terms, that having noted that fact, there is little to do but move on. Capital and labor after all will move to where they are most needed. Even now, some highly talented people in the arts, in their inactivity, have begun to turn to other careers, including soap-making and food-catering. What is drama’s loss may be soap-making’s gain, but the long-term benefit to society is at least debatable. Those activities and businesses are likely to survive which can take refuge in small-volume but high net-worth markets that can tolerate the higher price-premium for exclusivity, hygiene, and safety. Hence, we should still find exclusive tourist resorts that cater to the ultra-rich; schools with enrolments small enough and fees high enough to afford testing; colleges with infrastructure good enough to make the shift to online and blended learning (even while the public system for the majority wallows in mediocrity); intimate and properly distanced shows and concerts, and so on. Even before the crisis, of course, certain parts of the experience economy were already elitist. The crisis threatens to put such experiences even further beyond reach.

The sum of this is impoverishment and inequality, first in material, now also in cultural and spiritual terms. What’s new in Philippine society?

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I thank but do not implicate FEU’s Mike Alba and Ateneo’s Joseph Lim for some ideas in this column.

Some references:

P. Nelson [1970] “Information and consumer behavior,” Journal of Political Economy 78: 311-329.

B. J., Pine and J. Gilmore [1998] “Welcome to the experience economy,” Harvard Business Review (July-August).

R. Salkowitz (2020) “So much for the experience economy: coronavirus wreaks havoc on a hyped segment of the entertainment industry,” Forbes, March 12.

D. Gelles (2020) “Coronavirus shut down the ‘experience economy.’ Can it come back?” The New York Times, May 20.

 

Emmanuel S. De Dios is professor emeritus at the University of the Philippines.





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