TechCrunch’s Founder Says Recorded Music To Eventually Be ‘Free’; Here’s Why He’s Wrong

Paul Glazowski,

on October 04, 2007,

Another piece for you today about media and pricing, this one a rebuttal to TechCrunch editor and proprietor Michael Arrington?s insistence that recorded music is heading toward an existence as a ?free? commodity.

Firstly, I must say I agree with several of Mr Arrington?s points, one being that DRM is headed on a downward spiral to eventual eradication, and another that CDs sales are plummeting as well.

But there?s a portion of his argument that I can?t possibly accept, which has to do with economics. Arrington stipulates basic economic theory, citing the fact that duplication of digital music copies (no CDs in this example) is essentially a costless process in the grand scheme of things when compared to those involving tangible material, and that because that is the case, it should be assumed that the price of music for the consumer ?must also fall to zero.?

Arrington argues that ?unless governments are willing to take drastic measures to protect the industry (such as a mandatory tax), economic theory will win out? and that we will eventually see the arrival of free-and-legal recordings.

Clearly, such a postulation is flawed. For starters, despite the basic economics of the manufacture and duplication of media in a world well geared toward the concept of the immaterial digital download, the fact still stands that media is valuable, regardless of medium. Whether a single or album is brought to a listener?s ear by way of a portable MP3 player, a PC, a CD deck, a Walkman of the ?80s, an 8-track, or vinyl disc, the audio itself has value.

Sure, it costs less for the record companies to bring consumers ?the goods? through channels like iTunes, AmazonMP3, Walmart.com, the Zune marketplace, etc. than, say, by way of a small brick-and-mortar shop or a behemoth of a warehouse. But that doesn?t mean what the record companies presents via those Web-only channels should stand precisely parallel with the cost of delivery (almost nil).

Instead, there should indeed always be a price, solid but somewhat malleable, that is deemed ?fair? by popular opinion (which has done a pretty decent job of working out such important compromises in years past). Things like credit fees need be accounted for (though those particular costs are outlandish in and of themselves, but that?s a topic for another day), as does the existence of the services delivering downloads to consumers (not every outlet on the Web produces music players (i.e., Apple and the iPod) to keep their download processes running), not to mention remuneration for the artists and record labels. As much as people like to highlight live events as the ?bread and butter? of a musician?s income, studio recordings for the most part go hand in hand with the rest of those finances. Only for big-name, big-arena artists do ticket sales generate the overwhelming bulk of annual revenue headed into the bank.

As far as price points go, I believe the right range of figures for digital downloads in album format to be between $4.99-7.99. Perhaps a bit more for double discs, though such decisions should be up to the artist to decide. Anything less than $4.99 would likely being to de-legitimize the value of audio recordings. Artists and record companies can of course offer free items as marketing stunts if they so wish, but generally speaking, recorded music needs to retain some level of monetary value. I think we can all agree on that, yes?

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82 Comments (Subscribe to rss)

Brandt Cannici - October 04, 2007 at 12:49 pm PDT

I think the economic points Arrington makes are simple to understand and correct. Let’s say it costs $10,000 to make a single radio head cd. The cost to copy and distribute millions of these files over the internet is $0. If a label has already soaked up the cost there is no reason (economically speaking) for consumers to pay. The only way to make money for the record companies can restrict access so that you must pay to get a copy. In essence they have artificially inflate distribution costs to the consumer. Adding DRM and pay-per-download systems artificiality inflate distribution costs. This would be a successful strategy but these systems can be easily by passed by using P2P or other distribution methods. Soon the costs of maintaining these artificial systems will outweigh the revenue they bring in and they will be abandoned. This is what is happening now.

If you try and add other forms of artificial cost increase they to will fail in the same way. Therefore I think long-term the strategy you propose of a forced “fair price” will not be successful.

An alternative strategy would be to have payment made not for individual copies, but for the act of creation. Ie Radiohead offers to make a new album. If consumers collectively pay them $50,000 they do and the cd can be distributed freely by consumers. If not, nothing is produced. This system provides for both payment to the creator and unrestricted distribution. It also preserves basic supply and demand principles; valuable artists will be able to attract more dollars than less valuable ones.

It is time for market strategies to emerge that are built on the technological changes brought about by the internet. See http://www.strayform.com
Paul Glazowski - October 04, 2007 at 01:16 pm PDT

Apologies for the frankness, but those economic arguments are ridiculous, Brandt. (As are the ones put forth in the trackback above.)

I in no way advocate any forced restrictions. I’m a proponent of DRM-free distribution, through and through, be it music or video.

Instead, I emphasize that it is certainly right for consumers to determine a fair price, considering that they’re the group consuming the content.

(By the bye, the trackback at the top attempts to involve government in the mix, which I definitely do not wish to include. I would certainly hope the music industry would forever adhere to free market principles.)

There’s no need to talk about artificial costs. There should be no artificial costs. The arguments posited in my original rebuttal of Arrington’s piece lay out legitimate points: the cost of payment systems (credit card companies, etc.), the profitability of download services, and so on. All require one’s attention when considering legal, paid-for downloads. Which consumers desire. If everything were free of cost, the entire music industry itself would likely collapse, as no initial investments in recordings could be made. (Yes, live performances offer income opportunities, but there’s a linear chicken and egg thing to think about here.)

As for the concept of paying a musical group ahead of the creation of an album, that is plain asinine. No further comment on that matter necessary.
Anon - October 04, 2007 at 01:26 pm PDT

What on earth is a “fair price” here? Just some arbitrary number somebody pulled out of a hat? The market will decide the cost of music and Arrington is right that the market will always price media at $0. This is the price of any good for which supply vastly exceeds demand and distribution costs are zero. There’s simply not much more money to be made in the music distribution business. This doesn’t mean that some new way to monetize music couldn’t possibly be found. Cable television, where users may a basic subscriber fee for the combination of unlimited content and convenience, offers one clear alternative. But it’s unlikely to be nearly as profitable as CDs were hence the massive resistance.
Paul Glazowski - October 04, 2007 at 01:40 pm PDT

I agree distribution costs are practically zero, Anon, but you fail to address WHAT IS BEING DISTRIBUTED. The bits themselves might pass along from host server to end user for a fraction of a penny, but those very bits do have value.

And I don’t believe a subscription model should apply to music distribution. An all-you-can-eat system is troubling to think about. It completely diminishes the value of the work (which, yes, is subjective; some like some artists, some don’t).

If the world has accepted for decades that recorded music has value, how come all of a sudden it ceases to carry such value? I find that type of thinking illogical.
Brandt Cannici - October 04, 2007 at 01:47 pm PDT

Paul,

I appreciate the frankness, but your dismissing a new model without consideration is short-sighted.

What I suggest consumers do, fund the creation of content based on the expectation that it will be valuable is exactly what the labels do. Sites like Digg and Prosper that use group intelligence and cut out the middleman are very successful. Furthermore, historically until this century music was created under a patronage system where wealthy groups and individuals paid for works to be created. The rest of society also had a chance to listen to these works once they were created.

And Anon is correct. You “fair price” is highly flawed. Doesn’t supply and demand determine price? If not market forces then who decides? It will most likely be people with centralized power, like the labels and I don’t think the price will be so fair. It also removes market forces. Is a Radiohead album worth more than Joe blows band? Is a new album worth the same as a 20 year old album. Is a 60 second song worth the same as a 5 minute song. Doesn’t a song about Christ have more value to Christians than the general population.

Besides their is value in being able to interact with a musician as he is creating. Its much different from being a passive recipient.

Check it out yourself: http://www.strayform.com/proposal/default.html?id=33
Brandt Cannici - October 04, 2007 at 01:56 pm PDT

Paul,

In past decades the record companies did provide a lot of value. First and foremost before digital distribution getting a single song into thousands of location across the world was quite a feat. They also provided intensive marketing in these locations to build awareness of what was out there and when recording costs were expensive it was important to filter artists so that only money was spent on the best.

But they took advantage of their central position and failed to continue to offer value. They increased costs to consumers and took advantage of artists with restrictive contracts and low percentages. With the advent of wide-spread internet the three points of value they once offered have been replaced with better alternatives that cost nothing.

There is little value left in what the labels offer. There still is value in the artists ability to produce new works that people want to hear. Let’s pay for that and not for distribution.
Jack - October 04, 2007 at 07:46 pm PDT

Brandt,

You are spot on the money. Couldn’t agree more.

Music labels have outlived their raison d’etre.
HMTKSteve - October 05, 2007 at 02:38 am PDT

Is someone forgetting basic economics here? Let me give an analogy even Arrington can understand.

If you have a website that creates content and you get paid for that content (whether through subscriptions, sponsorships or the like) if everyone suddenly figures out that replicating your content costs them nothing than why would they continue to pay to see your content? Would you feel the same way if someone launched a Techcrunch close site that did nothing more than republish your RSS feed?

The only people who do work for free are those people who do not need the money. It is those same people who want everyone else to do things for free.

If record companies can no longer make money selling music they will stop producing music. Then where will we be?
Rob Myers - October 05, 2007 at 03:18 am PDT

Record companies don’t produce music. Musicians produce music.

Record companies therefore cannot stop producing music.

They can stop promoting music, but then MySpace does that now. They can stop distributing music, but then p2p does that now.

They can stop ripping bands off with creative accounting but then the whole argument against the new music environment is that it doesn’t make money like record companies do. Which I think is meant to sound like a bad thing.

iTunes proves that convenience can provide value. And Radiohead etc. show that supporting a band provides value. Not to mention that many bands now use albums as promotions for tours rather than vice versa.

The “laws of gravity” of the dismal science shouldn’t blind economists to the existence of birds…
Charbarred - October 05, 2007 at 04:21 am PDT

You’re forgetting something very important - The Record Industry. There are a small number of people who actually run the majors and the music industry as we know it. They make a lot of money and their long-term strategy is simple: “Keep things the way they are”. You may say it’s a stupid strategy but if you’re making millions a year by working on auto-pilot, the Radioheads of the world aren’t really putting a dent in your earnings. Investing in new ideas is costly for these guys, and is also time consuming. It will take at least 10 years for these old schoolers to clear out their seats and I don’t see many drastic changes happening till then. Yeah, they’ll keep bitching about how record sales are in decline, but in the end of the day they’ll still make money and push out any new ideas.
So how can Radiohead get away with it? The sad reality is that the reason they can give away their albums for a nominal fee is because a major label has done all the work for them for the past 10 years. They may think they’re sticking it to the man but the reason they can stand to lose a couple of millions is because “the man” has already made sure they have those millions to spare.
I’m not saying that there is no room for change (in fact I’m all for it), but it will take more than Arrington’s analysis for things to finally move in the right direction.
Mauvaisours - October 05, 2007 at 05:47 am PDT

“the fact still stands that media is valuable, regardless of medium [...] the audio itself has value.”

I highly disagree with that. What is the value of this audio recording _in itself_ ? Where is that value created ? How ? Today, this is done using heavy marketing. I do agree that there is a _lot_ of work involved in creating that sound, but that is not sufficient to give value to something (otherwise, my garbage would be worth its weight in gold).

“There’s no need to talk about artificial costs. There should be no artificial costs.”

The point is that the supply/demand equilibrium is works so much against supply that the marginal value of any supply is nil. Giving it intrisic value is precisely artificial cost. The only way to change that is make people want to produce less music.
Good luck with that, I have even heard of people making music just because they can’t stop themselves
Huge - October 07, 2007 at 06:57 pm PDT

I think Paul is right, for the reasons Brandt cites. But this entire notion is techno-utopian.

The flaw in Arrington’s economics (ignoring the fact that he’s been very selective about which theory he applies and ignores big slabs of other complex theory) is in assuming that the value lies in the digital artifact. It doesn’t. The value proposition for an artist lies in the relationships formed with fans, whether by means of the recording artifact or the live performance or other, more direct, interaction.

If the proposition for fans is always simply “can I have that digital recording” (like with a digital watch), as it is for some music consumers, then the proposition that recordings will become worthless might hold true. But that’s not the proposition. The proposition is often “can I build a relationship with this artist, whose song I relate to?”. Therefore the act of paying for the recording forms part of a mutual-support condition. That has a value that is only indirectly related to the marginal cost of the artifact.

This explains the phenomenon noted in Brad’s FAQ’s (http://www.bradsucks.net/about/#why), in which he responds to the question “Why would I buy your music when you give it away for free?” with “Well I don’t know, but people have been doing it and I hope they
continue”. People will buy recordings as souvenirs, they will buy them just to encourage the band to make more recordings - they will pay for them for a lot of reasons that have nothing to do with the marginal cost of distribution. (It also explains the correlation between youth and downloading: teenagers have less invested in their relationships and tend to be more exploitative in the short term).

In this case, “fairness” has to do with the stake buyers have in the artist and their music. I’m not a Radiohead fan, but I’d like to download their new album for free and have a listen. If I like it, I might make a post-purchase donation … is that a “sale”??

Also, the remaining value labels have lies in using their networks to build and/or nurture the relationships between acts and fans. It’s not possible for large acts to personally handle all contact their fans would like - they need help. That’s what labels have left to offer and we’re seeing more holistic management from them in recent times. The labels are essentially relationship managers: relationships with radio, TV and other media, relationships within the band, relationships with producers and studios, relationships with tour promoters and, of course, relationships with people who send fan e-mails and comment on MySpace …

Don’t get caught up in old-media thinking about the value of music. The most profound change the internet has made is to alter the value proposition in all forms of human expression … get with the new notions of value.
Play Disc - October 09, 2007 at 03:52 pm PDT

The monetary value of music, given a costless distribution model, is essentially the cost of producing the album. Labels absorb the cost of the album, and are seeking to be reimbursed for their costs by selling the music at a profit. This is the major problem in free distribution, as no matter your ideological position, it is hard for any artists to pay tens of thousands of dollars up front for recording costs.

It seems to me that the solution to this problem is for the consumers to directly reimburse the artists for the production costs. The first people to buy an album would pay a larger cost (say, .1% or $10). As the costs of production are paid off, the percentage stays the same, proportionally reducing the amount required to purchase the album.

This system ensures that the value of buying the album is in having it first, because the earlier you buy, the more you pay. And people do pay more to be the first on the block (eg. iPhone).

BitTorrent and illegal downloading would still impact the system, however, many older tracks would become essentially free (or $.01) once enough people have purchased them. For the artist, it is attractive because it still recoups the initial investment, though profits would be effectively zero.
Brandt Cannici - October 11, 2007 at 07:29 pm PDT

Play Disc:

An interesting concept and a little more rational than Paul’s. However the value of a song is not equal to its recording costs and the value of a song is not equal to everyone. Your model somewhat removes supply and demand from the equation, although in your situation the price follows the demand curve.

The largest issue is that as soon as the file is made available then it can be BitTorrented and pirated at no cost. So what will end up happening is the first copy will be very very expensive and the second and all subsequent copies will be free. This sounds like a bad scenario, however if the cost of the first copy could be paid by many people together then it would work.

This in essence is what I propose the first copy is paid for by many people aggregating funds after that all further copies are free.
JOG - October 28, 2007 at 05:59 am PDT

Lordy, Economics 101 anyone? Fairness is irrelevant to the market.

The only thing that matters is producer profit and consumer utility, and the relationship betwixt and between these two halves of a transaction.

Music can never be free (as in beer), because it costs money to produce - the artists have to live, eat and pay their rent. However digital distribution has reduced barriers to entry, and cracked the distribution oligopolies - and that means economic fundamentals can take effect, and profit margins have the potential to tend toward zero.
Paul Glazowski - October 28, 2007 at 10:13 am PDT

JOG,

Yes, the laws of economics certainly hold domain over the free market, but fairness is also certainly a factor in the world of music.

I mean, I’d hardly think that artists themselves would argue that they’d eventually hope arrive at a point at which they would get paid little or nothing for the products they create.

I mean, the economics of an entirely digital distribution system doesn’t even stop at music. Take software, for instance.

A great deal of software today isn’t packaged in physical boxes and stored on discs. A lot of software is delivered via the Internet, entirely. And because that is the case, should said software cost little or nothing? Does it not have value?

So the “fairness” argument certainly can’t be ignored. Some basic parameters do need to be established (whatever they might be; they vary, and consumers/the market should definitely decide what costs should be, generally speaking).

How about this for a rough-draft model:

Discover what the general compensation to artists is per successful CD release (successful=profitable);

Determine whether the payments are reasonable (I presume artists get stiffed by their overlords at present);

Determine what the costs for the manufacture and distribution of physical material with which media is delivered;

Remove nearly all of those costs (apart from marketing and whatnot);

And, lastly, see what you’re left with, and subsequently.

Yes? No? I think that’s a logical way to start things off in a way that will make most parties happy.
JOG - October 28, 2007 at 12:26 pm PDT

Don’t get me wrong paul. I agree with your sentiment - I just don’t think your comments are a logical rebuttal to the techcrunch article. Music - as we know it now - won’t ever be universally free but it isn’t down to fairness - it is because it has a cost of production. After all, who decides fairness in a capitalist economy? The market, and the market alone, whether we like it or not. Something is only worth what someone is willing to pay for it - that’s its ‘fair’ price.

And the market is so oversaturated with producers of music, with every artist knowing there is a horde of others willing to fill their shoes. As such the consumer has all the power.The record companies, by having control over distribution have been able to block entry into the market however, and as such prices have been maintained at a hugely artificial level.

Horrible as it is, given supply and demand, and no market failure, the value of recorded music in reality currently… *almost nothing*.

Anyhow the upshot is that music /will/ drop to a fee that covers an artists production costs. There is nothing unfair about that - thats just the way it is.

This is not a bad thing in my view. The cream will still rise and good artists will ultimately benefit. Record Companies as we know them will be unsustainable, and as they disappear so the bland insipid dross that they churn out will lessen. Live music will prosper as it is a different market, and the best performers will make the real money (which is after all still part of people’s disposable income).

Consumers win. Live music improves. Good artists will still do well. Record Companies lose out.

Sounds pretty fair to me already - scary as all this change is, I’m not sure we need a seldon plan

Regards.

(I’d also note that Software distribution is a different kettle of fish altogether - it has after service support, much larger file sizes, technical knowledge requirements, documentation requirements, and vitally far fewer producers, with far higher production costs, etc.)
oscar - October 29, 2007 at 12:32 pm PDT

Funny that you guys mention software. Ever heard about Linux? The software industry is going exactly trough the same transformation now, since maybe 10 years (we’re slow ;). Yeah the big guys are still standing but they’ll fall eventually, just like the record companies.

See ubuntu.org for a glimpse at waht great software you can get for free already.
Paul Glazowski - October 29, 2007 at 01:18 pm PDT

oscar,

Linux is a great free platform, but it’s not great enough. It’s not consumer-friendly, in that if something goes awry, it’s kind of difficult to troubleshoot.

Of course, that’s a very relative statement I make. If you grow up using Linux, you’ll probably be able to handle any trouble that comes you way. But the fact of the matter is that a great many people HAVEN’T grown up with Linux, and in order to really have it get massively, massively popular, it needs to become a lot more easier to manage (ideally, it’s brilliant, but in practice, not so much; even Ubuntu needs work before it’s Windows-ish or Mac OS X-ish).

Yes, a lot of nations now are adopting Linux en masse, and with generations of regular use, it definitely will become globally “popular”, but that day hasn’t come YET. I imagine, however, that the future looks very good for Open Source.

By the way, I hope there does come a day that Linux developers (of third-party software AND the operating system itself) can make a great deal of money. At present, most everything is free, and while that’s wonderful in some ways, people who work on stuff tend to enjoy getting paid proportionally for that work. That’s probably why Windows and Mac OS X are more polished (mind you, OS X is FAR more polished than Windows, even) and more desireable, even though they bear a cost per license.
Mary Brace - November 03, 2007 at 07:21 am PDT

Music will always be free, until someone finds a way to charge for even humming.

When you say “music isn’t free,” what you’re talking about is music made as an economic strategy; recorded and published for profit. With the invention of the phonograph, that music had a great century, and now it’s over.

It’s not simply a matter of young people feeling its their right or privilege to download, it’s that entertainment conglomerates have refused to give any consideration to promoting a youth culture of any value; once they caught wind of the boomers, a choice was made to chase that demo.

My generation’s (young adults in the 1980s) choices in non-fluff music were made almost impossible to promote. Few of us ever got to hear The Jam’s “Start” on the radio, but we had word of mouth and fanzines to let us know what our better-connected peers were into, and now we can hear it in a Cadillac commercial. Cadillac knew exactly what they were doing when they selected that tune: they were appealing to a group of educated 40-somethings whose culture was ignored by mass media and saying, “yeah, it did matter. So much so that we think you’ll take another look at our $50,000 car.”

For today’s youth, the music itself is not their culture, rather, their participation in it is. Whipping out a cell-phone camera at a concert is cultural participation in the way a Bic lighter once was. Making a call to a friend during a concert, the act of being the connector between the artist and a non-attendee is cultural participation. Downloading, uploading, writing a program, it’s all a matter of connecting with a wider group of people.
JOG - November 03, 2007 at 10:09 am PDT

“Music will always be free, until someone finds a way to charge for even humming. When you say ‘music isn’t free,’ what you’re talking about is music made as an economic strategy;”

what on earth is an ‘economic strategy’ outside of the scope of government policies? What Paul is talking about is an individual’s ability to make a living from recorded music.

“With the invention of the phonograph, that music had a great century, and now it’s over.”

Piffle. Revenue for recorded music will simply be made in ways other than traditional over the counter purchases.
Paul Glazowski - November 03, 2007 at 01:36 pm PDT

Mary,

While, there’s some credence to your argument, I must say, I very much doubt the marketing dept at Cadillac (or the suits they outsourced that advert gig out to) KNOWINGLY sought out an “ignored” culture.

I’m aware, this a rebuttal is somewhat nitpicky, but I couldn’t resist.

Lastly, yes, I do also recognize that youth enjoy being more connected than ever to their favorite groups, but I’m sure those groups those fanaticize musicians and groups of musicians would surely like those acts to continue to do what they do, and so, many will choose to pay for an album, whether or not they so choose to attend a live event featuring said act(s).
Jordan - November 16, 2007 at 01:49 am PDT

Many people have said it, so I couldn’t be bothered remebering who in particular, but…how is the only value (or main issue contributing value) that produced music has is the cost of the production? where does intellectual creativity come into it?

someone sells product/service A for $100 which takes them 5 hours of work. someone else comes along with a product B which provides a better service, but still takes 5 hours to provide. in this scenario, the creative ingenuity of the product would entitle the second someone to either place a higher price on their product, or would push the first products price to a lower mark. should this not be how and why music prices are regulated?

also….paul, seriously? “I very much doubt the marketing dept at Cadillac….KNOWINGLY sought out an “ignored” culture.”….and that somehow is a rebuttal in any acceptable form? because you, a singular person, think the opposite of what you really have no working knowledge of? well i very much doubt you know what kind of marketing department cadillac has, and therefore what kind of reasoning there is behind choices they have made.

–late reply, i know.
essron - November 28, 2007 at 05:57 pm PDT

this argument is ridiculous. i think this is as simple as paul not understanding economics.

once truly thought thru, paul’s argument is essentially that copyright law should be enforced in a meaningful way thereby maintaining a pricing scheme which he personally deems to have some ethical merit. to make his arguments without proof of concept of a method of enforcement which he himself would not find offensive is pointless.

paul, should poor people be sued into bankruptcy to maintain copyright? should people go to jail? you’ve already admitted DRM is ineffectual.

i’ve me several “pro-lifers” who, when asked, did not think doctors, patients, and/or boyfriends/spouses should go to jail or pay a fine if engaged in an abortion. it is for some reason very difficult to communicate to them that the definition of pro-life is supporting legislation to bear the weight of coercive apparatus down on individuals to prevent behavior that society (ie our court system, yikes!) deems taboo or abominable. I feel this music argument is very similar in that the moralists do not fully understand the consequences of their principled stand.
Paul Glazowski - November 28, 2007 at 06:18 pm PDT

essron,

The economics of the current situation we have in the era of the digital download are fairly simple and quite easy to understand. I urge you to rethink your assertion to the effect that I do not.

And to think any music payment structure is analogous to the abortion polarity is utterly asinine. The fact that you juxtapose the two might make one assume you’ve got a loose grasp on any sense of logic. I recommend a rethink that point as well.

And in no way have I ever felt it just to persecute copyright violations in the P2P realm. For the RIAA and the MPAA to do so is to misevaluate the circumstances we deal with entirely. They should not threaten to administer legal repercussions, because to do so indeed has effects adverse to their intentions. In other words, it doesn’t stop the lawbreaking. It may even increase illicit transfers.

The RIAA and MPAA and their various corporate members should instead embrace the changes occuring in the digital space and look to create a sensible solution. In a civil society, people don’t wish to steal. But if they’re getting ripped off, they will steal if they deem it necessary to “balance the scales.”
essron - November 29, 2007 at 01:13 pm PDT

I did not compare music piracy to abortion. I compared you personally to a self-proclaimed “pro-lifer” who refuses to condone legal consequences for the behavior they petition the government against.

Your argument insists people will choose to pay a higher price due to your personal ethical standards. This will never happen. If your last sentence above was a viable solution to the problem we would not have jails or police officers. Furthermore, applying ideals of “civil society” to individual behavior doesn’t make sense.

A more appropriate approach you might consider to defend your values is to predict the music industry will realign as labels being philanthropic efforts, non-profits aggressively soliciting donations to keep the lights on while giving the product to the world at little or no retail cost. This also fits the notion of civil society in that it can be invoked and sustained by a successful institution. However “stealing music” in the sense you refer to mostly results in lower profits at CD replication plants and the layoff of unethical, overpaid, and unnecessary music industry executives.

The fundamental economic truth you are railing against is that rational individuals want to get the most utility for their effort, ie value for dollar spent. Rational people look for the lowest price and without a negative consequence they will always choose free. I suppose some noble, morally straight individuals like yourself will take the high road (in fact i paid for both the radiohead and saul williams records to show my support for the model) but the vast majority will not, particularly those with little disposable income or significant debt (which is most of the USA and entire world).
Paul Glazowski - November 29, 2007 at 01:30 pm PDT

essron,

I disagree with your “rational people” statement.

If people are rational, they will not consistently look for the lowest price (which, according to some views on the economics of the music sale and distribution subject, is bound for the “free” mark), but rather agree on a pricing structure that enables artists and acts they establish a liking for to continue to do what they do. Makes sense, no?

And I wouldn’t call these ethical standards. They’re thoroughly logical conclusions.

If people ceased to pay for music, the creative side of the industry (meaning the musicians, the roadies, the producers, etc, etc.) would cease to do what they do. Because of the lack of any incentives. (Apart from concert revenue, which I would argue, for the most part, come about after recordings are made and released via retail channels.)
essron - November 29, 2007 at 11:02 pm PDT

no. it doesn’t make sense. you should realize that without stronger enforcement of copyright law the music industry as we know it is quite literally in a price war against a FREE product, which is impossible to win. and its a good thing for most musicians that the industry will lose this war.

1) the concept of a rational actor is a precise economic concept which you are missing the meaning of. when a person is shown two identical products at different prices they either prefer in cheaper one or they are stupid to a degree that endangers their wellbeing. its a fact. the moral/ethical layer can and does affect decision making (fair trade coffee, industry boycotts) but the impact is consistently negligible unless there is obvious and demonstrated law enforcement looming over the consumption decision. a few do-gooders don’t save multi-billion dollar industries.

2) customers don’t ‘agree’ on a pricing structure, instead the price is set, people buy or they don’t, and businesses often fold or become engaged in price wars.

3) the idea that stealing is somehow undesirable IS your personal ethical standard. if your conclusions were logical theft would be unknown in our world. the idea that one goes to jail for stealing is a commonly held fact that is imposed on people and the decisions they make.

4) artists in general are rarely compensated fairly, if at all, throughout history across the world. your arguments about incentive only defend profit hording leeches in the industry which is categorically the most unfair to its primary producers (recording artists).

5) another reason your incentive concern fails is that most professional musicians don’t make their living selling records, it is a very tiny subset of musicians which are album oriented recording artists. the price freefall is not catastrophic for music as a whole, only for artists who depend on the major label model for their primary income which is a minute, and usually less talented, portion of professional musicians. if you are terrified of the new Blink 182 album not coming out maybe you have a dog in this fight, but then you would have more severe problems to be concerned about.

i guess you’ll just continue going out of your way to pay more for things than you need to, and i’ll continue making records for no incentive (i actually lose money at it, but i can write some of it off).

i would be happy to give you free copies of the records i have made, but by your logic this is impossible because i could not haven made them due to lack of incentive. catch-22?

although both of our paths are quite insane (inexplicably counter to the expectations of a rational actor in an economic modeling based on cash rewards), it will play into the infinitely complex equation of the gradual unveiling of history, a history in which you will eventually be incorrect.

thanks for playing, i haven’t gotten in an essay war for a spell. fun fun fun.
connor macmanus - January 12, 2008 at 10:58 am PDT

This is much simpler than all of your verbose hyperbole claims it to be. Whoops, pot…kettle…black.

My issue with the frivolous lawsuits set forth by the RIAA is that 250 songs uploaded gets you sued for $225,000. If record companies are satisfied with pricing of their artists single tracks on ITunes for $.99 a piece, why is a single mother in a middle income suburb of Minneapolis being sued for $900 per song?

My problem isn’t with being charged for music. It’s the hypocrisy that the record companies behave with day in and day out. They don’t really seem to care that you’ve downloaded whatever medium it is that you desire; their issue seems to be with the person who shares it for download. You can’t have one without the other, but I’d think that if record companies really wanted to stop medium piracy they would target the downloaders of said medium.

On another note, since Napster shut down, I haven’t shared a single song, movie, music video, or tv show episode that I’ve downloaded, so I should be just fine.
Joseph Weaver - January 23, 2008 at 08:29 pm PDT

I agree with Brandt Cannici.
dubious - February 17, 2008 at 11:11 am PDT

Fairness is not part of economics, duh!
essron - February 17, 2008 at 11:58 am PDT

dubious is much more concise and succinct than i, and using only 7 words accomplished a proof superior to my own. I am chagrined and submit my humble praise and thanks to his efficient reasoning.
Keith - May 20, 2008 at 06:39 am PDT

As a musician, I would very much like to believe Mr. Glazowski’s argument. But I can’t because it’s poorly supported. Words like “clearly” are clearly there to make up for the lack of rigorous logic.

One of the central problems for Mr. Glazowksi’s argument is that it relies upon altruism to work. And there is no such thing as society-wide altrusim. Alternatives are government regulation (and the money required to effectively enforce/prosecute would kill the market faster than BitTorrent ever would, so that one’s not a good move) and social stigma. It’s too late for social stigma because nearly everyone with a computer has downloaded some piece of copyrighted material at some point. Most people right now are splitting the difference - download from iTunes to assuage guilt, download from BitTorrent so they can pay their mortgages.

Another big problem is that he’s thinking on a social scale. But economic decisions are made on a personal scale. I live in a condo with shared heat and water - at the end of each month, everybody in my condo building contributes equally to the price of those utilities. Not once have we all gotten together to decide to use less heat and water, and there are only maybe 20 of us; AND such a thing would be in our collective best interest (in contrast to downloading free music)! The community of people that listens to music is millions strong - the collusion required to make such a decision would be mind-bogglingly impossible.

The third problem is that his arguments assume long-term thinking on the part of consumers. But even companies do not truly think in the long term. In the long term we’re going to run out of gasoline, but I can basically guarantee we’re gong to deal with energy scarcity before we come up with a replacement. Similarly, the average guy downloading music isn’t thinking “I wonder what happens to the artist’s ability to make this music if I get it for free?” … he’s thinking, “sweet, now I don’t have to buy it on Amazon.”

Now economic arguments *are* always hypothetical - we understand economics about as well as we understand the weather. However, there is a clear mechanism here driving music prices down, and those market forces are powerful. That mechanism is simple: pay ~$1 per track, or pay $0 per track. Illegal downloads rarely have viruses, wait times to download are comparable to pay servers, there’s no real value added to downloading songs from a legitimate source, qualities are comparable … and thanks to the big labels, so is selection. You have to be *really* well-intentioned not to take advantage of that situation OR have an eye towards future sustainability on a social scale OR have a strong sense of community with fellow musicians/listeners - and so do 100 million other people. Sorry. It just won’t happen, no matter how much anyone wants it to.

A final caveat - I don’t think the market will drive the price to 0. I’m not sure what the mechanism will be that keeps it above 0, but I have a hard time believing that things are governed by only one dynamical force. But it is going WAY down, and those business models that do not adapt will go extinct. Capitalist forces are entirely Darwinian - there is no mechanism to support the notion of collective good espoused by eg. Communism or Christianity.
Cyndy Aleo-Carreira - May 20, 2008 at 07:05 am PDT

Keith, I agree with you. If the market price is 0, people will stop creating, because you can’t survive on air, and there are few acts who can play big arenas to make the big money.

I do think that DRM has to die, and the RIAA needs to back off. When the feeling of a consumer is that you will be prosecuted for ridiculous infringements no matter how honest you try to be, the incentive for being honest is removed. I pay for every piece of music I download, and yet they are still threatening to charge a monthly fee on my bill to pay for violators. Where’s my motivation to continue to pay? iTunes has shown that consumers are willing to pay for music when it’s easy to obtain. Now free it from the tyranny of DRM and the “pay for every install” when my husband and I would have been sharing a CD between us anyway, and I think things will work out just fine.
Mars - August 17, 2008 at 08:28 am PDT

“Keith, I agree with you. If the market price is 0, people will stop creating, because you can’t survive on air, and there are few acts who can play big arenas to make the big money.”

I don’t think that argument follows through. For that argument to work, we would have to think of musicians as primarily music produces, but in actuality musicians = performers. There WAS a model before distributed music came big, and that’s what I assume would once again become the base of income. Yes, only a few people can play the big venues, but that’s because only a few people can attract enough people to listen. In this way, distributed music acts as advertising.

However in the end musicians would continue to make money in the same way that they attracted labels to produce their songs, by playing venues and gathering a fanbase.
BillyG - December 24, 2008 at 08:57 am PDT

Kind of late to the discussion but I’ll add my 0.02$ anyhow.

The business model of making money off of the distribution of physical CD’s is dead. It’s a simple as that. It does not matter if it’s fair or if musicians can make a living anymore. Economics does not work that way. The marginal cost of production and distribution is zero.

The author’s idea to set a “fair” price is meaningless and misses the economic point entirely. Once a song has been digitized there no longer is any scarcity. It can be replicated an infinite amount of times. You can no longer charge based on the scarcity or the marginal cost of the product
BT - March 01, 2009 at 08:30 pm PDT

Even later to the discussion, but it’s a compelling topic. It’s now a year and a half later and the DRM arms race appears to be winding down with the outcome being that no, you really *can’t* give somebody the media without giving them the media. Another year from now, we’ll probably be reading the official obituary.

Paul, of course there’s value to the recording itself. It has a non-zero value. But once that recording is widely available, that value *approaches* zero. The average person will likely still be willing to pay a few cents per song for convenience and high quality tracks (rather than hunting for crummy dubs on p2p networks). But even a buck will be one or two orders of magnitude beyond the product’s perceived value. Arrington would be more correct in saying the price per song will *approach* zero, which it inevitably will. You can’t expect to charge for something that everyone already has.

Paul, your statement that musicians will stop creating music in the absence of label-funding flies in the face of your position that the recordings themselves are valuable. The reason that the recordings have value is because of what they do to the human being listening to the recording. The really creative humans make music for many of the same reasons the rest of us listen to it. As long as there are humans, there will be new music.

What is happening in the music world right now is that there is an entity attempting to extract rents from consumers without providing corresponding value. The market views this as an inefficiency–the kind it has an uncanny knack for grinding away over time. This is precisely why most industries tend to become service industries or disappear. A free market won’t bear a business model that relies solely on creating artificial scarcity.

I’m not making any judgments about right and wrong or fair and unfair. The market doesn’t discriminate. People just vote with their dollars for what they view as the best use of those dollars. They’ll still be willing to spend some money each month on music, but it won’t be 15 bucks a CD or even $1.29 a song. My guess is that it will be around 10 cents a track and that somebody will still be making gobs of money at that rate.
judge2.0 - March 10, 2009 at 01:19 pm PDT

A year later and…
It’s even easier to download illegal music
and it’s all worse than ever, although I guess thats a personal chose
apart from the amount of money it costs to print a CD (10 cents) cover (2 cents)
art cover - Depends- You still have to pay audio engineers, studio costs, pizza and pot, water, soft drinks, booze and smokes, oh yea instruments, the guy who has to clean up all that crap, the messengers who take the tracks to- assistant assistants, to give to assistants of “producers”- a very loose term, pools of people. Personnel departments, legal, executive, and bla bla. So sure it’s going to cost some money.
And like every other monopoly they learn to protect there business with pay-offs, campaign contributions, industry groups- which are still powerful, media companies tend to rally around each other when they feel the threat. As someone who works in the industry should I worry my job is obsolescent?
Sure, but I’m not as worried as when my global out look is controlled by the few to cater to the many.
- Grumbles…
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Paul,
I’m not a marketing guru but an average consumer who loves music. In this economy, it’s tough for many to afford the basics let alone the cost of a favorite CD. In addition, the risk of downloading “free” music is risky due to viruses. The above arguments that digital music is without value could equate to digital TV being without value as well. I believe differently. There is value in both and the price that you stated above,
“I believe the right range of figures for digital downloads in album format to be between $4.99-7.99.”
is reasonable for the average consumer. I believe this is proven with the success shown in the delivery model of Netflix. For price ranges similar to what you’re proposing, consumers have the option to watch favored movies in a variety of formats with price depending on the time of original release and delivery model selected. Netflix is reaping huge financial rewards in making the consumer the driving force behind their success, due to their opportunity for choice in delivery model, pricing, payment options and an amazing on-demand library selection with no risk of viruses. I see no reason why this same delivery model for music could not allow for a future “NetTunes” to be just as successful.

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