Freakonomics of Music
p2pnet news | Music:- It’s safe to say most people believe once they’ve spent $10-$25 on a CD, they’re entitled to do with it what they like, within reason and provided they’re not performing a genuinely criminal act, such as using their purchases as templates for counterfeit products.
It’s called ‘fair use’.
But the music industry claims this is ‘piracy’ – a combination of file sharing and counterfeiting, neither of which has anything to do with the other. And it’s causing terrible distress to industry workers and wreaking havoc with bottom lines, they cry in endless press statements.
People who share music files with each other without paying the music industry are criminals and thieves, say EMI (Britain), Vivendi Universal (France), Sony BMG (Japan and Germany) and Warner Music (US), the Big 4 labels which control the corporate music industry.
The Effect of File Sharing on Record Sales: An Empirical Analysis from Koleman Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer of the Harvard University Business School, effectively dismissed the assertion that file sharing is directly related to massive sales and, consequently, revenue losses.
Moreover, a new study says, “Fair Use exceptions to U.S. copyright laws are responsible for more than $4.5 trillion in annual revenue for the United States” and employs “millions of workers”.
Nor has Strumpf changed his mind. He’s quoted, in a New York Times OpEd written by Stephen J. Dubner of Freakonomics fame, as stating once again, “there is surprisingly little evidence to support the claim that file sharing has significantly hurt record sales”.
If file sharing hurts record sales, “then albums that are more heavily downloaded should experience lower sales than comparable albums that are less downloaded,” he goes on, but, “after controlling for the role of popularity, we found that downloads had little effect on album sales”.
He concludes:
As for the future, I am dubious about making forecasts. Much will depend on the choices the major labels make on key issues (will they run experiments to determine the optimal pricing of digital downloads?) and the arrival of still-unforeseen technologies (which could allow labels to more cheaply distribute music, or lead to new forms of piracy). At the same time, I reject the argument that recorded music is close to death, simply because the financial incentives to create music have never been particularly high. In 2005, less than one in five albums were released on a major label, and even among those releases, fewer than one in fifteen went gold (the usual measure of record success). With such daunting odds, recording an album may have seemed like a pointless task. But in that year, nearly 44,000 albums were released — enough to provide almost three consecutive years of listening. Regardless of what happens to companies that produce and distribute music, I am sure that recorded music will continue to be made.
But Strumpf isn’t the only person Dubner quotes.
He also has interestingly divergent views from Fredric Dannen, author of Hit Men: Power Brokers and Fast Money Inside the Music Business; George Drakoulias, music producer, artists & repertoire executive at American Recordings, and veteran of Def Jam Recordings; Peter Rojas, founder of Engadget and co-founder of RCRD LBL, a free, online-only music label launched by Downtown Records; and, Steve Gottlieb, president of TVT Records in his ‘Freakonomics Quorum’ entitled, What’s the Future of the Music Industry?
Head over to the NYT site to read what they have to say. For now, below are their conclusions >>>
Fredric Dannen
In 1999, I wrote an editorial for the New York Times predicting that MP3 was an unstoppable force that would destroy the oligopolistic power of the record industry. This paper did not believe me; the editorial ran instead in the Los Angeles Times.
It was an easy prediction to make. You can always count on the record industry to cling to the past, and to fight innovation. (Apart from resisting the LP, the cassette, and the CD, the industry also fought MTV.) The industry could have adopted and embraced MP3 as the new dominant format, had it understood why it was unstoppable. But the business’ failure to understand has been striking for its persistence. By the time Napster hit the scene, the industry had a Hobson’s choice: accept MP3, or die.
We all know what happened next.
George Drakoulias
A few years ago, I worked on a record called The Last DJ by Tom Petty. The songs on the album addressed the problems we are currently dealing with in the industry. I thought the record would be a wakeup call for consumers; but it’s hard to tell kids, ‘Eat your broccoli, it’s good for you.’ I’ll try to nurture new talent and make records that sound exciting, emotional, and timeless, and to bring some level of craft back into record-making, ensuring that the artists I work with have the ability to play live and move an audience.
One option that doesn’t seem feasible is making everything free and eliminating copyrights. Hopefully, someone smarter than I am will come up with the right formula to get music to consumers in the way that they want it, and to collect fees that are distributed accordingly. I hope that person shows up soon.
Peter Rojas
The Internet, combined with low-cost (or even no-cost) digital tools, has led to an explosion of creativity, with millions of amateurs making music for every conceivable genre, sub-genre, and microgenre, and then sharing their creations online. Andrew Keen might look down on these results, and no doubt 99.9 percent of the music being created today is terrible; but that’s besides the point. Even that one-tenth of one percent means that there is more great music being created than any of us will have time to listen to — and that’s not even taking into account all of the ‘professional’ music that still manages to get made. Many professional artists are discovering that, regardless of how well their music sells, they’re still able to make a healthy living from live appearances, merchandise, and licensing — and the Internet only makes it easier for them to build a fan base. It’s the Britney Spearses of the world that are hit hardest by all of this change. Manufactured pop doesn’t do quite so well when consumers have better options to choose from.
The majors thrived in an era of artificial scarcity when they were able to control the production and distribution of music. Today, we have an infinite number of choices available to us, and when content is infinitely abundant, the only scarce commodities are convenience, taste, and trust. The music companies that are successfully shaping the Internet era are recognizing that the real value is in making it easier to buy music than to steal it, helping consumers find other people who share their music tastes, and serving as a trusted source for discovering new music.
Steve Gottlieb
… if we accept that free music has become the model for consumption, then we have little choice but to invest in advertising-supported free services that will make this type of consumption profitable. This step will require patience, leadership and a long-term view. After formulating a way to recapture the revenue it’s losing, the industry can then address the development of a new, secure file format that offers audio, meta-data, and other digital features superior to those of MP3s. This should be an easy task, and will give the industry access to both ad-supported free ‘iPod quality’ MP3s, and higher-quality digital products that can be sold directly.
Unless the labels actively reinvent themselves and embrace change, they will continue to find themselves in an expanding music marketplace that rewards their efforts less and less.
Also See:
$4.5 trillion in annual revenue – ‘Fair use’ pulls in $4.5 trillion, September 20, 2007
New York Times – What’s the Future of the Music Industry? A Freakonomics Quorum, September 20, 2007
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