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Economics of File-Sharing
Umair writes "The Red Herring's got an article by me about the economics of file-sharing, which argues that the music industry should provide insurance...against itself. This is because the contract listeners sign with labels is risky - it lets labels shirk on their end of the bargain. That's why file-sharing isn't just 'theft', it's risk-sharing.
The original, longer, version of the paper is here, which argues that this a situation economists call double moral hazard."
They should just pass a law to force everyone to use 14.4K modems unless you own the totality of the music owned by the RIAA members, and still have the original bill, of course.
Or sue "teh interweb"
Both of the linked articles make a compelling case that consumers embraced file-sharing as a form of insurance in a situation of moral hazard. What the articles don't explain is why consumers would be willing to move away from file-sharing toward any of the various proposed contracts.
Anything worth doing is worth doing badly -- G.K. Chesterton
a double moral hazard would be an evening with the Hilton sisters.
BTW, has anyone recieved their settlement check?
Pass legislation establishing a breif hunting season on lawyers representing trade associations.
Such a system might, for example, reimburse listeners for a certain amount of music that they find unsatisfactory with cash, free music, or music vouchers.
How does one define "unsatisfactory" with music? Kind of complicated to measure.
File sharing is not simply theft.
Correct. It is not theft, it is copyright infringement, a civil issue. You can't go to jail over it, but you can over theft.
In an extreme case, the labels might begin to impose costs beyond the actual search and production costs for which listeners are actually interesting in paying just to feed the bottom line. That is exactly what the recording industry did well before file sharing existed. The result? Alienated and disgruntled customers.
And the industry continues to do so. It hasn't reduced prices since CDs came into existence, which is at least curious, since the cost of pressing those CDs must have dropped through the floor since then.
Also known as damned if you do, damned if you don't.
sarchasm: The gulf between the author of sarcastic wit and the person who doesn't get it.
The truth of the matter is, I feel no qualms whatsoever for downloading musical files (actually I probably dont listen to any label that is part of the RIAA anyway)
./ers with super high speed connections sharing high quality files.
This is the crux of the problem, although they have scared the P2P Kazaa kiddies off with the RIAA's actions that has done nothing but make the P2P more well run and it is now the dominion of
An analagous situation can be seen with the "War on Drugs", all it has done is improve the quality of the drugs being used!
Post apocalyptic gaming goodness
Moral Hazard implies that the record companies have morals.
They don't.
risk sharing isn't supposed to scare you into doing anything. It's supposed to explain why you feel compelled to spend time searching for and downloading music on the Internet.
You don't trust the record companies or agree with their price structure. So you go around them... betting that your time is worth less than the extra money you're spending for the "service" of the record companies packaging and delivering it to you.
He's basically saying if the record companies stopped being such tight-asses and gave you the benefit of the doubt, or cut listeners some slack with well-thought-out services, then it wouldn't be an issue (duh).
Fuck Beta. Fuck Dice
What if, for business reasons, the labels are more interested in their own economies of scale and brand identity than providing listeners with music they value?
I don't think the music labels are big on making themselves a brand identity. Aside from text in music videos, and small icons on cds, they are not recognizable to most. A brand identity implies that everyone knows the brand, even if they have never used the product. Coke can be classified in this way, since it is one of the most recognizable logos around. -Kilka
If we don't believe in freedom of expression for people we despise, we don't believe in it at all. -Chomsky
The author seems to be implying that people will change their habits, either by choice or by legislation, based upon an obligation to the artist or recording label. With something so abstract, the cited economic principles don't necessarily apply here -- the good can be replicated at almost zero cost, unlike stealing something else such as a lemon from your local grocer for example.
In the case of stealing from the grocer, morality is somewhat different because the lemon pool you are drawing from is finite and depletes the supply. But copying a bunch of data to your 120G hard drive that is only utilised to 20% has no perceived cost and does not deplete any one else's resource.
The issue is more complicated than what is stated, and the equalisation schemes suggested do not take away from the fact that downloading a piece of data has almost no variable cost. Do economics work when 0 is in the denominator?
I'm not trying to slam on you, but you didn't read either of the articles so set yourself up. You don't understand the principal agent problem or what he means by moral hazard. When economists talk about moral hazard, they're speaking of incentives, not about going to hell. And risk sharing in this manifestation is something you're supposed to like--it upsets the labels not consumers.
The problem is with the way we buy music, but have no ability to return it if it sucks. So the music industry has no incentive to make the product satisfactory, so long as they can find a way to get us to buy it (albeit making the song good is a good way to make us buy it). So music pirates' response to this is a form of risk sharing--We diversify the risk of a song sucking over everyone who downloads it. Because we have pooled our resources and invested less in any one product, we have less unique risk (from bad mp3s). It's not a very good analogy, but it makes some sense.
From the Article.
Is there a way out of this mess? Can the record industry offer it's own insurance, so listeners do not have to file share? Can it do so without creating a double moral hazard? Yes - by shifting to a more sophisticated contract.
I'd rather just get the RIAA out of the distribution side of music, they don't belong on this side of the fence. With the RIAA trying to control the distribution channels, they just strangle new technologies and screw the artists who they supposedly support.
With Senator Orrin Hatch the riaa whore and Corporate Elected Criminal is just trying his damnest to go after these p2p users, using piracy as an escape goat to mask the problem that only concerns the RIAA. Control of distribution.
iTunes and Napster2 already show people will buy music online. Just need to get more Indie/Alternative music available, which even cuts more into RIAA funds.
I agree that it is an interesting article to a certain extent, but is quite fallacious bullcrap.
His thesis is akin to claiming that capitalists are the cause of poverty in the huddled masses and therefore communism will serve us best if we all give our best for the communal good and reap returns collectively. People just don't think like that. A free lunch is a free lunch, and nobody much is going to worry that if s/he as an individual stops paying, who is going to be our collective agents we entrusted to create and hone artists to supply the general public with music.
How about reading the article so you understand the terminology before you go on a rant that makes you look like a fool?
I think the author is overthinking the problem. It's not about insurance, it's about new technology vs. old marketing and distribution .
The RIAA is fighting a losing battle trying to defend an obsolete marketing and distribution system against change. The problem is that history has shown this to be a battle that can't be won. The best they can do is stall for time.
If they were smart, they would evolve to make money with new technology, marketing, and distribution.
Thier volume would dramatically increase and they would make a fortune. People have money to spend, all they want is some customer service and a good product.
Visit the best Liberal Blog: DU
Even though it's becoming intolerable, it's not the whining of the music industry that bothers me most.
What bothers me most is that premiums on automobile, homeowners, life, and health insurance are going to be steadily raised to cover the losing business investment in recording insurance.
No matter which way this goes the consumer will end up paying from both ends and the pyramid will continually funnel the money upwards.
+++ATHZ 99:5:80
This is bullcrap. If I don't care and feel no moral object to downloading music, why would 'risk-sharing' upset me. I don't even know what risk sharing is!
The moral impact of downloading music for me is ZERO, in spite of what some MBA monkey tells me. 'Risk sharing' isn't going to scare me into sharing less.
I understand the author cites Risk Sharing as a primary reason why people aren't buying music. Read the article, and you can see some definite implications of record companies' misjudgements.
The author claims that the reason why people aren't buying music is that because they don't know whether it is any good. This risk, the risk that the music you just bought for $18 totally sucks, is the risk he talks about.
When he says that people are mitigating risk via file-sharing (i.e. risk-sharing) he implies that by one person buying the cd (or taking some other cost to self, including risk of legal action) and distributing it to others, then others get to "try" the music without risk.
Of course, this brings up the fundamental problem which I believe lies within--Are people willing to pay for music? Currently Steve Jobs and others are trying to prove their particular answer.
"moral" here is being used in the sense it is used in "moral certainty". The contrast in both cases isn't moral as opposed to immoral, but moral/practical as opposed to theoretical. A moral certainty is a practical certainty, a certainty great enough for to determine one's action, but not enough for a mathematical demonstration. A moral hazard is a practical danger, that is, one's action puts one in danger.
It's just how academics talk.
Anything worth doing is worth doing badly -- G.K. Chesterton
I like having the CD. I like having the case, the nice ink on the disc, the booklet, the extras like Daft Punks download offers.
When I do download off the net, it is not infrequently followed by purchases at a store somewhere. Maybe the same songs, maybe the same artist, mabey different mixes. Stuff like VS tracks I haven't been able to find retail, certainly not in compilations.
But again, it's not a suprise to me. I first heard both TMBG and BNL off of boarrowed cassette copies. Eventually I was able to barrow a copy of Apollo 18, now I own something in the neighborhood of 20 TMBG cds have gone to concerts and lament the fact I didn't get to grow up listening to them. BNL, the story isn't too different, aside from the lower album count. I bought the Saturday Morning Cartoon CD, because it has a song called Speed Racer on it, and I thought MAYBE it'd be Go Speed Go by Alpha Team. It wasn't but the CD didn't suck either.
Which ties nicely into the article sparking this thread. I pay the distributers to find the music I want to listen to. There job is to search for me. And they failed miserably with Go Speed Go. It was a hard song to find. I spent a lot of time looking. So what exactly AM I paying them for in that case? It certainly could have been harder, but it could have been much easier too. The stuff I want is getting lost in the stuff they're telling me to want. As I suspect happens with almost everyone who's not 13 to 15.
So how to I redress that imbalance? I share, I download. If it's something I really want, I buy. Not only do I take on the responsability of searching for myself, since they've abandond me despite my willingness to spend money, and I punish them for not keeping their part of the deal. I download stuff I think friends might like. I share copies I decided I don't like to improve network availability for those who do like them. And the random good song from the people who produce one decent song, and nothing else but crap, I just keep. It's my tax on them.
When they decide to live up to their part of the bargain, I'll consider revisiting mine. They better hope I don't get too set in my ways. Habbits are hard to break.
The business model works like this:
1. Create catchy sounding music by whatever means necessary, doesn't need to be original or high quality, just needs a hook.
2. Play it on the radio and tv, push the musicians into the public eye with advertising
3. Clubs, shops, other tv/radio stations etc will start playing the song because everyone else is, at this point you have successfully made a 'hit'
4. Sell, rake in profit
After a set number of years a song will have left most peoples memories so it can be 're-released' using its original familiarity to create an instant hit, you must make sure that the re-release or re-mix has an extra underlaying beat or melody or is faster or louder so that the original pales in comparison and people will buy the new song, alternatively parts of the melody can be broken down and re-used as scrap - you will probably notice scrap melody in anything by Blue or Justin Timberlake and many others - it sounds like something you've heard before but you just cant put your finger on it.
And remember the all time rule of the entertainment industry: If it worked the first time, do it another 10
(Big Brother, PopStars, Making the Band, Generic boy/girl bands that all sound the same, teenage girls that all sound the same, Changing [rooms|places|clothes|wives], Im a celebrity [insert something here], The worlds worst x, something island x, Airport/Cruiseliner/Hospital/Cops)
PS as a brit im really sorry for Popstars, but here we now have Fame Academy 2! its much worse and they dont even have that cool guy that tells everyone they're shit. I think we just finished Big Brother 3
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So some guy that used to work for the World Bank wants to make a market more efficient. Surprised?
Of course, as whirled bank types are wont to do, they might actually distort reality to make their models fit onto it.
He recognizes early on that the labels are expected to "take on the risk of talent search, artist development, and distribution costs, in exchange for profits", but then only focuses on talent search.
Downloading files from Kazaa is not doing the work of a talent scout: it is about getting stuff for free. Pretending it's about being a talent scout is laughable.
Also, who's doing the work of artist development and music production (those mp3 are usually recorded in studios...)? The problem is, the labels are often shirking those responsibilities too.
I recognize that downloading copyrighted music is illegal. I also think it served a good purpose: CD prices have gone down - at least in Canada - and we are getting better legal ways of buying music.
While his description of the problem stinks, this is a case of "moral hazard" if that's what you want to call it.
His solution has some merit in that it might encourage labels to try developping unconventional artists (assuming most of the people that hear the songs decide to not ask their money back, and that this type of contract makes them more likely to try new things).
OR - You could of course just provide free music- radio is after all one way to do that, and all the label types know that radio play sells albums.
We don't need new contracts so much as new business models. Keep providing free music, since that works. Also take advantage of new distribution (bye bye music stores with underpaid staff, hello iTunes).
And use all this to promote live music. Since it's easy to keep track of what people buy, you can tell them when their favorite bands are playing near them. Is this so complicated?
Of course, this type of arrangement might be the death knell for large labels... in a market like this, you could arrange to have smaller regional players.
Umair Haque's proposal seems custom-designed to evade most of the issues, and keep the big labels alive. I'm not so interested: they've proven to be companies that don't care about art or artists, and are willing to gouge consumers. Enough!
Information: "I want to be anthropomorphized"
When the dollar amount goes to zero, you evaluate a choice by how it affects your perception of yourself, and how it affects the possibility of future tangible assets. In this case, yes, the dollar cost to the consumer is near zero. However... there is a perceived dollar benefit (not having to buy the music) plus a perceived moral benefit, because the RIAA has been acting like the bad guy. The RIAA has been trying to counter this by upping the dollar cost (suing) rather than upping the intangible benefits. If they dropped the dollar cost, this would up the perceived moral value of keeping the RIAA afloat. But because they've become accustomed to dollars-only economic measures, they aren't likely to get this soon.
The other major factor here is that customers aren't just ditching the dollar cost- they are choosing to offer it more directly to the producers (in the goods sense, the producers mean the musicians and the small labels bringing them to market.) People aren't just ditching music. They're trading and sharing- and many are contnuing to spend, just in ways that don't benefit the RIAA. So the perceived-intangible-value really is getting a field demonstration.
"I'd say 'Have a good time,' but arson is still illegal.
Music, video, and software are all obvious examples. Why buy music one can record from the radio virtually free? Largely because its a hassle and takes time. Why go to the movies or rent a DVD when you can just wait for it to come out on TV? Again, time spent watching commercials and the inconvenience of scheduling are worth more than the few bucks. Why pay the M$ tax when you can just download linux for free? Because it takes time to both do it and acquire some technical knowledge.
from what I can tell, the central premise of this article is
Many people were more happy to spend time searching for new music on the Net and compiling their own collections - a service previously performed by recording companies - than they were simply buying the goods the industry selected and promoted by the record labels.
This I would argue is fundamentally incorrect. People use file sharing to download music that they are already aware of, and specifically, the more aware they are of it, the more they download it. So they are still very much 'buying the goods the industry selected'. But, in this case, they are stealing, not buying.
hmmm ... restaurants that had a return policy on food after eaten ... hmmmm fully proccessed or partial ... on second thoughts I don't want to know or see that!!
in my life God comes first.... but Linux is pretty high after that
Francis Smit
No, no, no. "Moral Hazard" has nothing at all to do with morality. In fact, it has to do with exactly what it discussed all the time here: Giving the record companies incentive to do what the public wants, while not giving the public too many rights, and allowing the public to bankrupt them when they are doing their job.
Read the damn article.
Slashdot gets worse every day... Pipedot: News for nerds, without the corporate slant
Drop prices, sell say 3 or 4 cds for $10.00, thats how I buy a lot of books, if I want to test drive new authors etc, go to the supermart, or shop that sell the end of run/failed stuff, at 3 or 4 for $10.00 I can be confident I buy at least one that I would have paid >= $10.00 for. The recording industry have priced themselves out of the game, and there too dumb to see it.
in my life God comes first.... but Linux is pretty high after that
Francis Smit
But their efforts in Congress and the courts are useless. They're just breeding smarter file sharers. Especially those in the technology business, people who have maybe worked on projects together over the years. A group of friends who exchange playlists the old fashioned way: ASCII text. They can swap songs and entire CD's in compressed, encrypted formats because we- I mean they -don't make their collections available to the public and know enough about transfer protocols to make detection damn difficult. Or maybe they snail mail CD's, thumb drives or USB hard drives for the really big jobs.
As usual the bullies pick on those least able to defend themselves.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
I don't care and feel no moral object to downloading music... I don't even know what risk sharing is!
do you live in America?
The article talke about how customers can now simply go out and find their own music on the net, rather than rely on a brand to determine what is good music so they can sign them. Does anyone else think that that basically says it all? Labels are obsolete in their current form. What services do they provide, exactly?
CD stamping? Cost has become so cheap that it's hardly part of the equation.
Promotion? I suppose, but at the cost of an artist's livelihood. In effect, the artist is paying for it anyway, so they could just hire an advertising firm and be done with it.
Talent selection? OK, if this were the case, would we not all be listening to at least a portion of the top 50 most of the time? Why is it then that many artists that aren't signed to a major label become cult phenomenons on the internet?
Places like Magnatune try to advance the definition of the record label to something more useful, and I sincerely hope they succeed. But to the rest of the labels, my message would be simply evolve or die. Because if you don't evolve, you're simply not going to get my money one way or the other.
It's better to vote for what you want and not get it than to vote for what you don't want and get it.
- E. Debs
"His thesis is akin to claiming that capitalists are the cause of poverty in the huddled masses and therefore communism will serve us best if we all give our best for the communal good and reap returns collectively."
How do you get that?
He says that the prices are controlled by the music distributors and therefore aren't giving any information to the consummer. So the consummer dosen't have any indicator as to the product is worth it or not.
So people decide to mitigate the risks of having crap sold to them by going getting their music themselves.
It's true that some people will continue to download music freely off the internet. But if people have a reasonable choice they will pay a reasonable price.
"A free lunch is a free lunch" is crap
I know that if record companies charged me to find artists, "hone" them and knew that THAT was there jobs, instead of trying to force created artists and force them down my throat, I would pay.(As I do when it is the case.)
Strioa
I feal sorry for whoever bkeffer@thecommandline.org. Hopfully must the people on here are smart enough to realize it's a setup. And not flame some poor fool.
To pick a few points:
(...) There is no monitoring mechanism, so listeners cannot tell what the labels are doing; conversely, labels cannot really tell what listeners' preferences are.
To start, of course labels can tell what listeners' preferences are:
1) Focus Groups/Market research
2) Sales Charts
3) Payolla effectiveness
On the other hand, listeners do not know less about what labels are doing than, say, drivers do about what automakers are doing. In both cases the final output offered to consumers is the monitoring mechanism.
In an extreme case, the labels might begin to impose costs beyond the actual search and production costs for which listeners are actually interested in paying (...)
And, in any case, how might they not ? For any price above zero there are always listeners for whom the price is "beyond what listener is interested in paying".
The problem is compounded because music is an experience good - its value is not directly knowable to buyers until they have begun to consume it.
I can hardly think of a good more experienced before purchase than music. Even before napster. Its not like looking at a brochure for a caribbean cruise.
(...) it is important to note that the mechanism used should make strategic sense, (...) for example, reimburse listeners for a certain amount of music that they find unsatisfactory with cash, free music, or music vouchers.
Strategic sense ? Does this article sound like a consumer advocate making believe that what is good for the consumer is automatically good for profit oriented corporations ?
Quem a paca cara compra, paca cara pagará.
"People would be willing to pay for better service. In fact, they already do. Witness the amazing success of the iTunes Music Store thusfar. This is in spite of the fact that people can download the same songs for free. More reliable searching, faster downloads, and consistant quality are worth about $.99 per song to a heck of a lot of people."
And yet iTunes is a loss-leader for Apple.
Guess there isn't enough "paying for better service" customers.
You are doing the work, doing a search, finding, listening, discarding or keeping and listening.
Executivus Obsoletus. Went extinct because he couldn't keep up with changes in technology and the marketplace.
Given IBM's support for Linux and stance against SCO, I am currently in favour of their opinions. RIAA, hurry up and die. Your customers need a fresh sound. Badly.
File-sharing is as much about risk-sharing as it is about the 'theft' of value.
So it's still about theft of value then. Which makes it wrong. Thanks - next article please.
>I understand the author cites Risk Sharing as a primary reason why people aren't buying music.
I got that too and I don't believe it.
I feel no contract/bond with a record company. I download things because its free. Period. "Risk of me liking it or not" has nothing to do with it.
Lets take a look at singles or a entire cd I heard in a store or from a friend. I know exactly what I am going to get. No risk in buying music I may not like. I heard it all. Either I like it or I don't. There are lots of different ways before mp3 ever existed that you could have elminated the risk.
So now that I know I want it for my personnal use, do I pay $18 and get a nice cd with pictures or pay $0 and burn my own cd?
Thats what it comes down to.
The surprise isn't how often we make bad choices; the surprise is how seldom they defeat us.
So it's ok now? Great!
The increasing consolidation of control of radio stations is another factor that has contributed to the economic "moral hazard". With behemoths like ClearChannel controlling a large chunk of the radio market, the local DJs who know about what their listeners want have less freedom to decide what to play. As a result, what they play more reflects who the RIAA execs have decided will be their next thing (or yet another album from the last big thing), instead of reflecting what listeners want. So we have the same songs by the same artists being played over and over and over again.
The current arrangement with the media conglomerates and the airwaves hurts both the public's ability to find out what is good music and the propensity of the producers to find out what the people want. They are more concerned with pushing a predetermined set of artists who they deem shall be successful, than they are with finding out what people like. So people will turn to file-sharing where they can find lots of good music that they would never hear on the radio.
---------
There is inferior bacteria on the interior of your posterior.
Buyers don't lack information with respect to music: if word of mouth and reviews weren't enough, you can now preview CDs on sites like Amazon. With that, most of the rest of the argument seems to collapse, and there are other holes in it as well.
At the time of the article they had not covered the development costs of iTunes. This is not the same as a loss leader. As they will eventually reach a point where the development is paid for, and they will make money. A loss leader is used to atract business an move other products.
The author assumed that media companies mediate between consumers and artists. Another major factor is that media corporations mediate between both consumers and artists and government. The very existance of copyright laws is a mechanism created by government. Other societies have sometimes used other mechanisms to fund the arts-for example in the old Soviet Union, artists received a stipend from the state. In the 1700's, artists such as Mozart would sometimes find patronage from members of the nobility.
The copyright laws in the United States today go substantially beyond the mechanisms first mandated by the constitution--the concept of "limited time" for Copyrights is getting streched. I personally don't think the Founding Fathers really meant for Copyright to be such a big part of people's lives. Had they understood how information technology would evolve, I think they'd have wanted a substantial mechanism for funding freely available educational and cultural material--just as much as they wanted infrastructure like roads and bridges.
Instead, what we have now are major media monopolies that actively work to get greater concessions from government and media companies that are major recipients of corporate welfare.
While I agree with most of what the author has to say, I think there is one component of the problem that is being overlooked. The artist (aka the manufacturer of the goods found by the agent) is still getting screwed. While insurance or contractual obligations related to the quality of the product may make the principal more satisfied, the manufacturer is still getting very little profit.
As a result, I don't think fixing the distribution side of the problem is enough. The agents in this equation can serve a useful purpose - finding quality music and providing it to the masses - but they need to do it fairly. This is only recently the case; as the author points out, file-sharing has enabled the current situation. Now that iTunes and the likes are beginning to show that direct distribution can work, I think the record labels need to get back into going about their business legitately. That means finding music that really is of decent quality, knowing what consumers actually want to listen to, paying a decent price to the musicians and charging a fair price to the consumer.
Sure, I can go out and browse music online in hopes that I'll find something I like. And, when I have time, I probably will. But when I don't have time, I'd like to know that the people who are being paid to take care of that for me are actually doing their jobs.
Crazy Cheap Domain Hosting!
People buy music for 99 cents a track for three primary reasons:
1. Because it's cool
2. Because they're afraid of RIAA subpoenas
3. Because they're too dumb to run a filesharing program
That's it. Myself, I don't think compressed music is worth 90% of the price of uncompressed music, especially considering the fact I don't get the original artwork. I've bought a couple of tracks on iTunes, though - the ones I couldn't find on CDs. For everything else I use Half.com.
> Let's go through core numbers for the capitalist model
Sure. Let's also include the concept of "amortized cost", which simply means "if it costs me $1 million to buy an apple orchard that produces 10 million apples, I'm going to charge an extra $0.10 per apple to make that up, not $1 million for the first apple and $0 for the rest."
Amortized cost is at the core of intellectual property, and is something that a great many people appear to want to gloss over. If discovering a new anti-cancer drug costs $1 billion, either companies have guarantees that they can make that money back, or there are no new anti-cancer drugs without massive government subsidies. Because the key to the drug is _knowledge_ - any pharm company can manufacture it once they know how it's made, and we all know how well security-by-obscurity works - these guarantees need to be legal in nature.
Of course, you could say that music production doesn't need to follow this model, and to a large extent you'd be correct. That still doesn't give you any right to break the law and take something that doesn't belong to you. If you want free-as-in-beer music, put your ears where your mouth is - download indy music and go to their concerts.
Otherwise, you're nothing but a leech, and just as greedy as the RIAA.
I'm not exactly qualified to pick bones with this guy on matters of economics, but I have to, because he's completely wrong.
He says that music pricing needs to vary in order to convey information to customers about what they're getting. But the value of music isn't intrinsic to the music. What I may be willing to pay $1.25 for, you may only be willing to pay $.02 for. The fact that the RIAA has valued this particular song at a given price tells me nothing about its value to me. The complete inaccuracy of this detail of the article is borne out by the success of the iTMS in the face of various other services, such as buymusic.com, that have failed miserably despite variation in their pricing schemes.
The idea of variation in pricing won't work because songs are not interchangeable. When I'm shopping for a piece of hardware, I might pass on, say, an iPod, because a cheaper device will do basically the same thing, and I'm willing to get a lower-quality device if I can pay less for it (actually I'm not, but that's another discussion). When I'm shopping for music, though, I'm not going to say, "Oh, that Dylan track is too expensive--I'll buy this Radiohead song instead." One song is not a replacement for another, or I wouldn't have 12,000 of them.
The way to give customers information about what they're buying before they do so is not through pricing, in this case, but through recommendations. If I buy a zillion Dylan albums, several Simon & Garfunkel albums, a few Pink Floyd albums, and some Tom Petty albums, the iTMS should say, hey--maybe you'd like to try some Weezer. It should keep track of what I buy, how much I like it, and what I might like based on comparisons of my history to those of other users. Then, maybe I would use it a bit more. Instead, it's simply the first place I look when I have something specific in mind that I want to buy. If it made recommendations, Apple would be convincing me to buy music when I otherwise would not; instead, they're convincing me to buy music from them when I would buy music anyway, which is a lot less effective.
I found the meaning of life the other day, but I had write-only access.
"Fundamentally, I'm going to argue that consumers download music, as much to derive extra value from getting something for free, as they do because they want insurance against buying something they didn't want in the first place. File-sharing is as much about risk-sharing as it is about the 'theft' of value."
;)
The article addresses market failure through the lense of information asymmetries, moral hazard and agency costs. These explainations are classic economic (Ronald Coase) explainations of why there is a failure in the music market. Yet, the fundamental argument of this paper - that double moral hazard and information assymetries cause market failure in the music industry - misses the fundamental point of market failures in ALL information markets(software, music, art, books, etc).
Information goods resemble public goods. Consider the three tenet assumptions in properly functioning markets. The assumptions are 1) that the good is rivalrous, 2) that the good is excludable, 3) that there is full information when purchasing the good. Combinations of these three assumptions results in various types of goods, which require different economic models to solve. For instance, if the good is non-rival or non-excludable, the good is considered a public good. Some examples of public goods are public parks, the sun, air, etc. These types of goods are non-rival because your consumption doesn't deplete the good such from other users/consumers. Likewise, these goods are non-excludable because it is very hard to put a fence around it, and hence, rationing such good by a price mechanism.
Now, consider information goods in this sense. Information goods resemble public goods because they are non-rival and non-excludable. My consuming the information doesn't deplete the good and prevent others from using it and excluding others from consuming information (putting a fence around information) is very difficult. The fundamental problem within the music market is that we have a market failure from the start precisely because music is 1) non-rival 2) non-excludable.
The author tells us a story about the music market needing risk insurance, yet fails to consider the very notion of economic exchange in information goods. The problem with music is this. Consumers want music and indicate their preference for music by voting with their dollars. Yet, when the marginal cost of distributing the good is nil, and those that shouldn't be excluded from the market are being excluded, we have a problem. When you want to reward creators of music, and not exclude anyone from the market without specific reason, what is the right price you should sell your music?
I agree that there are problems with value indicators, (i.e. price of all music is the same ($12) and consumers can't reward music creators based on societal value), but I still see some fundamental flaws in his argument.
So who's working on the economic problem of information goods? Enter Suzzan Scotchmer, Brad Delong, John Zysman, Steve Weber, and Hal Varian.
These people are all Berkeley professors who discuss micro/macro level frameworks that give us tools for thought in information markets. There is an academic revolution going on at Berkeley and I'm very thankful, I am here to witness it.
For your reference, I am an undergraduate at UC Berkeley and have studied information economics for some time now. More information about me can be found here: www.dyoo.tk
Haven't you seen Die Hard?
I found the meaning of life the other day, but I had write-only access.
I don't know about you guys, but I don't download music because I want insurance or whatever... I do it because I don't want to give my money to huge corporations if I can in any way avoid it
There was a solution to this, it was called The Box. http://web.archive.org/web/19990508072724/http://w ww.thebox.com/index.html
Unfortunately MTV bought us out, had us develop Control Freak, and then closed the company.
Many bands who would have gotten no TV-play got airtime by their fans calling a 900 number to see the video.
Hell, I met more stars than I remember back when they were nobody, and they were happy for an alternative to MTV, one which couldn't control the amount of air-play they got.
Rick DeBay
1.give the artists more money. If this is done, the public might be more likely to buy instead of pirate. (since they know that by buying their favorite artist gets more money and is encouraged to make more songs)
:)
2.better music. If those artists with REAL talent (as opposed to those with no tallent that only get support because of their good looks or whatever) got support, people would buy because its good. For example, I recently bought a CD full of Australian songs because the songs are good and the artists are GOOD.
3.cut out the middlemen and lower prices. Particularly, end the monopoly cartells and aggreements that keep CD prices artificially high. If CD prices fell across the board, I would buy more CDs.
The fact is, I wont buy even one CD if that one CD is going to cost $30 (australian that is) or whatever. But if the cost of the CDs I want came down from $30 to $20 or $15 or something, I would probobly buy more than one of the CDs on my want list. I might actually be tempted to buy stuff I have currently got in my "downloaded songs" collection (especially if that stuff was on the same CD as something I havent been able to find
4.Forget Copy Protected CDs (which actually have the opposite effect in that people will be more likely to download the songs, so they can have them on their computer and play them in their playlists or so that they can rip them to a portable device or whatever).
Also, forget DRM protected music files. Firstly, any song that is offered for sale on online shops will almost certainly be available on P2P anyhow. Another "anti-copying" measure that could be taken for "legally downloadable" songs is that the files could be watermarked with something like the username or ID of the person buying it. Then, if it shows up on P2P, you know who copied it from the shop to P2P in the first place and you can sue them.
5.better offerings on the physical medium. Surely, making a system where you can buy by the track and then have the tracks you like burned to CD in regular CD audio format (which could then be played on regular CD players) is fesable.
I suspect this would probobly work better having this done by the record company as a mail-order thing than having kiosks in the stores though.
and 6.finally, do what the Computer Games industry (and to some extent the Movie industry does) where music that is less popular or older or whatever is cheaper.
One of the things I miss about the glory days of Napster was being able to look at the entire list that someone had shared. Currently you can really only look for what you're already looking for and can't easily find new music. Let alone find something you really like. It's free, but not ideal by any means.
...well... ...could it really get any worse?
One summary of the article is simply "selling individual tracks alone won't cut it." Selling individual tracks at a reasonable price with guaranteed quality and availability is not enough.
If they can introduce listeners to music they may like but do not yet own, then they will succeed. If not...
Rule #1, people are stupid. There are no exceptions.
If you already own the music, is it legal to get MP3's of that music off the internet?
In my case, it would be a collection of around 100 tapes (not CDs, but tapes). The tapes still work, but obviously it isnt the most convient media format. Would it be legal to just get higher quality files of that music? Or is their contention that you dont own a license to the music, but are tied to whatever media you purchased it on? Im sure this runs into what boundaries there are for 'fair use', but IANAL.
Manipulate the moderator system! Mod someone as "overrated" today.
It gets pretty tiresome to see all of the "analysts" posting why they think P2P apps are popular when the real truth of the matter is that humans as a species will choose the free route to obtaining goods and/or services whenever possible. Hell, even those that know that what they are doing is wrong will still download the music for free. It's not "really" illegal if you don't get caught and you are only hurting a big mega monopoly and not some poor individual.
Sure, services like iTunes are selling tons of music, but I would wager my services as a fluffer for the gay porn industry that the iTunes buyers are the same people that have bought music legitimately all along and the "Napster" thieves will never buy music no matter how cheap it is as long as it's available for free elsewhere!
"The strong will do what they want, the weak will do what they must."
-Thucydides
And even if the art was lame, you could still use the cover for sifting the seeds out of your pot.
when you go in for the kill, you might find someone else's dick already there.
Try cleaning marijuana on a CD jewel box. Impossible!
To catch everybody up to date on the economic terms being used this week:
The record companies are rent seeking.
The record companies and listeners are both operating under moral hazards.
And what you are describing is the listeners fulfilling the tragedy of the commons.
The musical publication landscape is itself a commons. An individually himself doesn't bear all the negative effect of violating copyright laws, but instead that cost is spread out to the entire music industry, all artists and listeners.
I think the saying goes, "Those who do not know economics are doomed to reinvent it," but I think that had something to with history and not econ.
Water is the best example I can think of. It's available out of the tap for virtually free, and the free stuff quenches your thirst just fine! Yet, the bottled water industry is worth BILLIONS! Why? Several factors. One is convenience. Bottled water can be taken along, easily refrigerated, etc. Second is taste. Whether it be true or not, the PERCEPTION is that if you pay for water it must taste BETTER!! Third is purity. Though city water must meet strict purity standards, people believe that bottled water is better, even when it's tap water that's simply been filtered again. Fourth is flavor. Though people can put their own lemon juice into tap water for a nickel, they still happily pay over a buck for a quart of water with: 'essence of lemon'. Fifth is style. People perceive certain bottled waters with 'cool'. Look at Perrier. Or Pellegrino. It sells for three bucks a quart bottle. Tap water is for mixing with scotch. Perrier and lime are for drinking INSTEAD of scotch! The reason water makes so much money is because the bottled water industry created the need and then fufilled it. They didn't do it by calling their customers idiots for drinking tap water, They did it by telling their potential customers that drinking bottled water is the SMART, COOL thing to do! They created PERCEIVED VALUE for their product. The RIAA does just the opposite. They call their customers crooks and swindlers. They foist crap music upon them. The container they put their product into hasn't changed in a quarter century even though there's a HUGE demand for a smaller, more convenient one. Then they wonder why people are drinking 'tap water' from kazaa. There's no reason why the bottled water example can't be used for selling music. The record companies just need to buy a clue...and a big bottle of Perrier to drink it down with!
When I worked at a radio station many moons ago, we would occasionally go through an ASCAP audit. Basically, the radio station carefully logs every song played on the air for a specific time period and then uses this playlist (along with other radio stations' playlists from around the USA) to allocate payments between its member composers. The radio station (and any venue that plays music, including restaurants, bars, etc) pay a yearly ASCAP fee.
Why doesn't the RIAA offer something like this as well? We, as consumers, have the option of coughing up 10 bucks a year for a blanket licensing agreement. With this license, a consumer can swap and trade files to their heart's content and the RIAA could keep track of which files are being traded the most online to allocate how that pool of license fees should be divided among its constituents.
Maybe it isn't the RIAA, but some new organization that handles the royalty pool. I'm just pointing to the most visible blanket representative of the music recording industry.
The New Licensing Agency would provide feedback to artists and recording companies about what songs are hot on the internet among file sharing services. The recording companies have an incentive to bring good music to market and to PROMOTE that music because that brings them a greater share of the license fees. Consumers purchase protection from the spot raids and outrageous legal actions we have seen in the past. The NLA would be open to even the smallest music distributor. If you are good at online marketing and can steer downloaders toward copies of your music, you get paid.
This gets rid of all the DRM craziness. I'd fork over 30 bucks (which is about double what I spend on CD's in a year) a year to have unlimited file sharing ability.
Imagine a return to the halcyon days of original Napster but without the legal risks. Servers that were fast, reliable, and (relatively) trustworthy. Nirvana for all.
I'm really interested in seeing if you can see any holes in this argument, I would love to read them.
-oakbox
Not just answers, the correct questions.
Casting the relationship between consumers and record labels as a principal-agent problem with moral hazard is both incorrect and completely misses the point. The author seems to be aware that asymmetric information between principal and agent is necessary for moral hazard to exist, but the asymmetries the author points out are either not unique to the music industry or just plain wrong. let me explain.
The author asks "So what if, under such a contract, the interests of the record labels (the agent) diverge from the interests of the listeners (the principal)?" Well duh! *Any* industry can be thought of in an asymmetric information principal-agent context with respect to consumers (do you know exactly how every good and service you buy is produced?!), and their interests will trivially conflict (businesses maximize profit, consumers maximize their satisfaction). What's so special about the music industry here? How is the industry's attempt "to impose costs beyond the actual search and production costs for which listeners are actually interesting in paying just to feed the bottom line" different from *any* other for-profit business? Since when do consumers need to know the exact production costs of everything they buy for markets to function well?
Furthermore, the reasons the author gives for the information asymmetries in the music industry are bogus. He claims that under uniform pricing schemes "prices do not serve their usual function of providing an informational feedback loop between labels and listeners". I suppose he never heard of 'sales figures' as an information feedback loop! The author claims that information problems are compounded because "music is an experience good - its value is not directly knowable to buyers until they have begun to consume it." True, but irrelevant! Most people have the opportunity to know more about the CD they buy before they buy it than they can know about most other goods they buy; they can listen to singles on the radio and TV, listen to 30-second samples of every song on sites like Amazon, listen to the whole album in the music store or even borrow the CD from a friend. If there's a problem, it's not that we don't know whether an album has crappy songs, it's that we're forced to buy the crappy ones with the one or two good ones that we like. It's *not* an information problem. Further, consumers need *not* "coordinate amongst themselves" to influence labels any more than they need to "coordinate amongst themselves" to influence any other manufacturer: sales and commercial success speak for themselves.
What *is* unique about the music industry, the movie industry, the software industry and information goods in general is that the internet has transformed them into *pure public goods*, like, for example, national defense. There are two characteristics that define pure public goods: (1) their consumption is non-rival (my consumption of one unit does not affect the ability of anyone else to consume the good. Think of the effect on your neighbor's consumption of his music if you digitally copy one of his CDs, or his consumption of national defense if you increase your household consumption of it by having a baby, compared to the effect on his consumption if you drive away in his car) (2) their consumption is non-exclusive (you cannot prevent a newborn from 'consuming' national defense, and it's difficult or impossible to prevent people from copying information in the internet age, whereas it's possible for your neighbor to prevent you from using his car). Another way to think about pure public goods is that they have high fixed costs of production for the first unit and zero marginal costs of producing additional units.
Pure public goods are a well-understood type of market failure (you'll see them discussed with 'externalities' in most Economics textbooks). The producers of information goods have attempted to solve this problem by making information goods 'exclusive' (a.k.a. DRM) which is sufficient to solve the market failure and eliminate the 'free-ri
Imposing Libertarian views on everyone online since 1992.
Here are my thoughts on the problem at hand. I do not think we need to introduce these ideas of risk sharing, or economic morality into the argument to get to the core of the dilemma. The only real question worth answering is the question of "Why buy when I can get something for free?" must be answered. Some consumers, such as myself, are willing to buy CD's from places like Amazon (used or new for a modest amount) after listening to the albums on a subscription service (Rhapsody). Many would ask why do that when you can go on Kazaa, IRC, or one of the various other sources to get the same music for no expense at all. The main reason why I personally stopped downloading music was because the sources were unreliable, inconsistent (tags, lengths, bitrates), or just downright slow.
Some of you may balk at my reasoning and its understandable, just as I may like Aerosmith while you prefer U2, different people will value different things. But what does the average American consumer value? I personally did not believe saving a few bucks was worth the time and effort in trying to find artists that I liked and attempt to keep up with all the new material that is released by any of the newer artists. I disclaim though that I generally like music which is considered mainstream, nothing too obscure, so my adoption of the on demand Rhapsody service are somewhat biased, but I believe they are biased much in the same way that the general target audience for record companies are so my arguments should hold merit.
Undoubtedly, there will always be an eclectic niche to fill for those indie/underground music that will not be touched by mainstream outlets, but that is not the point of discussion. These niche players make up a minimal porportion of the RIAA's income, hense disposable. Looking at places like Kazaa, and Morpheus where the majority of oridinary people (not slashdotters) acquire their music, most of these libraries are not so widely out of the realm of mainstream distribution as many previous posts may have you believe. A lot of these libraries are filled with easy recognizable chart topping artists.
But why buy CD's, honestly, I don't buy CD's to help the starving artists. Nor do I feel particularly upset that I am filling the coffers of the RIAA. I buy the CD's for myself, I buy it for the material good, not really the songs on them. This is what some, myself included find displeasing with services like itunes which makes the user pay to download songs. What exactly am I getting with my 99 cents a song they are charging? The satisfaction that I am a law abiding citizen??? For me that incentive doesn't quite cut it to not go to kazaa. For this reason I believe unlimited services like Rhapsody which lets you listen on demand (the entire song) from a vast library of music is superior. I consider such a system a way for paying for a service rather than just music. These services similar to that of XM radio, or cable TV. Yes I could probably search for it and find it elsewhere, but why bother with the effort when the work is already done and the prices so reasonable. I can hear pretty much anything i want, find it easily, see related artists, all in CD quality. (The system would work even better if more labels signed in on the service)
Quite frankly, I barely ever play the CD's I buy anymore, I just rip them and transfer them to my ipaq, then the CD is returned to its slot on the CD rack and retired until who knows when. I can see some of you out there reading this rolling your eyes, asking how does this relate to the people who have already made up their minds to pay nothing? Well it doesn't but it does show that the situation is not a lost cause. The companies have various ways to increase customer satisfaction in order to win these unconvinced people over.
The problem all deals with incentives to the consumer. There are two major ways record companies can react to these demand for incentives.
The first is a postive approach to increase the value of the goods they produce. After al
Nuclear war would really set back cable. - Ted Turner
Wow, lots postings and analysis going on about this subject. Bottom line: Record companies have been gouging artist and consumers alike for years; consumers are now fighting back. All the while, record companies are pursuing a losing strategy with ever greater vigour, i.e., gouging prices and suing online traders. This dynamic will destroy the recording industry as we know it today. A new and profitable way to make and distribute music will be found. But, I don't have a clue as to what it will look like.
It insults everyone who believes that they have the right to free music - that is to say, it insults everybody on slashdot.
People are not willing to pay for music, but they are willing to pay for access to music. The problem music has always had is diversity. It's hard to find what you want in the millions of artists worldwide. The recording industry made it easier to find what you want by making bestseller lists which mimicked public tastes. Where it broke down is that they subverted these lists to represent what they want you to buy, not what you're actually buying (bestseller lists no longer represent actual sales), and also that the internet has lowered the barrier to access so drastically it becomes perfectly feasible to completely cut out the middle man.
The only way for the recording industry to preserve themselves that I see is to return to satisfying the customer's tastes. This means cutting up the market into hundreds or thousands of niches, and satisfying every niche with the music they want. This obviously won't be as profitable as the current system, but the current system is going to die, and there's nothing the RIAA can do about it. It seems this would be easy to do with an itunes-like system that blends in user dialogue and feedback (allowing people to enter their music collection together with rating into the itunes general database would allow it to intelligently provide links between music that satisfies the same type of listener).
In short, the new system should provide the benefits of napster (easy to find likeminded individuals and peruse their music collection, easy to try music before actually buying it), with the legality of itunes.
I'd sign up for it.
This is the first time I have seen CAPITALISTS (90% of all economists are capitalists) try to JUSTIFY piracy. Interesting!
Like all things capitalists do (which can be summed up as trying to squeeze the 'free market' into everything), this one is full of holes and assumptions that aren't valid (as a side note, if the assumptions used by capitalists were correct, capitalism might actually work).
Let's go over the basics that flew over the head of these capitalists. What if people don't want to pay ANYTHING? I don't see the downloaders sending cheques to the artists. Do you? Art is so subjective that could it just be that price mechanisms cannot be used to indicate value? The author speculates that variable pricing (or in theory, free floating price I guess) can be used by consumers to gauge the value of music. Does anyone think that is true?
Sivaram Velauthapillai
Sivaram Velauthapillai
Seeking the meaning of life... @slashdot of all places
If you don't like the RIAA, go and open your own RIAA! It's the American way!
Last time i checked there are restraunts who have money back guarantees on food, if you eat it and you are not %100 satisified you get your money back, typically poeple don't cuz they feel bad asking for money back and nothing to return. However, if you are able to return it i'm sure it was bad. ..
Now, i can't think of any restraunts offhand cuz i have not eaten out in awhile, but if you raise enough hell at a restraunt they will give you money back and proably a free dinner? wouldn't that be nice for buying a crappy CD? Getting your money back and another cd
what is still pretty crappy is the iTunes and varius pay servers. it's still damn expensive, granted u can buy only the songs u like, but 10 songs for $10 ? same price as a cd, when on a large scale model, they could sell the song for $.05 and i bet that many more people would get on iTunes or something like that if it were that cheap, they'll make their money cuz there is no overhead of creating cd's, sending them out, marketing and the such, the only overhead is your IT who keeps the servers running and the servers themselves, which i would assume is somewhere way below the cost of producing billions of cd's and the cost of tons of plastic and equipment.
Just a thought.
The One Dragon the Only DemonMachine
This article misses a very important point. Record companies were invented to record, mass copy and distribute media. Since about five years their services are no longer required to distribute music. I'd say that is a pretty relevant factor economically speaking.
Distributing music through p2p networks is very cheap. You can do it from your home. This reduces the cost of an album to a fraction of the cost (there still is some) of a regular album. Basically you need some time to write music and do the recordings, some equipment (a few thousand dollars buys you pretty good stuff), some sound technician to digitally polish your recordings (though it is getting easier to this yourself as well) and thats it. There's quite a few artists already who work like this. Making actual cds of the music is not that expensive either (production cost typically much less than 1$). Record companies have the advantage that mass production is typically more cost effective.
The record companies are waging a battle at becoming obsolete. Right now the public still doesn't get it. Music comes on small discs. Making those discs costs money and of course the record company is entitled to a rediculous share of an outrages price for that disc. Once people figure out that doesn't make sense anymore, the record companies are history.
Jilles
Tell me, what added value does a CD, bought from
the shop, have over the downloaded mp3? Exactly,
one of that is a booklet with printed lyrics. See,
that wasn't so hard.
It seems like some scoundrel still has a lyrics site specializing in both classical and modern dance music here.
Blatent theivery!!
I'm glad you said this, because it proves I'm not the only one out there who has never used a P2P music sharing network. If someone thinks the record companies rip off consumers, they don't have to pay "inflated prices," but this doesn't justify theft. I'm really surprised to see that this article seems to do just that.
Mencken had it right. So glad that's old news.
I don't know if the music industry would accept this as fair use, but it would certainly seem reasonable, much like a library lending out a copy but only for the duration of a given play. Perhaps it's a model for a new "legal P2P music sharing network": register CDs, ensure they can be played but not copied (perhaps with trusted client software), and prevent simultaneous play.
I'd sign up for that, and throw in my collection of maybe 1000 CDs.
Mencken had it right. So glad that's old news.
Inevitably, it just comes down to established power/money using the govt to keep its power and wealth. The p2p computer networks are just something that CorpGovMedia has not yet brought under its control.
eat shiat and bark at the moon
"The job of marketing is to sell people things they don't really need to pay for. When we can convince people to pay for water and air, our job will be done."
Well they've sold us water, so air is next! But you hit the nail on the head, when you sell something that is essentially commodity, there are only two ways to achieve any kind of excess profit: create fake/perceived value, and information asymetry.
Or, the public can say "Fuck you, you've been screwing us so long we don't CARE to help you do your job better and are completey OK with you going down the tubes entirely, because we can just connect directly with artists. To hell with your business plan."
It's 10 PM. Do you know if you're un-American?
Here's an analogy that I think makes this entirely clear:
I go to a hotel that isn't full, and I'm very careful to leave everything exactly as it was when I arrived.
Is it "theft" if I leave without paying? I haven't taken anything that they could have used to make money anyway...
It's not exactly theft, no, but people treat it similarly. Why is music "theft" any different?
It isn't. When you make a copy of the music, federal law gives the company a right to charge for this. You owe them that money, regardless of how you made the copy. Failing to pay it is "theft" in the same way that failing to pay for your hotel room at a non-full hotel is "theft".
We have lots of different names for things that are somewhat equivilent to theft in our legal system. "Fraud", "theft of services", "copyright infringement", "blackmail", "extortion", even literally "piracy".
Calling it "copyright infringement" instead of "theft" doesn't really change much. It turns out that current law only makes copyright infringement a crime if you do it on a large scale, much like speeding isn't a "crime" in the sense that can get you thrown into jail unless you're really egregious. This is probably due to the small actual cost that either activity imposes on others.
Extremely petty theft is still theft, however, regardless of what term we choose to cloak it in.
This is interesting analysis, and the idea of double moral hazard, insurance, etc is a good way of looking at the sociological problem.
Actually, though, the article's writer doesn't seem to be aware that having an album streamed entirely over the net is becoming more the norm with every passing day. With that capability, consumers can make the purchasing decision without assuming much risk.
The bigger problems seems to be that the consumer doesn't want to spend the time previewing so many songs. In other words, the "mental transaction costs" outweigh the supposed benefits of finding new stuff.
I'm not saying that clearchannel radio is a good way to introduce consumers to new music. But it is an example of how consumers can have exposure to music without needing to expend mental transactions.
There needs to be a painless way to learn about and listen to new music. One such, solution, iRATE radio continuously downloads mp3's and lets users choose which one to keep and adapts to user preferences (see my interview with the creator Anthony Jones ).
I've already written a substantial essay advocating a voluntary compensation model for music (see sharethemusicday . )
In addition to tipping, content aggregators like Universal can provide value by simplifying the task of managing music files, improving the download client and allowing users to create "share lists" that are easily accessible. I would gladly pay for that.
If a content aggregator company could create a download client that simplified file management, allowing sharing of music lists and user recommendations and allowed for a tip jar, then everybody would be interested. Musicians could pay a small fee for music hosting (and maybe fan support like forums, web hosting, etc). They would do it if tipping became perceived as a reliable revenue source. Users could pay for the download client (plus access to updates). This kind of service would make money, satisfy fans who want unlimited downloads and satisfy musicians who want tips.
Robert Nagle, Idiotprogrammer, Houston
I don't mean to imply that irate radio is the only way to expose users to new music. Music blogs are a good way, as well as sites like godsofmusic . Also, music burning groups (I participated in a recent CD Burn event with 5 friends). And dark networks (private networks of file sharers).
Robert Nagle, Idiotprogrammer, Houston
a friend of mine has solved the risk problem like this:
buy the CD, either new or discounted.
Make a personal copy (legally entitled to do this).
Sell the original CD on amazon/half.com for a discounted rate. (again, a legal transaction).
Of course, we're not longer talking about insurance here; my friend does this whether the CD is good or bad.
The effect of people reselling CD's is to apply downward pressure on the sticker price. But there is another more profound impact. It no longer makes sense for music companies to produce original music (if it could be resold so easily). It makes more sense for a music company to just take other people's content produced independently or elsewhere and then repackage it or make it available for a subscription fee.
If anything,this scenario illustrates that the risks that music companies are taking to cultivate and promote an artist's talents are too high to be worth taking. This is shifting more of the risk on the individual performer. Is that good?
Robert Nagle, Idiotprogrammer, Houston
This is an interesting interpretation of copyright law. You are allowed to make a backup copy for personal purposes, but when you sell your CD, you also sell the right to have the backup copy. Buy-burn-sell might be efficient and fun, but it's still not legal.
His thesis is akin to claiming that capitalists are the cause of poverty in the huddled masses and therefore communism will serve us best ...
That is true iff you believe that private insurance is a communist scheme.
To put it in other terms, every purchace of music is a financial risk. The risk is that the CD will suck and your money was wasted. File sharers reduce that risk by sharing their music and effectively becoming a larger buying pool. In that way, a sucky album's cost is effectively spread across the group in more or less the same way as the cost of an auto accident is spread across all holders of the same auto insurance.
The argument is that the opaqueness of the music industry to the consumer leaves an open door for the music industry to shirk it's part of the bargain by selecting music based on something other than buyer satisfaction. At the same time, the opaqueness of file sharing to the music industry leave an open door for the file sharer to shirk his responsability by not paying for the music that he actually does like.
In still other terms, the consumer value of a CD is reduced by the odds that it will suck, but the price has not come down in response. A file sharer's time and trouble is worth something (We know this because the same people go out to eat and buy pre-prepared foods rather than cooking from scratch, for example). The net value of that time and trouble is smaller than the cost of a CD. The result? File sharers take the time and trouble to download the music.
My conclusions differ from the author's, but that's for another post. The author does at least have decent arguments for his conclusions.
But then they aren't that smart. You can buy real CD for the same money on half.com. So they kinda fall under the third category.