The Futile Struggle Against Free Content
David Goldman writes about falling music sales:
Apple’s (AAPL, Fortune 500) iTunes is credited with finally getting people to pay for digital music, but it wasn’t unveiled until 2003.
In the time between Napster’s shuttering and iTunes’ debut, many of Napster’s 60 million users found other online file sharing techniques to get music for free. Even after iTunes got people buying music tracks for just 99 cents, it wasn’t as attractive as free.
“That four-year lag is where the music industry lost the battle,” said Sonal Gandhi, music analyst with Forrester Research. “They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”
Music industry executives can tell themselves that as long as they want. But under conditions of perfect competition, the price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0. That’s not a question of habit, you can look it up in all the leading textbooks. Of course real businesses rarely operate in circumstances of perfect competition, and record companies have a variety of political and legal tools they can deploy to try to protect monopoly rents. But this is hard to do. I think the real story with the iTunes store is that over time competitive pressure has impelled it to largely drop DRM and over time I expect we’ll see that the CPI-adjusted price of songs declines.
It is, of course, possible that at some point the digital music situation will start imperiling the ability of consumers to enjoy music. The purpose of intellectual property law is to prevent that from happening, and if it does come to pass we’ll need to think seriously about rejiggering things. But I don’t know anyone who would seriously argue that a music fan in 2010 is in worse shape than a music fan in 1990 was. It’s much, much, much easier to find and listen to a wide variety of songs from all over the world.
113 Responses to “The Futile Struggle Against Free Content”
Register
RSSLogin
Yglesias Tweets
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
February 2nd, 2010 at 1:49 pm
That’s an interesting economic model, Matt. How do firms with fixed costs ever avoid incurring losses on their business? Do they just shut down?
February 2nd, 2010 at 1:52 pm
Recorded music can only be advertising for live performances.
February 2nd, 2010 at 1:56 pm
The idea that music should be priced at marginal cost assumes that all music is fungible, under “conditions of perfect competition.” Unless you’re not saying that the competition is between different music producers/providers, but rather between legal and illegal modes of dissemination.
February 2nd, 2010 at 1:58 pm
The only reason iTunes is able to charge the 99 cents is because its value added to the content. Without hunting around on file sharing formats of questionable quality and crappy download times, one can go to iTunes and within seconds find music of pretty much all genres with a few clicks, and 100% confidence of getting what you’re looking for. Without that, even iTunes wouldnt have worked to give them the 99 cents.
This deflationary model is coming to TV shows and films in the years to come, as our storage and downloading capabilities increase.
Sucks to be in the content business, whether its producing a daily local newspaper, a new music album, or a film.
I dont have any more solutions to this than they do, my one observation is that one of the few media businesses that will continue to make money is ESPN and sports media, since we all want to see live events at the moment of their occurrence as opposed to downloading a game later after the fact. This is my central argument to a stock trading friend on why I think Comcast blew it buying NBCU instead of ABC/ESPN from Disney.
February 2nd, 2010 at 2:00 pm
It’s my feeling that anytime someone discusses this issue, they should link to this article:
http://labs.timesonline.co.uk/blog/2009/11/12/do-music-artists-do-better-in-a-world-with-illegal-file-sharing/
Short answer: roughly speaking, artists aren’t making less money than they used to overall – the big loser in the new way that music conducts business is the record companies. And I say good riddance.
February 2nd, 2010 at 2:05 pm
Imperiling how?
February 2nd, 2010 at 2:07 pm
Its a not very helpfull economic model, used under the qualification short term only even in first semseter texbooksbecause otherwise the equatations would be to complicated(i freely admit that those are also to complicated for me).
Long story short, denying the problem wont get you anywhere. Modern technology also cuts advertising revenue. So what we get is music for people that buy merchandise arround the music. Meaning Miley Cyrus and Gangsta rap. In the long run, the government will step in and finance much more digital content of all type, from TV over Music to computer games. The international negotiations will be a nightmare just like the first atempts to finance pop music or Holywood movies, but in the end it will work. Maybe music itsself is cheap enough to produce so that the backdoor finance modell will do. Full scale pop stars are not that cheap products. The music is just a small part of the spending. Also takes videos, scripted interviews and scandals etc….
Software, movies and news will be seriously underproduced or underconsumed or both by the free market thats for sure.
February 2nd, 2010 at 2:09 pm
the price of a song ought to be equal to the marginal cost of distributing a new copy of a song
Uh, no. Sorry, try again.
the price of a song out to be equal to the marginal cost of recording a new song
You see, making a song requires time from a songwriter, skill from a performer to learn the parts, and the expertise of a recordist and the use of the recordist’s highly specialized equipment.
The distribution ought to be slightly higher than the cost of distribution, which via the internet is close to zero. But you are forgetting the costs to make the song in the first place.
February 2nd, 2010 at 2:11 pm
It’s much, much, much easier to find and listen to a wide variety of songs from all over the world.
Really? I know the bands I like today, and learned that I liked them from free radio along the way. How do people find new artists today??
I mean, you bet, once you know a band you like you can get your hands on everything they’ve ever recorded in minutes which is great, but I dont know that I agree its easier to find some new music that you’d like that you havent heard yet.
February 2nd, 2010 at 2:15 pm
Beg to differ re music fans in better shape today than 20 years ago. Maybe you can get stuff easier and cheaper today, but cheap and accessible shit is still shit.
20 years ago, you were on the cusp of rock and roll’s last gasp of greatness and mass appeal (which basically ended when Kurt Cobain offed himself, although it wasn’t immediate). Today, you have American Idol and its wannabes. I would give back today’s technological wizardry if I could get back the wealth of good music circa 1992.
For a better example, make the point of comparison 1985, when music sucked just as bad as it does today.
February 2nd, 2010 at 2:17 pm
I’m not sure how when you factor in studio time, equipment, producers, etc. a song should be free. It’s counterintuitive. And I’d wager to guess that the people making more money now are big artists. If someone has a similar study to Bonk’s that deals with only independent labels and has the same results, I would change my tune, but just observing the mass closings of independent record shops and the struggles of even the heavy-hitting indie labels makes me skeptical.
February 2nd, 2010 at 2:17 pm
also, bandwidth / hosting isn’t *completely* free, so there’s a small charge for that
February 2nd, 2010 at 2:19 pm
#8. That seems like a very marxist way of looking at things (labor theory of value).
As Yglesias and brad delong have pointed out, Marx was very wrong when it came to labor value.
February 2nd, 2010 at 2:24 pm
Every time you try to write about this stuff you sound really ignorant. Please stop pretending that songs and widgets are the same.
February 2nd, 2010 at 2:29 pm
I still buy music because I do believe in supporting the artists I enjoy. They seem to be making a living so at least some of the money is finding the way back to them. I usually buy from iTunes, but also like the more independent stores like Bleep.com and those run by individual labels.
That said, recent changes to iTunes have really turned me off. I haven’t purchased any music in several months because I just can’t stand the store any more. I’m not a big fan of Amazon and there doesn’t seem to be another store with as big a selection as either of those.
February 2nd, 2010 at 2:29 pm
Western Civilization somehow managed to produce a great deal of excellent music, for Centuries, before a small cartel of producers rigged a distribution system that enabled themselves to get fantastically rich off the creative work of others, and enabled a small number of creative acts who played the game correctly to also get fantastically rich.
Somehow, when the recording industry rots away, human beings will continue to make and enjoy music. Without the diktats of the corporate bottom line driving the creative process, they will possibly even enjoy a wider variety of higher quality music.
It’s the same thing with the dwindling power of newspapers and magazines. The death of cultural cartels should never be mourned. Corporate middlemen filtered and channeled our cultural output to the median consumer — it gave us vacuous magazine trend pieces about single women, and gave us Creed. Fuck em. Let independent producers who actually care about music pick up the pieces.
February 2nd, 2010 at 2:30 pm
@Benny and @me: you do not appear to understand the meaning of the term “marginal cost” in this context.
February 2nd, 2010 at 2:30 pm
February 2nd, 2010 at 2:30 pm
LOL @8 and the term “recordist”. The correct term is recording engineer.
Musicians can make a $10,000 recording if they want. But it’s also easy enough to make a great recording for free using pirated software. The world is going to favor those that don’t need a lot of money to make fantastic music. Hopefully the end result of this will be the death of the music industry, and people just play music for the purposes of, you know, playing music, rather than becoming a pop star or getting rich.
February 2nd, 2010 at 2:32 pm
People should definitely check out that article…and read the comments section. The working musicians posting there will you give a perspective informed by first-hand experience of how this “new model” actually works, rather than weak justifications for a culture of theft.
February 2nd, 2010 at 2:33 pm
God spare us from people who thought 1992 was a great year of music. Actually that was the year commercial “grunge” bands like Nirvana, Soundgarden and all that crap drove a spike through what, in the 80s, had been a vital and exciting college music scene. The 90s were actually the creative low point of the rock era unless your only source of music was mainstream commercial radio. In 1985 we had REM, Husker Du, the Replacements, the Smiths, etc. Much better year than anything in the 90s.
One question that people rarely address – why do we place such a premium on “new” music anyway? There is already more recorded music available than a person can reasonably listen to in their lifetime. We’re talking literally millions of hours of rock, jazz, blues, classical, hip hop and country music recorded since the 1920s – and there are certainly thousands of hours of fantastic music out there that you’ve never heard, and probably never will hear. Even ignoring price and consumption issues, I think new artists are starting to struggle under the weight of all that accessible history. And so much music consumption seems to be driven by just that – a desire to consume and advertise one’s membership in a social group, how many music buyers actually engage with the music? The disappearance of the music industry and its focus on promotion, hype and stars could be the best thing that’s ever happened to music itself
February 2nd, 2010 at 2:39 pm
This quote from the article made me shake my head:
When Plushgun released its album “Pins and Panzers,” it was the most downloaded album on the popular peer-to-peer Web site What.cd with 100,000 illegal downloads.
“That’s 100,000 CDs we would have sold,” said Ingala.
No, it’s not. Maybe it’s 1,000, maybe it’s 10,000. Hell, maybe it’s even 25,000, being very generous, but you would have never made sales to every person who figured a free download was worth a few minutes of their time.
February 2nd, 2010 at 2:42 pm
the price of a song out to be equal to the marginal cost of recording a new song
I’m not sure how when you factor in studio time, equipment, producers, etc. a song should be free.
This misses the Econ 101 point: the product in question isn’t “a song” in some abstract sense as created by an artist, it’s a copy of a recording of a song. Technology has made the cost of producing and distributing one copy of a recorded song very close to $0. And millions of people have started copying and distributing recorded music from their homes. The competition between all these producers has pushed the price of these copies to be essentially $0.
Now, copyright law means it’s illegal for those millions to do this, so that the original producer gets a monopoly status and can keep the price higher than $0. But when the law can be trivially violated on a massive scale like this it becomes essentially unenforceable. And then you get that recording and selling music is no longer a profitable business.
February 2nd, 2010 at 2:44 pm
@ JFM
apologies, economics isn’t really my strong suit. So what I’m about to say may be completely inaccurate but when he states that “the price of a song ought to be equal to the marginal cost of distributing a new copy of a song” and then says the marginal cost is zero, is he not saying that a song purchased over the internet should cost zero dollars?
February 2nd, 2010 at 2:45 pm
Pay $5/month to get Mog streaming. At some point in time even iPods will stream music in a similar manner. We’re getting there with movies, too.
Today, you have American Idol and its wannabes. I would give back today’s technological wizardry if I could get back the wealth of good music circa 1992.
For a better example, make the point of comparison 1985, when music sucked just as bad as it does today.
Music in 1992 was better than music in 1985? What are you smoking? Though 1985 wasn’t as good as 1978-83. Things were falling off by mid-decade.
I do agree that 1992 was much better than, say 1995 or 1999.
February 2nd, 2010 at 2:46 pm
From the article: “The industry is actively doing a lot of things that are putting us back on the right path,” said RIAA’s Friedlander. “We’re switching to an access model from a purchase model.”
My sense is the RIAA is clueless. I think that gigantic sloping downward curve in that chart is caused by (1) more broadband digital internet access at homes and (2) pretty crappy music.
I just finished flipping through my iTunes here as a spot check based on the album year, and of the nearly 5,000 MP3s I own I count roughly 20-30 songs released since 2006 in my library, which I think means for me that I’ve hit a wall of being content with enough music I own already, and not much interest in looking for new artists. I wonder how common that is?
February 2nd, 2010 at 2:49 pm
One question that people rarely address – why do we place such a premium on “new” music anyway?
I do only mostly because I want to see the next Smiths, early REM, Cure, Joy Division, New Order, Police, Clash, Chameleons, etc. in small venues.
February 2nd, 2010 at 2:50 pm
@fletcher: mog.com $5/month
February 2nd, 2010 at 2:52 pm
Satellite radio option is a great way to find new music. Sure, there are “100’s” of channels, but as long as you can find 2-3 worth listening to, you will find new music (mostly without commercials). Streaming from the internet is good, but hard to do while driving.
I thought I had hit that wall too, but I’ve found several new bands in the last year that have me buying music again.
February 2nd, 2010 at 2:53 pm
It’s worth noting that the merger of Live Nation and Ticketmaster is going to make concert tickets even more expensive and add on even more bullshit fees that won’t go to the artists.
February 2nd, 2010 at 2:54 pm
Lorax: Nice taste in music. Ever hear of Karkwa? Interpol? Black Angels? They’re a good fit with much of your list.
February 2nd, 2010 at 2:54 pm
Even ignoring price and consumption issues, I think new artists are starting to struggle under the weight of all that accessible history.
Great point. It reminds me of a conversation I had in Chicago with a friend’s husband who is in a blues band, and they’re trying to break into the recording business, who said the biggest competition isnt other bands its BB King, and Muddy Waters, etc.
I’m a Sinatra fan, and have managed to acquire probably every Vegas-era and after Sinatra album he ever recorded, versus enjoying that kind of music in previous times and listening to a jazz/big band radio station (do they even exist now?) and finding new artists.
Where it all leads I dont know.
February 2nd, 2010 at 2:56 pm
The working musicians posting there will you give a perspective informed by first-hand experience of how this “new model” actually works, rather than weak justifications for a culture of theft.
The working musician quoted in the article doesn’t seem to have the slightest idea what’s going on. When there were 100,000 illegal downloads of his CD, one says: “That’s 100,000 CDs we would have sold.” Uh, no. No it isn’t. Many, if not most, of those people would never have spent a dime on that album under any circumstances.
I’d add that a 50% decline in industry revenues does not necessarily translate to selling less music. They’re still selling quite a lot of music. They just aren’t extracting monopoly rents off those sales anymore.
Personally, I want to support musicians. I only download from Amazon, or occasionally copy something off of a friend’s MP3 player that I would never have paid for.
That said, the recording industry wants to have it both ways. They want to release music in a format that can be copied and redistributed for virtually no cost, and they want to extract profits by tightly controlling the distribution of music that fans and musicians can now distribute on their own. This is unsustainable. It can’t possibly last. And they’re going to go the way of the buggy whip manufacturers.
February 2nd, 2010 at 2:57 pm
@me#24: read @Rootboy#23’s explanation. Sure, it takes a bit of money to produce a recording, but the cost of making and distributing one more copy of that recording is well-nigh zero and falling.
February 2nd, 2010 at 2:58 pm
“That’s 100,000 CDs we would have sold,” said Ingala.
No, it’s not. Maybe it’s 1,000, maybe it’s 10,000. Hell, maybe it’s even 25,000, being very generous, but you would have never made sales to every person who figured a free download was worth a few minutes of their time.
Indeed. Music collections have gone up immensely. If people would have purchased all the stuff they torrented etc., the music sector would have been hugely massive. Probably music sales would have gone up slightly in real terms over their 199x peaks–those are the sales being killed by downloading.
February 2nd, 2010 at 2:58 pm
But under conditions of perfect competition, the price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0. That’s not a question of habit, you can look it up in all the leading textbooks.
Right. And all the leading intro physics textbooks say that if you push something, it never stops moving.
This whole argument assumes a value of zero for the time it takes for musicians to make their music. Granted, plenty of people are willing to be unpaid musicians in their spare time. But many consumers currently put a high value on music that arguably wouldn’t be made if the musicians needed day jobs. In fact a large fraction of consumers seem to be perfectly willing to pay for their favorite music even though they know they don’t have to, because they don’t want their favorite music to disappear.
February 2nd, 2010 at 3:00 pm
Actual recording costs divided over any decent number of copies is going to be trivial.
The expensive stuff in “record producing” is basically promotional in nature. And I’m not sure we should regret the end of the top-heavy, lottery-like, promotion-driven music recording industry model.
February 2nd, 2010 at 3:02 pm
@brock Yeah, I like the neo-post-punk stuff. I’ll see the Editors soon. Interpol is good, too. But it’s an imitation of the Platonic Form that existed in the early 80s.
I don’t know Karwka. Given the bands you list, you might like Blonde Redhead. Know them?
February 2nd, 2010 at 3:03 pm
don’t confuse the Recording Industry with the Music Industry as they are very different beasts. Recording music today is easier than ever and can be done inexpensively at home therefore increasing the ability of artists to record. Record labels have a place in the future, but it isn’t in selling plastic discs or digital files.
February 2nd, 2010 at 3:05 pm
The problem being, of course, that we have a legal regime that attempts to treat them the same way.
February 2nd, 2010 at 3:10 pm
@DTM And I’m not sure we should regret the end of the top-heavy, lottery-like, promotion-driven music recording industry model.
Indeed. Good riddance. Though I like the Capitol Records building.
February 2nd, 2010 at 3:12 pm
The problem here is that the music industry has chosen a bizarre and counterintuitive business model. Everyone agrees that finding talented new artists and producing musical recordings are difficult and useful jobs that ought to be compensated. But the music companies do this stuff for free, and, instead, expect to be paid for making copies.
The only reason this is possible is massive government intervention in the form of copyright monopolies. Back when duplication of recordings was more expensive, the dead-weight losses were much less damaging, economically. But, now, they’re basically the full price!
February 2nd, 2010 at 3:15 pm
I love posts like this, when Matt’s radical libertarian side comes out.
February 2nd, 2010 at 3:18 pm
@ Paul J
“Musicians can make a $10,000 recording if they want. But it’s also easy enough to make a great recording for free using pirated software.”
That’s simply not true. A quality recording, the type of which is played on the radio, tv, etc. still require a huge investment in hardware. Quality preamps and mics are just the beginning. I agree that a lot of good recording software can be pirated, but that’s a tiny fraction of the cost of recording a quality track- though I’m sure you’re Garageband home recordings are really sweet and successful.
also- did #8 invent the word Recordist? I’ve never seen that
February 2nd, 2010 at 3:18 pm
It’s starting to make sense to me on an economic level, but I think I’m just looking at this from a pretty different point of view. I just don’t like the mentality that we have some sort of right to the works of an artist. Whether or not it hurts them financially, I think it damages the relationship between an artist and audience.
But that’s not really pertinent to this discussion, so I’ll end that line of thought. If anybody does have any data about how this affects exclusively independent labels and artists, however, I’d be interested to see it.
February 2nd, 2010 at 3:47 pm
A quality recording, the type of which is played on the radio, tv, etc. still require a huge investment in hardware. Quality preamps and mics are just the beginning…
What defines “quality recording,” compression to hell and back, plus auto-tuning. The stuff I get on archive.org, etree.org, and dimeadozen often sounds better despite being recorded by a guy in the audience and being performed by musicians only getting one take. It’s also free and legal.
February 2nd, 2010 at 3:54 pm
But under conditions of perfect competition, the price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0.
Matt keeps repeating this, but it misses the main point. Yes, if anyone can sell copy’s of song X, and it costs zero dollars to produce a copy, then the market price of song X will approach zero “under conditions of perfect competition.” Every person selling copies will have an incentive to undercut the competition because it’s all profit to them. If someone’s selling a copy for $.99, you can afford to undercut them by charging $.50 because the copies cost nothing to produce. If you continue that process, the prices approach zero.
But talking about “conditions of perfect condition” while dealing with copyrighted material makes no sense. A copyright is, by definition, a governmentally enforced monopoly. Matt kind of skirts by this point when he writes:
That “legal tool” is called copyright. The whole point of copyright is to create those monopoly rents. That’s the answer to the people asking, what about the costs involved in producing the song in the first place. In a world without copyright–those “conditions of perfect competition–there would be no way for a producer to recoup those costs if he’s competing with someone else selling copies of his song that cost nothing to make. This is exactly why we have copyright in the first place. So when Matt says the price *ought* to be zero because that’s what it would be under perfect competition, all he’s really saying is that ought not to be copyrights in the first place, or that people ought to violate copyright laws.
Look, I think copyright is out of control, particularly retroactive extensions. I download free songs and movies off the internet. I have no sympathy for the record industry. But when you go down this road, what you’re really asking is, should we abolish copyright? Just quoting some crap from Mankiw’s textbook about “marginal cost” doesn’t answer that question.
February 2nd, 2010 at 4:02 pm
Some (but not all) of that revenue decline in the graph comes from the fact that people buy songs instead of albums. Many older rock groups have mentioned that the industry has returned to the singles focus that it had in the 1950s.
February 2nd, 2010 at 4:02 pm
I’d like to see that graph go back a few years. Then again, the RIAA would probably rather not call attention to this.
February 2nd, 2010 at 4:06 pm
The next step, Paulie, should be obvious. Market price for a copyrighted product is as much as you can charge before a critical number of people resort to piracy.
February 2nd, 2010 at 4:22 pm
I remember reading an interview with the band Rush (I know, I know). They talked about how back in the 70s and 80s they never made a nickel off of record sales, and their cut of concert tickets basically just funded the cost of going on tour. The only area where they made any money was in merchandise sold at concerts. Thus, from an economic prospective, everything they did, from writing and recording albums to going out on tour and playing was essentially a loss leader for their true business–t-shirt sales.
Artists today who want to make a living at it will have to follow the same basic model. Don’t expect to make money from your recordings–few recording artists ever have. Find other ways.
The guys who run the homestarrunner.com site make a good living with a free website that has no advertising. How? They sell tons of merchandise.
February 2nd, 2010 at 4:22 pm
Matt, before your write about copyrights again could you please go beyond the first chapter of your econ book (the one that talks about perfect competition) and read up on “natural monopolies”. You may find that prices in markets with natural monopolies are not equal to marginal cost in a long-run equilibrium.
February 2nd, 2010 at 4:31 pm
“What defines “quality recording,” compression to hell and back, plus auto-tuning. The stuff I get on archive.org, etree.org, and dimeadozen often sounds better despite being recorded by a guy in the audience and being performed by musicians only getting one take. It’s also free and legal.”
Sorry I wasn’t clear, I wasn’t referring to hippie music, I was referring to the music that is actually being pirated. “Quality recording” is the type of recording being pirated by the masses (most pirated songs and most sold songs correlate nearly perfectly), and you know the sonic characteristics of these songs when you hear them. Opinions about popular music aside, creating a song that has those characteristics is very expensive. (I’ve never once seen an engineer use auto-tune, and doubt it would be very expensive, fyi)
February 2nd, 2010 at 4:37 pm
He’s referring to the marginal cost/profit, which concerns the cost/profit of each additional copy of the song produced. Since the cost of duplicating a song in this era is essentially zero (you can make duplicate copies of a song’s electronic form on your computer really easily), that means the marginal cost is zero.
True, but most musicians in that era had sponsors (usually among the nobility in Europe), or they were involved in other professions where music was part of their work but not all of it (like a composer/conductor for a symphony, or music writer/organist for a church).
That could conceivably work in this era (organizations/rich individuals paying musicians to make and write a song or songs, with a one-time commission payment instead of royalties), but it would be rough on new and up-and-coming artists. There would be extremely fierce competition for patronage.
I’m not really mourning the decline of the sale of recorded music as a profitable business. Profitable music existed before that, and it will exist after that, and there’s no reason why it should be stuck at that stage just because a group of people are making a profit off of that particular stage of the music business. I’m far more concerned about the effect of the decline of modern intellectual property rights on scientific research and technology.
I suspect that recorded music will, in the future, serve primarily as a means of advertising. The artists will make their money in performing concerts, in selling side-crap (merchandising!), and in writing pieces for commission.
No, it assigns a value of zero for the cost of selling each additional copy of that music. In other words, the cost of producing the music is factored into the very first copy of the song made and sold. However, since making additional copies of that song costs effectively nothing (you can duplicate the music on your computer), the marginal cost is effectively zero. In a Perfectly Competitive Market, marginal profit is driven towards marginal cost, which in the case of the music recording industry means that the value of the copies of music they’re selling is zero without laws giving them the ability to charge “rent” (additional cost beyond what the market assigns).
Of course. That’s the whole point – the technology and the economics are dictating that there is no profit to be made in the sale of copies of music, in the form of CDs/albums/electronic recordings, but the beneficiaries of a system where they can charge rent on the sale of those copies are endangered.
Which is not to say that there is no way for music producers to recoup the costs of producing music. They could, for example, produce a song or songs in exchange for a one-time commission payment from a patron, which is how music was produced in the era of classical music (or have a client who pays them continuously to produce songs for them). They could also perform the song at live performances, which is how many bands make their money these days (I remember a quote from the Dave Matthews band where they said something like “I’m not worried about that [file-sharing music] because we make most of our money from concerts anyways”). People can record their concerts, but it’s not really a substitute for most people.
Personally, I don’t care that much about copyright for music, although I don’t like the idea of bands stealing songs and passing them as their own (although they basically do that already with cover songs that they can then sell). I’m much more concerned about the effects of copyright’s decline on scientific research and technological development.
February 2nd, 2010 at 4:39 pm
That’s the third mechanism for making money for a band, in addition to the above two that I mentioned (although concerts might be a weak source of income for non-famous bands).
It wouldn’t exactly be new, either. Movie theaters have made their money that way for decades – the movies themselves are a pretty thin source of profit compared to the money they make on concessions.
February 2nd, 2010 at 4:42 pm
I think that gigantic sloping downward curve in that chart is caused by (1) more broadband digital internet access at homes and (2) pretty crappy music.
It is also caused by something much more basic – and something that gets far less attention than it ought to, considering the industry gripe:
The RIAA is publishing far, far less music. I would guess that the gigantic sloping downward curve Matthew shows is basically the same curve that would show for the number of annual titles published by the RIAA over the same period.
February 2nd, 2010 at 4:48 pm
Those long whirlwind tours to promote album sales not only ruined a lot of artists—especially vocalists—they often trained audiences to expect live shows to “sound just like the album”. Seems that bands will have more of a chance to make a decent living playing in clubs as the glitzy studio performance and the canned band (so like so many other bands that had a hit once) spell wears off.
February 2nd, 2010 at 4:51 pm
Good point. Of course, the way technology is going, I wonder if at some point we’ll have the technology where a machine could “smoothen” out the singing and playing of a live band as it goes from the instruments to the audio system.
February 2nd, 2010 at 4:58 pm
@Rob Mac
No need to be ashamed of Rush.
February 2nd, 2010 at 4:58 pm
Re 48 and 49
A thesis paper with graphs
1999 was peak year for album sales.
February 2nd, 2010 at 5:09 pm
The music fan might be better off but the music creator is infinitely worse off.
February 2nd, 2010 at 5:20 pm
Hopefully the end result of this will be the death of the music industry, and people just play music for the purposes of, you know, playing music, rather than becoming a pop star or getting rich.
Yeah, ’cause that’s what motivates the vast majority of musicians, even if only one out of a million actually achieves it.
While we’re at it, let’s have authors write for the sheer joy of writing, and mechanics fix cars for the satisfaction of fixing cars. Actually getting paid for skills that you use in order to benefit other people is so…so…tawdry.
By the way, all those snobs who have quarrels with the quality of “today’s music” might want to consider the effect of free downloads on reissue labels. It costs money — a lot of money, often — to track down rightsholders, secure rights, locate masters and artwork, and cleanup and remaster old material. And these expenses can’t simply be eliminated by using bootleg copies of ProTools. It’s an especially bad situation for smaller labels, who’ll take on marginal projects that most majors won’t touch. These projects aren’t simply get-rich-quick schemes; it’s also a matter of historic preservation.
While the industry definitely needs to change, the idea that playing and releasing music should be a charitable endeavor is really fucking stupid…especially when it’s offered as a antidote to the “exploitative” music industry. In reality, you’re simply shifting the mantle of “exploiter” from the labels to the consumers.
You’d think “music lovers” would understand that, instead of acting like a bunch of entitled ingrates.
February 2nd, 2010 at 5:22 pm
Nothing wrong with artists making all their money from touring, but doesn’t that skew lots more cash to the big outfits? The get all the economies of scale.
I’m feeling really guilty about never buying t-shirts now.
February 2nd, 2010 at 5:24 pm
#61: This is only if you conflate the plight of the RIAA with the plight of the music creator. And to do so would be a mistake.
February 2nd, 2010 at 5:25 pm
although concerts might be a weak source of income for non-famous bands
Unlike album sales? There’s never been a promise that every musician will make tons of money. But, as has nearly always been the case, the only way for most musicians to make any money in a world of 0 record sales is by performing.
Sorry I wasn’t clear, I wasn’t referring to hippie music, I was referring to the music that is actually being pirated.
I’m not sure this make much difference. If it costs too much to produce a recording, which is essentially an advertisement for live performances and/or merchandise, then recording artists will find a way to spend less. Technology today makes this fairly easy. If people think the result doesn’t sound generic enough, well, what are they going to do? Stop downloading it for free?
Regardless, people’s ears will adjust. CD’s don’t sound as good as records. People adjusted. MP3s don’t sound as good as CDs. People adjusted.
February 2nd, 2010 at 5:31 pm
Yeah, ’cause that’s what motivates the vast majority of musicians, even if only one out of a million actually achieves it.
While we’re at it, let’s have authors write for the sheer joy of writing, and mechanics fix cars for the satisfaction of fixing cars.
You’re on target with mechanics, but waaaaay off when you talk about musicians and authors, Phila.
I assure the, the vast majority of musicians never make a red cent playing music and don’t really expect to, other than as a vague, winning the lottery type of dream.
The same is true of authors. People really do write for the sheer joy of writing. Even most published authors make, at best, a couple of thousand dollars on a book–hardly worth (in monetary terms) the thousands of hours spent writing. I say this as a musician and writer who has poured vast chunks of my life into both endeavors for no other reward than personal satisfaction and, occasionally, joy.
February 2nd, 2010 at 5:32 pm
@61 “infinitely worse” is a pretty strong statement. The vast majority of “music creators” have lived pretty marginal existences since the beginning of the industry. Not much has changed.
February 2nd, 2010 at 5:36 pm
Isn’t this misleading because in 1999 – the music was all sold on CD’s from bricks and mortar stores ( which means 1/2 of the money went to the distribution channel ) – Putting it at 7.3 billion down to 6.3. Now figure in the savings of not physically creating, warehousing, shipping the CD’s – if that is more than 1/7th ( and I’ll be it is ) then the actual record labels are clearing AT LEAST as much. Tower Records can complain, but not the RIAA.
In other words, this is just mor RIAA propaganda…..
February 2nd, 2010 at 5:52 pm
“I say this as a musician and writer who has poured vast chunks of my life into both endeavors for no other reward than personal satisfaction and, occasionally, joy.”
And I’m sure the amateur quality of your work reflects exactly that.
Mike
February 2nd, 2010 at 5:59 pm
@ Rob Mac
“If it costs too much to produce a recording, which is essentially an advertisement for live performances and/or merchandise, then recording artists will find a way to spend less.”
I agree in theory to what you’re saying, but there are a few problems currently with that logic. Namely, it’s not a level playing field- record companies (indie and otherwise) still exist and still help their artists record an album. (For reference, a friend of mine just finished recording an album on an indie label for 40K total). The tastes of people have not yet changed and they expect a comparative level of quality when they listen to music. People who honestly believe that technology has made recording at that level affordable have never been involved in recording an album.
This puts an artist in quite a predicament. You can’t create an ‘advertising product’ and can’t be ‘heard’ unless you spend at least a moderate amount of money on it (not necessarily 40K), cutting corners where you can. Then you do that and have to bust your ass trying to recoup the money by touring, which is tough, and why artists get annoyed by piracy. Merch sales for an unheard of act are marginal at best.
If you still don’t believe me about the cost, just take one element of the process – the mixer of the records you listen to, someone whose name you most likely never hear. Their skills are art, pure and simple, and your record will sound like shit without a good mix. The mixers the indie (CHEAP) labels use charge about $500 a day, mixing on average one track a day. You do the math. Also, take off the theoretical goggles about price theory and think about how it affects actual human beings, living TODAY and trying to be sustainably creative.
February 2nd, 2010 at 5:59 pm
@brock Chameleons are one of my all time favs
February 2nd, 2010 at 6:30 pm
That’s one of the downsides of the new world of music, I would imagine. It’s going to be very rough for new, unheard-of bands. They’ll either have to scrape up the initial money to get this stuff done from their day jobs, or find someone who will lend them the cash in exchange for a cut of their merchandise and ticket sales. The latter will gouge them to hell and back. The only way out of it is if their music catches on, whether online or at one of the clubs/bars that have live bands, and they can then work out a greater deal.
Oh, I believe you. It’s going to be a rough, highly competitive world for artists. The lucky ones will be those who have achieved a high level of fame and celebrity, and can thus sell out concerts at high ticket prices along with selling loads of merchandise. Or those who land a high-paying regular gig writing and performing music for a patron, like how we have symphonies and the like.* Or those whose music is immensely popular and can thus charge a high price on one-off commissions to write a song or songs for a movie/commercial/television episode. Or all three.
*You know, I’ve been wondering about that. Cities and non-profits frequently subsidize classical symphonies and the like. As time goes one, will that change? Will we start subsidizing mixed groups, rock groups, even rap groups?
February 2nd, 2010 at 7:13 pm
And I’m sure the amateur quality of your work reflects exactly that.
Mike
Here’s a piece of writing for you Mike. Go fuck yourself, dickhead.
February 2nd, 2010 at 7:26 pm
@Seth
That was @me, but that’s OK. I still wonder how they got that drum sound, and why more people don’t do drums that way.
February 2nd, 2010 at 7:31 pm
If you still don’t believe me about the cost, just take one element of the process – the mixer of the records you listen to, someone whose name you most likely never hear.
It seems obvious to me that if present trends in the “free content” direction continue, mixers and those practicing analogous similar trades will need to find some other way to make a living—since ultimately their paychecks depend on people paying for the content they create.
When this happens, I suspect Matt and other info-libertarians will take it as evidence that mixers were redundant all along and didn’t really add any value anyway.
February 2nd, 2010 at 8:13 pm
For @Benny, @me, and all the commenters wailing about how MY doesn’t understand econ, or that “copyright is different”: Perhaps MY isn’t an economist, but many of those complaing about MY’s framing of this issue seem not to grasp what “marginal cost” means. It means the cost of producing the next product. Not the cost of all the overhead that might already have been spent. In the context of a widget or, let’s say, a cupcake. For a fancy cupcake, the marginal cost of producing another cupcake is the cost of the ingredients in that cupcake (not the 1000lbs of butter or flour purchased in the last delivery from the supplier), plus the cost of labor required to make that cupcake (plus, if one were to quibble, the cost of things like utilities and rent required for the fancy bakery to stay open long enough to make it). The fancy cupcake store may have sunk bazillions of dollars into decor, researching or inventing recipes, and (of course) marketing, but those costs are already sunk — they’ve been paid whether the store makes one more cupcake or not. Under conditions of perfect competition, the price of cupcakes will trend toward the marginal cost of making just one more cupcake. To who say “copyright is different”: well, no, it isn’t. In a scenario of perfect competition, the price of a copy would trend toward the marginal cost of production (which is near-zero in the internet age). But the problem is that for products where the marginal cost of the nth widget is too low, few will be willing to invest in the fixed costs necessary to make the very first widget. Copyright law is designed to create an artificial monopoly that essentially allows the widgetmaker – er, author – to add a surcharge to the marginal cost of each additional copy. But introducing copyright into the equation necessarily means we’re not talking about perfect competition.
February 2nd, 2010 at 9:30 pm
LOL @8 and the term “recordist”. The correct term is recording engineer.
LOL at the idiot troll that cant even bother to use google:
http://i.word.com/idictionary/recordist
idiot
February 2nd, 2010 at 9:35 pm
He’s referring to the marginal cost/profit, which concerns the cost/profit of each additional copy of the song produced
no, it isn’t. The cost of each copy is the cost of making and distributing the song. What you and others fail to grasp is the cost of recording the song should be included in the marginal cost.
If a song has 10,000 downloads and cost approximately 10,000 dollars to record, the price of each download should be more than one dollar.
Let me put this in a way you can understand. When Honda sells cars, the marginal cost is not the amount to ship the car to the dealership. The cost of r&d isn’t born by the first buyer and everyone else pays shipping. So why would you and Matt think music should operate otherwise?
February 2nd, 2010 at 9:52 pm
thank you benn lava.
February 2nd, 2010 at 9:59 pm
I listen exclusively to online streaming radio, Gimme Noise, 3WK Underground and when I hear a song I like I go to music blogs; ‘Elbows’ etc. get the mp3. I ‘ll try to find another song by the same artist. If like them both I usually buy the album via ITunes or the band’s site. It’s usually great, indie stuff..original.
February 2nd, 2010 at 10:15 pm
If a song has 10,000 downloads and cost approximately 10,000 dollars to record, the price of each download should be more than one dollar.
Okay, then what should the 10,001st download cost?
I leave the rest to you as an exercise. The cpunx list figured all this out 15 years ago.
February 2nd, 2010 at 10:42 pm
Well buying a CD is almost like an act of philanthropy: a way to support a band you liked after a show.
February 2nd, 2010 at 11:02 pm
Terry: Exactly. As Chris Anderson would point out, iTunes is still competing with Free, which constrains how much people are willing to pay for it. There are certain rents entailed in the transaction costs of finding authentic and complete copies of a song–but those rents are considerably lower than the rents attendant on monopoly ownership of content as such.
Even if a majority of people choose to buy proprietary content through authorized channels, the growing unenforceability of digital copyright (thanks to encryption, proxies, darknets, etc.) means that proprietary content will have to adjust its price downward in competition with Free.
What’s more, as the technical means of organizing networked means of certification and confidence-building that are opaque to the state, I expect the transaction costs of verifying authenticity and completeness on the black market will decline.
February 2nd, 2010 at 11:46 pm
And let me explain, again, that that is not the Marginal Cost – Marginal Cost is explicitly defined as “the cost of making each additional copy”. Since each additional copy of a song can be made for effectively zero (as simple as burning a song on to your computer from a CD), that means the Marginal Cost is zero, by definition. End of story.
Regardless of what a song “should” cost based on how you divvy up the expenses made in making the first copy is not the same as Marginal Cost.
Actually, the marginal cost of each new Honda would be the cost of making the car and transporting it to the Point of Sale. They add in the cost of R & D, but that’s not the marginal cost – that’s them adding that cost on top of the Marginal Cost, which they can get away with because the Automobile Market is not a Perfectly Competitive Market (hint: it’s because of serious differentiation among the main product – cars -, and because each car company has a monopoly on the production of that type of car).
February 3rd, 2010 at 1:05 am
Marginal Cost is explicitly defined as “the cost of making each additional copy”
From the all knowing Oz:
marginal cost is the change in total cost that arises when the quantity produced changes by one unit.
As you can see you misunderstand the definition of the word total. Each additional copy lowers the total cost, since each copy costs zero to replicate, but since the total cost is not zero the marginal cost is not zero either.
Regardless of what a song “should” cost based on how you divvy up the expenses made in making the first copy is not the same as Marginal Cost.
Either wikipedia is wrong or you are wrong. My gut tells me you are wrong. For starters you are assuming because you are engaging in theft that the fixed costs don’t exist.
If Honda ships 10,000 cars and theives steal 5,000 does that mean the marginal costs of the 5,000 are zero? Of course not. Why would you assume that they are zero for a song? Because it costs you nothing to steal it? The distribution of royalties on songs is such that there are costs beyond pressing of CDs. Just because you chose to steal doesn’t mean that there was no costs involved. People were supposed to get paid you know. Those are what economists might refer to as “costs”.
February 3rd, 2010 at 1:15 am
#8. That seems like a very marxist way of looking at things (labor theory of value).
quite the opposite! Remember that there was no intellectual property rights in the Soviet Union. The inventor of tetris was paid nothing for each copy of tetris distributed. The composers of music in the Soviet Union were not paid any royalties. For a while Shostakovich’s music was public domain!
These free music people remind me of communists. Funny I’ve actually heard quite a bit of anti-property rights bolshevic nonsense come from libertarians of all people.
February 3rd, 2010 at 2:31 am
The “total cost” of music does not increase when you make a zero-cost duplicate of a song electronically, hence the marginal cost being zero. Congratulations for finding the long version of what I’ve tried to tell you, twice.
You don’t divide the total cost by the number of units – you just measure the change in cost from making a duplicate. As mentioned, in the case of music, the change in cost from making a duplicate copy of the music is effectively zero.
Strictly speaking, the actual number of units sold prior doesn’t matter in an economic sense as long as it is at least one when measuring marginal cost. To describe it, let’s say you have an indeterminate number of units sold with a total cost of $1000. If you sell one more unit with a production and sale cost for that unit that equals zero, your total cost is still $1000, regardless of whether or not the total units sold is 1 + 1 or 1002 + 1 – and your marginal cost is zero.
My eyes (after a glance at the wikipedia page on marginal cost) are telling me that you misinterpreted it. For example, the next sentence after the one you quoted is as follows:
which is exactly what I’ve been pointing out. There’s also
Again, as I’ve pointed out (and others, along with Matt Yglesias), is that in the case of music, the marginal cost – the cost of producing a single additional unit of music – is basically zero. Regardless of how much cost there was to make the first complete song and copy, the cost to make a duplicate is basically zero.
So, in other words, the artist, studio, etc spend their time and energy to produce the complete song and store it on a cd. It then costs essentially nothing for someone to take that cd and make a duplicate of that song, and then send it worldwide. That would apply even if they only made one complete version of that one song for a single cd.
I’m assuming nothing of the sort. I’m saying that the fixed costs involved in the making of the music are not a required cost in the making of a duplicate of that music. As mentioned above, whereas it costs time and money for the producers to make that first complete version of the song, it costs me nothing to burn that song on to my computer, duplicate it to the Nth degree, and spread it worldwide for free.
Again, Marginal Cost is reflected in the change to total cost from the addition/sale of one more unit. The cost of producing an additional unit of that song in an era of electronic storage, cd burning, and electronic music is effectively zero, so there’s basically no change in the total cost. Hence the Marginal Cost being zero.
Bad example, since you would be talking about acquisition of an already existing part of a number of units, not the production of additional ones.
A better example would be if Honda made 10,000 cars, and then somehow was magically able to produce an additional 5,000 cars for zero cost in terms of inputs of time, materials, labor, and so forth. Then, the marginal cost of each of those additional Hondas would be zero.
You’re confusing theft of an existing quantity with the production of new quantities. Whenever someone copies a song, they are creating additional copies of that song at no price, not stealing an existing quantity.
No, the distribution of royalties merely reflects the producers’ legal capability to demand a premium on each additional copy beyond the actual cost of producing an additional copy. That is what economists call “rent”. Producers choose to spread part of the cost of producing the first complete version of a song on additional copies using the margin between the rent-added cost and the marginal cost, but that is not the same as marginal cost.
But there was no marginal cost involved in my duplication of a song, because it cost me nothing to produce an original copy. If Atlantic Records were to make a song, then copy it electronically a thousand-times, the marginal cost would be zero as long as it stayed in electronic form. If they chose to put it on to CDs, then you add in the marginal cost of producing each additional CD, which is not the same as the marginal cost of producing an additional electronic copy of each song.
Only if you accept an outdated system that is wholly inappropriate and incapable of charging rent on the sale of music in an era where music is both a non-rival* and non-excludable** good.
*This means that more than one person can use it at the same time. If one person is using a hammer, generally other people can’t use it at the same time. On the other hand, one person listening to a song does not prevent other people from listening to that song simultaneously.
**This means that there is effectively no capability to restrict people from listening to that music. Various efforts by the RCAA have been tried in the form of lawsuits against file-sharers, but even they have backed off from this as of late.
February 3rd, 2010 at 2:37 am
This is basic economics, benny lava. I and others have tried to point this out to you and others several times, but you don’t seem to grasp the fact that the Marginal Cost is only the cost involved in producing each additional unit. In the case of electronic music, since it costs nothing to produce additional copies, the Marginal Cost is therefore zero.
That doesn’t change the Marginal Cost. Since it took time and inputs by the Soviets to produce and distribute each additional copy of Tetris, the marginal cost was not zero – but it was paid by the Soviets.
Seriously, go read a textbook or take a class on Micro-Economics. You’re only embarrassing yourself by continuing this discussion.
February 3rd, 2010 at 6:20 am
What the author was describing is the labor theory of value. He’s describing cost or production, not marginal utility. Cost of production is labor in one form or another.
Music recordings are cheaper because it takes less labor to produce and distribute. That’s the labor theory of value.
Technology is wiping out the ‘labor value’ of a lot products, hence driving cost down, and it will be the major issue with employment in this century. Technology is permanently replacing workers in the Developed world.
Developing nations don’t have these issues as much yet, which is why they are growing so strongly. Labor creates value, creating profit. Technology creates value over a short time span, until other businesses catch up. Labor, especially labor newly incorporated into the capitalist world, is a much stronger driver of profits. Please actually read Capital before you profess to be an expert on Marx. It’s some 500 pages of dense 19th century German and I doubt any of you have.
February 3rd, 2010 at 9:19 am
no #53: There are some quality boots of mainstream acts up at dimeadozen. And you can dismiss “hippie band” as much as you like, but the fact of the matter is that their business model (which assumes comparatively small record sales and zero royalties from radio) is ideally suited to the current state of affairs.
Discounting my genre preferences in comparing recordings, for all the overhead Will.i.am spent in producing the latest BEP stuff I hear in my gf’s car, it still sounds like white noise. Maybe it’s tolerable at 128kbps in tinny earbuds.
Is the rule that prices trend to marginal cost a descriptive one or a proscriptive one? The former (1) makes no value judgements about who “deserves” what cut of the revenue and (2) is obviously correct, as we’re seeing it play out right now.
Last, even when prices tend to zero with time, sellers have tricks to use to capture the entire area under the demand curve by releasing different versions of the same thing, gradually decreasing in price with time so that the people that REALLY WANT something will pay extra (say for vinyl, or concert tix, or something not easily duplicated) and later in a lower quality form to sell to the mass public. See also how designer fashions move down-market over the course of several seasons.
February 3rd, 2010 at 9:50 am
#8, rewarding the band for inputs has nothing to do with “marxism.”
I love it: a band assembles the capital, the content, the rights (if needed) and works hard to record a song which it can then take to market, and you call it “Marxism.”
Some guy does the same thing to create a popular new chili sauce in a test kitchen with food inspectors, and you’d call it “investment.”
That’s economic literacy in 2010 America for ya.
February 3rd, 2010 at 9:54 am
Further to that, purple in #89, you’re wrong: music is cheaper because it takes less CAPITAL to produce and distribute.
Hell, it probably takes the same amount of ‘labor input’ to take a song to market in 2010 as it did in 1980.
February 3rd, 2010 at 11:11 am
And I am saying this again. Could people please read about “natural monopolies” before they start arguing about marginal cost!
It is really not so difficult. The marginal cost if you like of the first unit of music (producing the song) is very high, all subsequent units (the copies) have very low marginal cost. This causes all kinds of trouble and means that perfectly competitive markets cannot be a long term equilibrium.
February 3rd, 2010 at 11:14 am
When you say “author”, are you referring to Matt Yglesias or benny lava?
It’s also a very odd definition of value. While the cost of producing a song may go down with decreasing labor costs, that’s only because the song requires less of a certain input.
No, it doesn’t – or at least it is not guaranteed to be such. Value is determined by the equilibriam between how much the owner values something and how much others are willing to trade for that something. Or to borrow a line from Robert Heinlein, “no amount of labor will turn a mud-pie into an apple art – it will remain a mud-pie, value zero.”
Only if it leads to a perfectly competitive market, with no barriers to entry, no economies of scale, and so forth. And even then, it’s only marginal profit (the profit to be gained from producing an additional unit) that trends towards zero – a firm can still be profitable in a perfectly competitive market overall.
Besides, technology does not “create” value. It allows for the creation of new products that might have value, or the utilization of new inputs in a more efficient way.
February 3rd, 2010 at 11:52 am
“Here’s a piece of writing for you Mike. Go fuck yourself, dickhead.”
I’m sorry, are you trying to bullshit everyone that your work is of professional quality?
Rob Mac’s touchiness about his amateurism brings up one of the emotional issues underlying this debate. There are an awful lot of people who play music or write as a hobby. Most of them aren’t out and out horrible, but very few of them are good enough to make it as professionals. The jealousy, envy and insecurity of SOME of those folks tends to taint the whole discussion.
Mike
February 3rd, 2010 at 12:52 pm
You’re on target with mechanics, but waaaaay off when you talk about musicians and authors, Phila.
I assure the, the vast majority of musicians never make a red cent playing music and don’t really expect to, other than as a vague, winning the lottery type of dream.
First off, that was my point. Claiming that everyone who plays music wants to “get rich and be a pop star” is idiotic.
Second, as someone who’s been a writer and musician for the last 25 years, I’m well aware that these activities are fulfilling whether or not one gets paid (although I personally do prefer to get paid, as do most of the people I know).
But there’s a big difference between acknowledging this fact, and using it as an across-the-board argument against paying people for their work.
There are also countries where musicians and writers are subsidized, of course. Which seems pretty civilized to me.
February 3rd, 2010 at 1:29 pm
And I am saying this again. Could people please read about “natural monopolies” before they start arguing about marginal cost!
I think you might be off base their. The classic example of a natural monopoly is something like a utility company. The fixed costs of setting up the grid are very high, but the marginal costs of adding one more customer are low. Companies in that situation can extract some measure of rent because the capital costs represent a barrier to entry in the market.
But that doesn’t apply to distributing copies of music. There aren’t really any barriers to entry: pretty much anyone can get into that market. So there’s no rent to be had from natural monopoly.
What you have is not a natural monopoly, but rather a legal monopoly in the form of copyright law. But if people can violate copyright law with impunity, then the price of copies of music will indeed drop to the (practically zero) marginal cost of producing copies.
February 3rd, 2010 at 1:40 pm
The comments section on this post provides a great case for making economics mandatory in high school and college.
February 3rd, 2010 at 5:22 pm
What does cost have to do with pricing? Price is the balance between scarcity of supply and demand, no? Since the studios have a hard time creating scarcity today, natural prices are driven down.
February 3rd, 2010 at 7:15 pm
I think the decline in music sales has more to do with the ipod than itunes.
I used to buy 100-200 CD’s a year, and have a collection of well over 1000. Now I buy 10-20 / yr and maybe 10-20 songs from itunes. When the MP3 players came out I bought a large hard drive model because I liked the idea of carrying around my entire music collection in my shirt pocket. After spending weeks feeding CD’s into the computer, I got my entire music collection loaded up and quickly realized how many songs I own which I have no desire to listen to.
I currently have an ipod nano that holds maybe 10% of my collection, but which are all songs worth listening to.
That still is over 100 hours of music – I listen to it all the time in the car, etc, but at an hour a day that still means I am only listening to each song a few times a year – I probably would not have dug out the CD’s to play the song. So I am getting more utility out of my existing collection, and have less incentive to buy additional music…
February 4th, 2010 at 12:45 am
This is basic economics, benny lava. I and others have tried to point this out to you and others several times, but you don’t seem to grasp the fact that the Marginal Cost is only the cost involved in producing each additional unit. In the case of electronic music, since it costs nothing to produce additional copies, the Marginal Cost is therefore zero.
Ok, it is clear to me that you are missing a basic piece of the equation. I will type this out in small sentences so that you can understand this.
The marginal cost of stealing music is zero. But the marginal cost of producing music is not zero. There are these funny things called “copyright laws”. They say a lot of things. One of which is that the copyright holder has rights regarding the material therein.
If Brittany Spears sells tickets for a concert, and plays a cover of an REM song, she owes REM royalty money. The cost to REM of Brittany Spears playing their song is zero. However, as the copyright holder, they are owed a portion of the revenue that she made simply by performing their song at a paid event.
Or to put it in straight terms, I am holding a CD in my had that states on it “Unauthorized duplication is a violation of applicable laws”.
If you invent a magical machine that can replicate a Honda Civic for free, it would be a crime to operate it and give away Honda Civics, as Honda holds a number of patents and copyrights over Civic (not limited to but including the brand name Honda and the models Civic, the logos, and any engineering patents within the machine).
Reread your own words to understand this concept:
the Marginal Cost is only the cost involved in producing each additional unit
Each unit that is legally produced also costs royalty money. Even if you could distribute mp3s for free and have no expenses for bandwith, advertisements, etc, you would still have to pay the copyright holder. Try to understand this very simple concept, and stop making yourself – to quote Rahm – look retarded.
Downloading mp3s through unauthorized channels is stealing. It isn’t any different than breaking into Dow and stealing the formula for Lunesta, and cooking some in your kitchen. Does that make the marginal cost of your home cooked Lunesta zero? Really?
For some reason I doubt that you will grasp this basic concept. Or that you do understand this but chose to ignore it, since you wrote
Only if you accept an outdated system that is wholly inappropriate and incapable of charging rent on the sale of music in an era where music is both a non-rival* and non-excludable** good.
So the system where people are paid for their time and effort is inappropriate? I guess the communists did win after all.
You know if you take a piece of paper and transcribe the latest Beyonce single onto sheet music and give it away, you still owe the copyright holders money even though it didn’t cost them anything to produce it. And this is exactly the same scenario that Dvorak face over 100 years ago. But somehow it is magically “inappropriate”? Again, are you retarded? Do you know anything about music, economics, history, or anything at all?
February 4th, 2010 at 9:10 am
One thing to note: It’s not just file sharing that’s led to a decline in sales — it’s also the ease with which people can purchase individual songs.
This at least was a lament that I heard from a former musician who was signed to a major label in the mid-1990s (part of the post-Seattle boom in the signing of small bands). He said basically that people tend to buy more singles these days rather than full length albums.
For a small band trying to break through there’s a world of difference between selling 20,000 copies of one song for $1 and selling 20,000 albums for $10 plus. There’s a significant difference too even if the higher price for the full-length album nets a lower number of sales (e.g. 5,000 albums at $10+ versus 25,000 singles sold at $1. e.g. $50,000 versus $25,000).
February 4th, 2010 at 10:29 am
As a professional musician, I generally resent how easy it is for people to make these arguments when it’s an inverted problem for you. For us, it means that our livelihood disappears because you want to listen to whatever you want to without paying for it.
It’s my work. I have 2 degrees and years of experience in the field.I spend days/weeks/months working on it. No-one else does what I do. I should be able to earn a living from my craft.
I think that Apple’s “walled garden” approach is not how things should ideally be, but that doesn’t mean that artists shouldn’t be able to make a living off of their work. That’s a ridiculous and offensive assertion. (And I’m talking about artists NOT music companies. I am 100% self-employed. Every cent that is spent on my music comes back to me.)
February 5th, 2010 at 11:41 am
Terry: Go to Google. Type in any genre of music. Instantly find the names of hundred of bands you’ve never heard of from around the world playing music that you just might like.
February 5th, 2010 at 5:05 pm
[...] is a smart person. Regarding the effect of free (stolen/pirated) content on the record industry, Yeglesias writes: But under conditions of perfect competition, the price of a song ought to be equal to the marginal [...]
February 6th, 2010 at 11:02 pm
[...] of IP law, and (2) that the purpose of copyright law is either to protect the work of artists or to benefit consumers. First, based on personal experience, I think there is a lot of merit to drawing [...]
February 8th, 2010 at 10:57 am
[...] a post on the declining revenues of the record business, progressive blogger Matt Yglesias wrote last week, "It is, of course, possible that at some point the digital music situation will [...]
February 8th, 2010 at 12:03 pm
[...] a post on the declining revenues of the record business, progressive blogger Matt Yglesias wrote last week, “It is, of course, possible that at some point the digital music situation [...]
February 8th, 2010 at 5:05 pm
[...] a post on the declining revenues of the record business, progressive blogger Matt Yglesias wrote last week, “It is, of course, possible that at some point the digital music situation [...]
February 8th, 2010 at 10:22 pm
Why do these graphs always start in the 90’s?
• CD sales were pushed up by people re-buying all their old vinyl, once that gluttony was sated, sales gradually fell back to their old levels.
• This debate needs to consider the proportional reduction in the number of new acts being signed and recorded as the big labels focus on milking the mega-sales of a select few acts and neglect new A&R.
• These graphs ignore wealth generated by self-published music, relying only on RIAA numbers. When discussing this as an economic issue, it must encompass all of the economy, not just the “big corporate” sector.
February 8th, 2010 at 10:47 pm
Digital methods have removed the costs of re-production and made distribution virtually instantaneous. In the process the forced methods of collecting payment for artists has been removed and the need for most middle-men has been annihilated.
This whole issue should be presented as one of empowerment for creators. More than enough people would be happy to contribute reasonable sums back to the artists in return for reading, viewing, and listening to artistic works: what’s needed is an easy and affordable system to allow this.
Artists now have instant access to their audiences, give audiences an instant way to fund the artists and a new system will emerge where the artist is controlling the purse strings and paying the promoters and producers instead of the bass- ackwards way it is now.
February 9th, 2010 at 1:58 am
[...] highlighted in many popular blogs. Last week Matt Yglesias wrote a blog post on the struggle of RIAA against free content. Yglesias [...]
February 9th, 2010 at 6:06 pm
[...] Matthew Yglesias: [...]