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The music market

Michael O'Hare, professor of public policy | February 22, 2011

Matt Yglesias gets the key fact about recorded music. It’s a non-rival good: when I play an mp3 file of a song, there’s no less of it for you, so the marginal cost of my consumption is zero. He also gets the profoundly illuminating and useful principle that everything should be sold at marginal cost. From this, and I note that it’s a short post and he doesn’t undertake to get much into the weeds, he tries to turn down the alarm volume over the 50% decline in recorded music sales (correctly distinguishing it from listening) since 2001.

However, he slips in this reassurance:

Thanks to copyright, a recordings-seller does have some level of market power to allow him to seek monopoly rents. But there’s a pretty high degree of substitutibility between different songs, so the competition is still pretty intense and the prices are low.

which is completely wrong in two ways. First, recorded content is not only non-rival but has now become non-excludible. Copyright is only useful if the fixed or variable costs of infringing are high, the former so infringers are few enough to enforce against (for example, people with a printing press and a distribution system for physical books), and the latter so an infringer can’t make lots and lots of very cheap usable copies. This is no longer the case as music has become digital (hence copyable perfectly and quickly without limit, unlike, for example, a book with a copying machine or music on tape cassettes) and the ‘printing press’ is any computer.

As long as I can copy my favorite song and email it to my friend, RIAA ‘s hands are completely tied; no jury will award tens of thousands of dollars of damages for copying a few songs pour décourager les autres. DRM software can control copying in theory, but when I went looking for a way to read my Kindle books on my Sony Reader, it took about ten minutes of Google search to find at least two free apps that will unlock them. Second, see “marginal cost pricing” above: a dollar for a tune is too high by, um, about a dollar, or an infinite percentage.

Yglesias’ recommendation for music creators in the current world is:

The optimal strategy for a popular band that wants to do something nice is market pricing for concert tickets, plus free recordings. Or even better, you could release your records into the public domain.

Maybe optimal for some bands and some composers, but far from optimal for the rest of us. Look at the incentives in a scheme of this kind, which pays musicians only for seats in a hall and rewards them for recordings only insofar as the latter fill those seats.

(1) Bigger venues and amplified music. How does this figure for music where subtlety and detail matters, like a string quartet or a singer with a guitar? Or are all the chamber-dimensioned musical modes obsolete?

(2) Music that can draw a crowd in a few big cities with stadiums, rather than niche music that could have an audience spread thinly across the country, or across several countries. A musician’s performing time, which includes travel, rehearsal, interviews, and the like, is about 2000 working hours a year, same as everyone else’s, and a band can only give so many concerts, so everything has to be focused on making each of those as profitable as possible.

(3) As the venues get so large that people in the back are actually watching the musicians on a scoreboard TV, and the sound is out of sync with their movements owing to distance, the music has to be tarted up with spectacle appropriate to the occasion, like fireworks, lighting, dancers, and the like. This is a new artistic form (well, not so new: the 1812 Overture has been performed this way for more than a hundred years) but there’s a lot of music that it isn’t. Like, nearly all music.

(4) As it becomes more and more difficult to transmit subtle variation in the elements of music that have historically been quality dimensions (intonation, harmony, and rhythm) because of the acoustics and sheer size of the venues, other ways to make a big effect become more important, among the most important of which is volume. Anyone can now play or sing really loud, so a positional arms race ensues with truly bizarre and regrettable feedback results. One is a reinforcement of the coarsening and simplification of the music itself, and another is the deafening of the audience. Especially in high frequencies, which is where, for example, the timbre of different instruments is found, hence more coarsening and simplification if music is to pay its way, and so on.

The world Yglesias portrays has no economic place for any music that can’t fill a stadium or impress a small self-replicating academy. A lot of it is hanging on, but a lot more is not, because musicians cannot receive a price signal that they have created value for a few hundred thousand people in a few hundred cities and a few hundred thousand square miles of countryside. The Detroit Symphony canceled its season, and probably will never have another. Well, that’s Detroit, but the canary in the mine always dies before the miners get sick.

At the same time, a lot of music has lost its anchor to an audience (Verdi and Wagner, for example, no hacks in anyone’s view, thought they should write for a popular and an élite audience both) and speaks to fewer and fewer people. Classical and experimental composers have to be professors in universities to put food on the table; some of them are good at this but most are not (most people who do anything well are not good teachers of it, and why should they be?), and their success is determined by their appeal to peers who vote on their tenure. It is not a trivial matter for a society to lose access to its most creative and talented artists.

Things are not more or less OK; they are very bad. Until we rebuild the economic model for digital goods to meet the two key design criteria of (1) marginal cost pricing to consumers, which means zero, and (2) value-based payment to creators, which means something like payment according to number of listener-hours, it will get worse instead of better.

Cross-posted from The Reality-Based Community (tag line: Everyone is entitled to his own opinion, but not his own facts).