[Air-L] Digital music economics

[Hugemusic]

Hi all.

I've been writing the theory compnent of my thesis, so I've been out of the
loop for a while, but I got irritated by a series of blog posts in various
places, the last one of which triggered the following.  I'm interested in
what other peple think.  It will appear on my blog shortly:


Music files may be abundant, but listener value and attention are still
scarce. 

By Hugh Brown

For some time, the independent music industry has been crowded with people
discussing the benefits of giving music recordings away and the consensus,
much to my disgust, seems to be that it's a great idea - nay, a necessity -
for any indie. Just put the stuff out there and good things will come your
way because that's what the new "economics of abundance" dictates.  This
argument is embodied in <a
href="http://www.techdirt.com/articles/20070503/012939.shtml">this Techdirt
article</a>, in which Mike discusses the economics of abundance and
therefore the virtues for an artist/band of making music available for free.
This is an example of slightly muddled and mistaken thinking but before I
show why, I want to get a couple of things straight.

1) Yes, there can be benefits to giving away recordings. But, as Mike puts
it rather succinctly: "Giving stuff away for free needs to be part of a
complete business model that recognizes the economic realities." Don't
assume that giving recordings away will necessarily get you anywhere.

2) The belief that music should be free and that if it's not people are
perfectly justified in ripping it off is a blight on society and must be
stamped out (not that it ever will be). I'm all for the cyberpunk ideal and
breaking down barriers to progress, but I believe in those things because I
think they make for a more reasonable set of conditions for mutual benefit
and development. Stealing music, just like stealing bread, cars or life
savings, is not being more reasonable. It is being completely one-sided and
depriving the other party of the opportunity to renegotiate. If you don't
like the price, send a signal by not buying - it has the same effect on the
seller but retains your moral <a
href="http://en.wikipedia.org/wiki/Rectitude">rectitude</a>. 

Having set that straight, there are a couple of points I take issue with in
Mike's article. The first is his quote from Jefferson regarding ideas: "Its
peculiar character, too, is that no one possesses the less, because every
other possesses the whole of it". This refers to what economists call a "<a
href="http://www.pitt.edu/~upjecon/MCG/MICRO/GOVT/Pubgood.html">non-rivalrou
s</a>" good. One person having or using it does not prevent another from
having or using it. The best example of a non-rivalrous good is air - anyone
can breathe it without preventing another from breathing it. However, anyone
who's lived in a polluted city like, say <a
href="http://www.unu.edu/unupress/unupbooks/uu35ie/uu35ie00.htm">Tokyo</a>,
LA or Beijing will know that not even air is perfectly non-rivalrous. One
person's "use" of the air can make that air unbreathable to other people.
Similar limits apply to roads, trains, mail, etc. In any real case there are
limits to non-rivalry.

Where this causes problems with respect to ideas, however, is in assuming
that each use of an idea is identical - or at least equivalent. Jefferson,
like Newton and Einstein, was subsequently proved slightly wrong. One of the
problems with ideas, modern psychology tells us, is that no two people have
the same ones and, as any teacher will tell you, transferring an idea from
one head to another is an imprecise and frustrating process (sometimes
that's a good thing). This is largely because everyone has a previously
collected set of idea into which they must fit the new idea - and sometimes
it doesn't fit at all. As the saying goes "a little knowledge is dangerous".
The more complex the idea, the more difficult is its transferal from one to
another. 

When it comes to something as complex as artistic expression, as opposed to
the sequence of ones and zeros that make up a digital file, the transfer is
almost never perfect. While digital files  may be perfectly reproducible
(see my next point about that), music is not. The greatest art is ambiguous,
and this is why it survives: it makes us question, debate and reconsider our
lives and our place in the world. It does not supply answers, it asks
questions, allowing us to find our own answers. This point lies at the core
of why many of the arguments from those who talk up the virtues of "<a
href="http://gerdleonhard.typepad.com/the_future_of_music/2005/01/music_like
_wate.html">music like water</a>" and treating music as a utility or paying
for it <a
href="http://www.openrightsgroup.org/press-releases/music-industry-proposes-
isp-tax/">via flat taxes</a> or <a
href="http://www.nytimes.com/2005/10/10/technology/10ipod.html?_r=1&oref=slo
gin">fees attached to digital player sales</a> are just plain wrong: they
assume that the value each consumer holds for each song, as with each
digital file, is identical. It is not. In terms of their value to listeners,
digital files are not songs, or games, or movies. They are merely the
electronic embodiment of one version of them. To use the two interchangeably
is to miss the entire point of human experience.

So when Mike says to "Redefine the market: the benefit is musical enjoyment"
he is quite correct. But he is wrong in the next line - "the music itself"
is NOT infinite. The value of the music, as opposed to the vehicle for the
recording's distribution, lies in the experience of the listener - whether
at a live show, or on the radio driving to work, at the time of a first
kiss, watching a poignant moment on a favourite movie, or the birth of a
child ... whatever. Even if you send me a copy of your favourite new song
discovery, I may not attach the same value to it that you do, simply because
of our mindsets at the time of discovery. And its value in an exchange
between artist and fan lies in the relationship between those two, which
does not necessarily lie in any particular song (or digital file). <a
href="http://www.inrainbows.com/">Radiohead understood this</a>, and
although many people (myself included) downloaded the album for free on a
"try before you buy" basis, many others paid them handsomely. I have no
doubt that they have more than recouped the costs of production.

The next point I want to object to is the use of the word "<a
href="http://en.wikipedia.org/wiki/Infinite">infinite</a>" when talking
about the economics of "<a
href="http://en.wikipedia.org/wiki/Abundance_%28economics%29">abundance</a>"
. Abundant and infinite are NOT the same thing. "Non-scarce" is closer to
"abundant" than "infinite". And in any case, infinite does not exist, it can
only ever be approached. Many web servers have crashed because of excess
demand while attempting to distribute "infinite" digital goods - rendering
them instantly finite as far as consumers are concerned. There are limits to
bandwidth and many other factors involved in supply of digital goods. It is
simply incorrect to refer to the goods as infinite.

Finally, releasing the "infinite good" does NOT necessarily increase
marketsize. This is a well-documented furphy. The best it can hope to do is
increase the <em>potential</em> marketsize, and many other activities will
achieve the same thing. This is because in an abundant digital economy,
marketsize is limited by attention scarcity. This is NOT a new condition for
indies. <a
href="http://www.dailymail.co.uk/pages/live/articles/showbiz/showbiznews.htm
l?in_article_id=468443&in_page_id=1773">Prince</a> and Radiohead used this
to great effect; their stunts garnered them huge amounts of attention. But
it was not the giving away of the music they benefited from, it was the
attention raised because of the novelty of that approach. Had Radiohead
posted their new album as free streams for people to listen to before
deciding to buy, they would have provided me with the same service and
access - but would not have solved the attention scarcity problem because
that's been done plenty of times before. Now that that novelty has been
realised, it will not work so well again for them or for anyone else.
Incidentally, Prince did not give his CD away - he sold it in bulk to a
newspaper for more than he probably would have made at retail. He's a smart
lad. On the other hand, the poster child for online music business, <a
href="http://www.jonathancoulton.com/primer/get">Jonathan Coulton</a>, does
NOT give his digital files away for free (though he's probably not about to
sue file-swappers for copying them). Every posting of music on his site
links to a pay-for download (one of them is the "pay what you like" site,
SongSlide), and you can listen to the streams for free.

The real problem is that if you don't find some way to tell people that the
music is available, and find some way to make it relate favourably to their
lives, you will gain nothing. This has been the experience of many artists -
myself included - whose music has been available for free for months and
whose marketsize remains negligible and unsustainable. Similarly, making the
music is available will make no difference if it is bad. In fact, it may
deter people from coming to shows and buying merchandise - such is the
double-edged sword of attention.

The upshot of all of this is that what indies need to be discussing is the
best means for overcoming attention scarcity, not devaluing music recordings
by implying that giving them away is necessarily beneficial. As <a
href="http://lefsetz.com/wordpress/index.php/archives/2007/01/25/668/">Bob
Leftsetz points out</a>, finding ways to overcome attention scarcity is one
of the great assets that the major labels and big players retain. Giving
away recordings without addressing the attention scarcity problem is playing
back into the hands of "those who refuse to give up their old business
models". The only way for indies to compete is to optimise their revenue
streams, not compromise one in the hope of catching up with another.

Cheers,
Hughie

The Genre Benders:  "I am leaving! I am leaving!"
    - out now at www.genrebenders.com
                        www.cdbaby.com/genrebenders