2007 is turning out to be a terrible year for the music industry. Or rather, a terrible year for the the music labels.
The DRM walls are crumbling. Music CD sales continue to plummet rather alarmingly. Artists like Prince and Nine Inch Nails are flouting their labels and either giving music away or telling their fans to steal it. Another blow earlier this week: Radiohead, which is no longer controlled by their label, Capitol Records, put their new digital album on sale on the Internet for whatever price people want to pay for it.
The economics of recorded music are fairly simple. Marginal production costs are zero: Like software, it doesn’t cost anything to produce another digital copy that is just as good as the original as soon as the first copy exists, and anyone can create those copies (meaning there is perfect competition and zero barriers to entry). Unless effective legal (copyright), technical (DRM) or other artificial impediments to production can be created, simple economic theory dictates that the price of music, like its marginal cost, must also fall to zero as more “competitors” (in this case, listeners who copy) enter the market. The evidence is unmistakable already. In April 2007 the benchmark price for a DRM-free song was $1.29. Today it is $0.89, a drop of 31% in just six months.
P2P networks just exacerbate the problem (or opportunity) further, giving people a way to speed up the process of creating free copies almost to the point of being ridiculous. Today, a billion or so songs are downloaded monthly via BitTorrent, mostly illegally.
Eventually, unless governments are willing to take drastic measures to protect the industry (such as a mandatory music tax), economic theory will win out and the price of music will fall towards zero.
When the industry finally capitulates and realizes that they can no longer charge a meaningful amount of money for digital recorded music, a lot of good things can happen.
First, other revenue sources can and will be exploited, particularly live music, merchandise and limited edition physical copies of music. The signs are already there – the live music industry is booming this year, and Radiohead is releasing a special edition box set of their new album for £40.00 simultaneous to the release of their “free” digital album.
Second, artists and labels will stop thinking of digital music as a source of revenue and start thinking about it as a way to market their real products. Users will be encouraged (even paid, as radio stations are today) to download, listen to and share music. Passionate users who download music from the Internet and share it with others will become the most important customers, not targets for ridiculous lawsuits.
The price of music will likely not fall in the near term to absolutely zero. Charging any price at all requires the use of credit cards and their minimum fees of $0.20 or more per transaction, for example. And services like iTunes and Amazon can continue to charge something for quality of service. With P2P networks you don’t really know what you are getting until you download it. It could, for example, be a virus. Or a poor quality copy. Many users will be willing to pay to avoid those hassles. But as long as BitTorrent exists, or simple music search engines like Skreemr allow users to find and download virtually any song in seconds, they won’t be able to charge much.
Update: There are some blog responses to this post that are, inevitably, complaining about fairness. Arguing against basic economics makes about as much sense as arguing against gravity. Zero marginal cost + competition (anyone can create a copy of a song) results in a zero price, unless government creates artificial barriers to a free market.
Update 2: NBC Universal chief Jeff Zucker: “We need, across the board, to move IP enforcement up the agenda of the federal government.” Scary stuff.
Update 3: Paul Glazowski writes a rebuttal, essentially arguing from the fairness perspective. I talk about the fairness argument in the comments below a lot. As I say below, gravity may not be fair, either, but its inevitable. Paul also says the medium has “value,” which I don’t dispute. But the fact is that zero marginal production cost plus perfect competition (every consumer is also a potential producer of any song) inevitably equals a zero price. I think Paul’s main point is, even though he doesn’t say it, that government should step in and set a “fair” price of $5 – $8 per album. Of course, that will involve getting the feds involved to enforce these laws (see update 2 above), or some kind of music tax (which creates really, really bad incentives).
Update 4: The discussion below is awesome. I think I’d like to do a podcast or video debate with someone who disagrees strongly. Paul Glazowski, mentioned in the third update above, seems to disagree strongly and intelligently and may be willing. If there are any pro-label types out there, I’d be happy to consider them as well. Let me know. Perhaps we could get Scoble or Gillmor to video this for us, too.
Spot on Mike. Great post and use of economic theory.
Mike,
Its models like IMEEM that are the future of the web. Even as Ballmer stated with Microsoft – people are willing to accept advertising if it means the product will be free. In the article I read, he suggests that 25% of revenue in the next 5 years at Microsoft will come from ad-funded ventures.
The sooner the music labels release that DRM is dead and that money will now flow from streaming live concerts with advertising, t-shirt sales and the concerts themselves the better.
Even attempting to charge ridiculous prices for Internet Radio seems pointless as sooner or later Last.fm/Pandora will incorporate streaming advertising technology. I just find it stupid – havent the labels heard of stream ripping ? If not, maybe they need to look this up and read more about it.
My 2 cents ….
I sincerely hope music falls to absolute zero ( for a one song digital download ). But I must temper all the above optimism with the witch hunt currently playing itself out in court at the Jammie Thomas trial.
http://www.time...icle2584831.ece
Should she lose and be sent to prison, we are looking at quite the opposite of the “puppies and rainbows” described in this blog post. Evidence of the bleak future for music lovers is the internal emails from the RIAA’s goon squad Media Defender:
http://torrentf...-leaked-070915/
On paying users to listen to music, Cory Doctorow’s novel Eastern Standard Tribe had a whole bit about taste-makers being paid to share music on the Massachusetts toll-roads.
In all major media – TV, radio, print, Internet – free content is supported by advertising. Why not recorded music?
Check out the Ad-Supported Music Central blog:
http://ad-suppo...c.blogspot.com/
Most bands don’t have the following built up to consistantly book enough gigs for their band to remain economically viable. Too many bands and not enough venues is another problem.
It’s the curse of Guitar Center. Now everyone has access to good inexpensive instruments and recording equipment. Alot of older guys have set up man cave’s that ten years ago would have been decent professional production studios. Incredible software like Fruity Loops and ProTools allow for very good production for peanuts. The point is, everybody is creating and playing music. It’s just harder and harder to build and maintain a loyal audience that’s willing to pay anything for music. Promotion is critical. That’s why I believe music podcasts will become very useful promotion tools for musicians.
Video podcasts can show performances, interviews, backstage footage, outtakes, etc. You can also offer PDF’s of song lyrics, marketing pieces, gig dates, etc. The reason for podcasts rather than streaming video is because of the RSS. That is the critical element. Get your fans to sign up for the rss feed and then keep pushing out the content to them. Quincy Jones and Elvis Costello are examples of (already established) musicians using podcasts effectively.
Hmm.
In the article I read, he suggests that 25% of revenue in the next 5 years at Microsoft will come from ad-funded ventures.
As someone who has been involved in the live music scene – as a fan, performer, producer, stage manager, and mixer – I really hope this does cause labels and even more artists to push for performances as the ‘real’ medium of the music. There are millions of people who would download for free albums by artists they would pay up to a hundred bucks to see live.
I’ll probably buy Radiohead’s new album for five or ten bucks (hopefully 95% profit for Yorke and the guys)… but if I drive down to the Shoreline to see them live I’ll end up paying thirty to eighty dollars.
The byproduct of this, I hope, is that people will get more interested in local music. Right now, it’s a chore for most bands to bring anybody (besides friends and family) out to a show, and the better venues have a pretty harsh chicken and egg policy in terms of letting new bands in (you cannot play shows unless you can bring 100 people, you can not build up a fan base until you’ve played shows!).
If this can create a push for a larger emphasis on live shows, which creates a demand for national headliners to bring in more local openers, that could encourage people to go see the locals when they headline shows, thus exposing them to even more local bands and hopefully turning them into people who are fans of local music in general instead of just specific bands.
I know this is TechCrunch and we’re supposed to be takling about Web 2.0 and Facebook, but while we’re talking about music I figured I’d share my experiences.
Great post mike.
I think what’s actually quite ironic about Bittorrent is how professional and well-done most rips are. This is especially true in the TV arena, where full-season, commercial-free, HD rips of shows are available everywhere. Forget viruses, the torrents actually offer a better quality product than what the networks charge an arm and a leg for.
Good post, but style-wise, please choose singular or plural for bands and stick to it. In the same sentence, we have “Radiohead, which is” and “put their new digital album”. I hate to be a grammar nazi, but…
To respond to Jughead, who posted while I was writing my response: That barely works.
You cannot short-circuit the process of building a fanbase by using high tech methods. Local bands generally develop their initial followings based on the personal connections they can make with their audience thanks to the intimacy of local shows.
There’s a Bay Area band called Maldroid that has spent hundreds of hours making video podcasts and music videos and putting together and flashy web site. Chances are, you’ve never heard of them. The video content is really good, but the real problem is that people don’t care about local music unless it can lean out from the stage and touch them (in a non-dirty way).
Unfortunately, that takes the kind of ballsy, constant in-person interaction that most artists and bands wish they could avoid. They do so, and rely instead on podcasts, web sites, and video content, at their peril.
Jason, you are misunderstanding ‘marginal costs.’ It costs a certain amount of money to record the music, but the cost of duplicating that product once you have it is just a few cents. It’s like the joke about the pharmaceutical industry: that first pill is the one that costs thirty million dollars, the rest are basically free.
what % of all music downloads come in via torrent sites when compared to iTunes, Napster, etc.
Also, there are thousands of Music Blogs out there too. Many hosting full albums of songs.
While true that the “economics of recorded music are fairly simple,” the business model that the music industry has followed for decades isn’t.
The music industry is built entirely around the selling of recorded music in one format or another. Merchandise is sold to offset costs of touring. Touring offsets costs of videos and other promotional efforts. If those efforts are successful, and if the music sells, the first thing those sales offset are the recording costs. Once those are offset, along with all other “administrative” costs such as representation fees or distribution costs, the artists start making money. In other words, the model dictates that there are no net profits from any revenue stream other than the actual and eventual selling of the music.
And that’s exactly what has folks in the business up in arms. For the most part, they’ve never made money on any of those other “real products” and now everyone is trying to figure out how.
What Prince, Radiohead, Nine Inch Nails and others are doing is great. Truth is, they can afford to. For the garage bands and future Grammy-winning artists who used to pour everything they had into “making it,” and were able to persevere and survive only by selling a handful of $5 CDs at their shows, their days are numbered. And while it’s great to think that might level the playing field, or raise the bar on the quality and integrity of recorded music (as the only artists that’ll be left are the ones that aren’t “in it for the money”), at the end of the day, there will be far too many Dylans-in-the-making that never make it out of the garage.
And when copyrights fall, I can copy Techcrunch verbatim on my website and earn some of their revenue! Their production costs are far less than the costs of buying or renting CD manufacturing equipment and facilities, advertising, shipping, etc. Their costs are truly close to zero.
this site isn’t perfect competition. Other sites may offer similar content, but not the exact same product, so that analogy is not the same story. F
Awesome analysis, a bit surprising at first but makes good sense.
As far as P2P networks, I’ve only gotten bogus files on “wild” networks such as Kazaa and eMule, not on private P2P networks (where you exchange with friends and friends of friends) or torrents.
I hardly consider fruity loops to be “incredible software”. This is why so much music sucks now. Damn Amatures…
Unfortunately, the same “marginal costs” argument that says costs can (and in the view of many, should) go to zero applies to movies and and software, since they too can be easily copied.
Equally unfortunately, “thinking about it as a way to market their real products” doesn’t apply, as the movie or program IS the real product. A piece of software can’t “go on the road”. Most will never build up a fan base willing to buy, say, Microsoft Powerpoint T-Shirts or other merchandise. Donations fail due to “free-rider” problems. How many well-designed programs need support? And I, for one, don’t want to watch ads when I’m building a presentation. Hackers will just strip them out anyway.
It still costs millions to make a major motion picture or produce a major game or commercial software program. Those costs need to be recouped, or those items will not be produced. And there lies the dilemma.
@ Jason (#11)
What you are talking about is fixed costs. The cost associated with producing an album is essentially a fixed cost, meaning you pay the cost up front, and you don’t have to keep paying over and over again.
The marginal cost is the cost associated with developing each “copy” of a product. In the case of music, that cost is essentially $0, because it costs nothing to make a digital copy of a song.
I agree, however, that those fixed costs need to be recovered. The argument is that other revenue streams (live shows, merchandise, etc.) will cover this cost. I’m not so sure that other revenue streams will cover that cost, but I am not a music industry expert, so I could be wrong.
I don’t think the marginal cost gives anyone any license to steal something, period. The price is decided by the seller, and as always, the buyer can choose not to buy. I think it’s pathetic to even partially excuse stealing on any level.
Even if you believe those models can work, it’s not up to the consumer end to unilaterally decide. Other models work as well, and have worked for a long time. Whether it will lead to success or failure, those choices are up to the people producing the work.
There are a lot of things that are nearly free to reproduce. In fact almost any information is, and there are a ton of situations that that information needs to be restricted.
If you think these lawsuits are ‘ridiculous’, why would you abide by a non-disclosure agreement, for example? It’s just another form of DRM for information that will eventually get out anyway. Just make nearly-free digital copies of the documents and post them, as the ideas of whoever asked you to sign them are obviously antiquated and destined for the dustbin.
Morgan – “stealing” isn’t really an appropriate word for copying digital content, since the original is left unharmed. The idea that copying something is ethically bad is really just a manufactured emotion, brought to you by the RIAA and MPAA.
Also, your NDA analogy isn’t correct. With an NDA, which is a contract, I have expressly agreed to do or not to do certain things. Also, by distributing that information I am causing direct harm to the other party. Neither of those are the case with copying music.
Luther – yeah, I get that comment a lot when we talk about piracy and copyright. First, the analogy isn’t correct, since music fans aren’t reselling music for profit and aren’t pretending they are the artist – they just listen to it and enjoy it. Second, there are dozens of sites that copy our content, pretend they wrote it and do try to make money from it. We’ve never tried to shut any of them down, although I find it lame.
Mike, I got my first amazon S3 credit card charge this month. It was for $0.05 exactly. How can Amazon get past the $0.20 per transaction credit card fee?
Andrew – they can’t. They lost money on the transaction.
Thanks Mike, wonderful post.
Just visited the Radiohead website and I was tempted to pay for the song download. I didn’t, though, because I don’t listen to the band but the goodwill generated when bands give away music for free will surely generate some direct (and lots of indirect) revenue for them. Way to go, Radiohead. You have an admirer, if not a fan, in me.
If only economics would dictate how products are positioned, we’d have so much lesser litigation. Even though one can apply analogy to music and software, the two are inherently different. An artist’s ambition is to be famous (and rich, eventually) but someone who creates software has opposite priorities. That is why one should not look at art and business through the same lens. Artists saw value in turning music rights to record labels. Until now. Radiohead may be the first to break from their label, but they won’t be the last.
In retrospect, maybe I should’ve written this as a post on my blog. Maybe I will now.
Longrides – if you do write a post, make sure you put a link to it here in the comments.
More people are listening to more music than ever before … is that not a good thing?
Karina/#17:
Not to start a debate about music software here, but anyone who doesn’t see FLStudio as a powerful tool either
a: hasn’t seen it in the past couple of years (it used to be a joke)
b: hasn’t used it or seen it at ALL, or
c: heard anything produced by anyone who wasn’t an ‘amature’ (sic).
FLStudio’s weakness is a very lacking library of included sounds and plugins; however, if you use professional plugins and samples, anything you make in FL can sound as good, if not better, than anything made in Reason, Cubase, ProTools (which according to a good friend of mine, is increasingly archaic in the face of newer software), Logic, etc…
Really, FL is simply an ‘interface’ through which music is created. The reason I think you are having a problem with it is that, because it’s so easy to use, anybody can use it, therefore, lots of junk is created by people who don’t know how to write music. That’s like saying that because anyone can upload a video onto YouTube, YouTube has thousands and thousands of horrible, worthless videos and therefore, Youtube is also horrible and worthless.
Personally, I’ve been writing music with FL for years now, and much of what myself and my friends have been able to create with it is close to the quality of commercial dance CDs, with the exception that my friends and I don’t have professional recording hardware, nor a mastering studio, etc. which commercial artists have access to; something that is totally independent of the software initially used to write the music.
@Dan: Some studies put “legit” downloads from iTunes/eMusic and others anywhere from 2% (if you believe Steve Jobs) to less than .5% (if you believe the P2P monitoring folks)
Either way, iTunes owns 85-90% of the .5-2% market of paid downloads. Thats one big fish in a rather small acquarium…
Either way, Radiohead’s move is fantastic – they realize digital downloads are really just a tip jar and the real money is through touring/merch etc. The labels used to add value, but times have changed – no one but the Amish drive horse and buggies sanymore…
Michael your economic theory is a bit wrong.
The assumptions you made would hold under a perfectly competitive market.
This would be for instance if they all sold exactly the same music.
Some industries which approach this are raw coffee beans, oil etc.
The case with the music industry is very different, because their products are not the same.
Therefor there is no need, based on economic theory, for price to drop to 0.
Still, the practice of having such strong property rights on something, which doesn’t create much economic value or has any investments associated with so ever is questionable.
As a musician myself, I can say that Aaron’s comment is spot on. The return of live music is the return of music, and the return of culture.
I believe music is heading this way as well.
One of the things we have to keep in mind is that the artist still has to pay the songwriters for the use of their songs. The 2007 rate is $.091. So for a 10 song album, the artist or label is responsible to pay a total of $.91 to the songwriters.
Now if music is 100% free? Where does the money go to pay the songwriters?
It doesn’t unless new model is promoted or used the music industry. Sure you could propose pay up front model for the use of songs, but I don’t think many songwriters would go for this, since it is a huge source of income.
Why did Michael Jackson buy the rights the Beatles music? Because it’s a money maker. It’s kind of like the stock market. You can buy and sell rights to music, which continue to earn royalties year after year.
This is the drawback that songwriters and many in the music industry will certainly argue with. I don’t blame them, they would be losing a huge source of income.
Sure the artist could earn revenue by gigs and merchandise, but what about the songwriters? Without songs, there is no music industry.
Another consideration is the associated costs for an artist to perform. Most artist contracts dictate the artist makes the most of their money through live performances. This is great, but now the label itself is left out high and dry. They now wouldn’t want to put money into an artist. With no CD sales the label itself makes no money.
Now you are left with a bunch of artists with no money. If they have no songs and the label won’t put money behind them for promotion and production costs. You are left with just millions of garageband artists.
So you see, I do agree with the point of FREE music, but there are certainly many aspects of the music industry which most people don’t think about.
Just my 2 cents.
Thierry – I disagree, because every consumer of any particular song can also become a producer, with zero setup and zero marginal costs. The only way to stop them is via DRM or laws, both of which I discuss above. So, you have perfect competition.
must say good analysis, although it sound surprising initially but now it makes sense
http://vidsonly.blogspot.com
IMHO, Armand Morin hit the bullseye.
Free music – the public says – is great. I believe for music of ANY kind to be great, there has to be a viable economic engine. Armand’s songwriter example proves that.
Pure link bait.
“Stealing isn’t the correct term for copying digitial music becuase the original is left intact”. Are you serious? You are stealing from the artist becuase you haven’t paid for something that you are using.
So should all PPV TV be free? The restriction is artificial. Should books be free if I can just print out the contents? Does this mean that you are only worth something as an inidividual if you produce something that can be digitally duplicated?
Your logic implies that if its easy to break the law to obtain something then that item becomes worthless. What makes you think a music tax would help the situation, if the law is being broken already?
It’s articles like this that cause the music labels to run for DRM cover.
This is an insightful article. I believe the industry is in for a change.
Since the cost and the value for making new music is still there but distribution for each additional piece costs nothing, why not pay for the act of creation and then allow for free distribution of copies under say a Creative Commons license. The creator is rewarded, the middleman eliminated, and consumers get more freedom.
(shameless plug) That is exactly the concept behind http://www.strayform.com. Essentially moving payment from sales of copies to funding for creation. I believe it is the solution for the problems of this industry.
I think his economic theory is a bit lacking, while marginal cost of production of an individual unit may be close to zero (subject to distribution costs, even online), development costs are not an externality that can be incorporated in a the price at a point in time and then removed (i.e. selling the first unit for $1000 and then giving the rest away). Rather development costs are usually amortized in the marginal cost of production, increasing profit over time.
A friend of mine told me he bought TV shows for his video iPod, and I laughed at him. I said, “Why would you pay for something that TV networks put out there for free in the first place?” He calmly answered, “It’s for convenience. I can afford the $1.99 fee for the convenience of watching the shows on this little guy on my palm.”
My friend is a millionaire not for being dumb. I guess that goes the same with the 99-cent price tag for songs — convenience.
Music industry people need to wake up and realize that Apple’s iTune (or Amazon or Walmart) is doing them a favor by offering a service. 99 cents for a song (or $1.99 for a TV episode) is a “service fee”, not the value of the digital file.
My nephew has a ton of songs on his iPod. I asked him, “What are you listening to?” Knowing that I am not a fan of the kind of rap music he listens to, he wise-cracked, “Garbage.” I further asked, “How much did you pay for that ‘garbage’?” He smiled and said, “The price for garbage — zero.”
It really frustrates me when folks marginalize IP (intellectual property) that is protected by copyright. If I’m an artist and I want you to buy a CD to have access to my music, then you should. If you obtain, or more likely, distribute my music illegally, then you are liable for damages. The copyright laws of the U.S. are written with that view (read Article 1 Section 8 of the U.S. Constitution for Pete’s sake) and U.S. courts consistently uphold that view. Artists who create music are granted a “limited duration monopoly” (google that term if you don’t understand it) for ALL of their works. You don’t have to like the law, but you do have to follow it. If you don’t like it, work to change it.
Luther, I’ve made the point before that TechCrunch carries a cute little copyright in the footer of all of its pages. If Michael wants his own view of IP copyrights, maybe we should all take our own view of TechCrunch’s copyrights and just start “sharing” TechCrunch’s content with whomever. I wonder how the TC folks would respond to someone doing that.
I have been pushing for a mandatory IP use charge (read: tax) via ISPs since the late 90’s. Artists have to make money to continue to produce art and relegating their only source of revenue to touring isn’t anyone else’s call.
Michael, you have a lot of influence. I’d really like to see you channel your influence to help artists make money to continue their art. Check out Noank Media http://www.noankmedia.com/ and let us know what you think about their model.
Peace,
-= the apostle=-
If this far flung idea is valid for music, then its valid for all digital media and the ideas of intellectual property and copyright are baically null. Software, literature, movies, etc will all be FREE!!!! That said, I have no problem paying for the media i enjoy.
I’m a musician as well and I’ve never made any money from selling CDs, merchandise, or touring. Whatever cash comes in has already been spent on band costs. Thant ain’t gonna stop me though!! Now go check out my melodic metal band!! http://www.crescentshield.com
I point to my earlier comments above. The arguments against my post are emotional in nature. I’m simply stating the inevitable, not what’s right or wrong. Some artists and labels will understand this earlier than others, and those are the people who will make money and be otherwise successful.
Interesting ideas. While I really and truly abhor the major record companies, it simply does not make sense to suggest that indie bands with no following will ever be able to function in a “zero” pay environment. And while it may be true that major bands will now derive the majority of the income from concert tours, so will the major record companies. Again, it simply does not make sense to suggest that they majors will fold up their tents and head for the hills. They will (or have) seen this as a new cash cow and will demand a larger and larger piece of the pie, to the extent that (as it largely already the case) the price of a concert will be disproportionate to what is being offered; just as has always been the case with cds. And four or five years from now we will be here discussing the fact that the fat-cat record companies have not only not learned a fucking thing, but have been raking in the money for years.
Mike, the trends you discuss are economic inevitabilities.
The real “pain point” is that nobody knows what music to listen to…
[i.e. you can get anything you want off of P2P, but you have to *know what you're looking for*]
It’s paralyzing…and time consuming to figure it out on one’s own.
The search costs presently born by music consumers are unsustainable.
Contrary to conventional wisdom, there is not even close to an infinite (or “un-knowable”) amount of music in the world.
It’s my belief that implicit recommendation systems like Last.fm are only useful in the absence of a legitimate form of criticism [whether or not that criticism is peer-produced and mass-customizable or more conventional].
I’m a technology entrepreneur but I also have an MFA in music performance, so I’m biased
I reckon that my point is this:
I listen to Last.fm, et al, all the time. But, I never really hear anything that blows my mind, or that I’ve never heard before.
In contrast, when I listen to a great human DJ (e.g. brooklynradio.net), the depth of knowledge and emotional connection is undeniably much deeper.
Some food for thought.
I blogged this here:
http://www.colo....com/blog/?p=46
Also my thoughts on Guitar Hero’s “dorkification of society”:
http://www.colo....com/blog/?p=48
2007 will be a great year if they manage to sue enough people..!
Just like “information”, media like music has become a commodity. This does not mean, as Michael points out, that musicians and labels and distributors and retailers can’t make money from media – it just means they are selling the wrong thing. People buy experiences. (Who am I quoting here, his name is escaping me.)
So I guess I want to argue that selling convenience and portability is a valid business model for iTunes. Selling concerts for others. Selling ad avoidance is another. This is the business challenge. Easier to confront this challenge when one accepts, as Michael writes, the march towards free is inevitable.
IBM report from last month surveyed people on tv (not music sorry) viewing on the internet.
67% said they would watch tv over the internet.
33% said they would put up with ads for free content.
20% said they would prefer to avoid ads and would pay for this experience.
100% of iPod owners listen to music (probably true)
What experiences can musicians, labels, and so on sell them? The real question is whether the incumbents get to have a piece of the action. It is really up to them and it seems they might not get to have their cake and eat it too.
Ever since AllOfMp3 appeared, I’ve been trying to tell people that there is a price that can compete with free. There is a value in avoiding the search, quality problems of P2P sharing. And in having properly ripped, labelled, tagged and named files. Speaking strictly for myself, that cost is around $2 per album (for 192Kb VBR MP3). What I don’t know is whether the current music industry can support itself with all it’s intermediaries at that price level.
If the marginal cost of the 100,000th download is zero (or close to zero), what is the cost of the 10th download? If it’s also close to zero, there will be no incentive for the artist to create the music in the first place. Hoping for an upsell to some kind “real product” like touring or merchandise isn’t always going to be a feasible business plan, no matter what Radiohead’s strategy may lead you to believe.
This isn’t economic theory , Michael, as much as wishful thinking. I like that you’re thinking of alternative ways to view the sale and distribution of music, but I don’t think the zero-marginal-cost view is practical. Letting the free market work itself out implies letter creators set a price for their goods. I think it’s a mistake to suggest artists should not have the right to set a price for their music or expected to be compensated for their music.
Ultimately, there will be a wide array of pricing schemes. Some artists may give away their music (or charge a donation). Some will charge. Some will bundle music with other goods. As long as there is a willing buyer, there will be a price.
As a listener, the though of no marginal cost is a bad one. I want music that is well produced. That requires some kind of budget. Zero-cost music implies little to no recording budget, which implies inferior songs, which implies little consumer interest. If consumers desire free music, I think they’ll end up getting what they pay for: Nothing.
But we’ll all have great looking T-shirts, right?
In response to what somebody said regarding my video podcast promotional concept, let me just say, I love live music as much as anybody. However, here’s what i don’t like:
Fussing with traffic
Paying for parking
Navigating through panhandlers, bums and other creeps to get to a “cool” indie venue.
Paying for an overpriced show with sometimes hit or miss sound quality
Paying exhorbatant prices for drinks.
fighting crowds to get a good vantage point
Dealing with rain, hail, blizzards, etc
etc
Yeah, I’m whining. But you know what? I used to work at a record store and went to hundreds of comped shows at First Avenue, Target Center and tons of dives around Minneapolis. The bullshit gets old. And if I had the wide screen TV and type of sound system I have now, I would have bailed on the club scene alot earlier.
At the crib, I can watch anybody from Prince to Sade to Jimi Hendrix. With great sound and a perfect vantage point from my couch with a cheap beer my wife, friends and a pizza.
When you get a little older you might romanticize about how great live bands were/are, but then HD DVD’s of Pearl Jam come along and the hurt hurts a little less.
Video podcasts can be delivered like a frickin’ newspaper to my virtual doorstep. I like that. And if they have a few ads that support the artist……no problem.
I have read alot of this stuff and i can agree to an extent to most everything. On one hand If I record from the radio no one is going to come fine me for it. So why should it be that way with the internet downloads.
I personally use my music downloading to find albums that are not available to me via the traditional store. I am talking about the less popular bands that no longer have an outlet. I have searched Ebay and many other avenues to find this music but had no luck. To me this is all a bunch of hogwash. I would love to have people download two or three of my bands songs and share them with their freinds. Until I havve world wide exposure.
People need to look at teh big picture rather then just themselves. I mean what exactly is Metallica doing these days? Ever since the Napster suit they are basically null and void. They got fat off from some kid sharing his music with others. Makes me so proud! (Can you hear the Sarcasm)