The Inevitable March of Recorded Music Towards Free

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.timesonline.co.uk/t.....584831.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://torrentfreak.com/mediad.....ed-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-supported-music.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.

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.colortonemedia.com/blog/?p=46

Also my thoughts on Guitar Hero’s “dorkification of society”:
http://www.colortonemedia.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)

To #40, the apostle, for your information, the following activities are also “illegal”:

#1 Driving 58 miles per hour in a 55-mile-only zone.
#2 Cheating on your tax filing.
#3 Taking your company’s pencil or paper home.
#4 Ripping off the textile product tag on your shirt (or pillow case) that says, “It is punishable by law to cut off this tag).

Attaching the term “illegal” to music file sharing is a hollow attempt by RIAA legal department. Please do not give us the “law and order” lecture, unless you yourself have never driven over the speed limits or cheated on your tax.

A music tax will be laughed off by lawmakers of both Democratic and Republican sort. The notion I would pay tax to benefit Britney Spears and Snoop Dogg needs a sense of humor to appreciate.

Stealing is stealing. How would you like it if you wrote a digital book and charged $7.95 for it and someone started copying and distributing it for free. The 400 hours you put in to write it and you don’t make the money you deserve. What’s the incentive to keep writing books?

We need to protect ownership of intellectual material like books and music in this country if we expect people to keep producing it.

John - even if that means putting people in jail?

Have you ever downloaded a song or software in violation of copyright? Have your children (if you have any)?

I have heard this tune before……
Isn’t this how the photography / footage business is also being destroyed?

luisorellana@hotmail.com

“If it’s also close to zero, there will be no incentive for the artist to create the music in the first place. ”

“We need to protect ownership of intellectual material like books and music in this country if we expect people to keep producing it.”

It’s funny that people think music will cease to exist if it stops making exorbitant amounts of money for a very small percentage of not-so-great musicians.

The money for real music is in live shows.

Obviously the costs of copying are close to zero, that’s the point of having law - to artificially give “real” value to copies of intellectual property. A star to you for discovering the centuries old reason for the existence of copyright law, how insightful.

It’s been over a decade of this crap, and as a music lover and consumer, I am getting angry. I don’t want economic theories. I don’t want free garbage. I don’t want adds. I don’t want DRM. I have plenty of tshirts. I can’t fit a live band in my car. I want music from artists that are either rich, resentful that they are not rich, or trying to get rich.

Quality reproduced digital copies of music at a fair price. Why is that so hard to deliver?

> Arguing against basic economics makes about as much sense as arguing against gravity.

So, why is Duncan making a fuss every Friday about people putting TechCrunch on their link blogs or plain copying it (in particular, when his screen shots show he copied the story — not verbatim — as well)? In your definition of stealing, these people are also not stealing — just taking a copy.

Anyway, I think I will have fun watching the Techcrunch team singing their articles every night in a Palo Alto pub. I guess TechCrunch40 was the start of that…

Ron - the “fair” argument again. I’m not arguing ethics, I’m arguing the inevitability of free recorded music.

Wolke - think of techcrunch as a live performance. As I mentioned above to a similar comment, dozens of blogs take our content every day and republish it as their own and we’ve done nothing to stop them. But your argument is flawed in that music consumers don’t pretend music they copy is their own, and they don’t (generally) try to make money off of it when they copy it.

Interesting to compare music CDs to Games. There was a time when games were very expensive, and contained lots of DRM, including dongles and all sorts of things. Not any longer…most games can be installed on multiple machines. But by and large, people buy their own copy…the game industry is at an all time high, and plenty of $$ being spent on games. Yes, there is pirating, but plenty of growth and money today.

Perhaps it isn’t the ease of copying, but the value delivered and what customers wish to do with it. Why can’t I listen to my music on whatever device I wish? Its not like i am listening to it on all the devices at the same time! Its not the copies, but the use that is important. If I want to use the content in two places simultaneously, I should be willing to pay for that capability. Likewise, I play a game on one machine at any time. I can’t play on two machines at same time.

The music industry should focus on the content and value, not the restrictions. Deliver content that provides value at the price charged, and customers will buy. Reduce the value or make it economically/physically expensive, and no one will buy.

Buying music that I can only play on my MP3 device is no of value to me, as I want music I can play whether I am in the living room, on my PC, in my car or in the gym. Do that and yes, I will buy that (CDs today)! If I have to buy 4 copies to enable that use case, then no, you have exceeded the value for price point. I will just spend my time and money elsewhere….anyone know a good game?

So here’s what happens. Labels are like VCs, who invest in artists. Since they no longer can rely on CD sales for revenues, they negotiate 360 contracts that include tour revenues. The cost of producing a CD and its associated marketing is still high, so most up and coming bands will choose to take this money. (Much like tech companies choose to take VC money)

Now, the bands are making less touring, because a cut of revenues are going to the labels. Bands look for more revenue sources, and the most obvious one is corporate sponsorship (we’re already seeing this).

So, we have more bands take the Paul McCartney route, and get major corporate sponsorhips to make money. Labels will be more likely to go that route, since margins are collapsing.

Since much of revenues come from corporate sponsorships, the pressure to ‘be nice’ will be much greater than it is today. Remember the Dixie Chicks? They spoke out, and took a lot of heat. Are we really convinced that corporate america will stand by them? (Note: I don’t say that to disparage the companies… they’d just be acting in their own interests)

We like to say the labels are evil, but there are lots of bands that took a very long time to become profitable (RadioHead is probably in that camp), yet the labels continued to support them. Just like a good VC, they understood that there was a unique product that would eventually pay off.

But in this new world, I don’t know that the patience will be there. The focus will be on performance, and selling big arenas. And who sells out big arenas? I’m guessing not the kinds of bands that most on this listen to…

We’re headed for the American Idolization of the music industry. I’m not sure this is a good thing…

(I started writing this post a few hours ago when there were half as many comments! Then I got distracted…)

First, a note about FL Studio. I don’t know if I’ve heard anything that sounded professional that was produced with it - most likely because if I did, it wasn’t clearly marked. At any rate, despite features, sound quality is a huge consideration for me when it comes to synthesis and sampling. As an example, I use Logic 7 Pro (haven’t bought 8/Studio yet) and Reason 3. While Reason 3 has some great features, Logic 7 Pro has a far superior sounding mix algorithm (or whatever you’d call it)… there is no amount of effort I can put into Reason to make it sound as good, and bringing it up to TRULY ‘professional’ is difficult. (Fortunately, I can use ReWire to make the programs work together, thus getting Reason’s synthesis and effects and samples with Logic’s superior effects and mix bus)

Moving on to the business model:

One of my previous favorite local bands (which is not around anymore) used to frequently do shows at Blake’s in Berkeley. You can fit MAYBE 150 people in that venue, but that band, by splitting admission and the bar tab, could make up to $2500 in one night.

Obviously, not every band can do that, but if a band could do five shows a month that were half that good (and live frugally) for months, it’s still going to be a while before they can quit their day jobs…. but it’s viable option.

The conventional wisdom in local music is that if you can reach that point - bringing out 100 people to shows in your region consistently - if you CAN NOT expand that into a larger audience (expanding your tours, playing slightly bigger venues, using your name and connections to get opening gigs for bigger bands), then you’re probably doing something wrong and will never make it.

Being in a band is a lot of work no matter what. It’s one of the most expensive hobbies around, and like any hobby you have to be part of a select few to make it into a living. Artists are prepared to sink a lot of money into it, as are labels, before seeing a return.

But here’s something to think about: A band as a performance entity is more profitable, in most cases, than a band as an entity that produces media available for consumption. For instance:

All bands generally produce one full length album every year to two years. They can sell one album to one fan for a set amount of money.

All bands have the option of going on tour whenever they want (personal obligations and restrictions notwithstanding). A fan who buys a CD once and loves it may go to between one and ten shows with the artist in the same two year period it takes to produce a single album. They may bring friends. They may buy drinks. They may buy T-shirts.

Thus, done correctly, the recorded music is an advertisement for a live show. The CD itself is a souvenir (as Seth Godin would say) of the experience itself.

Now if you say, but I’m an artist who just wants to sit in my basement and make CD’s and get rich, well, unless you’re Aphex Twin you will probably fail because you cannot and will not establish the personal connection that people feel in relation to their preferred artists without the live component.

Saying you’d rather charge for the CD than make a living off the live shows is like Salon.com insisting that they can run their site entirely off of subscriptions and never run ads and provide absolutely no content to non-subscribers. It’s just not going to work that way.

Michael–No, I have not downloaded music for free.

I do not know how to deal with the problem. I do know, that ownership of intellectual material is one of the foundations of this country. Where would we be if we did nothing to protect it.

As one person replied, would you be okay with me copying the content of your site word-for-word on mine?

So why do the artists not sell the album to a site or “vendor” to recoup the costs associated with creation?

It is very simple and the “vendor” could then give the music away free as part of an advertisement funded service.

Mike, what are your thought on this model?

iTunes would purchase the album for $150k and then give the songs away (or charge 3 cents each) and make its money back through advertisements?

John - I’ve addressed the “stealing techcrunch content” analogy twice above, see my responses.

Re IP protection, I draw a hard line between patents and copyright, and I think Patents need to be issued much more carefully than they are now.

Lots of interesting discussion here. As a software startup guy, a musician, and a record label owner for almost 20 years, I’ve watched all of these developments with great interest, of course. I think the key to what Michael’s pointing out is that while people shouldn’t steal music, they also shouldn’t have to pay what’s being asked for by the labels. Ideally, the market will win out while people will also be honest. Don’t like paying $9.99 for an album download? Don’t buy it — go to amiestreet or some other place where you can pay what you think is fair for music. If you think a car is too expensive, you don’t steal it, do you? You go and buy another one. If everyone does that, then market pressure will inevitably lead to the price that people are willing to pay.

Realistically, though, stealing music is simply too easy, and hopefully is forcing a shortcut to the proper price. As a musician, I’ve released records on several labels medium-size to small, and never made much money at all from the record sales. I tour around the world, and don’t make much from that either. But I’m going to continue making music, releasing albums, and touring. I make some music available for free download; I make some available as paid downloads through iTunes and elsewhere (thanks to iodalliance); I make some available as physical albums. I figure people should listen to the free stuff, decide if they want to pay for something else, and that’s up to them. Hopefully they won’t steal the rest, but I don’t really care.

Those saying that small indie bands starting out won’t be able to make it if they don’t get paid for their music are flat-out wrong. Not a single band I know who’s “made it” did so because they made money from their albums. They made it by making friends, playing out, opening for their friends’ bands, getting buzz, and attracting interest. Selling albums has absolutely zero to do with it at that level.

Ultimately I think if there is a problem for bands, it will come down to how to attract attention without the publicity machines of the labels behind them. We’ll still have huge bands, but it will be due to real crowd-generated buzz via file sharing, web sites, and word of mouth. And in the ideal world, that will result in better quality than the crap being pushed by major labels today.

Your theory can be refuted in one word: Ringtones.

Seriously, this kind of absurd oversimplification is great for generating traffic, but come on: perfect competition exists only in the realm of distribution (via replication), not in the realm of creation. Artists are not created equal. This is why the labels hate iTunes - they want variable pricing. A popular artist can name their price - the kids will buy it, just as they line up to drop insane coinage on 30-second ringtones (a business that continues to grow). Less popular artists will give stuff away to build an audience. But to claim that all music will inevitably cost nothing is utter codswallop.

The greedy labels slit their own throats when they rushed to go digital and worked with the cd player manufacturers to ensure that everyone would need to “uprade” from a phonograph to a cd player.

Then came Napster.

The big label game is officially over folks. The old model will never work again. No one pays for digital music. young people laugh at the thought of paying for music. It’s a completely alien concept to them.

Video podcasts, people. Video and audio files produced and distributed by the artist with proceeds from a few ads inserted supporting the artist. It solves the following problems

production
Distribution
Promotions
Income (at least to some extent)

If the ad revenue is there for the artist, people won’t feel violated.

These musicans need every dime they can get. How the hell are they supposed to pay for their mansions, big screen tvs, exotic pets, and wild parties?

What about the Radiohead model: Pay-What-You-Want? We’ll have to wait and see how this plays out over the long term. It will probably work for RH this round because it’s novel and interesting. But I’m curious to know if the model maintains legs if many other bands were to do the same. If it becomes the norm, I imagine fans will get frustrated having to put up with using PayPal here, credit cards there, and maintaining a bunch of different online accounts. Which just points back