It is becoming more and more difficult for the music industry to ignore the basic economics of the their industry: unenforceable property rights (you can’t sue everyone) and zero marginal production costs (file sharing is ridiculously easy). All the big labels have now given up on DRM. They haven’t yet given up on trying to charge for their music, but it’s becoming more and more clear that as long as there is a free alternative (file sharing), the price of music will have to fall towards free.
You can disagree as to whether it’s “fair” that the price of recorded music will be zero or near zero, but you can’t disagree that it’s going to happen. I presented my arguments here last October. Subsequently, we noted that even offering the new RadioHead album for free didn’t stop massive file sharing on BitTorrent. More recently, NIN’s Trent Reznor was disheartened to see that, when offered a choice between downloading a new album for free and paying $5 (and, thereby “feel good about supporting the artist directly”), only 18.3%, or less than 1 in 5, chose to pay the $5.
Personally, I think a new era of free recorded music and paid live performances is a very good thing. Recorded music will become a marketing tool to get people to pay for concerts and merchandise. Overall the music industry will be smaller in terms of revenue. But the artists who are driven to create their art will continue to do so, and many will make a very good living from it.
But before that happens, the music industry is going to make one last stand to preserve their “bloated bureaucracies.” And that is going to be a call for a music tax to create guaranteed revenues.
Reznor called for it today, saying “I think if there was an ISP tax of some sort, we can say to the consumer, ‘All music is now available and able to be downloaded and put in your car and put in your iPod and put up your a– if you want and it’s $5 on your cable bill.’”
This isn’t the first time its popped up. Over a year ago, Peter Jenner (he was Pink Floyd’s first manager, as well as managing The Clash and other great artists) called for a mandatory monthly tax in the European Union on broadband Internet and mobile phones of around €4/month that allows consumers to download and consume all the music they want without DRM. I attacked his plan, and he responded here.
Mathew Ingram notes that similar efforts are being made in Canada. Last month the Songwriters Association of Canada called for a mandatory $5/month ISP music tax.
So far they’re just testing the water. The big push will come when the labels put lobbying dollars behind the effort, sometime in the next few years.
Music Taxes Will Kill Music Innovation
Forcing people to buy music whether they want to or not is not a solution to this problem. The incentives created by such a system are perverse – guaranteed revenue and guaranteed profits will remove any incentive to innovate and serve niche markets. It will be the death of music.
Music industry revenues will be a set size, regardless of the quality or type of music they release. Incentives to innovate will evaporate. There will only be competition for market share, with no attempt to build the size of market or serve less-popular niches. Forget labels building new brands and encouraging early artists to succeed – they’ll bleed existing big names for all they are worth and work hard to keep anything new – labels, artists, and songwriters – out of the market. New entrants just means more competition for a static amount of money. Collusion by existing players will run rampant.
Soon labels will complain that revenues aren’t high enough to sustain their businesses, and demand a higher tax. It will go up, but it will never go down.
As I said before, Asking the government to prop up a dying industry is always (always) a bad idea. In this case, it is a monumentally stupid, dangerous, and bad idea.
Seems to me, they should do like other sites and get their revenues from advertising. Provide their music free on their own sites and have big name advertisers paying for eyeballs. I realize this would go against their legacy of not working for ‘the man’, but that seems to be the way everything is going now (for instance, the sponsors of each of the NCAA bowl games).
Regarding Trent’s latest venture: In an interview he himself stated that they don’t know how many people have downloaded the free album first, and then went on to purchase it. I think this is a major consideration and should be researched further – I could very well imagine that a majority would download the free version to sample the album, and, if they like it, would continue to buy it. Hence, I don’t think the 18.3% would be very accurate – at least I would hope so!
“Asking the government to prop up a dying industry is always (always) a bad idea.”
Mike, you’re spot on.
I can understand Trent Reznor’s disappointment about only 18% of people choosing to pay for the album that he put out there, but I have to wonder how many people would have payed $5 for the album if that was the set price. I suspect the number of paying customers may have remained unchanged but the number of non-paying customers may have gone down significantly.
There’s another way to tax free music online. It is called advertising.
If the future of music is through concerts and other community, does anyone know of an idea where to see a band in concert, you must provide electronic proof that you “purchased” their music online or at a store? Hmmm…
You have a very silicon-valley perspective about this topic. Not all media can/should/will be free just because of the implications of free distribution. While very sensible, I don’t think your assumptions about personal behavior will hold in many cases. Music (and video, etc) still have a value associated with them. The only evidence that I have is that even while file sharing has exploded in recent years, so have for-pay services. And for all we say about digital music, people do still buy CDs – albeit fewer people than before. So I don’t think the market evaporating as you imply. But I think it is certainly destroying itself along the lines of intellectual property ownership. It will reconstruct itself under different IP lines. Unlike what everyone thinks in Silicon Valley, monetizing “popularity” doesn’t really work sustainably. There are very few examples where this is the case. Music will always cost something. You just will have to pay someone different in the future.
Did you bother to read Chris Anderson’s post about Trent Reznor? The man nearly three times more money than he did on the last release.
A solution for passing out a music tax that preserves incentives is to pass it out proportional to live performance revenues. In that form Internet music truly becomes an advertising vehicle who goal is to achieve the highest live revenues possible. Since the current establishment doesn’t control the venues they won’t be able to lock out new talent.
Basing it on live performance revenues means that every single band has a crack at the tax money. The system is also easily audited and hard to scam. There would even be a great side effect – lot’s more live concerts to see, no more going ten years without a tour.
Piracy is not unique to the music industry. It happens for every digital good out there, yet that hasn’t stopped, say, software vendors from selling their products. We tend to over dramatize the music situation, but I can’t see any hard figures anywhere (except for RIAA’s accounts of the phenomenon). There’s people who buy and people who don’t and as long as it stays like that (regardless of proportions) there will be absolutely no way that the labels will let music be free.
Advertising as revenue source for music is an interesting idea, but I don’t quite see it happening either. It seems a bit cheap and implies you’ll get a considerable amount of music ‘buyers’ getting their stuff from a centralized location (which won’t happen).
I dunno. We pay a tax on TV and radio content, and plenty of people don’t use either. I’d gladly pay $5/mo to not feel like a crook.
I’m reminded of a scene from “The Agony and the Ecstacy” where Michelangelo is being comforted by friends after the Pope refused to let him finish the Sistine Chapel. They were bitching about how the rich and powerful didn’t appreciate what it meant for an artist’s work to be seen (or, in the case of music, heard). One man says, “But we’re artists. We’ll always be a slave to another man’s nickel.”
I’ve always found this to be insightful in understanding the music business. The artists want to be heard. The business wants to make money.
As for wanting a government bailout, that’s not hard to believe from a business that thinks suing its customers is a good model.
Sorry “TexMex4Me”, music just doesn’t work that way. Ad supported? Can you imagine going to an art museum and seeing ads next to a Picasso because it is ad supported? I would rather pay the $25 to get in. Besides, music is already ad supported, have you seen those Outback ads with the “Of Montreal” song “Let’s Pretend We’re In Antarctica!”? I am sure you have, ad supported used to be called selling out.
There are two conversations here: real vs. fake music.
What I call independent music (or real music) has managed, against all odds, to become a major force on the artist side of the music industry. Fake music (i.e. The Backstreet Boys, Creed, or Panic! At The Disco) are, by nature, products that were meant to be bought and sold. Selling out was implied. The issue is that out of no where “real music” (with little to no budget) has managed to spread itself far and wide, b/c the musicians just want their music heard (just like any real artist just wants their work displayed).
Unfortunately, “fake music” can’t keep up or get paid. There has been a large cultural backlash (ala the 1960) where people have simultaneously realized a.) music should be free (and I am not sure I agree, but I am also not sure what a fair price is) and b.) the music that you have been force-fed for decades kind of sucks.
The music industry has seen the market buying their music decline due to technology’s price point (zero dollars) and has seen the interest in their music drop due to technology (and it’s ability to proliferate better music to more people for free).
The music industry is screwed not because they have put all their eggs in the record sales basket (which is the case), but because they perfected the art of buffing white-hot shit to a high gloss shine then spreading it like Nutella over the ears and airwaves of America. It is the combo of selling a worthless piece of shit at a non-market driven price that has (and will continue to) screw the music industry.
Getting back to “TexMex4Me”, music is art. I am not sure how we got so far away from that. How do you sell art? How do you price art? It is hard, but ad supported is not the answer, I am sure of that.
a levy also puts a cap on the business. one day, the labels could conceptually figure out how to make money again. the levy would help them in the near term, hurt them in the long run.
i believe that when we get through this sea change, the labels of the future will adapt and be bigger than they are today. we’re in a very transitory, painful period.
Well said. Now, where are all the whiners?
Please show them the examples of many bands that have always existed on the live show/ merchandising revenues:
The Grateful Dead
Widespread Panic
The String Cheese Incident (they even had a travel agency, as well as ticketing)
etc. etc. etc.
Thank you for this post! Music can be nothing more than a business card for the artist as long as governments not help labels to maintain a monopoly through taxes, etc.
Michael great post…..
@Don Jones – “does anyone know of an idea where to see a band in concert”….either there’s a typo or you are not from this planet…..the only proof we need is something called tickets
@Doug….its a silicon valley perspective but here’s the news, this situation is a silicon valley creation and the only reason why people still buy CDs or pay for music and video is because they haven’t figured out how to use torrents (or haven’t heard of imeem.com or videohybrid.com). So its only a matter of time when more and more people get on this bandwagon…..its basic human nature….if I don’t own the thing completely I don’t want to pay for it….
“the only reason why people still buy CDs or pay for music and video is because they haven’t figured out how to use torrents”
I’ve gotta disagree there. I know how to use torrent sites, and get a great deal of music from there. However, that does not stop me from buying CDs. If I like a band, I show my respect by purchasing their CD. Anyone who claims to be a music fan yet does not financially support his favorite artists is a hypocrite.
Besides, there’s nothing quite as satisfying as having the physical product in your hands. I have never understood why people use iTunes. If a band can only churn out one song worth listening to, I’m not going to give them any of my money. But if I like a band, I’m going to purchase their CDs. That way, I’ll own the actual album, and will easily be able to rip it and listen to it on my MP3 player.
Back in 2003, I used to subscribe to the Pho List. When I stated that the true value of recorded music was going to be zero very soon, I was practically assaulted.
I can’t say I’m happy to be vindicated, but as it turns out, I was only 5 years ahead. So this begs the question, now what?
I seem to remember that the music industry imposed a “tax” on CDRs. Since CDRs are no longer used to copy music however, that tax is logically going to move to the preferred medium which is the network pipe. I see ISP music fees in our future.
Anyone that says the advertising model will work doesn’t understand that I will still use bitorrent, period.
Mike laid it out for you, but you still can’t get it so I’ll say it again:
1) Live concerts
2) Merchandising
@Frank….exactly for example its my dream to watch Pink Floyd live in concert (the entire band together) and I’ll pay anything to watch it, I’ll even buy a t-shirt to prove I was there…..whereas I have the entire collection and not all of it was paid for…..
“The incentives created by such a system are perverse – guaranteed revenue and guaranteed profits will remove any incentive to innovate and serve niche markets. It will be the death of music.”
Everyone has capitalist bs syndrome. People have made music for free since the beginning of time. People will innovate and create music until the end of time–regardless of how whether lawyers and MBAs can profit off of it.
Interesting. Featured article over at MSN Careers “America’s Fastest Growing Salaries” lists Music Directors and Composers at #7 and #8 is Film and Video Editor’s. So there is demand driving salary growth in two industries who have been crying wolf for awhile now. They need to stop acting like a Telco and trying to litigate revenues.
Three issues with having the music, in effect, be nothing more than ads for the concert tour:
1) Age. I would argue that the number of people who attend concerts drops off at a certain age. The is an adult contemporary market, for example, that would make very little money from concerts in my opinion.
2) Not all performers tour. Please tell me where I can see Glenn Gould play the Goldberg Variations and I’ll gladly pay!
3) Geography. Right now, the music industry can make money from people who live places not serviced by band tours. If the music is free, then that revenue disappears.
I think you make an excellent point about age attendance, as well as the fact that, for example, I love the music of Jeff Buckley, and I continue to buy his music. A model relying on concert revenue would no longer provide much income if any to a Jeff Buckley or any other deceased artist and their estate.
Since you are so fond of your marginal cost argument with regard to music prices, what do you think will happen to the price of blockbuster movies with many multi-million dollar budgets? Will the price of those fall to $0 too? What alternative revenue streams could they possibly tap?. Advertising surely can’t pay for all that.
Your whole argument really isn’t about marginal costs. It’s about the price of illegal competition. Remove illegal competition and then all of a sudden the price is now a function of a number of other factors, such as overhead cost, marginal cost, demand, and legal competitors.
It seems certain that change is necessary, compelled by the greed of music publishing and distribution. Suggesting that the industry is dead seems a bit of a stretch; after all, musicians still want to create and produce music and most want compensation for their efforts. Suggesting that the artist’s content be free and that income be based upon the ability to pull advertising, values the wrong component.
I can see how a downloading fee could work where subscribers pay a nominal monthly fee for their first download and subsequently all others are free. Combining this simplified model with stiff and enforceable penalties for skirting the modest fee and this might become workable. I would object to the market being driven by a segment of the market that appears to devalue the artist’s product. Let’s not confuse what we can do with what we should do, and this issue appears to pit the gluttonous values of the industry against the criminal values of certain elements of the public.
Yet, the undisciplined Ayn Rand reference to governmental role for industry suggests naiveté.
Welcome to Spain in 2008! Our congress approved an infamous music tax lat year that has been active since Jan 1st of 2008. In Spain we have something similar to RIAA, called SGAE which is an independent and private foundation. The problem is that right now we pay a tax over all gadgets that may allow piracy of any type. That means that we pay and extra for cellphones, pda’s, hard disks, cds, dvds, usb keys, etc. Depending on the media, prices have increased in 40% with respect to last years prices. Tech shops say that SGAE makes more profit with the music tax than they do.
It’s become so ridiculous that 50 DVDs cost something around €60, but a hard disk of 250Gb costs €55.
Again, assuming that someone is going to commit a crime without any proof is at least unconstitutional! But hey, politics always being brainwashed by the guys with the money. Estimates say that *just* with DVD’s sales they’ll get something around €25M a year in benefits from the music tax.
I hope that congress will revoke the law during this year… because I’m sure that they weren’t very sure of what they’ve done. Now they are starting to see the consequences of the music tax…
Please, keep the US congress away from that tax, I can tell you it’s an abomination first hand.
A “Music Tax” is the stupidest idea ever … so I’m sure it will get a lot of attention in Washington
I congratulate Peter Jenner in being able to reach his midsection with his head, but he is clueless: “Tax everyone now matter where they get their music” is not an answer. I listen to the radio station down the stree and contribute to them every ~4months. My parents have never and will never listen to any music online (or obtain it that way).
Let’s try to get Barak Obama on the record about this because…
1. Pretty good chance he’s going to be the next president.
2. The entertainment industry pretty much owns the Democratic Party.
3. They all want the youth vote now, and young people consider file sharing their right.
It’s going to kill the industry but something has to be done.
I don’t feel guilty about stealing music, because I don’t. So why should I have to pay a tax for it.
In Canada we are forced to pay a levy/tax on blank CDs, just in case we use them to store downloaded music. So much for innocent until proven guilty. And because the price of CDs has dropped the levy is now about 100% of the price of the CD – doubling the cost overall.
There used to be a similar per MB tax on iPods, and there may be again.
As you suggested, guaranteed income regardless of music quality.
Scott M, great point:
2) Not all performers tour. Please tell me where I can see Glenn Gould play the Goldberg Variations and I’ll gladly pay!
Notable bands that don’t / didn’t tour:
The Beatles, Steely Dan, Billy Joel and Elton John took decades off, 90% of hip hop acts don’t have a live show….the beat goes on.
So what’s the TechCrunch proposed solution? It’s all very well slating all the ideas around, but they need a source somewhere.
Even if it’s a bad solution, if it’s the only solution, you’re stuck with it.
Perhaps we’ll just see a spate of product placement:
#Kentucky Fried Chicken and a Pizza Hut!#
So increase the marginal cost. One could, as an example, have ISPs give their users “unlimited” downstream access but place a cap on upstream for home use, with a pay-per-mb charge for overage.
Which would in turn drop torrent use on the network, as most people won’t want to pay an extra $100 a month so that other people can leech free music.
And also reduces the need for traffic shaping and other filtering technologies.
A music tax will require a new bureaucracy to disburse the proceeds. You’d have to audit whatever the share of a given artist should be, be it based on historical data or ticket sales (and there will be plenty of fraud, I assure you). Government bureaucracies are expensive… Of the $5, $4.75 will cover the services of the new army of worthless civil servants, and the balance will be (likely unfairly) chopped up into small payments to the artists.
Face it — music (a type of media that is far cheaper to produce and distribute than motion pictures, TV shows or sophisticated software, I will add) will be free of charge for all this time next year (with a lawsuit from Universal against every breathing human in the world, and every other media company still pending, no doubt). Most musicians don’t make money, and won’t in the future. Some will make a fine living on tickets and merch. Labels will morph into management companies. A&R departments are all but useless, and will disappear long before anything else does.
It’s neither good or bad. It’s evolution. The labels can fight it all they want. They’ve lost all their battles up until now, and the taste of defeat must be all too familiar.
I think part of the problem was setting the $5 ceiling on the price. However, I’d be willing to bet his personal bottom-line was higher than it would have been “the old way”.
A want cannot be taxed. A need may be taxed – and in many occasions it is taxed very successfully.
Why should my granny, that uses the ISP to read newspapers & books online pay for such “Peter Jenner” tax? Tell me one good reason Peter.
I think that musicians, just like everyone else in this planet should get their fuckin’ asses back to work. Stop drinking, sniffing and bullshiting all day long. Cut the middle man (**AA) and go ahead and do live concerts, tv shows, small venue gigs and people will show up and PAY for you. That’s how you make money. If you cannot do that, good luck whining & suing everyone, there are only 1.2B people online today!
We all want something for nothing and I have little sympathy for the major labels, but I have a lot of sympathy for all the musicians out there, they do it tough and maybe 1 in 1,000 make it big.
- The lucky 1 in 1,000 muso’s who do make it big, encourage the other 999 to give up their day jobs. Take away the financial incentive, you’ll find the 999 keeping their day jobs and depriving us of music.
- Are you not the least bit depressed to call the music industry “dying”?
I largely agree with you Mike, and think that a tax situation would be a fairly counter-productive idea, , but I’m wondering, do you see the same thing happening in the software industry.
I mean, it might explain why more companies are moving to an online on-demand model, but isn’t the cost of software distribution really zero as well? Same goes for games, and of course, same goes for movies. Games get around it by working mostly now on proprietary hardware for which copying is still a difficult technical process (not massively, but hard enough for most, unlike music).
Sometimes I just really get this feeling that the overwhelming thought here is that technical people don’t believe that creative people should be able to sell their work for any money at all, while the technical people are still fine to sell their work. That technical is worth more than creative.
Absolutely the bloated music industry sells most of its product for too much and is wrong to expect the same margins from online music (where they certainly don’t have the same costs they used to), but why shouldn’t artists (especially on their own) be able to sell their work for $2 or $5 or whatever? Even though piracy exists and will continue exist, I think Radiohead were quite happy with what income they did get from their experiment anyway, so why not repeat that.
Mainly, just because piracy exists, I disagree that this means music should be sold for zero. It’s like saying that because shoplifting exists, any product should be free as well. And while I certainly think suing individuals for song copying has been absurd (and a major reason this argument exists), pursuing organised piracy operations is not.
I am happy to pay a smaller but reasonable amount for music because I believe musicians I like deserve this, and the right sales models do show enough people agree with this (even if many download freely, why tell everyone they should?) And while you’re right that the industry is likely to get more money from sources other than music sales, I don’t see why they should expect nothing from music sales.
(Note: Since the only music online I buy is from emusic.com, and mostly the only CDs I still buy are from local independent artists, my views on the fairness of all this may differ from many others. The absolute mainstream music industry is a bloated mess that I pretty much ignore now.)
Why should there be any organized “solution” to this? It’s one industry’s problem, not the country’s. Let disruptive technologies disrupt.
If it gets so bad that free music drives away good artists that people want to see, someone will figure out new business models to bring them back.
Maybe artists themselves will figure it out – aren’t they supposed to be creative?
great news.com story about this. you linked but didn’t mention by name. naturally. tut, tut, michael. don’t be so small about this
Maybe someone can help me out here, but I would love to know how a “tax” based system supports new artists. Take for example, my buddies and I create a band put some of our songs up on a myspace page, and start to get a decent following.
Who decides the point where I become a “real” artist and deserve a cut of the ISP tax? The RIAA? If everyone’s music is free, at what threshold to you go from up and coming to actual artist? Will you still be forced to sign with a major label to get a cut?
The whole ISP tax idea is bad across the board. If it happens it will simply become a way for established labels and artists to keep getting paid for sub par work while new artists still have to use the new emerging channels to build a career.
There’s precedent for talk about a consumer electronics tax. In the 80s, amidst the rise in home recording, the movie industry proposed a tax on VCRs to generate a dedicated stream in revenue. Of course, no member of congress would touch the idea, since uttering the T-word is political suicide.
Dear Trent,
I know you are disheartened, but the market has spoken: that album as mp3 is worth $5. There is little you could have done to get more money. The trade-off is less potential fans. Is that what you want? You did not have take an advance from a label. You did not have to kiss anyone’s ass. You gained insight.
Yes, and a music tax is dumb. Just like a blank CD-R tax, Universal Music’s Zune Tax, Canada’s iPod tax. I know you hate dealing with the labels in regards to money, do you really want to argue with a telco about what your fare share is? There is no way to guarantee that this money will go to artists. You effectively would make the telcos into an evil record label that even you would want to be a part of? I know you don’t want this.
John John, money doesn’t’ drive art.
People play music and make art out of love, not a desire for an income level. It is being heard, not getting paid that drives 998 of the 999 who dream.
Dance has been dead (from a financial standpoint) for over 100 years, yet ballet still exists and people still go out dancing for a good time.
Actually the market has not spoken. If the market had spoken a CD would be $5. The reason people don’t buy CD’s has to do with the cost of the product. If the market were working correctly the labels would lower their price to increase volume. They refuse to do so and are reaping their reward. If *any* of my elected representatives voted for such a thing I’d be first in line to sign a recall petition.
BTW – I meant recall any legislators voting for a music tax, rather than the market working the way it should.
18.3% chose between a “free legal copy” vs a “$5 legal copy”. This is a big difference between an illegal free copy and a $5 legal copy which drives different consumer behaviour. Your prediction is based on completely flawed assumptions about the market where there is no “free legal copy”. Reznor is upset over nothing. He asked who would pay $5 when the artist says you can legally have it for free? The answer: 18.3%. The right question should be who would pay $5 vs downloading an illegal bootleg copy for free? I suspect the answer would be much higher than 18.3%. Just ask our friends at iTunes.
I’m wondering if the decline in music quality, and the decline in music revenue, are feeding off each other.
On one hand, a CD like Josh Groban’s sells 3.7 million copies. Proves there’s a market for a CD from Josh Groban, who has a wide demographic with plenty of older folks who have disposable income and don’t download music illegally. And it proves when you provide great content … people are willing to pay for it. Might not be some of your cup of tea, but it is for 3.7 million others.
So you could say there’s not enough great music out there to make people say “yes, I’ll pay ten bucks for that”.
Or is it that the artists, and potential artists, having seen the writing on the wall, no longer have enough incentive to make great music? Some may be hip to the idea of making money via live concerts and swag. Others who like to spend a lot of time in the studio, and not much time on the road, I’m guessing we won’t be hearing much from them in the future.
If record companies and artists want to tap a money crowd, play to the Boomers. All the reunion tours and albums are examples of this. Bands are coming out of retirement to ride one more gravy train, while the gravy is still there.
“Or is it that the artists, and potential artists, having seen the writing on the wall, no longer have enough incentive to make great music?”
Writing great music is incentive enough in itself. Truly great songs are rarely motivated by money.
I think most musicians know going in that it’s going to be VERY hard to make money. It’s always been this way to some extent, but that’s never stopped musicians from doing what they love.
The Economist has in its edition for this week an article about the music industry too.
The music industry – From major to minor
- Last year was terrible for the recorded-music majors. The next few years are likely to be even worse
http://www.econ...ory_id=10498664
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