The world finally catches up

October 5th, 2007

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.

Of course, we wrote about this and released our entire catalogue under the FMP in 1999, before there was a Creative Commons, Bittorrent or any of the cool ways that people use to share music.

The Conet Project is a perfect example proving what we did was correct, and how it can work for other people. It has been downloaded over 200,000 times from the Internet Archive alone (it is mirrored at Hyperreal where they do not keep any stats) so I would guess that the number is at least double that taking all the mirrors past and present into account, and all the private sharing that we encourage.

We have sold many copies of TCP and demand is still strong for it; opening your archive allows you to reach more people than ever, and those that value what you do will buy other products from you and license your work.

It has taken eight years for people to finally start to wake up to this, and even today, there are still buggy whippers who trott out the same rubbish arguments against freeing music railing against Prince for example, for giving away his new CD.

The above article is very good, and there is a howler in there:

With P2P networks you don’t really know what you are getting until you download it. It could, for example, be a virus.

MP3s cannot contain viruses…heh.

but lets go further. The impact on music culture will be absolutely enormous. Everyone everywhere will be able to get any music they read about as they read about it or have it reccomended, and not only that, you can now get the entire catalogue of an artist in a single movement, so that you can study their body of work, become familiar with it and then use it to inform your own work.

This is a highly significant development. In the past, it was very difficult to do this both in terms of tracking down the physical sound carriers and then paying for them. This was especially true of classical music. People used to use cassettes to trade rare music, which once again, involved buying of cassettes, the manual copying of them and distributing them. All of these steps made the cassettes more valuable than the music on them, and because they were ‘bootlegs’ the psychology surrounding them bumped the price up because someone was taking a risk to bring this sound to you. I wont go into the generational loss of quality caused by making tape to tape copies.

Today however, none of this is a factor. Getting any music you like is a near frictionless process; the only barrier being the one time initial learning curve; understanding where the music lives and how to use the tools to get it. Once you have those in place, the only problems you encounter are that there is not enough time to listen to everything, finding people you can trust to introduce you to new music, and a place to store it all.

There are also some other effects that we have an interest in.

If the quality of people who make music is low, we might never again see a flourishing of amazing groups. If the quality of music makers is high, then access to everything that has been recorded will be used as a blacklist ensuring that we get something really new and interesting. If word of mouse works efficiently however, it will bring us whatever small number of great artists who are out there and they will instantly rise to the top of who is being downloaded / listened to; that is the other payoff of this new era – ‘the death of the underground’. No one will be stuck in the absurd ghettoes of the past, where artists were ‘underground’ thanks to the inefficiencies of the market, meaning, money, distribution and journalists. Money doesn’t count anymore, distribution is now frictionless, and music journalists are almost completely irrelevant, since anyone with an MP3 blog and good taste is as powerful as any journalist.

The pyramidal structure of music culture has been dismantled and it is now in the shape of a two dimensional network of nodes, each listener being a transmitter and receiver of the music itself and information about the music. With LastFM, the very act of listening to music turns you into a node that recommends and promotes music.

All of this is a good thing. Combined with the astonishing tools that are now available to everyone for free, if the people who make music are up the challenge, they can make whatever they want and find people to listen to them. And not only find people to listen to them, find all the people in the world who are capable of understanding what they are doing. This is a very important and significant step forwards.

The old evils of the huge record companies will die with them, but this does not mean that the ecosystem that surrounds music will completely die. The lawyers will always have a role to play. Music still belongs to the people who create it, and those laws need to be enforced. Licensing and the revenues from music need to be controlled and monitored – in the short term, people will still make a fortune from radio airplay for example.

What has happened is that an inefficiency and an evil have been removed from the music distribution equation, but more importantly, human beings will have better, more enriched lives thanks to freed music. We will inevitably, I believe, get more variety and richness from new artists, and certainly there is for all intents and purposes an infinite amount of old music to charm and thrill us.

We are also at the very beginning of a greater understanding in the general public of just what it takes to produce music. Radiohead fans are showing that they are not irresponsible; they understand that the group need money to live and they are paying for the music they are downloading – even though they can get it for a price of zero. This is highly significant, and demonstrates that people are not actually stupid, and will pay to get more music if that is what they need to do. This means Radiohead get all the advantages of free music AND the advantages of running a central place to download from. I have no doubt that other groups will follow Radiohead, and that still more groups will devise their own tweaked systems to nickel and dime their fans to keep everything running.

Finally, what happens next is that the people who came up with these ideas in the first instance and those that saw it coming and who put their money where their mouths are will get the credit that is due to them. The people who thought and who still think that freed music is ‘no good’ (“I worked very hard to make my music, I don’t just want it out there for anyone to get for nothing”) will of course, not be heard or hear-able by anyone, and they will totally disappear from culture.

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