Who and what are we taking music from?

Before the dawn of the Internet, a lonely and friendless time I imagine, sharing meant the physical material exchange of a specified good. Now that good has become immaterial, and the exchange no longer has to take place face-to-face, or even through mail.

The good at hand is music. A file, which can be compressed into MP3 format, and sent out for anyone and everyone to hear. We may call this relationship ‘sharing’ but in reality the majority of people sharing music online have no concern for whom they are sharing it with. Nor do the people illegally downloading it consider where they are getting it from, short of it being the source for some next generation super virus. File sharing seems to be a victimless crime. Clicking a mouse can’t make me responsible for someone’s financial ruin, can it?














No, actually, because just one click doesn’t seem to matter much. But once the group mentality begins to unfold, we could find thousands, potentially millions, of people illegally downloading a single song or CD. Some believe if there’s a victim, it’s some superstar diva, or over the top rock star that will be losing money, and they already have more money than they know what do with. This may be true, but it is not the whole truth. There are three things we must recognize about the way music is traditionally sold. First, is how the sales of a single CD or album breakdown.

A Rolling Stone Article from October of 2004 gave us a breakdown (although not a recent one) of the cost that goes into the average priced CD.

$0.17 Musicians' unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists' royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead

This is the breakdown of the average CD priced at $15.99, a price you would often see at retail outlets such as Best Buy, Target, or Wal-Mart, which, together, form half of all major label distributions. This also means that the artist themselves only receive around 10% of the final sale of a CD. So if you plan on illegally downloading a CD online, instead of paying the outlandishly high price of $15.99, think about the union, the packager, the publisher, the retailer, the distributor, the overhead, and the record label itself. Also keep in mind the effective ad campaigns, and marketing that went into making the consumer aware that the artist has created new stuff, and where you can buy it. Promotion makes 15% of the CD’s profits, 5% more than the artist themselves, which tells us that there must be something 50% more valuable about a promoters job than the artists work itself.

The other issue of concern is the way the artist makes his or her money. In the record business an artist signs a record contract with a music label, hopefully a major one. This label will give the artist an advance. They are making an investment in the artist and their music. The advance will seem very generous, 1 million dollars. This will be split among the band members and manager(s) and taxed until $1 million turns into $100,000, for a four record deal. The record contract will come with the condition of high sales. By contract, the artist is required to sell X number of CD’s. If the artist doesn’t make those sales, he or she will be in debt to the label.

Most artists are currently in debt to their label.

They remain obligated to perform live concerts, which bring in great profits for the label and allow the artist to make extra cash through merchandising. In fact, for an artist to reach the sales expectations it would take to push them out of debt, their album would need to hit gold within the first year. That is over half a million records sold. This puts a great deal of pressure on the artist to sell well, which often times remains out of their control from the mistakes made by those in marketing and promotion.

The final issue is the actual effect illegal downloading can have on major record labels, artists, and the music industry itself. RIAA.com references a study that shows the decline and effects of music piracy.

“One credible analysis by the Institute for Policy Innovation concludes that global music piracy causes $12.5 billion of economic losses every year, 71,060 U.S. jobs lost, a loss of $2.7 billion in workers' earnings, and a loss of $422 million in tax revenues, $291 million in personal income tax and $131 million in lost corporate income and production taxes. For copies of the report, please visit www.ipi.org.”

If these statistics are accurate, 71,060 jobs should be more than enough to cause concern. However, these statistics may be supported by some anti-piracy organization or even worse, completely unrelated to piracy in the first place. What we should recognize is that the music industry is a very large part of the American economy. And much of this illegal downloading takes place outside of our country, where our anti-piracy laws are of little use. So the next time you hear a song on the radio from a new artist you enjoy, figure out where you’re going to get $15.99, drive to the nearest music retailer, find out they don’t have it, drive to the next retailer, realize they don’t have it either, go home and pay a buck a song to download it on iTunes, (which has no packaging, promotion, distribution, or material value) only to figure out the other 11 song on the album totally blow, consider the icky feeling you would have felt on the inside if you would have stolen that CD online by illegally downloading it.

-Kyle

RIAA - See the Error of Your Wayz

The RIAA recently presented some new possible tactics to battling music piracy in a new and changing media world.  You are going to love this.  They proposed that...

• Spyware be installed on people's computers so downloads can be better regulated or restricted
• Internet providers utilize filtering technology to regulate the spread of copyrighted material
• And last but not least... Continue using agencies to track down illegal downloaders

 Doesn't that all sound just swell?

Well while the tactics may seem startling... the overall approach is nothing short of stale.  You see, what the RIAA has failed to realize is that this issue goes far beyond just politics and economics. 



You see before the internet, the music industry was completely limited to how many albums it could press. On top of that, all of those clunky vinyls, tapes and CD's needed to be shipped out in order for the consumer to purchase it, let alone enjoy it. These production costs add up, so the producer assesses how many consumers want the product given the market demand and only produces enough to satisfy that market. This way, they can prevent unnecessary production, and ultimately, unnecessary spending. And that's scarcity in a nutshell.

However, when you look at our current potential -with the internet and all- you realize that scarcity disappears. That is because once the MP3 is produced, the cost to make a copy of it is almost nothing. All of a sudden you find yourself with an abundance of music, and there is no limit to how much something can be produced.

I don't think we're in Kansas anymore.

On top of all that, the internet has created a cultural environment that has completely changed the way we take in media. Once upon a time, people used to fill up their piggy banks just so they could buy new albums... the focus of this sentence being "Once upon a time". You see, regardless of the legality of obtaining free music through illegal downloading, it is hard to justify paying for an album when you know the exact same thing is available everywhere else for free. This is especially the case with downloading an album from iTunes or Amazon, where you are not even getting a hard copy of the album. This brings me to my point.

One can argue all they want about the legitimacy or legality of illegal downloading. But it doesn't change the fact that we have already opened Pandora's Box. People have experienced what it is like to live in a culture with such freedom. It seems foolish to go back and throw 15 bucks for an album that you either can't actually touch or you can only upload to so many computers.

And I'm not necessarily saying that we should continue with the way things are. Far from. The music industry has failed to realize that the economic situation has in fact shifted. They, for one, obviously have to change their approach because we live in an age where the exchanging of information spreads at an unbelievable, and uncontrollable rate. And to try and control that risks limiting peoples' experiences. Rather than trying to regulate the entire internet, the RIAA and others should be focusing on adjusting their business models to fit the force that has already been unleashed.

-James

File Sharing: Balancing the Market

Should file sharing really be considered a crime, punishable by large fines as well as jail sentences? It seems like there is much more criminal activity going on from the labels and distributors themselves. With the average cost of a CD soaring to the ridiculous price of $15.99, sometimes for only nine or ten songs, it seems that buying music may not be worth it anymore.

File sharing would strike the average music consumer as a much cheaper way to take in the things they only plan on enjoying for two weeks max. But there exists a stigma associated with file sharing, most of which is propaganda perpetuated by the record industries themselves that are losing their asses due to poor asset management and marketing. Illegally downloading music may have had a negative impact on the record industry, but in a free market, the consumer should be able to find other ways of attaining their product than strictly having to deal with a handful of well connected record labels and only a few major distributors. We have seen three perks that have come recently, most of which are direct responses to music piracy and file sharing.

The first is lower album prices.
Labels, like Universal Music Group for example, are creating new maximum prices for CD sales. Instead of the usual $15.99, the new cost structure will keep a CD’s price under $10. This direct market response is free market economics at its finest. Unlike the other record labels that sat idly watching their capital melt around them, Universal has recognized that they could create an advantage by simply lowering costs. It is still unknown which portions of the CD’s cost will be eliminated. Maybe cheaper materials. Possibly less costly marketing. Or maybe (but highly doubted) a chop from the top. Whether or not this cost scheme will work is something we will be forced to wait and see. But it remains a response for record labels to the complaint of lofty record prices.

The second benefit of file sharing is the promotion benefits.
People aren’t willing to buy a CD for 16 bucks if they aren’t sure they’ll enjoy it. Sometimes people want to hear new music, but don’t want to invest too much into it. There is a lot of shitty music out there, and buying a crappy album is like going on a bad date; the first few minutes seem interesting, but after listening to them for an hour you wish you wouldn’t have wasted the money. A lot of artists are more than happy to share their music free to the public. The more fans they find, the more tour dates they can set-up. And for musicians, live performance is where the profits are. An article from Time Online discussed a band known as Arctic Monkeys from the UK. Their rise to fame is attributed to the songs they allowed fans to download for free from their website. But now, after hitting platinum, they’ve got hired cyber guns tracking down unauthorized leaks so as not to curb record sales. File sharing may benefit up and coming artists, but for accomplished artists, it proves to be a problem.

The final benefit I have found to file sharing is bands that specifically circumnavigate the record label system and sell their music online at a reasonable price and only for self-profit.
Some bands, usually those with an already well-established fan base, find this to be the most profitable way to sell their music. This is a double-edged sword. It works to avoid the studio system, and to make sure that the artists directly receive the money they should be earning. This can also come at a very minimal cost to the consumer. The fall is that this may only be profitable for those who have already had a popular album released by the record studios. Also the production quality of the music may be of poor value when artists try to record without proper studios or experienced producers.

File sharing may be illegal, but it certainly isn’t the cause of the record industry melt down over the last several years. It may be one of the contributors along with shitty artists, shitty producers, shitty promotions, and an even shittier economy. Through file sharing we have found the benefits to the free exchange of music online. CD prices may fall in response, unknown artists get access to a greater market, and certain artists can work around the studio system.

Free the Music!

The discussion surrounding whether or not file-sharing (or as law abiding citizens call it: music piracy) has been a long drawn out debate that truly is unnecessary. Millions of people around the world have access to the Internet, giving them the ability to download music at will. However, those same music lovers are still out purchasing albums and supporting artists they have grown to enjoy. The fact is music file-sharing does not have a major effect on the sales of albums. A study done by Felix Oberholzer, a Harvard Business Professor, discovered there to be no effects of file-sharing with the sales of albums. Not only through researches like Oberholzer’s are there no effects on the outcome of sales, but we as an audience and fans of musical artists see and hear about successful album releases of artists that we enjoy.

The concept of file-sharing is simple. A person “leaks” or uploads a song or an album on to the Internet, and from that places it into a network where others on the Internet have the ability to download that file. The process has had a tarnished reputation ever since its upbringing with the network Napster, because many felt that it stole millions of dollars from artists. However, these accusations are simply untrue as documented in the essay “File-Sharing and Copyright” by Felix Oberholzer in 2009. The ability of file-sharing has actual seen an increase in the amount of sales for various artists. For me, when ever I hear a good song and get it from a friend, I have been more prone to purchasing the album. Oberholzer made a great historical comparison in his essay with regards to file-sharing. He found in an article done by Ronald Coase called, “Payola Radio and Television Broadcasting”, that “Music companies fought the introduction of radio in the 1920s, fearing the new medium would provide close substitutes to buying records. Since that time, the numerous attempts to bribe radio stations in the hopes of influencing playlists suggest the industry has come to see radio as an important complement to recordings.” Although in this day and age it is difficult to pinpoint the exact amount of downloads compared to purchases, file-sharing is seemingly the newest medium to marketing albums. Oberholzer supported this theory later on in his essay by claiming, “Popularity of a release increases both file-sharing activity and sales.” And in a collection of a majority of the studies done about the effects of file-sharing on sales, although mixed, supports the theory that an increase in file-sharing increases the amount of sales.

 

Not only are Oberholzer’s findings a result of years of research and study, they are also consistent with artists that I am fans of also. In the recent documentary of Lil’ Wayne, “The Carter”, which was filmed during the release of his album “The Carter 3”, there were situations that resembled Oberholzer’s research. In the film Lil’ Wayne’s manager discovers from Universal Studios that the album has been downloaded nearly one million times about ten days before release. However, after one week of the albums release Lil’ Wayne had sold over one million copies of his album making him go platinum. This achievement correlates nearly exactly with Oberholzer’s research stating that an increase in file-sharing causes an increase in sales.

Both Lil’ Wayne’s album release story and the research done by Felix Oberholzer reveal that file-sharing has no effects on sales. Instead, file-sharing should be seen as a medium for marketing artists and albums. Music fans enjoy having free things, but also enjoy supporting artists they listen to every day of their lives. 

-Kevin