Category: Music

Why are music companies suing their customers?

Isn’t it bad business to sue the people you hope to sell a product too? Why is the music industry going down the path of litigation? Can they hope to succeed with this strategy?

I address these questions in my recent column for the Social Affairs Unit in the United Kingdom. You might know that an international music consortium has just started bringing lawsuits in the UK and on the continent as well, thus prompting the essay.

Here is the bottom line:

I see the music companies as trying to hold back a new commercial norm. Specifically, the music companies are trying to maintain the old norm that you should always pay for music.

Two years ago most [American] downloaders did not know that their activities were illegal. Few uploaders felt guilty about making large numbers of songs available for free on the Internet. It was viewed as akin to lending your CDs out to your friends, except that the “friends” here were both anonymous and large in number. “Art should be free,” right?

Since the United States lawsuits, there has been a subtle shift of opinion. Many people, especially those beyond their teenage years, are now proud of not being downloaders. They brandish their Apple iPods with pride. The cultural climate has shifted to the point where people, even if they download, are embarrassed to admit as such. Only in the under-twenty crowd is illegal downloading still a badge of honor. And many of these children now face (admittedly imperfect) regulation from their parents.

The music industry knows that the long run will bring a network of free music. It knows that free music may have illegal status, a “grey” status, white status (recorded from the radio), or perhaps be pirate (from abroad) but not illegal in the actionable sense. But there will be two networks, a pay network and a free network.

The pay network stands a good chance of competing against the free network. Perhaps the pay network can offer better sound quality, tie-ins (concert tickets, T-shirts, etc.), upgrades and maintenance service, better information such as album liner notes, song selection services, easier interface, and other benefits. The future course of technology is difficult to predict. Nonetheless it is easy to see why a pay network will have a greater ability to finance these goodies than will a free network.

The music companies – present and future suppliers of the pay network – do not wish to face a ten year period where everyone is used to getting music for free. They do not want an entire generation to grow up thinking of music as a free commodity. They do not want hackers and illegal downloaders to become established as folk heroes.

Once commercial norms become established, they are difficult to dislodge. We are all used to breathing air for free. Imagine the response if suddenly we had to pay for air as we now pay for ice cream cones. Maybe the air would have a better quality and the price would be very low. Still I predict there would be a public outcry. It would be very difficult, in the legal and public arenas, to set up a business to charge people for breathing clean air.

Similarly, bread riots were a common phenomenon of the twentieth century in the Third World. When bread subsidies were removed or cut, the price of bread would rise. The new price of bread still might be lower than would be found in many other poor countries. Still rioting might occur. People cared not only about the absolute level of the bread price, but the level of the price relative to what they had been expecting.

The music companies know they are in for a rough ride. They will never win the competition on the basis of price, but they hope to win on the basis of quality. They feel they need commercial norms on their side. And this means that downloading cannot be allowed to proceed unanswered and unhindered. They cannot live with a norm that music should be free.

Note that the music companies are demanding far smaller penalties than they might hope to win in a formal lawsuit. This is not out of benevolence to the illegal downloaders. The lawsuits are about spreading the idea that downloading is wrong and illegal, not about inflicting the maximum possible punitive damage. Think of the lawsuits as one way to buy space in the newspaper, but without paying advertising rates. And the company gets the journalists – a more credible outside source – to be the ones reporting that downloading is illegal. Too high a penalty would make the companies look mean.

I am not here to attack or defend the behavior of the music companies, but rather to explain it.

Compact discs are overpriced, installment #421

The DVD format is taking over the classical music world, especially opera:

Sales regularly hit 5,000 units, the standard break-even figure for classical CDs, and go as high as 40,000 worldwide, says Klaus Heymann, the Hong Kong-based head of Naxos International. Also, the hard-core classical community doesn’t have to wait around for the video companies to finish issuing meaningless Luciano Pavarotti galas before going on to the real stuff.

Major classical labels initially hesitated to jump into DVD, so smaller, specialized concerns took the medium directly into niche marketing. Upfront “authoring costs” (translating video to the small disc) were as low as $2,000 a few years ago, says Gilbert, and are now half that.

Once a nightmare of regional formats, DVDs are increasingly universal (look for the “0” in the code box), though savvy consumers still need a specially doctored player to read all codes on discs available on European Web sites. Disc prices, which range from $10 to $35, are still unstandardized. The Deutsche Oper’s Die Meistersinger is $39, but the Australian Opera’s better cast sells for as little as $25.

Whatever the reason, even the most expensive DVD operas cost less than sound-only, full-price CD sets (emphasis added).

Here is the full story.

MP3 blogs

Why not use blogs to become a virtual DJ? The latest blogging trend is to offer MP3 files to your readers, combined with commentary and useful links. The tracks tend to be obscure rather than from mainstream pop, which everybody knows about anyway. Copyright status is often black or grey but so far the marketing has proven useful and these blogs have not been a legal target.

Could this be the future of marketing in the music industry? Here is an article on the phenomenon.

Here is one example of such a music blog.

The bottom line: Why don’t econ bloggers post their classroom and public lectures? Or short answers to public questions of the day? Hmm…

The Sledgehammer of Wow

By this point in life I’ve stuffed so much material down my gullet I feel I am hard to impress. When it comes to new books and music in particular, I can go many moons without feeling The Sledgehammer of Wow. But yesterday I felt it twice:

Blueberry Boat by The Fiery Furnaces dispays a level on ongoing invention that one expected from Brian Wilson circa 1968.

Susannah Clarke’s Jonathan Strange and Mr. Norrell: A Novel has been called a “Harry Potter for grown-ups”; it starts by asking whether magic has disappeared in England. Only rarely have I been captivated so quickly and so deeply by a novel of our time. Read the ever-insightful Henry Farrell (CrookedTimber.org) on this wonderful book. Here is another good review, also courtesy of Henry; here is a Slate.com review.

On a sadder note, Johnny Ramone has passed away. “Twenty-twenty-twenty-four hours to go, I wanna be sedated…!”

We Will Rock You

The answer is Queen’s Greatest Hits, and Freddie Mercury is the lead singer. The accompanying booklet “tells Queen fans that Bohemian Rhapsody is about a young man who has accidentally killed someone and, like Faust, sold his soul to the devil. On the night before his execution he calls God in Arabic, “Bismillah”, and so regains his soul from Satan.”

Here is the full story. It is reported that the album, shorn of a few love songs, is selling well.

We will not rock you

Virginia and 39 other states sued eight music distributors and retailers accusing them of price-fixing and all I got was a lousy Michael Bolton CD. Well, not me personally, but that is what lots of libraries and public schools in Virginia and across the nation are getting as their share of the $75 million non-cash part of the settlement. Other CDs distributed as part of the deal include teen band Hanson’s “Snowed In” and, get this, Martha Stewart’s “Spooky, Scary, Sounds for Halloween.” Not every CD is a dud but it’s fair to say that the value of the CDs is substantially less than $75 million. If you were a member of the class and signed up you could also get a check for almost $13, $67 million in total.

According to the judge, pure transaction costs were $6-8 million and the lawyers got just over 14 million so depending on how you evaluate the free CDs (I think $35 million is generous) total transaction costs might eat 20-30 percent of the settlement – not bad as far as these things go. Note, however, that the plaintiff’s claim was that consumers were being overcharged by 23 cents a CD. Personally, I’d be happy to pay the extra 23 cents to be free of class-action lawsuits like this. But then again I don’t buy as many CDs as Tyler.

What I’ve been listening to

1. Rodrigo, Concerto for Guitar. I used to think this piece was classical radio fluff, short, lightweight, and accessible. I now see it is as a precursor of modern ambient music. So much of the Spanish acoustic guitar tradition makes sense when heard through this perspective.

2. Mahler’s Seventh Symphony. A sprawling mess, to be sure. Hardly anyone is drawn to the melodies here. Is this his worst and least listenable symphony, or the beginning of a new Mahlerian sound world? If you want to hear it swift and severe, try the Boulez recording as well.

3. Beethoven’s Fifth Symphony, and the Piano Concerti. I put these on immediately after returning from Mexico. The slow movement of the Emperor Concerto is one of Beethoven’s most beautiful moments. And could Pierre-Laurent Aimard, who plays on this CD, be the greatest pianist in the world today? Try his Ligeti Etudes or Debussy as well.

4. Late Elliott Carter. Carter remains prolific beyond his ninetieth birthday. His late short pieces, dryly contrapuntal, are usually written for a very small number of instruments. I used to think of Carter is an amazing composer in his early years (e.g., Sonata for Cello and Piano), but who later stagnated. This picture could not be more wrong. Over the last ten years his reputation has skyrocketed, and rightly so.

5. Handel’s Theodora, conducted by William Christie. Much of Handel is too earthy and straightforward for my tastes, but this is the best Handel recording I’ve heard, up there with S. Richter doing the keyboard sonatas. Here is an excellent blog post on why Handel operas and oratorio are less boring than the modern listener might think.

6. William Byrd, Complete Keyboard music, by Davitt Moroney. The scrunchiest parts are the best, and seven CDs are not too much. Byrd has one of the best claims running for “most underrated composer,” try also the vocal music.

And when Yana gets home from visiting her high school friends, I hear a great deal of Beck, arguably the best popular musical artist of the 1990s, with apologies to Kurt Cobain.

Do you know the old saying: “Music is enough for one life, but one life is never enough for music”?

What rap stars crave

1. Looking at the Billboard Top 20 for rap music, 59 brands have been mentioned 645 times in songs so far this year.

2. Very high end and very low end brands are the most popular mentions.

3. The top brand so far this year in rap songs is Hennessey, a kind of cognac. Cadillac comes in second.

4. Mercedes, a previous favorite, now has fallen behind Cadillac, Rolls-Royce, and Jaguar.

5. Autos, fashion, and beverages provide the brands most likely to be mentioned in rap songs.

6. Cristal, an extremely expensive champaigne, may be losing appeal because it is now so closely identified with hip-hop.

7. Polariod, in contrast, has benefited greatly from rap music. The product has been hurt by digital photography, but Outkast sang “Shake it like a Polaroid picture” in its hit “Hey Ya.”

That is all from the Mexican edition of the Miami Herald, August 26, sorry no link available from here. Agenda Inc., a San Francisco marketing firm, compiled the data.

Satellite radio as universal jukebox

Catching Blondie’s reunion tour broadcast at 4 in the morning wasn’t an option for XM satellite radio subscriber and single father Scott MacLean.

“I was missing concerts that were being broadcasted when I was asleep or out,” he said.

So the 35-year-old computer programmer from Ottawa, Ontario, wrote a piece of software that let him record the show directly onto his PC hard drive while he snoozed.

The software, TimeTrax, also neatly arranged the individual songs from the concert, complete with artist name and song title information, into MP3 files.

Then MacLean started selling the software, putting him in the thick of a potential legal battle pitting technically savvy fans against a company protecting its alliance – and licensing agreements – with the music industry.

MacLean says he is simply seeking to make XM Radio – the largest U.S. satellite radio service with over 2.1 million members paying $10 a month for about 120 channels – a little more user-friendly.

And get this:

XM has said it plans to launch in October a new car and home radio receiver that lets users pause and rewind live broadcasts. XM also has a deal to stream its broadcasts over next-generation TiVo recorders.

The bottom line: Who needs illegal downloads? At some point radio and other media will become “thick” enough that you can just pluck the song you want. Probably this will prove well within the reach of the law. And once storage becomes essentially free (are we so far from this right now?), you will buy or download a program to record a (near) universal music library for yourself.

Here is the full story, which includes a link to the relevant software.

That’s [Not] All Right

Elvis Presley is on the charts again but the owners of That’s All Right are worried because as of January 1 2005, Presley’s 50 year old classic enters the public domain in Europe.

Under current EU law, sound recordings are classified as “performance” and copyrighted for a period of 50 years. This is not to be confused with compositions, which remain in copyright for the artist’s lifetime plus 70 years…

Nevertheless what this law does mean is that, from January, anyone may store, share, swap or commercially release That’s All Right without recourse to RCA, who currently own rights to the track as part of their back catalogue. …

Faced for the first time with losing significant back catalogue profits, the industry is lobbying to change the law. …[But]for every one recording that has the power to reach number three in the commercial charts fifty years after its original release, there are hundreds if not thousands of tracks that do not.

Although these recordings no longer have any commercial value to their rights holders, they are of tremendous value in terms of our cultural heritage. But the mechanisms of copyright law mean that, should the European Parliament choose to heed the music industry, keeping Elvis out of the public domain for a further 45 years or even more, the King will drag down with him this huge body of commercially worthless but culturally significant work.

Works of no commercial value will be orphaned, languishing in forgotten store cupboards at record company headquarters when they could be enjoying a digital rebirth in the public domain.

A solution to this problem is already in use for patents. Renewal fees. Renewal fees for copyright extension would allow Disney, RCA and those few others with very valuable property rights to maintain those rights while at the same time the vast majority of “commercially worthless but culturally significant work” would flow into the public domain.

Note that I am not arguing that we should extend the rights of Disney, I stand with my betters in seeing little benefit to doing so, but if political pressures force policy in that direction we need not lock everything up in order to protect the few cash cows. A renewal system should be politically viable because the fees can be made low enough so as not to greatly concern Disney or RCA, yet high enough so that most works will flow to the public domain. Owners of profitable works will benefit and owners of non-profitable works will not be harmed.

Aside: Suzanne Scotchmer has an important but difficult paper arguing that renewal fees can be optimal. Here is another clever idea to improve the patent system. As usual email me if you can’t access the link.

Markets in Everything – country edition

Kansas City radio station Mix 93.3 FM, which threatened its listeners to play Billy Ray Cyrus’s “Achy Breaky Heart” continuously until the station had met their goal of $20,000 to contribute to the travel expenses of Courtney McCool’s (U.S. Olympic Gymnast) family.

The station started with $6,000 and raised $14,000 in a little under four and a half hours, during which they played the song 48 times in a row.

I am surprised it took that long.

Thanks to jaded economist Craig Depken.

The economics of teenagers

There was a time when teenagers did not dominate music markets, but was this for the better?

For some perspective, I pulled together the top-selling music of 1951, 1961, and 1971.

1951: The soundtrack for “Guys and Dolls.” Mario Lanza. Yma Sumac. The Weavers. Les Paul. Tony Bennett.

1961: Bert Kaempfert. The soundtrack for “Exodus.” Lawrence Welk. Judy Garland. But also: Elvis, Connie Francis, Brenda Lee, and Paul Anka.

1971: George Harrison. “Jesus Christ Superstar.” Janis Joplin. Sly and the Family Stone. Michael Jackson. Carole King.

Teen tastes, in other words, weren’t present on the 1951 charts at all; took up only half the list’s space in 1961; and didn’t triumph entirely until 1971.

Les Paul I like, but overall kudos to the teenagers. The list is from the ever-excellent www.2blowhards.com, and we welcome the new addition Vanessa Blowhard to the blog; here is the post itself.

Addendum: Did you know that the word “teenager” only popped up in the dictionary in 1942?

Movie downloading on the rise

Illegal downloading is not going away. And movie downloading could soon be a bigger issue than music downloading:

Films and other files larger than 100MB are becoming the most requested downloads on networks around the world, said UK net analysts CacheLogic….

It estimates that at least 10 million people are logged on to a peer-to-peer (P2P) network at any time.

“Video has overtaken music,” CacheLogic founder and chief technology officer Andrew Parker told BBC News Online.

The firm has come up with its picture of file-sharing by inspecting activity deep in the network rather than just at the ports.

P2P is the largest consumer of data on ISP’s networks, significantly outweighing web traffic and every year costing an estimated £332 million globally, according to CacheLogic. [TC: This is a figure you don’t usually hear, though its calculation remains obscure.]

In the sphere of music, traditionally assumed to account for the vast majority of file-sharing, it is no longer about the big guns such as Kazaa, which has declined in popularity since being targeted by the RIAA (Recording Industry Association of America).

File-swappers have moved their attention to other peer-to-peer software, such as Bittorrent.

While the FastTrack network (which carries Kazaa ) still accounts for 24% of all P2P traffic, the lesser known Bittorrent and eDonkey together account for 72% of file-sharing, according to CacheLogic’s report…

On the release of one major Hollywood blockbuster, 30% of the P2P traffic at one ISP came from a single 600MB file.

Here is the full story. Here is (sketchy) evidence that movie downloading leads to fewer theater visits. South Koreans seem to have a special propensity to download movies.

That all being said, downloading has not been so bad for the music industry. Sales are up, read this too. What is the biggest winner? Country music. Concert revenues, supposedly the future of the music industry (“give music away for free and then tour”), are on the downslide.

My take: DVDs are currently cinematic goldmines, read here too. This won’t last forever, and part of the “rent exhaustion” will include additional movie downloads, especially from low income viewers. Hollywood will end up back in a normally profitable state of affairs. I’m all for copyright enforcement, but current violations are not (yet?) close to a critical point.

Addendum: Legal music downloads are shifting the balance toward classical music.