Sympathy For The Record Industry

David Goldman at CNN:

If you watched the Grammy Awards Sunday night, it would appear all is well in the recording industry. But at the end of last year, the music business was worth half of what it was ten years ago and the decline doesn’t look like it will be slowing anytime soon.

Total revenue from U.S. music sales and licensing plunged to $6.3 billion in 2009, according to Forrester Research. In 1999, that revenue figure topped $14.6 billion.

Although the Recording Industry Association of America will report its official figures in the early spring, the trend has been very clear: RIAA has reported declining revenue in nine of the past 10 years, with album sales falling an average of 8% each year. Last decade was the first ever in which sales were lower going out than coming in.

“There have been a lot of changes over the past 10 years,” said Joshua Friedlander, vice president of research at RIAA. “The industry is adapting to consumer’s demands of how they listen to music, when and where, and we’ve had some growing pains in terms of monetizing those changes.”

The two recessions during the decade certainly didn’t help music sales. It’s also a bit unfair to compare the 2000s with the 1990s, since the ’90s enjoyed an unnatural sales boost when consumers replaced their cassette tapes and vinyl records en masse with CDs.

But industry insiders and experts argue that the main culprit for the industry’s massive decline was the growing popularity of digital music.

“The digital music business has been a war of attrition that nobody seems to be winning,” said David Goldberg, the former head of Yahoo music. “The CD is still disappearing, and nothing is replacing it in entirety as a revenue generator.”

Matthew Yglesias:

Music industry executives can tell themselves that as long as they want. But under conditions of perfect competition, the price of a song ought to be equal to the marginal cost of distributing a new copy of a song. Which is to say that the marginal cost ought to be $0. That’s not a question of habit, you can look it up in all the leading textbooks. Of course real businesses rarely operate in circumstances of perfect competition, and record companies have a variety of political and legal tools they can deploy to try to protect monopoly rents. But this is hard to do. I think the real story with the iTunes store is that over time competitive pressure has impelled it to largely drop DRM and over time I expect we’ll see that the CPI-adjusted price of songs declines.

It is, of course, possible that at some point the digital music situation will start imperiling the ability of consumers to enjoy music. The purpose of intellectual property law is to prevent that from happening, and if it does come to pass we’ll need to think seriously about rejiggering things. But I don’t know anyone who would seriously argue that a music fan in 2010 is in worse shape than a music fan in 1990 was. It’s much, much, much easier to find and listen to a wide variety of songs from all over the world.

Derek Thompson at The Atlantic:

Time out: The music industry’s revenue is half what it was in 2003. It’s not clear to me that iTunes did anything more than ring the death knell of record stores while revenues continues to plunge. OK, time in:

..In the time between Napster’s shuttering and iTunes’ debut, many of Napster’s 60 million users found other online file sharing techniques to get music for free. Even after iTunes got people buying music tracks for just 99 cents, it wasn’t as attractive as free.

“That four-year lag is where the music industry lost the battle,” said Sonal Gandhi, music analyst with Forrester Research. “They lost an opportunity to take consumers’ new behavior and really monetize it in a way that nipped the free music expectation in the bud.”

Why does Gandhi think those years were so crucial? During the “four-year lag” between 1999 and 2003, music sales fell no more than 20 percent. Six years after iTunes debuted, sales fell another 40 percent. I don’t know that any one thing is responsible for this — you could point to bitTorrent technology or YouTube or some illegal downloading services or just file it all under: The Internet. But I don’t particularly understand why you would blame the erosion of music profits in the last three years on some lost opportunity circa 2002.

Music is free now, and it has been free for millions of Americans for more than a decade. The industry was never going to unring that bell.

Sonny Bunch at Doublethink on Yglesias:

The purpose of intellectual property law has very little to do with Matt Yglesias being able to enjoy a wide variety of new music. The purpose of intellectual property law is to protect the intellectual property created by artists so they are rewarded for their efforts. The purpose of intellectual property law is to punish people who steal that which isn’t theirs.

Yes, copyright was created in part because there were concerns that authors wouldn’t bother creating new work if they were consistently stolen from, leading to Yglesias’s oddly solipsistic reading of intellectual property law. But, more importantly, copyright law evolved because we think that artists, writers, musicians, and others have a right to profit from their labors. It’s a crazy idea, I know.

Also, Yglesias’s cute little bit about the marginal distribution cost being zero ignores the fact that the production cost of music is far from zero — leaving aside the artists (who Yglesias clearly doesn’t care about being paid for their work), there are studio technicians who mix the music, producers who craft the songs, and all sorts of other people involved with the creation of music. I suppose they shouldn’t be paid either? That we should just rob them of their labor too?

I sometimes look at what my generation has done with their access to Napster, Kazaa and bit torrents, and the ethics to which they subscribe when it comes to intellectual property and weep. It’s a pretty sad state of affairs.

Tim Lee:

I have trouble getting too worked up about the semantic question of whether copyright infringement is “really” theft or not. I don’t engage in illegal file sharing and I don’t condone the practice. But at the same time, there are important differences between literal theft and copyright infringement, and I don’t think it’s particularly illuminating to equate the two.

But I do think Bunch is on shaky theoretical ground. America’s Founders had a pretty clear view of this subject, which they enshrined in our Constitution, and it’s at odds with the story Bunch is trying to tell. The Founders placed property rights protection in the Fifth Amendment, reflecting its status as a fundamental right. In contrast, the copyright clause appears in Article I, Section 8. That’s a section that enumerates the powers of Congress, not the rights of citizens. Indeed, the Constitution does not require Congress to grant copyrights at all, and contains no specific protections for copyright holders. To the contrary, the only specific requirement is a limitation on copyright protection; it requires that copyrights—unlike traditional property rights—be “for limited times.” Finally, the Constitution contains an explicit statement that the purpose of copyright is a utilitarian one: to “promote the progress of science and the useful arts.”

Indeed, if Bunch seriously believes that the function of copyright law is to “punish people who steal that which isn’t theirs,” I would be curious to know whether he obtained Matt’s permission before quoting his blog post. This, of course, is permitted under copyright’s fair use doctrine. But if copyright is just another form of property rights, then theft is theft. I don’t think there’s a section in Locke’s Second Treatise that says stealing is OK if it’s done in small increments.

Julian Sanchez on Bunch:

Call this the Lockean theory of copyright—a theory conspicuously absent from the Constitution’s Copyright Clause, which ties “exclusive rights” to the promotion of artistic and scientific progress. The thing is, this reading seems to make patent law a gross violation of the same right. Doesn’t it “rob” those who independently replicate a patented invention the right to profit from their labor?

Also, one wonders: How much do they have a right to profit? Assuming Sonny’s not going Marxist on us, I expect he doesn’t mean “commensurate with the amount of labor invested.”  He means, one supposes, whatever the market will bear. But what the market will bear depends pretty heavily on the precise contours of the copyright. How broad are fair use exemptions? How long is the term? (And if IP is really just like physical property, why are there fair use exemptions or terms?) If copyright isn’t mostly about incentives, by what standard do legislators decide these things? Does a 14 year term respect the right or violate it?  There are, of course, always fuzzy boundary questions when it comes to any sort of right. But a range between 14 years and life-plus-70 isn’t exactly a boundary question. How does Congress establish the morally correct level of protection to reflect in the law?

Yglesias responds to Bunch:

I think bringing this up in the context of the music industry seems to have confused the issue, as Bunch is very upset at what he terms “the pro-piracy, illegally-downloading-music-is-okay crowd” which I wouldn’t say I’m part of. So let’s think about something else—pharmaceuticals. Does Bunch think it’s a terrible affront to the moral rights of pharma researchers that there are generically available drugs? Does he want to see ibuprofen and penicillin and measles vaccines taken off the market? That’s crazy. As I think everyone agrees, the object of pharmaceutical patent & pricing policy is to balance the desire for medicines to be widely available and the desire to ensure that there are financial incentives for new research. Some people think we should sharply curb pharma patents and finance research some other way (prizes, more public funding) but everyone agrees that the welfare of patients, rather than pharma executives, is the legitimate point of policy.

With music and books and movies and it’s all the same. Intellectual property rights are created to ensure the existence of a supply of works for people to enjoy.

UPDATE: More Bunch


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Filed under Music, Technology, The Constitution

One response to “Sympathy For The Record Industry

  1. Pingback: What We’ve Built Today « Around The Sphere

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