via ilovecharts, et al. IF TRUE, this has certain implications for the music piracy debate. Also having certain implications: a longitudinal study of the amount of money being earned by bands, and the number of bands in existence. Copyright law, like basically all law, isn’t about fairness. It’s about efficiency. Basically, copyright law is designed to eliminate a failure of the market. Back when music was only available on vinyl, it was an excludable good. You could lend somebody an LP, but then you wouldn’t have it anymore. There was a 1:1 ratio of records to listeners (essentially). This began to shift with the development of recordable cassette tapes. People could make near-perfect copies of the good that was being created by artists/record companies, so purchase of the music was no longer necessary. Music was no longer excludable, because it’s just information, that we had begun to learn how to transcribe. Mp3 files continued this trend to the extreme, especially when coupled with peer to peer up/downloading. Not only was music no longer excludable, but it wasn’t even linked to a physical entity anymore. Now, producing a non-excludable good generates an externality. It happens to be a positive externality, i.e. one that benefits people, rather than harms them. And while a violation of intellectual property laws, making a copy of an album is not stealing, per se - because it doesn’t deprive anybody of something they used to have. Ignoring the actual producer of the good, distribution of mp3 files throughout the population is pareto-efficient: it makes people better off, without making anybody worse off. Especially since you don’t even need anybody to buy the album and make copies in the first place (the would-be ‘sucker’ in this story) - most if not all albums are leaked online before they ever hit shelves. No, in this case, the ‘sucker’ is the band who writes and records the music. They (and those listed above in the pie chart) are those who are losing out: they are putting time and effort into an activity, and not receiving full monetary compensation based on demand for their product. And this isn’t fair. But that’s not actually the point of copyright laws, as mentioned above. It’s about efficiency. Let’s consider this issue between X consumer and a band. Below are listed the potential outcomes of this game: Band makes music, consumer downloads and listens to it. Band makes music, consumer pays for it and listens to it. Band makes music, consumer does not acquire it or listen to it. Band does not make music, consumer does not get anything. Assuming this consumer enjoys the music made by the band, then the outcomes are listed in descending order of preference, from the perspective of the consumer. Ideally, he gets the benefit of the music for free. Less ideally, he has to pay for it. In the last two, the consumer gets nothing (remember, purchasing music requires the consumer to give something up), and either the band does make music, or does not. (Incidentally, this isn’t quite so straightforward, as people still do purchase music. This may be because it makes them feel good (about not stealing, or about supporting the band) or because owning the copy of an album or CD imparts some manner of status to the owner. As such, paying for the album, from the perspective of various consumers, is preferable to simply downloading it.) Now consider those four outcomes from the perspective of the band. Certainly, #2 is their most preferred outcome - they make music, and they’re paid for it. #1 and #3, however, seem functionally identical: they make music, and are not paid for it (regardless of whether X consumer listens to it or not) - and since music is non-excludable, they are not harmed by the download unless the consumer would have paid for the music otherwise. Presumably, unless the band is just in it for the money, outcome #4 is their least preferred outcome. Of course, this analysis cannot be conducted with just one consumer: we need to look at all consumers (and indeed, all bands). But back to the point of the law, with respect to music downloads. It’s designed to prevent consumers from pursuing collectively self-defeating outcomes. Consumers may be acting perfectly rationally when they download music without paying for it, but if their ultimate purpose is to enjoy music, then they may be doing damage to this cause, by making bands less likely to make music, by not paying them for their work. And here is the inefficiency that the law is designed to avoid: people are required to pay for music, so that down the road, they still get music. People are being prevented from hurting themselves. The law doesn’t care whether bands are being treated unfairly - they are free to quit, if they cannot make money - it cares whether society is making itself worse off, by taking (entirely rational) shortcuts today. But herein lies the problem: while certain bands (and record companies) may be demonstrably worse off due to the downloading of their music, are any other bands better off? A market economy, it has been said, is not terribly good at dealing with non-excludable goods, particularly in the form of digital files transferrable via the internet. Does the current music industry follow the same paradigms as it did in the 1990’s? Has the internet in fact reduced barriers to entry into the industry? Another issue: bands don’t just sell music. They sell concert tickets and merchandise as well (excludable goods that are almost entirely within the realm of status purchases). Bottom line: is downloading hurting bands? Is it preventing bands from creating the music that consumers want? Ultimately, is downloading creating any inefficiencies at all? On to the record companies: do they actually create anything that people want? If so, what, exactly? Advertising for new albums? Funding music videos? Pressing records and burning CDs? And, if they are generating all of this good - which is, it should be noted, entirely secondary to the actual music - is it really worth anything to consumers? If bands went off-label, what would they lose? And are bands who are off-label benefitting from downloading? Do many more bands flourish because distribution is easier and less risky to consumers? It seems relatively self-evident that we’re at some sort of equilibrium point now: bands are not disappearing, and consumers are not starved for music. Whatever we have now is working, to some extent. Are record labels folding? If yes - do we care? If we, as a society, can generate music without them, are they worth keeping around? Finally, what function does music, and mp3’s specifically, serve in the ‘band industry’? It seems like they serve as advertisements for the band’s excludable goods (CD’s, records, concerts, tshirts, etc.) and for mp3 players (interesting). Is this appropriate? Is it fair? Maybe not. Does it work? Does it keep bands financially feasible? Yes. Not all bands, necessarily, but those who want to form bands know what they’re getting into. -Dutch

via ilovecharts, et al.

IF TRUE, this has certain implications for the music piracy debate. Also having certain implications: a longitudinal study of the amount of money being earned by bands, and the number of bands in existence.

Copyright law, like basically all law, isn’t about fairness. It’s about efficiency. Basically, copyright law is designed to eliminate a failure of the market.

Back when music was only available on vinyl, it was an excludable good. You could lend somebody an LP, but then you wouldn’t have it anymore. There was a 1:1 ratio of records to listeners (essentially). This began to shift with the development of recordable cassette tapes. People could make near-perfect copies of the good that was being created by artists/record companies, so purchase of the music was no longer necessary. Music was no longer excludable, because it’s just information, that we had begun to learn how to transcribe. Mp3 files continued this trend to the extreme, especially when coupled with peer to peer up/downloading. Not only was music no longer excludable, but it wasn’t even linked to a physical entity anymore.

Now, producing a non-excludable good generates an externality. It happens to be a positive externality, i.e. one that benefits people, rather than harms them. And while a violation of intellectual property laws, making a copy of an album is not stealing, per se - because it doesn’t deprive anybody of something they used to have. Ignoring the actual producer of the good, distribution of mp3 files throughout the population is pareto-efficient: it makes people better off, without making anybody worse off. Especially since you don’t even need anybody to buy the album and make copies in the first place (the would-be ‘sucker’ in this story) - most if not all albums are leaked online before they ever hit shelves.

No, in this case, the ‘sucker’ is the band who writes and records the music. They (and those listed above in the pie chart) are those who are losing out: they are putting time and effort into an activity, and not receiving full monetary compensation based on demand for their product. And this isn’t fair. But that’s not actually the point of copyright laws, as mentioned above. It’s about efficiency.

Let’s consider this issue between X consumer and a band. Below are listed the potential outcomes of this game:

  1. Band makes music, consumer downloads and listens to it.
  2. Band makes music, consumer pays for it and listens to it.
  3. Band makes music, consumer does not acquire it or listen to it.
  4. Band does not make music, consumer does not get anything.

Assuming this consumer enjoys the music made by the band, then the outcomes are listed in descending order of preference, from the perspective of the consumer. Ideally, he gets the benefit of the music for free. Less ideally, he has to pay for it. In the last two, the consumer gets nothing (remember, purchasing music requires the consumer to give something up), and either the band does make music, or does not. (Incidentally, this isn’t quite so straightforward, as people still do purchase music. This may be because it makes them feel good (about not stealing, or about supporting the band) or because owning the copy of an album or CD imparts some manner of status to the owner. As such, paying for the album, from the perspective of various consumers, is preferable to simply downloading it.)

Now consider those four outcomes from the perspective of the band. Certainly, #2 is their most preferred outcome - they make music, and they’re paid for it. #1 and #3, however, seem functionally identical: they make music, and are not paid for it (regardless of whether X consumer listens to it or not) - and since music is non-excludable, they are not harmed by the download unless the consumer would have paid for the music otherwise. Presumably, unless the band is just in it for the money, outcome #4 is their least preferred outcome. Of course, this analysis cannot be conducted with just one consumer: we need to look at all consumers (and indeed, all bands).

But back to the point of the law, with respect to music downloads. It’s designed to prevent consumers from pursuing collectively self-defeating outcomes. Consumers may be acting perfectly rationally when they download music without paying for it, but if their ultimate purpose is to enjoy music, then they may be doing damage to this cause, by making bands less likely to make music, by not paying them for their work. And here is the inefficiency that the law is designed to avoid: people are required to pay for music, so that down the road, they still get music. People are being prevented from hurting themselves. The law doesn’t care whether bands are being treated unfairly - they are free to quit, if they cannot make money - it cares whether society is making itself worse off, by taking (entirely rational) shortcuts today.

But herein lies the problem: while certain bands (and record companies) may be demonstrably worse off due to the downloading of their music, are any other bands better off? A market economy, it has been said, is not terribly good at dealing with non-excludable goods, particularly in the form of digital files transferrable via the internet. Does the current music industry follow the same paradigms as it did in the 1990’s? Has the internet in fact reduced barriers to entry into the industry?

Another issue: bands don’t just sell music. They sell concert tickets and merchandise as well (excludable goods that are almost entirely within the realm of status purchases). Bottom line: is downloading hurting bands? Is it preventing bands from creating the music that consumers want? Ultimately, is downloading creating any inefficiencies at all?

On to the record companies: do they actually create anything that people want? If so, what, exactly? Advertising for new albums? Funding music videos? Pressing records and burning CDs? And, if they are generating all of this good - which is, it should be noted, entirely secondary to the actual music - is it really worth anything to consumers? If bands went off-label, what would they lose? And are bands who are off-label benefitting from downloading? Do many more bands flourish because distribution is easier and less risky to consumers?

It seems relatively self-evident that we’re at some sort of equilibrium point now: bands are not disappearing, and consumers are not starved for music. Whatever we have now is working, to some extent. Are record labels folding? If yes - do we care? If we, as a society, can generate music without them, are they worth keeping around?

Finally, what function does music, and mp3’s specifically, serve in the ‘band industry’? It seems like they serve as advertisements for the band’s excludable goods (CD’s, records, concerts, tshirts, etc.) and for mp3 players (interesting). Is this appropriate? Is it fair? Maybe not. Does it work? Does it keep bands financially feasible? Yes. Not all bands, necessarily, but those who want to form bands know what they’re getting into.

-Dutch