from the if-you-know-a-little-economics,-that-is dept
A few folks have submitted links to a blog post by Mark Mulligan, who is a VP and Director of Research for Forrester. In the post, Mulligan talks about why music can't be free, noting:
Another argument being aired is that the music industry should stop being so hung up on trying to get paid online, indeed one story even referred to "the Music Industry's obsession with copyright". That's like saying "the car industry's obsession with cars". Copyright is the oxygen of the music industry. Without it there is no industry. Sure there may be cases for changing some industry practices but copyright remains the essence of making money from music.
Music cannot just be 'for free' anymore than cars or houses can 'just be for free'. If people aren't paid they don't make the product. Sure music will still exist, but you'll swap nicely programmed download stores and well stocked high street stores for buskers and millions upon millions of artist pages, all clamouring for your attention. Perhaps that sounds appealing? The problem is, most of them would sound a fraction as good as they would if they'd been able to give up their day jobs and been given proper equipment, studio time, mentoring and artist development support. And even those that would still manage to sound ok, would struggle to find their way to your PC or mobile screen as they wouldn't have any marketing support to help them get there.
Mulligan's post is actually in response to the various stories about France's SPPF
suing a bunch of file sharing apps. However, it's a bit worrisome that a "research director" at one of the biggest research firms seems to have done so little research on the situation. While Mulligan's post is longer, let's just go through these two paragraphs and explain where Mulligan went wrong.
First of all, copyright is not, has not been and never will be the "oxygen of the music industry." The oxygen of the music industry would be
fans, and if you treat your fans as criminals, you can be pretty sure that eventually they cut off that oxygen. Copyright may be an
oxygen tank that artificially pumps oxygen into a sick and infirm patient, but it's hardly relevant to a
healthy and
robust system based on
business models that take into account basic economics.
Next up is the claim that "music cannot be 'for free' anymore than cars or houses can 'just be for free.'" You would think that someone working as VP and research director of the second largest analyst firm would at least understand
a little basic economics -- including the economics of scarce goods vs. infinite, or non-rivalrous, non-excludable goods. Apparently, not. So, Mulligan is simply wrong here. Yes, music absolutely can be free. Music, by itself, is quite different, fundamentally, than a car or a house, because those are scarce goods. If one person has a particular house, another person cannot. Yet, with music, everyone can have a copy of the same song. And, as we learned in basic economics, price is the intersection of supply and demand, and when supply is infinite, those curves meet at a price of zero. Alternatively, you can attack the same problem from another angle, which again was taught in basic economics: in a competitive market, price gets driven to marginal cost. The marginal cost of making a copy of a song is, once again, zero. Music can
and should be priced at $0. That's just basic economics. To claim it "cannot be" without addressing such fundamental economics is troubling.
Even more troubling is that beyond even the "theoretical" aspects of the above paragraph, is the widespread
proof that music absolutely can be free -- and that musicians can do quite well when it is free. Yet, instead of recognizing that, Mulligan trots out the tired and widely debunked line that "If people aren't paid they don't make the product." See what he did there? It's common among folks who are entering into such discussions for the first time. They say (a) music can't be free because (b) if people don't get paid, they don't make money. The
problem with this statement is that he makes a huge leap that if (a) then (b). If music is free, musicians don't get paid. The problem is, that's false. We've spent over a decade chronicling various business models where people use free
something to get paid for
something else.
And, of course, this is hardly a "new" or "revolutionary" business model. It's the way the world has worked for ages. The pizza shop down the street from me offers a free soda with two slices of pizza. Yet, according to Mulligan's professional opinion on business models, the pizza shop should go out of business. After all, it's giving away a product for free, thus it's not getting paid. The problem with Mulligan's analysis -- which one would hope is not indicative of Forrester's quality of work -- is that he seems to have focused so narrowly on the market, that he doesn't know what the market actually is. He seems to think that the entirety of the market is selling music -- rather than using the music to sell plenty of other things. Musicians can sell a variety of scarcities, such as concert tickets, merchandise, access to the band, the ability to create new music and many other things.
The rest of Mulligan's argument simply builds on the spurious assertion that musicians wouldn't make any money without copyright. Considering that his underlying assumption is false, the rest of the paragraph makes little to no sense, especially in light of the reality of the music industry -- which is musicians can (and already do) make more money from focusing on selling scarcities.
Yes, we've all seen these arguments in the past -- but they're usually put forth by someone who hasn't thought through these issues, and has simply jumped into one of these debates without taking the time to understand the actual market fundamentals. Yet, here's a case where a top exec and director of research at one of the world's largest analyst firms is making these same very basic rookie mistakes. If your firm happens to be relying on Forrester for advice on such matters, perhaps it's time to consider an alternative.
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