Free Music Does Not Conflict With The Free Market
from the economic-principles dept
An associate editor at PC Mag emailed in a link to an opinion piece by PC Mag Editor-in-Chief Lance Ulanoff complaining that the ongoing demise of DRM is actually bad for the music industry — and even claiming that it goes against basic economic principles. In this, he’s flat out wrong. He starts out by trying to explain “basic principles of content, commerce, and our economy,” but fails to recognize that the description he gives for economics fits for allocation of scarce goods, but things are different when you’re dealing with infinite goods, where efficient allocation no longer is a question. He follows up this incorrect economics lesson by stating:
“Giving up control of content and giving it away free are not rational ideas in a market economy, yet everyone’s cheering. Has the world gone mad?”
No, Lance, the world hasn’t gone mad. The world (or, at least, much of it) has simply started to understand that basic economics still applies to infinite goods — and if the marginal cost is zero, then a competitive marketplace will drive the cost to zero. It’s not irrational. It’s very, very rational. It’s exactly as the core principles of economics predict. What’s not rational is trying to set up artificial scarcity in a manner designed to shrink the pool of resources out there and to shrink the market itself.
Ulanoff also makes some bizarre statements suggesting that very few bands tour or make any money from touring — when the facts suggest otherwise. 2007 was the best year ever in terms of concert revenue, up 8% over 2006, and continuing nine straight years of rising revenue. Not only that, but the numbers suggest more bands than ever before are performing live and making more money than ever before performing live. It’s not just the top bands that are making money from concerts — in fact, the percentage made by the top 20 acts and the top 100 acts were smaller in 2007, despite the total amount of concert revenue increasing. As we’ve seen, every single aspect of the music business has been improving, other than selling plastic discs.
Finally, Ulanoff concludes with this whopper of a prediction:
“giving away content free of charge… [flies] in the face of everything we know about a functioning economy. People will become dissatisfied. Artists will stop making content because they’re not getting paid. When there is no content, people will stop buying gadgets to consume that content. In short order, one part of our digital economy will collapse, and it could be followed by countless others.”
As we’ve already pointed out, giving away stuff for free doesn’t even remotely fly in the fact of a functioning economy. In fact, historically, a functioning economy has often been improved by giving away things for free. It’s usually called “promotions” or “advertising” however. In fact, Ulanoff’s salary is most likely paid for because Ziff Davis “gives away his content for free” and sells ads on top of it. That system works quite well and has for years. As for his claim that “artists will stop making content because they’re not getting paid,” that myth has been put to rest way too many times before. The artists are getting paid. In fact, more people are making money from music today than at any time in history — it’s just that they’re not all doing it through selling plastic discs, but by touring and embracing new business models that help the artist make money through different business models. Rather than collapsing, the digital economy is thriving, in large part due to the implicit (and increasingly explicit) recognition of how free isn’t just a useful part of the economy, but it actually helps to grow the economy, by increasing the resource base, providing more efficient solutions and opening up new business models.