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.

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Comments on “Free Music Does Not Conflict With The Free Market”

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39 Comments
Matt says:

The guy wrote a stupid article, totally out of cha

Hey Mike,

Slashdot beat you to this article bigtime 🙂 With that said, I agree that the points you noted caught me off guard too, especially about where he came up with the magic touring then we know that 50-75% of an artist’s money actually comes from there, not CDs. Of course I imagine that’d go down to about 30-40% if they are on their own Label.

What confuses me, is isn’t this guy who wrote the article a longtime PC mag guy who is known to be non-shill and also pretty dead on with markets? or no? I assumed with like 15+ something years on PCmag according to his bio, that would be the case.

4-80-sicks says:

Re: The guy wrote a stupid article, totally out of

Slashdot beat you to this article bigtime

Heh. Slashdot always beats Techdirt. I have a friend who reads Slashdot religiously, and I read TD religiously; since he is also interested in technology and economics, I send him links to TD posts frequently over AIM…every single time, he says he already knows about that story. Oh well. I keep telling him it’s not the news that’s interesting, but the editorial content. Slashdot throws up links and people comment…TD writes essays. 🙂

Cixelsid says:

Re: The guy wrote a stupid article, totally out of

What is this with the /. and Techdirt rivalry? What are we gonna do, go out during our lunch hour in our white cutoffs and red ties to mix it up the tshirt and jean wearing common folk that religiously read /. ?

Also, we should sing “greased lightning” while snapping our fingers menacingly.

Gryphon says:

Nothing new for Ulanoff

This sort of nonsense is nothing new for Ulanoff. I have a subscription to PC Mag and have read his editorial since he took over the top spot at the mag a few months ago. Most of his articles are full of flawed reasoning (his one on net neutrality was a real whopper) and lack understanding of how the real world works.

Throwing Stones says:

Biting the hand?

I find it strangely ironic that the editor of a technology publication would take this stance. Advancements in technology are largely responsible for driving the marginal cost of music toward zero. Cheaper production, distribution etc. along with the proliferation of devices on which said music can be stored/played have all changed the way that music is made, distributed, sold/bought and listened to. Why would someone whose life is so wrapped in the technology industry have a problem with the choices/freedoms that technology affords today’s consumer. He seems to be chipping away at the industry that supports him. Aside from all of that, he doesn’t seem to understand the economics of it all. Not that I entirely understand it, but I don’t go around writing editorials for national magazines on the issue. I am not a regular reader of PC magazine, but this article really undermines the credibility of that publication in my eyes.

Able-X (user link) says:

free music

He also apparently hasn’t noticed that there are alot of artists out there who ALREADY give their music away free. We’ve been giving it away for sometime now. I don’t tour, other than the occasional show in town or a nearby city, but I give away my music free simply because I enjoy making music.

I’d rather know that people are enjoying the music I create, rather than worry about making a penny from selling the song.

Anonymous Coward says:

Re: free music

You’re absolutely correct. It works well with music.

If there were zero professional artists out there making money selling their music, music would still exist. Music is easy to create with the right equipment and some talent. Great music comes from a lot of artists who do it just for the love of it. If the local music store closed today, good music of all genres would still exist.

It’s hard to say the same for movies and software, though – two more industries that sell piratable content. Movies are INCREDIBLY expensive to create and take a very long time. If they just gave away movies, the industry would still have to find a way to survive – theaters get into the business of selling the experience more than the movie, producers sell ad placement within the film, etc. The music industry is fighting adaptation right now, but it can adapt. It will be interesting to see what happens to the movie industry when its revolution comes soon after the music revolution.

Software is another issue – free (as in freedom) software already exists and flourishes, but not in all areas. Obviously console video games aren’t in the Free Software field. That’s going to be a different revolution, but it’s coming, too.

The music industry is just a step in the revolution of infinite goods.

Scorpiaux says:

Re: free music

“I’d rather know that people are enjoying the music I create, rather than worry about making a penny from selling the song.” – Able-X

==================

I’ve seen some people who were wealthy suddenly get “religion” and then begin giving all of their money away. They went broke and then no one gave a rat’s ass about them. I am not aware of anyone who said that the village idiot who gave away his money should be emulated by other wealthy people (except by and for those people who stood around raking up the windfall).

Anonymous Coward says:

I understand the argument for giving away music, but what business model exists for artists who don’t draw huge audiences but wish to make modest livings from their recorded works?

I am more than willing to support artists whom I consider talented and accomplished. Under no circumstances, though, would I listen to free music if it were polluted with sponsor messages or advertisements, and I am repelled by the thought of musicmaking succumbing to the “content-is-a-conversation” model which is devastating journalism and visual arts.

Ideas and talent are scarce, and worth paying for.

Chronno S. Trigger says:

Re: Re:

Then the free music model is exactly what you want. With people listening to the music before purchasing CDs, Merchandise, concert tickets, it will support the bands that people like and, in the end, drop the bands that no one likes. Unlike the current model witch supports bands that the record labels tell us are good.

Look at RoosterTeeth. They offer their videos for free. Most everyone likes them. They support their website, and they themselves, by offering the DVDs, T-Shirts, bumper stickers, and many other things.

Hulser says:

Re: Re:

I understand the argument for giving away music, but what business model exists for artists who don’t draw huge audiences but wish to make modest livings from their recorded works?

My guess would be that it would be easier for an artist who hasn’t “made it big” to make a living or at least supplement thier income using a digital model. Instead of having a one in a million shot at getting a contract, an artist can make money by selling digital copies of songs to a small, but loyal following and play in smaller venues. (Not to mention selling t-shirts, etc.)

the “content-is-a-conversation” model which is devastating journalism and visual arts.

What exactly to you mean by “content-is-a-converstation model? It sounds like you’re describing sites like TechDirt where the conent authors participate in conversations with their readers. I personally enjoy this kind of model very much, so I don’t understand who this would devestate, other than organizations who don’t realize that I’m not alone in enjoying a more interactive content model.

Anonymous Coward says:

Re: Re: Re:

There are thousands of independent artists, especially in jazz, classical and world music genres, who eke out livings by selling a few thousand CDs per year and performing live shows. What happens to them when their recordings are available for free via “file sharing” and no longer have monetary value?

Do you know any professional cellists or jazz guitarists who sell t-shirts and coffee mugs? Do you think they draw enough eyeballs to earn significant income from ads placed on their websites, or worse, within their works?

My point is that a created work is expensive in time and money to produce, and has value independent of its utility to the person filling his iPod or authoring a blog post or user comment.

I will support an idea and its creator. The rest is noise.

Adam Smith says:

Re: Re: Re: Re:

AC – “There are thousands of independent artists, especially in jazz, classical and world music genres, who eke out livings by selling a few thousand CDs per year and performing live shows. What happens to them when their recordings are available for free via “file sharing” and no longer have monetary value?” – Nobody is saying that free downloads is the ONLY business model. It will work for some, not for others. And BTW, chances are their music is going to make it to a file sharing site anyway.

“Do you know any professional cellists or jazz guitarists who sell t-shirts and coffee mugs? Do you think they draw enough eyeballs to earn significant income from ads placed on their websites, or worse, within their works?” – Again, nobody is suggesting a one size fits all business model. But to ignore the shifting market and maitain status quo is probably not going to work.

“My point is that a created work is expensive in time and money to produce, and has value independent of its utility to the person filling his iPod or authoring a blog post or user comment.” – There are many ways to achieve ROI on this, they don’t all have to include selling CDs.

Touring Musician says:

You have to be kidding

Are you kidding? Touring revenues are up for maybe the top 50 touring artists that have been out touring for years and decades. The other 5,000 touring artists are all barely scraping a living. You name 10 rock bands you hear on the radio out there and 9 of them are broke and have to tour just to live.

I know first hand of this because I toured for a couple years and know tons of radio bands that all tell me the same thing. As of now, most touring bands never see a dime from an album sale. That is the truth. They live off their touring, which doesnt pay nearly as much after you pay your manager 15%, pay the booking agent 15%, then pay for gas and supplies, then have to split the rest up 5+ ways between the band members and roadies. The average touring band makes $500 a gig.. You do the math and each band member is lucky to take home $50 for a days’s work. Thats barely enough to live on, and none of it goes to savings. Not to mention, hardly any of them have a house or car to pay for because they cant afford it. They ditched those just to be able to afford to tour in hopes it would get better.

You seriously need to get your head out of your ass and see what is going on in the music industry from a real life point of view. No matter how you slice it, it comes down to more bands ending up slitsville because they cant live like this, and you end up with less music to choose from than ever before.

And dont even get me started about new bands, they never even have a chance to get this far cause the record companies have no money to promote them. They simply record thier album, put it on a few shelves, then shove them into a van to tour with a bunch of other unknown bands and wish them the best of luck. No radio play, no magazine ads, no promotion. Thats just how it is. Nobody is making money except the ones that were making money before it got bad, and they even will tell you its 1/4 of what it used to be. Its a sad sad day for music and its only getting worse.

TtfnJohn (profile) says:

Re: You have to be kidding

You made one comment that is just as true now as it was 25 years ago when I was doing the same thing. No internet, just LPs and a band on endless tour. Also, not seeing one penny, not a one, ever from the recording contract we signed.

In spite of your tone the reality is that what you describe is how most musicians (and artists in general) have gone through for the entire time the recording industry has existed.

It wasn’t always there, you know. Musicians were there before the RIAA was and some made good livings while others didn’t.

Perhaps to you things like talent, performance and so on shouldn’t get in the way of making music but they do. Too bad. You don’t make it in any other work without some talent in it whether it’s music, landscaping, plumbing or whittling.

And perhaps it’s getting bad out there because there’s simply too much junk? Or because venue owners have come to think that DJs and strippers are an easier way to make a living for them?

The reality here is that the distribution method that the labels have used for 100 years doesn’t work anymore and it won’t ever come back.

And no one that I’ve read here or elsewhere is advocating that artists NOT be paid for their work. What’s being discussed is the distribution model for music.

Heck, as far as it goes EMI pushed out the Beatles without much in the way of promotion or airplay in the UK and look what happened. And just why did it happen? Could it be that 5 or 6 years of non stop gigging for little or no money might have helped? Honing their skills and staying focused on what they really wanted to do with their talents (monsterous in hindsight) which was have some fun?

ttfn

John

Brad says:

PC Mag Goes Downhill

I’ve watched PC Magazine just plummet in the last few months in terms of Quality, Reputability, and Integrity. ZD should be ashamed of it. Many of the authors seem to be on the take, or at least have deep biases against certain companies (MS, Apple, Sony, Dell, etc), and many of the reviews seem more like advertisements.

I knew something was up when the “Apple is the fastest laptop” article came out. The real headline should have been “At the exact moment we tested, the top-of-the-line, just-released Apple is faster than the other four we tested”.

But hey, if your whole business model is based on corporate support, you’re MOST likely to be an unbiased source.

Shun says:

We covered this already

So did slashdot, but whatever. Over here there was a link to a music industry insider who laid out the game plan of the majors. Read the comments for interesting takes on “artist bashing”. The point that some of us were trying to make was that artists were free to sign any contract they wished. Unfortunately, due to the nature and history of the music industry, most of the contracts offered are insanely predatory. 90% of the artists who sign with a major crash and burn immediately. Does that sound like a viable success rate? Would you sign with a major, knowing that most likely, you’ll end up in massive debt?

Kinda reminds me of the sub-prime mortgage failure, but over a longer span of time. Obviously, these problems are coming to light now because more people are willing to speak out about how cruel and horrible RIAA-affiliated companies are. Or maybe it’s a “rats are leaving the sinking ship” mentality.

So, given this knowledge, why would anyone sign with a major? Are we all a little delusional? Are we all rock stars, at heart? I don’t know, but if you look at the evidence, and all of the detrius left in the wake of a single successful band, the only rational choice would be to not sign at all.

Touring Musician: You seem to be speaking from the point of view of a band which is already signed. It’s obvious that you got screwed. You reference “radio bands” as your source of information. As far as I know, independent artists are rarely heard on the radio. It’s too bad, because radio should at least promote local independents, but I’m not going to discuss the economics of radio ownership, ties to big business, etc. Your beef seems to be with Mike’s idealistic impressions based upon an RIAA-free world. Touring Musician, you are beholden to the RIAA. They have you by the ‘nads and it is painful. You mention that new bands are being signed, given no promotion, put on in a van, and sent out to tour. In this case, why even sign? If you can get in a van and tour with 0 profits from sales, no promotion, no effort at all by big media, why expose yourself to such risk? It looks like you and Mike are starting from different initial conditions.

Touring Musician is talking about bands who are already on the RIAA hook. Mike is more concerned with people making music now, who haven’t signed with anyone, but who are considering their options. Hopefully, a new model of music distribution will rise out of the ashes of the RIAA. In the meantime, for bands in debt, you may need to resort to creative methods to get out from under your contracts.

Tom B says:

Artist Entitlement

When I hear people (artists in many cases) protesting how tough it is because they *have to tour to live* and how they just get by, I say “Hmmm… what did you expect?”.

Normal people, many of whom work jobs with not-impressive pay, have to work shifts, nights, travel, hold multiple jobs, and so forth. They work hard, they barely get by. What exact magical quality of artists justifies that anyone who puts out music should expect this isn’t the average condition of musicians?

Great musicians (and that includes great self-promoters, great self-managers, as well as the musically talented) do okay for themselves. Maybe there won’t be any more “Rush, Boston, Chicago, Rolling Stones, Beatles” type artificially inflated mega-bands with stars that are super-rich. So we’re pulling the plug on artificial scarcity and this kills this fake utopia of overwhelming success. Colour me absolutely distraught! (NOT!)

If a band has to tour to survive, adapt to changing market conditions, and being good at music alone is not enough, THEN TOUGH! That’s what people in every industry have had to learn – how they used to do things isn’t good enough in a global world! You need to develop new skills, open new markets, and aggressively compete. And some will fail. Why should music be inherently exempt from this economic reality?

Some subset of artists will demonstrate (are doing so) that it is possible to find a workable business model in a changing world. They’ll prosper, although maybe only to a point of being able to get by comfortably, not being rich. What is wrong with that outcome? Some will fail, because they refuse to adapt, can’t adapt, or are trying to cling to outmoded thinking about markets. Welcome to Music as a means to eat (aka a business). Every business has had to learn those same lessons, why should musicians be exempt?

So, yes, file sharing probably does mean more bands have to tour and make money off of live appearances. People make no money off of their albums if they get freely shared, but then the RIAA made sure they mostly didn’t make much of anything anyway. So touring is still the only way and it now takes more gumption. With more bands making music, there is more competition. Some will fail. Eventually, as the economy shifts and settles again, we’ll find out what an equilibrium number of bands that can get by decently on touring proceeds is. The number of actual bands will vary around this value, with some failing and some doing very well for themselves. Just like every other form of employment that isn’t magically exempt from the laws of economics.

There will be a lot of good music. There will be a lot of ho-hum music. There will be fewer megastars and megabands and the RIAA may well go belly up. More bands than before will find ways to get by and some will do so comfortably, others not so much. Those that do well will have more talent, more business savvy, more PR ability than their competitors. Maybe time to stop cutting classes to hang out and jam… because instrument ability or songwriting is no longer the key to success (nor is fake scarcity promoted by a profiteering oligopoly).

All in all, I think this is a much healthier situation with much more invention, innovation, and fresh creation for consumption. Woe betide you if you won’t adapt, but life has a way of forcing that or squishing you. Que sera sera.

Vincent Clement says:

Re: Artist Entitlement

I have to disagree with your inclusion of Rush in your example of “artificially inflated mega-bands with stars that are super-rich”.

Rush have been in control of their own destiny from their first album in 1974. They even created their own independent record label to produce and market their first album due to indifference from the major record labels.

If anything, Rush is the perfect example of a band that could do very well in the internet age.

Dewy (profile) says:

Artist entitlement

There have always been bands that fail, so your band barely squeaking by is nothing new. As for record sales… they haven’t meant much for musicians for 20 years… other than more exposure to draw bigger crowds to live shows.

Its the biggest bunch of crap for musicians to feel like they are entitled to a free ride because they recorded a semi decent song. As a musician myself I spit on those who feel like they need their stardom recognized now.

further you were getting screwed somewhere down the pay scheme if someone told you your only getting paid $500 for a live show. I’ve played empty bars and got $400 regularly, and touring the eastern seaboard of the US recently netted us $1500 a night gross. Sure we had bills to pay outta that, but everyone does. If you can’t make ends meet @ $200 per musician for a 4 hour gig… then you need to flip burgers.

Not come here and whine that your not getting rock star treatment.

Bob Weiss (profile) says:

Lance Ulanoff is Wrong - Often

I agree that PC Mag has become very puffy and flacid of late. I have read many of Lance’s recent columns, and the nutty, wrong, uniformed, and goofy stuff he proposes seem endless. He is way on the wrong site on network neutrality too, although this is no surpise.

The last three editors at PC mag have all driven this COMPUTER magazine away from its core competencies. Michael J Miller kept trying to turn it into a car mag, Jim Louderback put a music slant to it, and now Lance, who is taking us God knows where. IS there anyone at Ziff Davis who will save us from this claptrap?

Wolfger (profile) says:

Giving it all away

There are so many business models for giving stuff away, it’s not even funny. I guess Lance has never been to any sort of convention or trade show.
I know one musician who works opposite the Techdirt model – concerts for free and sell CDs. He puts out a couple CDs per year and travels around doing concerts and selling plastic. He quit his day job and says he’s never going back, so he must be doing something right.

Dewy (profile) says:

Re: Re:

Not stupid… conditioned. They have been trained from birth by TV shows & the recording industry and Radio that success = recording contract.

Brittney is a fine example of what the recording industry has created… a child star who feels entitled to stardom, not a creative artist responding to fans and/or creative impulses.

Music must diverge from Stardom, that is where everyone thinks they must sign… so they can be a star!!

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