Economists Realizing That Current Music Industry Structure Leads To 'Sub-Optimal Outcomes'

Say That Again

from the you-noticed? dept

The music collection society MCPS PRS in the UK apparently had three economists coming from different viewpoints work together on a paper concerning the economics of the music industry on the internet today. It includes an economist from the collection society, one from the internet industry and one from the music industry. While the resulting paper does have some good points — such as being one of the few industry produced papers that doesn’t try to ignore the fact that file sharing directly competes with things like iTunes — it appears to have some weaknesses as well.

The paper basically tries to describe the overall landscape for music on the internet, dividing it into three units (reflecting the three people working on the report): Music Service Providers (MSPs) such as Kazaa or iTunes (and, yes, it’s impressive that they directly lump the authorized and unauthorized players together), Music Rights Providers (MRPs) such as ASCAP or other collections societies, and ISPs. The paper then uses some basic game theory to note that the interactions between these three players will often lead to “sub-optimal outcomes.” No, really?

Instead, they suggest that the entire incentive structure of the industry should be reconsidered — which is something I clearly believe as well. However, from the article, it looks like the approaches they line up don’t do enough of that reconsidering. Why? Because they don’t even seem to take into account the idea that (a) there are other players in the market that should be considered in the ecosystem and (b) one of the three legs of the stool set forth in the premise (the collections societies) may not be needed. If you take them out of the equation, but plug in other components of the market (say, the musicians themselves) you can quite easily see the model working quite differently than what’s described in the report. Indeed, the options for creating win-win solutions become much clearer. In ignoring the other aspects of the market, while not considering that these so-called MRPs may not be necessary in today’s world, the report falls well short of actually laying out optimal solutions in the market.

Filed Under: economists, efficiency, music industry, optimal outcomes