Chalk One Up For The Armchair Economists

from the getting-it-right dept

Mike Arrington, over at TechCrunch, has written up a post about "The Inevitable March of Recorded Music Towards Free" which will sound mighty familiar if you're a Techdirt reader. It's pretty much the same thing I've been saying for almost a dozen years at this point, pointing out the economics and inevitable trends facing the music industry -- and also noting why that isn't necessarily a bad thing. While he's dealing with emotional responses in the comments (again, that'll sound familiar...), it's more interesting to watch an "industry analyst" trash Arrington as an "armchair economist" without backing it up... and then getting his own economics totally screwed up. In this case, we need to chalk one up for the "armchair economists."

The analyst, David Card of Jupiter Research (the same analyst who incorrectly said that Radiohead's new offering would only work because the band was well known), dismisses Arrington's economics as "oversimplified analysis," but doesn't explain why it's actually wrong -- and that's because it's not. Card goes on to say that based on Arrington's analysis "software, filmed entertainment, soda at McDonalds, and the classic example, high-end perfume, should all be free," using that statement as a reason to dismiss the economics. But it's actually Card who's way off on the economics here. Like many of the folks who respond emotionally, Card seems to be confusing what he thinks Arrington is saying with what Arrington is actually saying. Specifically, he's confused "should" and "will." Neither Arrington nor I have been saying that music should be free -- but that it will be free based on the economics at play. People who read the "will" as "should" then get bogged down in moral arguments over "should" or "should not" that don't matter. You can say that companies "shouldn't" pollute, but it doesn't change the fact that they "will" pollute. At that point, whining that they shouldn't is meaningless -- you simply have to figure out how to deal with the reality that they will. If you can then take that reality and figure out ways for musicians to make even more money (as the economic research and history suggests is likely) than the whole moral issue goes away.

It's not worth going through each of Card's "examples," but if you look at the economic trends in play for each situation, you can see that Arrington is a lot closer to the mark than Card is. For software and filmed entertainment, the inevitable shift is to a service model rather than a product model (which is the same as music). A services model recognizes that the creation (not the distribution) of content is where the marginal costs are. In reality, they've always been services models -- just disguised as product models. In other words, the trends in both cases support Arrington, not Card. As for soda at McDonald's and high-end perfume, neither is a zero marginal cost good -- and both have a number of different economic factors dealing with them. For example, soda at McDonald's is a complementary good that people drastically overpay for as a convenience. There's value in convenience -- and since customers in McDonald's are a "captive market" for soda, there isn't the competitive market to drive the price down. It's too bad that a supposed industry expert would accuse Arrington of getting his economics wrong, and then clearly show both that he didn't understand Arrington's statements -- nor does he understand the economics of other products and trends. It reflects a lot better on the "armchair" economists than the supposed expert.

Disclosure: some might say that my company, Techdirt, competes with Card's employer with our Techdirt Insight Community. Then again, others might say that this blog competes with TechCrunch. Neither is directly true, but I might as well disclose rather than have to deal with it in the comments.

Filed Under: business models, economics, music industry

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  1. identicon
    Schooley, 5 Oct 2007 @ 10:41am

    I don't think that most of the artists/distributors/backers etc.. have understood or even acknowledged the fact that it's a different world now. It's not like it used to be in which there was a focus on physical media. The focus is moving away from physical media formats and it will continue. There is no going back.

    Oh, we understand. It's just that there's no way for the average artist to take advantage of this "different world." I've got free mp3's on my webpage (check 'em out! Please!) which means more people can now hear my stuff, as I never would have gotten played on the radio. BUT - I can't afford to tour enough to reach those people, or to make up for the lost cd sales by selling t-shirts and whatnot. Gas costs 3 times what it did a few years ago, but you are still lucky to get a hundred bucks for a gig on a weekday evening somewhere in middle America. With 4 hour drives on either side of that gig. Most bands I know make very little money touring.

    At least have a label that presses up 180-gram vinyl to sell to the record nerds (a loyal, though small, group). I'll keep working my crappy day job and saving my vacation days to tour Europe, where at least I get paid decently and treated better than at clubs in the US...

    In my opinion we will see fewer famos bands in the future. Many musicians will give up the low money bar gigs and get a real job, and some will just put mediocre produced music they made in their house for fun. Once people figure out that they will no longer even have a slim chance of making money in music by starting out as a garage band, their will be less and less music available. I do not see many band members scraping together a living by working every night for $100 a piece.

    More like $100 bucks for the whole band! But yeah, that's about the size of it...used to be Basie, Ellington, etc. could afford to keep a huge band on the road, get a decent hotel and pay for dry cleaning for the suits (well-dressed cats, those guys). Then it went to small combos, then 5 piece rock I play everything myself, sleep on people's floors, and it's still hard to make a go of it.

    I'll still keep playing music, though. Maybe this will just weed out the poseurs.

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