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
    Andrew D. Todd, 7 Oct 2007 @ 8:59am

    RIAA As Cargo Cult

    What impresses me overwhelmingly about the whole discussion is the incredibly "needy" tone of the remarks of the musicians who think they are being deprived of a livelihood by music copying. I mean "needy" in the sense of a drug addict in withdrawal symptoms (I was reading Stern a while back to improve my German, and I discovered, to my surprise, that the German term for addiction translates as "poverty"). These people are not Britney Spears-- they have no reasonable expectation of making money from music royalties, any more than they have a reasonable expectation of winning the hundred million dollar jackpot in the state lottery. They get upset because someone is telling them the truth about themselves. Karl Marx said that "Religion is the Opiate [narcotic] of the Masses." I wouldn't know about that, but fantasizing about being a rock star is very definitely the opiate of a certain type of burger flipper. These burger flippers don't really want to be musicians, at least not enough to work very long and hard at it. They want to be rich, and their symbol of richness is the rock star. It's a kind of religion, what the anthropologists call a "cargo cult." The RIAA is not really in the music business, so much as it is in the "Opiate of the Masses" business. Its basic function is to make sure that burger flippers remain burger flippers, and remain poor, by telling them that they don't have to finish school, or to learn substantial jobs skills. The recording industry creates someone like Britney Spears, in about the same sense as dressing up a Barbie Doll, and effectively pays her to be conspicuously rich and to act out like a spoiled child in public. A certain kind of nut cult leader sometimes miscalculates and gets ritually eaten by his "devotees." That is roughly what is happening to the recording industry with P2P. Don't you think they deserve it?

    People talk about the supposed lack of incentive to create things. Creating things is fun. If you don't find it fun, you're never going to be any good at it. People write books all the time for fun, always have. There are maybe a couple of hundred writers who make a living at writing books. The rest, the authors of nearly all the books published, are writing because they want to. It used to be that if you wanted to have your book published, you often had to pay to have it published, and getting a book published was not by any means the same thing as getting it into the bookstores. Nowadays, you can just stick the book up on the website, which costs very little. And that is of course what people do.

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