Maximum Rock & Roll ... from a utilitarian point of view

I saw this Tyler Cowen post and thought to myself: he's gone and linked to the thing about the trench of shit. Which indeed he has: Steve Albini's vividly scatological anti-music industry screed. (The piece is from 1994, by the way. The page doesn't indicate how old it is, but this page does.)

Cowen knows Albini's piece isn't supposed to function as a defense of long, strong copyright, but he thinks it does so by showing how - and how much - money ends up elsewhere than in artists' pockets.

This isn't going to win over kids comin' up these days, who (I gather) all believe copyright is bad and it's OK to steal tunes. Their argument has a major premise that runs: 'all the money goes to the suits anyway.' This, it turns out, is true. (The argument is still bad. But showing it has a true premise doesn't, per se, do much to discredit it.)

So what is Cowen's argument?

Without copyright income the artists would be deeply, deeply in debt, or more realistically would never have the chance to record in the first place.

Most economists that I know think copyright lasts for too long, and that "fair use" is interpreted too strictly. Rappers should be freer to sample than under current law. But if there were no copyright, it would be hard to fund a music industry at anything close to current levels.

Surely this is, in part, just sloppily stated. Cowen writes as though thinking current copyright terms are too long commits you to thinking copyright itself is bad. Such severe dialectical slippage is perhaps epidemic in the pre-teen file-swapping set, but I'll bet most economists could spot the fallacy.

Seriously, I think Cowen just means this: reading Albini's list of costs is like watching feeding time at the zoo. Despite its giant size and fierce demeanor the beast - it turns out - is delicate. It's many head have large and specific dietary needs. So we ought to care for it and feed it, because we all like music. If it's tummy-tum starts to growl for copyright, for example, we ought to seriously considering tossing it an extra juicy slab of copyright. If it wants to eat pirates, we must let it. We don't want it to die.

I'm going to deny, experimentally, the premise that runs 'we don't want it to die'.

Suppose, for the sake of this argument, piracy is killing the music industry. This is a doubtful proposition but by no means absurd. But let's pump our intuitions by supposing that in 15 years - having utterly failed to batten down the hatches in the face of pirates - the industry as we know it has gone away, to be replaced by a much smaller, humbler alternative. Suppose it works out like this. CD's (or whatever comes next) cost about a buck, or you can download individual tracks for a penny. Let's say a CD costs 85 cents to manufacture, and downloads are effectively free, so an individual album sale pulls in a handsome 15 cents. (Perhaps this is the level at which piracy finally becomes less convenient than just paying for what you want. And even kids have a vestigial conscience that might trouble them if they stole a penny from poor working stiffs.) 15 cents is less than the $15 per CD the industry takes in today. On the other hand, sales would increase 10-fold, perhaps 50-fold, in the face of an as much as 99% price drop. (I myself would buy a hundred times as many records and give the industry just as much money as ever. But I'm a bit unusual.) Let's suppose, conservatively, that sales increase 10-fold, so that profits overall drop 90%.

And those are the blackest colors I can in good conscience use to paint this scene. They are surely too black. But let's go with it.

Catastophic. Is there still a music industry? Well, there are lots of folks faxing their resumes around in a daze, but they're hiring at the record stores. People still want music. And I wouldn't be utterly shocked if, after the dust settles, almost as many bands as today could make a living wage. Granted, the world is looking very, um, very punk rock and DIY these days.

Let's look at Albini's nameless band: unit sales of 250,000, yet the band members are only netting $4000 apiece. (Granted they've had some parties, been on tour, and own some sweet axes. Also a bass guitar shaped like a potato. Totally tuberular, man.) Let's be extra conservative and say that, without the promotion, this band only sells five times as many albums when the price drops 90-99%. I believe that is not too optimistic a sales figure. That's still $187,500 in record sales. Let's say there's four band members. Let's double their take-home to a princely $8000. You're telling me you cannot get the rest done for a little under $150,000? You can't cut a shoestring that short? I don't believe you. There's no way an industry wouldn't spring up that was prepared to help people make and distribute albums for $150,000 dollars. I'm feeling stupidly generous. Let's pay the band $30,000 apiece. That leaves not quite $50,000. I'll bet you can cut an album for not quite $50,000. (Granted, it sounds like Mitch Easter just planted the mics in front of the amps and went out back for a smoke while the band plays. Not the sound for everyone. But "Murmur" is a classic album.) By the time they cut their second album, maybe the band own their own instruments and some other equipment, too. So they can throw a party if they like on the money they save on rentals.

It follows that tours are no longer promotion events - loss-leaders, as they are in our world. But it isn't that hard actually to make money giving concerts, if people like you. And tours have always been run on the backs of wired young men eating hotdogs in the backs of broken down vans. How much worse can it possibly get, nutritionally speaking?

Yeah, but are the albums as good? Let me first remind you that you now own exactly 99 times as many of them as you used to, or else maybe you saved your money and exchanged it for other goods and/or services. This is a considerable burst of utility. And I see no reason to believe that album quality has actually gone down, although fewer artists are hiring symphony orchestras to add that extra - you know, 'we hired a symphony orchestra to add something extra' sound. Fewer boy bands? Are you really willing to pay a hundred-fold tax on product to subsidize the manufacture of boy bands until the end of time?

Turn the question around. What has been lost? OK, certain sorts of lavish production are now less commonly met with. (I didn't say I was building paradise, in which all goods are maximized.) And I honestly have no idea what's on MTV, but I'll bet people are finding ways to fund the placement of cameras in front of sullen young men wielding guitars. Starving art school students love this stuff. Could MTV get worse than it already is? I dunno what's on the radio after all this happens either, but I'll bet it's better than what we've got, because no one's paying money to keep it homogenous, as they are now. There are fewer multimillionaire rock-stars. But you can still sell out stadiums if people like you, and make a million that way. And there are T-shirts and other stuff. Seriously. People will always buy T-shirts. On judgement day, some thin white dude with dreadlocks is going to be hawking T-shirts. It's a cultural universal.

What did the big record companies supply that has now gone away? Here's the biggie. Very damn little. Possibly as little as nothing. I know this sounds like empty sullen teen rhetoric: the suits are just blood-suckers and parasites. 20-million Eminem fans can't be right. This seems reasonable. But, honestly, let's think. In the olden days, record companies did necessary work that, quite frankly no longer needs to be done.

Distribution? Well, if there are holes in the physical net of stores, there are precious few holes in the download net. Your fans in the boonies can choose the download option. And a boom in actual physical sales will tend to close holes in the net of stores carrying physical product.

Marketing and promotion and artist development? The A&R system is, frankly, Soviet. There are thousands of bands with albums released and tens of thousands who want to release. You pick a few - you're a 40-year old VP and you live in LA: this means you know which few to pick? - and spend lavishly to promote them. You're betting on a few bullseyes out of almost random dart tosses. To mix metaphors once again, this is pushing string: trying to manufacture demand, rather than ... well, to make a long story short, Hayek is spinning in his grave. Record companies simply aren't in the business of finding and promoting talent and quality. I know it sounds like I'm whining, but it's true. Talent and quality are available from record companies, but really being a source of them is not the business model, because no one knows how to find and promote better talent and quality than the next guy so reliably that it's worth betting on that. It's like picking stocks that way. So you do something the stock-pickers can't get away with but you can. You find and promote some not obviously talentless 14-year old girl who looks good in a belly-T. A more solid divident prospect. It's not terrible that people do this. It just wouldn't be terrible if they had to stop because it didn't pay anymore.

But how will people find out about good music if the industry is not cramming 14-year olds in belly-T's down their throats? Albums in my Brave New World now sell for a dollar, at most. There is an enormous incentive to find out about things you will really, really love that are for sale for a dollar. The boom in music journalism - reviews and directions and guides so forth - is going to be tremendous. People will be selling people information about which albums they want to buy. Reputation economies will be piling on reputation economies with abandon. Hayekian paradise. With a little luck, the radio is better these days as well. But maybe the FCC is still being a pain. At any rate, you don't have to charge the bands for this service. The customer will purchase it, or - more likely - view it for free on the net.

Maximum Rock & Roll - a broadly utilitarian maximization, I should think. Oh, and you can shorten copyright if you like. It would probably help. Does anyone have any objections? I would rather live in the musical world I just designed than the one we've got. Which would you choose? Which would most musicians choose ... if they all knew what Steve Albini knows about how hard it is to make it. Yes, I know the high-paid producers are totally screwed. And they are talented folk. Well, I'm sorry. I don't know what to do for you. But admit it: you would work for less. I'm just saying, someone with bare competence would be there to press the 'record' button.

And probably I'm being a bit too pessimistic about profits, aren't I? What if you charged 2-cents per download. Then everything doubles. Pretty great!

I saw Steve Albini in concert in Chicago in '88. It's one of my worst concert memories. My then-girlfriend made me go. I knew I was going to hate it. I did.

Comments

[Dave F]

of course, the music will die too (the guitar punk thing) since its success is 99.99999% marketing and 0.00001% talent and originality. Good thing. I despise "big music" (the record conglomerates) and the endless regurgitation of rock and roll's past to keep the gravy train rolling.

It's all over now, baby blue.

I used to be a rock drummer (in the 60s). Like most musos I know, I would rather listen to jazz or classical music, although there are obviously rock artists I still listen to. These forms will now start with something closer to a level playing field.

Classical music has already had to grapple with declining support (marketing budgets included). So today's leaner and meaner orchestral outfits, now opting in numbers for their own labels, are ready for the revolution, more so than the pop industry, which exists mainly to keep the industry fatcats in Armani.

The people who download "tunes" are not interested in music. They support the fad of the moment.

[dsquared]

Let's be extra conservative and say that, without the promotion, this band only sells five times as many albums when the price drops 90-99%. I believe that is not too optimistic a sales figure.

This is always the engine of this kind of analysis; "conservative assumptions" that ain't. Your implied price elasticity of demand is -4.4; estimates for the media industry are usually closer to -2, which would have the sales increasing from 250k to 700k in response to a 90% price decline. And there are enough "specialnesses" in the characteristics of media consumption to suggest that even this could be an overestimate.

Think about it this way; if you owned 100 times as many albums as you do today when would you listen to them all? An album isn't really a consumption good; analysed at the most fundamental level it's a piece of capital equipment specialised to the task of home production of musical enjoyment. Which is a production process which needs inputs of capital, labour (pressing play) and *time*. And there is no substitutability between the time input and any of the others; it's going to take you the same three minutes to listen to "I Wanna Be Sedated" no mater how much it cost.

Add to that the fact that there are most likely increasing returns to listening to the same songs over again (for a fairly important part of the curve, anyway) and you begin to suspect that there is not anything like the degree of pent-up demand that you're assuming. A band which sells 250k copies is a band that 250k people like, would be my guess.

I also think that you're massively, massively, underestimating the importance of producers in recorded sound. And finally, you left out the main role of the music industry; it's actually part of the financial services industry. The main role of music companies is to provide equity finance for producers of music to tide them over that irritating period when they haven't got a product to sell, but they still need to eat.

[enthymeme]

Caught this post linked via Crooked Timber.

I largely agree with what you wrote. If big record labels die, all the better. The upshot of this is, I suggest, that there will be less rubbishy music, less crap on radio, and less big-label oriented music programming. As it is, Singapore radio plays tripe and kids grow up listening to tripe, thinking they like it very much. This cycle is reinforced when commercial radio and record labels point to the popularity of sundry 'N Syncs and Westlifes as justification for why radio continues to play the bilge it plays. "Because it's what the audience wants."

Yeah, way to go. Of course kids, having not heard better, listen to what 'cool' radio tells them to listen to. Not surprisingly the musical dollar flows in the same direction .. compounding the cycle. It was that way for me (I was stupid once). It was that way for many of my peers. And it will be that way for generations to come until and unless (a) radio finds a backbone (not likely) or barring that, (b) we somehow realize the Hayekian/Holbosian paradise through means foul or fair..

Considering that radio and labels are, in the main, responsible for such atrocities as Ms. Spears, assorted teen princesses, boybands, and the intolerable cheesiness of manufactured pop .. they have a lot of cheek to be suggesting that the audience want what they want as if they had no hand in it.

It seems to me that people are getting rich promoting an industry of bad music. Just picture in your mind's eye the nightmare image of aforesaid corruptors of youth laughing all the way to the bank. I say the sooner big labels die, the better.

Gee, there you have it: the sooner the better. So much for Cowen Volokh's 'premise'.

[dsquared]

Lads, your utopia exists, or at least it does in my part of London. Pirate radio, independently produced micro-budget music, the lot. It's called "UK Garage". It's fucking appalling.

[Stentor]

Perhaps this is the level at which piracy finally becomes less convenient than just paying for what you want.

I can't imagine any for-pay music distribution scheme being more convenient than something like Napster or Kazaa. It's not like you have to hunt down dealers in back alleys (though a situation of this sort could maybe be produced by aggressive legal action against file-sharers, the same way it works with stealing physical goods). The "conscience" motive will kick in and motivate buying over stealing before the "convenience" one will. And I'm not sure how much conscience music consumers will have by the time this new music industry structure is in place, if they're raised to feel that they're entitled to free music.

[jholbo]

Hi, Dsquared. You certainly do know more than I do about all this. I was just making it up off the top of my head (obviously). It's interesting to me that anyone has any good idea about how a 99% price drop would affect a record's sales. I would be curious to hear an elaboration of what the relevant evidence and reasoning is behind your claim that my conservative estimate isn't.

Moving right along, I would certainly own a hundred times as many albums because I would buy them if it only cost pennies just to try them out. Then they would sit forever and I wouldn't listen to them. I think lots of other people would do the same, but I do appreciate that not everyone is a music buff. All the same, I think lots of people who have 10 CD's wouldn't mind having a 100. And people who have a 100 might not mind having a 1000. Again, I'm just making this up. Do you have any specific evidence to cite to the contrary? I'm not saying it's rational to own more than you can listen to. But people like to own things. I do.

I'm quite sure that a band that sells 250K at $16 a pop isn't a band that sells 250K at $1 a pop. That just doesn't make sense. I own hundreds of CD's and there are definitely hundreds of CD's I don't own that I would buy for $1. I'll bet people who own dozens of CD's would buy dozens more for a dollar. There are always people who like bands but don't own their music because CD's are sort of pricey.

You're right about the producers. I do know enough to know that the change I'm hypothetically exploring would create albums that just don't sound as good. I sort of didn't talk about that enough in the post. Musical culture would be very different if such radical changes happened. It would be a lot worse in some ways, a lot better in others. Like me owning 100 times as many albums with slightly lower productions values.

The financial industry angle is valid and I certainly should have mentioned it. I was thinking about it but thought I'd rattled on enough. Which is a silly thing to do when it means omitting essential points. Anyway: it's obvious that there would be smaller scale financial support available for smaller scale musical offerings. Small advances from small companies that have legitimate expectations of being recouped in penny sales. Maybe most people would only release their first albums on the internet, sounding kind of rough, and if they did OK, someone loans them the dough to make actual CD's. I guess I think if there's money to be made, someone will figure out how to make sensible bets for a cut.

I was thinking as well about other things artists could do: releasing a lot more material because there's less concern about flooding the market. Selling recordings of live concerts to pay for tours because collectors will want to collect. Just lots more product swimming around in the market, driving up those penny sales.

I realize these sorts of suggestions don't make a lot of sense for certain sorts of music and artists and so forth. But they make lots of sense for others.

I guess I should have emphasized more that the music business would totally change, and so musical culture would change. It isn't that the same stuff would get produced on a different financial footing. (More units for less profit per unit.) Obviously it would be the end of an era and the start of a new one. It just isn't obvious to me that the average consumer, or the average artist, should look to the new, very different era with a feeling of aversion. And if not, then why care if the industry dies?

Meanwhile, while I've been writing this, another commenter opines that there is no level at which piracy because less convenient than paying. I guess I doubt that. If you sold CD's for $1 you could make them impossible to copy (or inconvenient to copy.) If someone wants them on their computer, they buy the download. It's only pennies. And make the downloads inconvenient to copy as well. If you want them on two machines, pay twice. (It's only pennies.) If it's cheap to buy and inconvenient to copy, we're back to the word of making tapes and swapping them. It's just not worth the trouble for enough people to wreck the industry by doing it.

Yeah, if the industry could do that, they'd do it already. I guess I think people would complain less on copy restrictions if the stuff was so cheap. It's paying a lot for a thing you can't copy that leads people to complain. And I trust the industry to find ways to make copying slightly inconvenient. Which is all you have to achieve to get a few pennies out of someone.

I should add that I don't think this thing I'm talking about is going to happen. I think the industry will limp along as is. It's just a thought-experiment.

[Dave Heasman]

Records of "UK Garage" promoted by pirate radio, with massive distortion and innumerable "shoutouts" to discourage taping, are only available from a couple of specialist shops, and are not only appalling they're bloody expensive.

The classic Blue Note albums were made by groups of 4 to 6 grownups, largely with families to feed, who were paid for one day's rehearsal and one day's recording, at about $100 per day per man. This was in the early 60s. The capital cost of the studio was fairly high for the times I think, but could be duplicated now for $1000 per day. Not in Manhattan, probably, but (still) in Englewood Cliffs NJ.
These records are now available at about $6, and are still selling. To me, at least. In the early 60s I paid £2 1s 6d. each, but I only bought about 20. Now I have 250+.

So the Blue Note model might well still work. The Vienna Philharmonic model probably wouldn't, but then it currently doesn't. And I'd gladly surrender the Vienna Phil if it meant the death of Capital radio.

[epist]

The most intersting aspects of this analysis are those that point out that the technology for marketing and distribution has radically changed. More than anything else, this is what will change the music industry.

Even if nobody ever pirated a song on the net, the ability to disseminate songs on the net will have an impact on the music industry similar to, but larger, than the effect radio had on it.

Prior to radio, the music industry looked nothing like it does today. That was because radio gave them a marketing arm that was orders of magnitude cheaper, easier and more powerful than they'd had previously.

Computer networks will revolutionize both marketing and actual product distribution in very much the same way. The new music industry will have to move most of its product on the net, regardless of the copyright debate.

And this same tech effect will be mirrored in the art itself. In the same way that an entire genre of music sprang up around the holy 3-4 minutes of a 45 single and the 40-50 minutes of an LP, new genres and revisions of the old ones will accomodate high-speed always-on data hookups and virtual storage.

I'm no futurist, but I'd guess that in a few years, the very idea of a physical medium for music storage will seem quaint. High-bandwith wireless will morph radio into a much more personalized service, with much lower startup and maintenance costs, and storage will be entirely virtual and fungible.

As it is, the industry exists mainly as a capitol renter, providing the front for the artists to produce, and the manufacturers and distributors to make and ship units. When all that's left of that model is the production costs. . .

[zozazumi]

Computers have made dishonest people way too lazy. What I hear in all these arguments about record companies' inflated profits and overpriced CDs and crappy music is a bunch of whiners too lazy to steal the old fashioned way, by passing it on from person to person.

[anon]

dsquared, think about how many people have collections of more than 6000 mp3s vs. people who have more than 600 cds. 6000 mp3s works out to about two solid weeks of music, if you listened 24 hours a day. Of course, you won't do that. But if you listen all day at work, to drown out your yammering co-workers, you might have 8 weeks worth of music without repetition. Of course, you won't do that. You'll be in a black mood one week, and will listen to the Johnny Cash (RIP) cover of NIN's _Hurt_ twenty times. But even so, people have and enjoy collections as large as 600 CDs or 6000 mp3s. And more people would have collections that size, if it didn't involve an expenditure sufficient to buy a decent used car.

[enthymeme]

What I hear in all these arguments about record companies' inflated profits and overpriced CDs and crappy music is a bunch of whiners too lazy to steal the old fashioned way

Oh impugn my motives already. Please. Rooting for the demise of industry-propagated crappy music from death-by-piracy does not entail that I myself indulge in file-sharing shenanigans. In fact, I don't. So spare us the cliches about moaning, etc. It's old hat. I just don't like what the music industry is like now, and I'm happy to see it torpedoed one way or another. That is all.

[Rich Puchalsky]

Your proposed economics don't appear to match likely upcoming reality to me. Mostly because you seem to assume that people are going to be buying CDs.

Why would anyone buy a CD when they have an iPod equivalent device that can hold their entire music collection? All you really need is a single storage / playback device, and a fast Internet connection to feed it.

So, if that's the case, then the cost of a download is zero -- fast Internet connections are not priced by how much you download, they are generally a fixed monthly fee. Once you've paid for your storage device, and paid the monthly fee for your Internet connection, there is no more money to be made off of you by your purchase of recorded music. It's now all free.

If that happens, then recorded music just becomes an advertisement for your purchase of concert tickets and T-shirts.

[Ted Barlow]

I've got a post brewing on this, but I've got to say that I think that dsquared is right about everything (especially UK garage.)

Let me make two brief points that I hope to expand on:

- The $1 CD model already exists as the free CD model. You can go to mp3.com and download more free music, legally, than you could listen to for the rest of your life. There are about 20,000 CDs worth of music there, mostly from struggling artists trying to get their music out there. And yet, the vast bulk of file-trading is copywrited material from established artists.

I love music, but I've never downloaded a song I hadn't heard of from MP3.com. My time is worth more to me than this music, even free. If I've never heard it, heard of it, or given a reason to believe it's worth my time, I'm not going to download this music. And the download rates show that there are a hell of a lot of people like me.

- It's really easy to dismiss the value of marketing, promotions and advertising, because we're all sure that we're not affected by it. But we are.

Example: Prince has a long history of hit music and critical acclaim. He's a household name/ symbol. He moves from Warner Brothers, which has great marketing, promotion and distribution, to his own NPG label. Quick- name the last album that Prince released.

(Answer: NEWS. It came out in July of this year. I had never heard of it, either.)

[dsquared]

It's interesting to me that anyone has any good idea about how a 99% price drop would affect a record's sales. I would be curious to hear an elaboration of what the relevant evidence and reasoning is behind your claim that my conservative estimate isn't

OK think about it in this ludicrously oversimplified way (note that here I am using all the ludicrous assumptions of neoclassical economics with none of the mathematical rigour. For a mathematically rigorous treatment, look up "Slutsky decomposition" in the index of your favourite economics textbook. For a realistic treatment, feel free to reinvent economics; I think things went went wrong about the time of Jeremy Bentham).

Let's take some semi-realistic numbers. Say that after tax you have $1000/month, and you spend $100 on CDs every month when they cost $10 each. So your consumption bundle is equal to $900 of non-CD stuff, plus 10 CDs.

Now the price of CDs drops to $1. You can now afford your old consumption bundle, and have $90 spare. There is a "wealth effect"on your consumption of CDs because you can now afford more.

Also, the tradeoff between your CD consumption and non-CD consumption has improved in favour of CDs. You might therefore be tempted to allocate more of the $900 non-CD budget to CDs. This is the "substitution effect".

Note first that the wealth effect can't really get you very far at all. You currently spend 1/10 of your income on CDs, so we'd assume that you would spend 1/10 of the gain from cheaper CDs on them (if this weren't the case, why weren't you buying more CDs before?). Your CD purchases only increase by $9 or 90% because of this effect.

So all the hard work has to be done by the substitution effect. In order to get to your fivefold estimate, you have to assume that a change in the terms of exchange of non-CD goods for CDs from 10:1 to 1:1 will motivate you to switch a further $31 or 3.4% of your non-CD budget from non-CD goods to CDs. That's a much larger substitution effect than is really plausible; to what extent are CDs really substitutable for non-CD goods? Say they started selling baked beans for 1p a tin (as my local supermarket did a couple of years ago). What percentage of your income would you devote to beans ...?

The point is that you're assuming that a 90% price change would result in a 500% volume change. If you think about it that way rather than "a tenth of the price -- ten times the volume", the numbers look less reasonable.

Your other points seem sound, but this one had a flavour of "If we sell a toothbrush to every person in China", "If we capture just 5% of the potential online funerals market" and other golden oldies from my brief involvement with the venture capital industry.

[Russell L. Carter]

DD doesn't understand music! What an odd empty space for such a smart guy.

"Think about it this way; if you owned 100 times as many albums as you do today when would you listen to them all? "

I don't listen to any of my hundreds and hundreds of cds more than once a month, and am happy to listen to them once a year, and if I listen to a cd once and I like it, I am happy to have bought it.

"Say they started selling baked beans for 1p a tin (as my local supermarket did a couple of years ago)."

Right. There are literally tens of thousands of varieties of canned baked beans...

Look. The physical CD media is atrocious and impermanent; I have severely restricted my buying these days because I hate the idea of watching my investment in a serious library literally erode. Better to wait for the next gen. Once the replacement costs are negligible, I begin to take a lot more risks, both on the physical media and the content. As for your comment implying that recording on the cheap is isomorphic to the London garage scene, that's wrong. Isn't Moore's law a wonderful thing? You still need a congenial space, but the equipment costs are getting pretty cheap. So what if nearly all that's produced is noise. That's why John notes there is going to be really important reputation market. (Actually, I'll just reup my subscription to Wired.)

[Russell L. Carter]

One more observation. By having had the good luck to stumble upon the competent indy scene right out of high school, I have had the extreme good fortune to have listened to a good sized fraction of the really interesting music recorded over the last 80 years in the course of 25 years of listening. And yet I still prize my net connection to WFMU most highly because... they play great independent stuff I have never heard before and certainly can't stumble upon by random selection in the local B&N. I'd really love to be able do the exploring myself with the help of those reputation vendors, as I could when I was on the receiving end of promos at WREK. But the stuff has got to be cheap. So it's entirely likely that a 90% price change generates a 500% volume change in my buying habits. A buck a cd would do it.

[gj534]

I've never studied economics, so I assume there's a good answer to this, but why don't you assume that there's a difference in spending 1/10 of your income on music because that's all you can afford, and because that's all you want? Me personally, my baked bean consumption is limited by the latter, but my music buying by the former.

I mean: we'd assume that you would spend 1/10 of the gain from cheaper CDs on them (if this weren't the case, why weren't you buying more CDs before?)

Well, because I only had $100 to spend on music.

[jholbo]

Dsquared,

A tin of beans?

I do understand (but not very much) about elastic and inelastic demand. Cutting toilet paper prices doesn't roll the rolls out the door in greater volumes. I do appreciate that cases of extremely elastic demand will be unusual. But it seems sort of obvious this is one of those unusual cases.

Doesn't the fact of rampant file-swapping demonstrate extreme elasticity of demand? Actual implies possible?

You write:

"You currently spend 1/10 of your income on CDs, so we'd assume that you would spend 1/10 of the gain from cheaper CDs on them (if this weren't the case, why weren't you buying more CDs before?)."

I just don't see why the assumption is at all reasonable. It's not psychologically plausible. The reason I'm not buying more CD's now is most definitely because I can't afford to. Well, it's a little more complicated. It's because, right now, doing other things with my money affords me equal or greater utility. But a 99% price drops sends all that out the window. (Suppose through the wonders of matter transmutaton you could have a 5-star restaurant meal delivered to your dinner table for $5. Would you do that several times a week? Yes. This implies a several hundred fold increase in demand. This is striking. Is is implausible? I think not.)

As you say, my argument suffers from the fact that it sounds like a lot of really dumb 'the internet can do anything' arguments and 'selling toothbrushes in China' arguments. Most of all it suffers from guilt by association with 'corporations always suck', which is just a mental tic that wishes it were an argument.

But the internet can spread information. So I'm in the clear there. The problem with the China arguments is that they usually depend on people wanting things they don't want, or having more money than they have, or building unbuildable distribution systems. I'm in the clear here.

And I'm not just saying the music industry sucks because it's mean and corporate and not very punk rock. I'm saying it's not very Hayek. It looks at artists A-Z, picks A and spends a bundle to draw everyone's attention to A, even though there's actually no reason to believe A is better than B. (And by 'better' I just mean: 'more people would like'.) Some band is always going to be the one that 10,000,000 people like. Some band is going to beat the power law odds that way. Record companies are not smart enough to PREDICT who will do it. So they spend MOST of their effort trying to BUY that result with marketing and promotion and sundry controls on artists and outlets. This is not evil - well, it's just business: maybe that's evil, but I don't want to push that line. Suffice it that these efforts are Soviet-style. And most consumers and most artists have little reason to want to subsidize expensive efforts to build musical command economies, since we would be just as happy - probably happier - letting nature take it's sweet course.

Go to your record store and see the flames of desire burning as people click, clack, click, difference-engine-style through the rows and rows of plastic cases. You won't see that in the bean tin section of your grocery. And there's no need to pay to stoke these flames, since the value of music is adequate fuel.

I reemphasize this isn't a prediction of immanent demise, let alone an argument for killing; it's an argument for letting die if it comes to that. If the beast complains, let it find a way to fix it's problems without supererogatory assistance from lawmakers.

[Ted Barlow]

There's an imaginary guy who makes $1000 a month. He's spending $100 a month on CDs (10 for $10 each), $100 on other entertainment, $100 on food, and $600 on rent. Then the price of CDs drops to $1 each.

This allows him to do enjoy your current set of preferences and have $90 left over. It's not terribly unlike raising his salary by $90 a month.

Since you don't know this guy, it seems like you'd be on shaky ground assuming that he would spend all of his new money on CDs. There's a chance that he'd rather go to the movies more. (On the one hand, every movie displaces more CDs; on the other hand, he might value the chance to go out with his girfriend more than he values new CDs.) Maybe he'd rather move to a better apartment, or eat out more. Maybe he'd spend $90 joining a gym. With any given individual, you just don't know.

The best clues that you have are his spending patterns before the price of CDs changed. He thought that CDs were worth 10% of his income, food was worth 10%, entertainment was worth 10%, and rent was worth 60%.

Now he has an extra $90 to spend. If you have to guess, it makes sense to guess that his new spending will follow his past behavior. There's no rational reason to assume that he'll spend it all in one place.

[jholbo]

I'm not actually arguing that most people who spend $100 a month on CD's would continue to spend $100 a month on CD's after the fall. The assumption is, to the contrary, that revenue would fall precipitously. Let's take the model on which price is hypothesized to drop 99%. What I used to buy for $100 I now buy for a dollar. It's not reasonable to expect most people to continue spending $100. Is it reasonable to suspect they will, on average, spend $10 and buy 10 times as much music? Dsquared actually balks at the hypothesis that they will go from spending $100 to spending $5 for five times as much as before. I think it is reasonable to expect at least a five-fold if not ten-fold increase in sales. So revenue only drops 90% on a 99% drop in price.

I am hypothesizing on the basis of nothing but a knowledge of my own inner states, plus occasional and often intimate acquaintance with other members of my species. My impression is that when people only buy 10 CD's, it isn't because there are only 10 CD's they would QUITE LIKE to have. Watch people in record stores, picking stuff up, considering, putting it back a bit regretfully. If somone is even CONSIDERING and rejecting paying $16, isn't it likely that they would buy it for pennies?

I think the case is unlike giving someone a $90 raise, because you are fantastically marking down musical RELATIVE to everything else. So it makes sense to consume music RELATIVELY MORE than you did before.

[Ted Barlow]

But you realize that you can't generalize from your inner states to everyone else. After you pay off your other expenses, you will spend the rest of your money on CDs. I have no trouble believing that. But how many other people do you think that describes?

Let me go back to MP3.com. You don't even have to spend a dollar. You can get hundreds of thousands of songs for free. If personal demand for music was as elastic as you're saying, we'd all have hard drives full of thousands of songs from amateur bands that we downloaded, legally and for free, off of MP3.com. But hardly anyone does that.

(I should say that this is the kind of friendly, fun discussion that I quite enjoy. I hope that you're not feeling in any way attacked; if you are, I'll lay off.)

[Russell L. Carter]

"But you realize that you can't generalize from your inner states to everyone else."

Evidently so. There's a shitload of circumnavigating the elephant in the room here.

[jholbo]

Me? Take offense? Skin like thick leather. Comments bounce right off, and everyone's being quite polite anyway. Don't give it a second thought. I realize I did use a few ALL CAPS in my response. I guess sometimes people do that when they're agitated. But I am, as you say, having a friendly, fun discussion. Thanks for dropping by, glad to met you, Ted. I think I leaned a little on the caps lock key only because I'm honestly rather astonished that people have such different intuitions about likely buyer behavior in this case. This isn't frustrating to me in any way. My intellectual dignity isn't on the line. It's just ... surprising. I'm a philosophy prof, of course. I'm quite used to people being absolutely sure things are 'obvious' that no one else thinks make any sense. I guess this must be a philosophical problem I've dredged up. It's rather an interesting question, at any rate, in an abstract way: how many albums would you buy if the price dropped 99%? It may be that people are envisioning the technical incidentals a bit differently and this is affecting their intuitions. I'm imagining you log into a kind of system and you've got these 'easy-as-pie-one-click-buy' options. So that you might, for example, read an online source containing 50 reviews, of which 8 sound vaguely interesting. The links are right there twinkling at you. You buy all 8 for about 2 bucks. (What's 2 bucks?) You listen Maybe you like one a lot. The other 7 you never listen to again but you own them now. I guess it seems to me people would do what they don't do now: buy on the puniest sort of impulse. And I realize most folks don't read online review sites. But crafty folk will manage to get tempting offers before them: wouldn't you want to buy a bundle of 10 classic jazz albums for a dollar. Sure. Click. Maybe you never even listen to them. Not saying it's rational. Just think people would click. The clicking has to be made very easy, of course. The sites that offer the clicks have to have EVERYTHING there for you. Their model is: CONVENIENCE, so the least little itswy witsy itch of desire converts into a purchase just like that. And piracy needs to be inconvenient. Not impossible. Just that little bit of extra bother to organize, so that people with jobs don't bother to do it.

[colin roald]

Let me go back to MP3.com. You don't even have to spend a dollar. You can get hundreds of thousands of songs for free. If personal demand for music was as elastic as you're saying, we'd all have hard drives full of thousands of songs from amateur bands that we downloaded, legally and for free, off of MP3.com. But hardly anyone does that.

But this isn't quite the same situation as John is talking about, is it? Right now, the free stuff on mp3.com is hardly fighting on a level playing field.

Speaking as someone who is hardly a music fanatic (I buy a CD every month or two, on average), I buy and download stuff that I've heard before. In 2003, this is mostly stuff I've heard on the radio, and *that* means big-label music. In a world without big labels, then everything is fair game. Something like radio will presumably still play stuff, and I'll still buy copies of things that I hear that I like. I'm sure there's plenty of stuff on mp3.com I'd be quite happy with, if someone told me what it was.

As far as the implicit poll question goes, I'd say there's no doubt that in a dollar-album universe, I'd buy more music than I do now -- two or three times as much, at a guess.

[badhat]

since you brought up albini, i though it wouls be relevant to share an arguement i had with him about the future of music on his message board.

http://fluss.electrical.com/phpBB2/viewtopic.php?t=69&sid=6ae92aa6c7371d81050cb2fc306afac6

and a piece that he taped for NPR a mere week or two after our discussion.

http://www.wbez.org/audio_library/ram_2003b/848/848_030812a.ram

great discussion, btw.