Thursday, December 18, 2008

A Music Tax?

Over the past few months there have been a number of proposals for ISPs to assess a fee from users to cover the cost of unauthorized music sharing. One such proposal is discussed here.

The theory behind the proposal sounds reasonable, at least at first blush: by collecting a fee, labels and artists would be compensated for their music and people would not have to worry about being sued. The recording industry and their artists are (arguably - more on this below) losing a lot of money to illegally shared music. This is no different from shoplifting. Retailers cover their shoplifting costs by raising the prices for everyone, so one can see the motivation here.

But this is a seriously flawed idea for a number of reasons. There is a great writeup of why it is a bad idea, but I'll weigh in with my argument.

The biggest problem with this model is that it rewards bad behavior on two levels. At the consumer level, it provides an actual disincentive to legal purchasing of music. After all, if I have to pay the fee, then why should I pay for music a second time? In fact, this model proposes to punish the very people who are the paying customers that the labels and artists should want to encourage while rewarding the very pirates who they have been vilifying and suing. There is only one word to describe this: "stupid."

But the perverse consequences are not limited to consumers: a music tax (and let's be clear, it is in fact a tax) would also reward record labels and musicians who are unskilled and who very rightly deserve to fail in the marketplace by providing them with a revenue stream that is disconnected to whatever value (artistic or otherwise) they provide. I'm hearing the word "stupid" pop into my head again, but this time with a new adjective: "insidious." This is because not only does this proposal reward entities that should rightly fail, but it's actually using independent 3rd party organizations (ISPs, college campuses, etc.) to collect these rewards.

There is a way to avoid this problem, of course. If one wants to ensure that only musicians (and their labels) whose music is being consumed get the rewards, then one simply needs to monitor what is being shared/played and assess fees based on that. But one need only think about this for a moment to realize that the privacy violations and bureaucracy requirements for such a system would make even the North Koreans blush.

All around, this proposal has good intentions but completely misses the mark in solving the "problem." Which brings me to my final point, the source of my quotes around "problem." Namely, I think the RIAA, labels, and many musicians (but not all!) are confusing "problem" with "opportunity." Let me be very clear on one point: illegal sharing of copyrighted material is theft, pure and simple. One can try to prosecute it, which has been the RIAA's favorite tactics to date (and which has not worked very well). One can try to turn illegal into quasi-legal, as this proposal tries to do. But I'd propose that the best solution is to make the illegal legal. That is, give the music away.

Obviously, this is a risky strategy, and it is something that individual musicians and labels must decide whether or not to do, rather than an industry-wide edict of some point. But it could be the most rational strategy for making money. There is a great post on this here, but my argument is quite simple: you can make more money by providing huge distribution for your music and treating it as a marketing tool to get people to attend concerts, buy merchandise, etc., than you can by limiting access to the music itself. This is a model that was not possible in the days of vinyl or CDs because of the costs of producing and distributing plastic. But today digital distribution has driven these costs to zero, so it is for the first time possible to switch from the music being the product to the music being the promotional tool.

This is not just a theoretical argument. Many bands have demonstrated that it can work. Heck, even pre-digital bands like the Grateful Dead got it: they invited their fans to record their concerts and freely trade tapes of the concerts. The net result was an almost cult-like following, and the Grateful Dead was for many years one of the top grossing acts in the country. Phish followed the same model in the 90s and was also incredibly successful, giving their music away.

Is this a threat to the traditional recording label business model? Sure it is. And it frankly shifts even more power to the musicians. The market can adapt by trying to prop-up an inefficient dying model (as the music tax proposal attempts to do), or it can adapt by switching over time to one that better serves musicians and their fans. It's clear to me which is the right model.

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