April 8th, 2010

17 comments

geek, links, me

Digital Economics

I think the highly disputed Digital Economy Bill is an interesting development. With a lot of opposition. Having had a 40 minute debate about it with Raj, and generally having thought about it a fair amount over the years, I would like to say that I support the Bill. I may be the only 20 something in the UK doing this.

The reason I support it (in principle, anyway) is that ultimately, illegal downloading is bad for the music industry, bad for the movie industry. Most of us don’t have terribly warm fuzzy feelings about any kind of industry – just wait for my wife‘s upcoming post on the meat and dairy industry – but I think a dislike of a large industry simply for its largeness is not a terribly mature response.

Welcome to the Capitalist State

Many people complain about “huge profits” and “ridiculous markups on CDs”. Then they do their shopping at Tescos, and go to the pub and pay £2 for a small orange juice. Ultimately, we live in a Capitalist society, one based on the idea of: you do something, you get paid for that, you buy things with your pay. We either accept that, and thus accept that there should be rich people. Otherwise, the alternative is everyone getting equal pay, and all possessions are freely distributed. Whilst that one sounds great, it kinda doesn’t seem to work in real life.

A pie chart showing a breakdown of CD costsAlso, the huge profits people love to talk about, and overpriced albums? Here is a sample breakdown of where money goes when you buy a CD for £10.49:

  • £0.11 Musicians’ unions
  • £0.52 Packaging/ manufacturing
  • £0.52 Retail profit
  • £0.54 Publishing royalties
  • £0.59 Distribution
  • £1.05 Artists’ royalties
  • £1.12 Label profit
  • £1.57 Marketing/ promotion
  • £1.91 Label overhead
  • £2.55 Retail overhead

That’s a heady profit of £1.12 for your label there. I don’t consider that a huge and outrageous profit. Yes, it could be lower, but its not like from every £10 cd, the industry is making £6. The industry responded to piracy in two ways:

  1. Cutting back on less “sure bet artists”: for example, 50 Cent is still in a job, but Capdown couldn’t make a living out of music and had to break up.
  2. Cutting CD costs. Pushing the retailers to make less profit, causing the independant music stores (and Fopp, and Virgin) to shut down. Resulting in less quality places to purchase music, to meet people, to buy zines, and to make create high streets that are full of even more homogenous buy-it-on-our-website-for-less chains.

It’s nothing to do with me!

People think music downloading is fine, saying “I wouldn’t have bought it anyway”. Yet the figures don’t back this up. Whether or not they would have bought it, someone was. Over the last 10 years, we have seen a 25% overall drop in music sales – in the words of the Economist, “paid digital downloads grew rapidly, but did not begin to make up for the loss of revenue from CDs“. In 2008, the US physical album sales fell 20 percent to 362.6 million from 450.5 million, while digital album sales rose 32 percent to a record 65.8 million units. That sounds okay, but when you do the maths, that’s a drop of 21.6 million albums.

So the industry responds with focusing more on singles, but is that a positive? Do we want just catchy pop hits, and an industry that focuses on artists who maybe don’t experiment with albums, with inventive, non radio friendly ideas? As the boss of Atlantic Records says “You have to really be right about your hits. If you’re going to invest that amount of time in them and not run as many records, you have to be way more right today than wrong”.

The Industry is stale and needs to innovate…

So then the industry has responded by trying other options. Three in fact:

  • Subscription fees for downloading
  • Ad supported streaming
  • Paid music downloads

Let’s look at these, and see why they suck more than the original system.

Subscription fee services such as Napster, and Emusic charge you a fixed fee per month, and give the consumer the option to download either a limited number of tracks permanently, or listen to an unlimited amount of music within restrictions. The downsides of these are two fold. Either they give consumers a limited selection (such as Emusic), where you can’t get chart tracks, or they prevent them from using the music they download (such as Napster) who prevent you from burning tracks onto CD, or putting them on some mp3 players. Also, they are often worse value for the artists.

Ad supported streaming has gained a huge following. Services such as spotify, with a free service or subscription supported option, seem the perfect solution. You get to listen to music, adverts pay the music industry. Except, you can’t listen to music unless you are attached to an internet connection. Or listen to it on your cd player in the car. Or in the high quality of a CD. And your music is interrupted by adverts. And the artists get approximately nothing. For example, Lady Gaga had a million plays on spotify. How much did she get paid? $167. That’s less than a weeks Tesco’s wages for being one of the most successful artists on an international music service for FIVE MONTHS.

Paid music downloads. These are the worst of the lot. This awesome article nails down a lot of the stuff I was gonna say here. What it comes down to though is that they are a bad deal for consumers, providing people with albums or singles at a similar price to the physical product, yet tied in with restrictions, less material, no resale value and, in contravention of the Consumer Protection Act, no right to return.

Plus, when you consider that labels, musicians and consumers are all forced to obey the arcane rules that (for example) the oh-so-cool Apple force you to comply with. You think the £1.12 CD cut was bad above? How about Apple taking a 30% cut on all sales? That’s compared to the traditional 9% of the old system. Not that I don’t like Apple, of course, although obviously their products are overpriced, with poor consumer value and imperialist business strategies.

A need for control.

One thing I do agree with, is that maybe big industries, like the music industry, need to be controlled a little, reigned in somewhat. Maybe them taking a 9% cut, back in the day was a bad thing, posting large profits. Personally, I accept that the larger a business is, potentially the larger the profits, but I also think there needs to be a balance.

I was talking with Raj about this earlier, saying I felt there was a need for regulation, some kind of Government OffMedia group overseeing all media stuff. And then I read some more about the bill to discover that, oh look, this terrible bill we are all against introduces, as its first point, the move to “Widen Ofcom’s scope from TV and radio to all ‘media services’, promoting investment in networks and public service content“. Now, I’m not sure how much of that has survived the numerous edits, but its still a good first step.

It’s all about me. As long as I’m happy…

Ultimately, it comes down to the basic sinful nature. People like getting free stuff. They like not getting caught. Yet most of us would agree with the following scenario:

You are an artist, that relies on your work for a living, and you draw a beautiful picture. I then come and take a photo of your picture and put it on my wall without your permission. You might be upset?

And if it turned out that hundreds of people had my photo on their wall, yet very few had paid me. You haven’t had your original painting stolen, yet also, something of your work has been taken?

Don’t you think our society should be making those people that stole your work pay you the fair price for it?

This is illegal music downloading (and film downloading). Yes, often the main losers are the big companies, but that results in less R&D from the music industry, less investments and less opportunities in the smaller artists, ultimately leading to the painter not being able to focus on their art.

Whatever you believe about man’s sinful nature, you would probably agree that a LOT of people go for the taking photos of the painting option when it comes to illegal downloads. And that if we feel for the artist in the story above, then actually maybe we should align our actions in downloading, with our beliefs in a moral code.

So, ultimately, if you want to see lots more paintings, you probably need to start buying some.

17 Responses to “Digital Economics”

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  1. 17
    Chris Says:

    “It’ll just mean it’s not anywhere near as viable a profession as it once was. Good. “

    I think that’s where we disagree. I think people should be able to make a living in Music, just as people good at maths should be able to earn money as accountants, or good at words at writing.

  2. 16
    King Rajin IX Says:

    I don’t see the problem that the bands don’t get any money. Most people in a band do it because they like being in a band and not because they expect to get rich. Unless free music stops people from making music, I don’t care. As long as the quality is roughly that of the link I posted in my previous comment, I don’t care.

    (Link was to: http://www.myspace.com/rainblind)

    Just because you do something difficult, doesn’t mean you deserve paying. If I liked your EP, I would give you money to carry on playing and/or I would go and see you at a gig. If that means you (or whoever) haven’t got the money to carry on, why am I supposed to care? If I did, I’d pay you the money directly.

    It’ll just mean it’s not anywhere near as viable a profession as it once was. Good. There are enough musicians as it is. I find it very hard to care about a musician’s salary when Arctic Monkeys may be rich but a probably equally good band are nowhere near as rich. Basically, I find it very difficult to care.

  3. 15
    Chris Lowry Says:

    I agree that live gigs are important. And yet, these days, I can't afford to go to them. I saw Iron Maiden multiple times 6 years ago for about £20. Now it would be £50. Yes, the smaller bands you can see for cheap. Meaning they are making nothing from CDs, nothing from live shows, and are less likely to get signed to the major labels forced to avoid less surefire bands.

    The atmosphere of a live gig is an awesome thing. Yet also, something that easily goes wrong. Rancid, one of my favourite bands, played in Sheffield. It cost me like £25, and the sound at the venue blew. Whereas their albums are good every time.

    Also, where do we hear music most? Is it live gigs? Or are we surrounded by music every day with radio, tv, adverts, ipods, spotify, films and everything else? Does it make sense that the music we listen to 90% of the time should be profitless for the hard working artists, yet the gigs be their salvation?

    As a guy who played in a band, our EP took me months, and I could appreciate how much more we could have achieved with a recording studio, people with experience (which means they deserve pay too) and the equipment to make it work. But yeh, in the end I was proud of what we made. Our live performances, on the other hand, were totally at the whim of the venue, the battered PA, or the curmudgeon at the mixing desk.

    Live shows make me buy CDs. And CDs make me go to live shows. I think I should pay for both.

  4. 14
    King Rajin IX Says:

    To be fair, part of my issue is that when it comes to music I’m totally selfish in a slightly weird and unique way. Technology exists such that you’re average working bloke can save up for the equipment to record stuff to a fairly decent standard. Not great, not that of a record label but OK. Check out this:

    http://www.myspace.com/rainblind

    That is a bloke who pretty much paid for all his own recording equipment and recorded it all in his room in Broomhall. Did it cost money? Yeah but I don’t care – my point is that if he can afford it (mostly as a student) then it’s just about saving up and putting the work in.

    For every band I really like, there’s probably 100 other bands out there who I’d like equally. There is no good reason why that one band should get more money than the other 100.

    Given that the distribution is no longer a problem (do it via The Pirate Bay), what is the purpose of record labels? Bands only go through them because that’s the traditional method.

    Put it this way – if you want Capdown to do better, don’t buy one of their CDs. ‘Steal’ their music via The Pirate Bay and uTorrent, then give one of their band members £10. Your pie chart then reads like this:

    £10 – Capdown

    Win.

  5. 13
    Stuart Marsh Says:

    I was tempted in by the shiny pie chart…at the end of the day, even as a 'musician', I really don't think the profits of big business should be favoured over and above the civil rights of citizens. Live shows cannot be digitized, artists have to go out and work to earn the money through hard graft and touring. The atmosphere of a live show is not something you can compress and download. CD's should be the promotional tool for the live circuit in my opinion, and if enough of them sell to turn a profit then great for the record label, but the meat and potatoes of music should always be the live performance, and there's still plenty of money to be had from that.

  6. 12
    Colin Leung Says:

    I don't illegal download as far as I know, but legality shifts a lot these days, so I won't attach too much sentiment to that. How legal was mephedrone two weeks ago? Yeah, the comments on your blog covered most of the bases, I read through your responses, and I am impressed by your faith in the government. Regarding this faith, how much thought had the two hundred MPs put in when they've voted, when only about 40 was there for the 2nd reading. How much would a bunch of middle aged MP, most who could just about check their emails, would understand the complexity of the bill they just passed? Why are they rushing something so important through when there are still so much more to debate?

  7. 11
    Chris Says:

    @G Isherwood As someone who has lived and worked in London since that bill was passed, I disagree that the bill has been used to “stop anyone and everyone”. In fact, I know no one, black, white or otherwise, who has been stopped under it. Sometimes there is a call for vague rules, since the situation that they need to be applied to is often ill defined, or constantly changing.

    Regarding third party internet useage, the vagueness of the Bill, to me, implies that this has been taken into account, and will be detailed in the final writing into law. Just to repeat what I quoted above – “The safeguards are extensive, including provisions on consultation, threshold and proportionality, Parliamentary accountability, legitimate use of websites, freedom of speech, and ensuring due court process.”

    Regarding the wash-up period in Parliamentary politics, whilst not ideal, I think it plays a role. If you check this list of previous washup bills, there are a huge number of useful and important bills over the years that have passed during it. Part of the intent is to ensure that laws get passed quickly, that democracy can move and adapt quickly through compromise, rather than just getting caught up in years and years of argument.

    “Where people create for the joys of creating and sharing ideas, not to make profit”
    But, my point is that we live in a society based on money. That actually, if people don’t make a profit, then they don’t have jobs, they don’t create jobs; record shops, cinemas, record labels, etc; and they can’t afford to put as much time, money and enthusiasm into creativity.

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