Future of Music (and movies, and books…)

Earlier this week I attended the Future of Music annual “Policy Summit“, a conference of artists, recording industry execs, intellectual property lawyers, and academics. They gather to predict, view with alarm, recommend, and debate large questions of public and private rights and patrimony such as Lawrence Lessig discusses (for my view on his work, look here), and also the specifics of legal and business arrangements that might assure that artists are properly compensated for their work and also that we have lots of good stuff to listen to. The background context is of course the wheels coming off the traditional model, in which music was sold embodied in something physical like a CD and not copiable without a large investment in expensive equipment. The key image of the current crisis, I think, is the completely implausible business model of the amazingly successful iPod: (i) you buy a player that holds 10,000 songs for a couple of hundred dollars and then (ii) fill it with music from iTunes or legal, purchased CDs (iii) at a dollar a song, for about $10,000. At least part of this scenario has never actually occurred. 20 million-odd iPods are sold every year; guess which part.

The business players are, approximately, a few large record companies and the manufacturers of reproduction equipment (hi-fis, iPods, computers, etc.); innovative, hungry, lively companies offering different versions of web and stream music distribution, CD merchants large and small; and a lot of artists, including soi-disant artists and hopeful artists. Some in the latter two categories are really good and deserve a large audience; many more, no doubt, believe themselves to be. As usual, the “interest group” not at the table in any offical way, but in whose name everyone claims to speak, is the audience and the latent audience for music, meaning pretty much everyone.

The most important issues of the current debate seem to me to be the following:

(1) Marginal cost pricing. The idea that everything should be sold for what it costs to make the last one of it (that is, what it denies you for me to have it) is a cornerstone of what economics has to teach us. In the context of digital music, meaning (now) any recorded music, this principle means that the correct consumer price for listening to a recording is zero, because doing so leaves no less of it for anyone else. (Contrast a seat at a live concert, which does not have this “non-rival” quality). I was astonished, in two days of panels and plenaries, with a fair number of economists around and about, to have never heard this principle stated either in jargon or in plain English.

(2) Price signals, or something like it, for artists and creators, about what kind of music to make in order to create the greatest net social value. In my arts policy course, class discussion usually settles on “more better art consumed by more people” as the appropriate mission statement for the art system. Creative people need to know what work is creating more value for society and what isn’t, so they can adjust their output accordingly.

In the departing system, these signals are extremely noisy. Everyone has CDs they play again and again, and others they put on the shelf after one try, but both sent the same price signal to the creators and publishers in the form of royalties and sales. If we could get away from a system of charging for possession of a file (iTunes or a physical CD) and start observing plays instead, we would all be better off. But obviously the key to cutting the Gordian knot of filesharing lies in being able to pay creators appropriately even if listeners are not paying directly for music.

(3) Compensation for artists. Artists of all kinds labor in a vineyard with two curses. The first is that they are trying to do for a living what other people do for fun, so there is constant labor oversupply of a type that does not afflict, say, bus drivers. The second is a “winner-take-all” marketplace of the type described by Frank and Cook with a few overpaid stars and a lot of also-rans, a situation greatly aggravated by recording technology. Despite these hurdles, it’s obviously essential for a society to assure its artists decent incomes so the good ones (not just the few “best”) can be laying down tracks for us to hear rather than waiting on tables or teaching (the correlation between artistic talent and a talent to maximize the competence of student artists is quite modest). Paying artists a living wage is conceptually distinct from the signaling function in (2).

(4) Search and selection. In a world in which the latent supply of music is enormous, it’s not a simple matter to decide how to commit your next three minutes of attention. Publishers of sheet music and record companies used to make this task manageable by allocating capital and marketing resources to a very few candidates. But in a world of free digital distribution (what we have now de facto) it’s not clear what enterprises (reviews? Amazon-type “people like you liked these CDs” algorithms? Informal networks?) can make the search and selection process tractable, and all the candidates have important downsides and deficiencies.

(5) Goose and gander sauce customization. I was amazed to see how completely the classical music niche has fallen beneath the radar of these music industry players. Classical music creation, distribution, and marketing have important differences from what works for popular music, but all the talk at this meeting was about rock, jazz, and popular/commercial forms.

As a scholar of art policy, I’m familiar with the odd tendency of arts advocates to seek (and, sadly, sometimes attain) policy goals that are against their real interests, like resale royalty rights for painters. But the discussions in the arena of music strike me as especially off-target. The recording industry is simply desperate, completely unable to think outside the box of suppressing file-sharing and copying by lawsuits, digital rights management schemes that can’t work, pained and self-righteous assertions about property rights, and similar rear-guard failing tactics. Artists believe themselves to be consistently cheated under current rules (very few CD releases ever generate any actual royalties after marketing and promotion costs are deducted) and are, perhaps understandably, afraid to think seriously about any alternative scheme. The listening community has no organized voice and just keeps voting with its mice. And though academics have made really promising policy proposals (my favorite, though I think it can be further improved, is Terry Fisher’s enforced license/fund distribution scheme), the kind of theoretically coherent analysis this industry desperately needs seems to be unable to penetrate the cacophony of recriminations and paranoia.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.