The Digital Free Market

Mike from Premonition sent me an article containing this excerpt:

Digital Music and the Free Market by Max Keiser

One of the most fascinating New Economy consequences to emerge from the
Eliot Spitzer sex sting is the apparent multi-hundred thousand dollar score bagged by Emperor’s Club VIP escort and budding recording artist Ashley Alexandra Dupre. She had a couple of tracks listed on Dragon Slayer upstart and indie music site Her notoriety combined with Amiestreet’s underlying economic model combusted to the tune of instant lottery like winnings. For years Madonna had to pretend to be a vamp to make that kind of money. Here’s an actual hooker scoring big on the pop charts for her vocal skills.

Let’s look at the Amiestreet business model for a moment. All tracks are free at first. Then, if the demand picks up, the price starts to rise topping out at just under the psychologically important $1 (imagine if the Federal Reserve Bank under Greenspan and Bernanke operated like this, the dot-com and sub-prime bubble and burst would never had happened as the demand for credit would have raised interest rates in time to avert the bubble).

Economics is a social science and not a physical science, meaning there are no absolutes in economics. The unpredictability of psychology counts (per George Soros’ theory of ‘reflexivity’). And this is as important in the virtual economy as it is in the analog economy but with a caveat.

The actual cost of digital entertainment is virtually zero. Electrons are virtually free. The only thing that matters is perception and psychology in an economy that is 100% demand driven.

[click here to read the rest of this article]

OK hold it right there. This is one of my pet peeves. Yes, the electrons are virtually free. But the music? Where does it come from? A well-known sound artist on a panel at Future of Music said, and I paraphrase, “the archive of recorded sound in the 20th century is large enough that I would never have to hire another musician to do what I do.” And I thought, what about the 21st century archive?

Anyway, Mike enlightens me by telling me that’s not really what Keiser means. The article goes on to talk about the growing impotence of copyright protection and how the free spread of information can benefit both artist and audience.

Mike Friedman: For me, his is an interesting argument. That is to say I’m not sure I completely disagree, especially since the people who benefit most from copyright protection in our industry are gigantic corporations and their stockholders. Is copyright protection really helping you as a composer/author all that much? Is it helping Greenleaf or Premonition? I don’t know for sure but I tend to believe it is not. I’d be interested to hear the answer.

What he is arguing – you can read it in a couple of his articles on Huffington Post — is that the idea of copyrights is actually holding back society, including artists, record companies, publishers, etc., from taking full advantage of the digital revolution. It’s very Lawrence Lessig. Just think what might have happened had the major labels embraced the concept of Napster in 2000. We’ll never know of course but the fact is I don’t believe we’ve even scratched the surface of what’s possible and the delay caused by these gigantic corporations fighting for their copyrights was and is, a gigantic roadblock. This is addressing the same issue with regard to the expansion of the internet as a business. One thing is clear: the music industry we grew up with is dead. And for what? So that EMI can re-exploit its Beatles catalog? I mean really.

The big question is: Why are we spending time thinking about getting the digital toothpaste back in the tube when there is a strong possibility that there is more money to be made, and more discovery to be found taking advantage of the new technology? I mean, isn’t that what it’s about? Or is there something about owning and controlling a copyright that is important? I’m asking.

DD: Copyright is a barrier to unauthorized use, but also hinders the spread of information. So in your view he’s suggesting we should simply give everything away, copyrights included, right?

MF: The way I’m interpreting the “free” aspect is about manufacturing. There is little or no cost associated with making and distributing MP3s available via the internet in terms of physical product. As an aside, taking the distributors out of the equation is a particularly delicious development for me even though it is sad for me to see a number of good distributors I’ve worked with over the years go under or be forced into a less than supportive position.

In terms of the cost of creating and producing music there is expense. But that is true in any business. In fact, research and development, the creative stuff, is the big expense in most businesses. The question is how do you get paid for it? Do your copyrights really reimburse you for those costs? Traditionally, yes, but does the digital revolution give you an even better, albeit different, way to reimburse you (and Greenleaf)? I think that may be true.

DD: And what way would that be? Quite honestly I want to see what you think is the upside. Is it amiestreet? Is it unlimited free downloads?

MF: I would first respond by asking: Are you dreaming of the end of the digital era? I hope not because I don’t think that’s ever coming. We’re not going back to analog, in music or anything, in any significant way. With that in mind, here are a couple of scenarios based only on the current state.

1. The way to translate creative work into income is by taking advantage of the combination of Artist/Label/Management, all basically working towards the same end and under the artistic umbrella. We create revenue from original material by thinking of it as part of a larger whole, putting it all into one big basket. Record sales, downloads, subscriptions, touring, commissions, the value of a website, etc., all controlled by the artist. I don’t think we’ve even scratched the surface of what is possible. We are not only creating value for current releases but fans, customers, supporters for life as opposed to masters that may or may not be owned by someone else.

2. Focusing on the potential of the digital revolution as opposed to lamenting what’s “lost.” Why? Because no one knows what’s out there really. If anything truly new in the selling of music is about to happen, it’s going to come from those who are embracing the moment rather than fighting it. Those who have made a living fighting it are effectively out of the business as are the “old model” companies for whom they used to work. We need to get it into our heads that protecting copyrights is a waste of time given the power of the digital wave and the amount of incredible opportunity out there previously unavailable to you as an artist.