Is It Stealing If It Is Legal?

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More than a few of you throughout the periodic discussion about MP3s make the point that the record or software companies steal just as much, the only difference is that it is legal.

I’m just going to deal with the record companies in this particular piece, though most of the points generally apply to other entertainment businesses.

Do I think the record companies are a bunch of Virgin Marys? No. Do I think they do some bad things? Yes, and I’ll talk about that here.

Bad Law Is (Almost) Always Better Than No Law

However, if I have to choose between the law of the rich and the law of the jungle, I’m going to pick the first practically every time. (There’s a few hypothetical (at least in developed countries) situations where I wouldn’t, but they certainly don’t apply here.)

Let’s assume the price of a CD goes to $100 tomorrow, and the record companies say, “We’re doing this solely because we’re greedy scum, and we got you hooked.”

First, this is not a necessity. You don’t have to buy it. You always have that option to choose not to get ripped off.

However, the record companies don’t get that option not to be ripped off if you follow the law of the jungle and they can’t.

When you have rules and laws, it is possible to do something about egregious abuses. If the price of CDs went to $100, the only way they could sustain that would be to have collusion, and that is something a government can move against with antitrust laws.

Under the law of the jungle, all that matters is force. If we leveled the playing field, and the record companies were as free to ignore the laws as MP3 downloaders, they would a very simple solution to MP3s. “You steal our stuff, we destroy yours.” They go hire the best virus-writers and pay them loads to figure out a way to insert the most malicious virus mechanism possible into MP3s (and don’t write me that it can’t be done, it just hasn’t been tried yet).

Then they seed the MP3 channels with it. That would stop MP3s in a week. And you couldn’t do anything about it when there’s no law, except to bomb the record company headquarters or assassinate its employees.

See why no law is no good?

Law has to get pretty, pretty bad before it becomes worse than no law.

You can change bad laws; you can’t change the rule of the jungle.

One Good, Two Bad Reasons

Record companies now charge about $15 for a CD. Factoring in inflation and technological improvements, if anything, the price for musical entertainment has gone down a bit over the past fifty years, not up. However, they do a few things that can reasonably be described as anti-competitive, like making you buy songs you don’t want, or rarely engaging in price competition, or discouraging online music (and wanting the same price for that as for the complete CD).
They do a few other things that could reasonably be described as greedy, such as taking advantage of financially struggling artists to sign away their rights for next to nothing.

There is one good reason and two bad reasons why music companies do what they do.

Entertainment is a very whimsical area. You can have ten bands doing pretty much the same thing, and writing the same kinds of songs, and one will have a hit, and the rest won’t.

You can take one artist, and he’s a smash hit this year, but two years later, you can’t give his stuff away in 1970. Not like his songs are worse, or he performs more poorly; for some reason, he’s suddenly out of fashion.

One reality in the entertainment industry is that they can’t really predict with any decent degree of accuracy what will be a success and what won’t, or for how long.

The other reality is that record companies makes most of their money from just a handful of smash hits, and make little or lose money on most of their artists. (You may argue with the record companies’ accounting as to whether certain bands make a bit of profit or loss, but no accounting wizardry is going to make Steve Martin a bigger hit than Ricky Martin.

So record companies inherently “waste” a lot of money, if “waste” means spending money on unprofitable activities. There’s probably a lot more “waste” due to that than from some overcompensated record executives.

And who’s fault is that? Actually, it’s your “fault.” You’re too unpredictable and change your minds too often, compared to other products. If you chose soft drinks like you chose music, we’d have ten times the number of sodas out there costing three times as much, and we’d have a weekly soft drink Top Ten.

You Can’t Pick and Choose Your Bills

Let’s pretend you could go gambling, and charge your bets by credit card. You make ten bets. You win one, and make some good money on it. You lose nine.

A few weeks later, you get the credit card bill. Do you tell the credit card company: I’m only going to pay the bill on the bet I won? That’s not going to get you far, is it?

That’s the situation the record companies are in. They have to pay their bills, and since the ultimate source of income is you, you end up paying all the bills. Not just the ones you want.

That might strike you as being unfair, but that’s the price you pay for getting a broad selection of music and a level pricing structure in an extremely risky business.

If you didn’t allow people or companies to spread their risks, in the long run, you’d end up with less music.

It Costs A Lot of Money To Get You A Song You Like

Music companies spend a ton of money on promotion. That’s real money that has to be paid for one way or the other. And again, strictly from a profit-and-loss standpoint, most of it is wasted.

The beginning artist doesn’t have the money to promote. Somebody else has to, and will have to no matter how you rearrange things.

The Internet will not change that. At most, someday, it may somewhat, maybe quite a bit, reduce the cost of promotion, but that’s it. It won’t get rid of most or all of it.

Let’s pretend for a moment that all promotion of music gets banned. Every musical artist who wants to gets plopped on an MP3 server, and you have to figure out what you like.

Under those circumstances, maybe you’ll like one out of a hundred songs a little, and maybe really like one out of a thousand.

So ninety-nine of those songs insofar as you’re concerned might as well be “Joe Citarella and Ed Stroligo On Dueling Kazoos.” You have to go through ninety-nine kazoo songs to find just one you like a little, and about a thousand kazoos to find one you really like. Assume it takes you five seconds to hear and dismiss every kazoo song. That’s about two hours of kazoo listening for every three-four minutes of something good.

Of course, that state of affairs would never exist for long. You’d end up one way or another having somebody else filtering out most of the songs there is no change you’d like.

Filters cost money. No matter what, you pay for that filtering. If you listen to the radio, you listen to the stations that filter out the operas and Tibetan chants for you. In return for a statistically likelier chance you might hear something you like, you pay in time for all the radio station’s expenses, even those for songs you don’t necessarily like, by listening to the ads.

Record companies also act as filters. Maybe not too good filters, but at least they’ve kept you away from hearing Joe and me on kazoo. 🙂

Now Comes The Bad Reasons

Change Is Risky

The record companies have built up a network that manages to handle a very risky business and make a pretty decent amount of money. They have a tremendous investment in its infrastructure; the record stores, the radio stations, the concert halls.

So here comes the Internet, which has the potential to wreck this tidy, comfortable state of affairs.

Would you jump in with two feet and effectively destroy what works in favor of something that may not?

Most people wouldn’t. A few will, and eventually drag everybody else along with them, but most people, in any walk of life, aren’t so bold.

So it’s understandable that the general reaction of the music companies is not to leap out into the void. They have a lot more they can lose from innovation, certainly more than you do downloading an MP3.

People Are Greedy, but Greed Has Two Sides

Sure, greed is alive and well in the music industry. Sure, they want to try to get the same amount of money from online music that they do with a CD.

But don’t talk about greed when you want it for free or next to it. That’s just as greedy.

How Much Would You Really Save?

A lot of you think a music CD should only cost the amount it costs to make it. Most of you are nice enough to pay the artist something, but that’s pretty much it.

The reality is the way you should approach figuring out the cost of this is not to add together the parts you like, but subtract out the costs that wouldn’t be incurred any longer.

The actual cost of making the CD is probably no more than a dollar. You can eliminate most of that via Internet distribution, to keep this simple, let’s assume all of it.

The record store has to make a profit. So will any Internet reseller. The latter probably will be more efficient, but they’ll still have costs. Let’s assume we can chop off two dollars due to that.

We’re now down to about $12, or about 20% off. This is presuming all you’re doing is transferring whole CDs for download.

But of course it would be silly to think that would happen. You would just want the songs you want to hear.

What would probably happen is that you’d have wildly different prices for different songs, with much higher prices for the popular songs, and much lower prices for others.

I could spend pages talking about some of the bizarre (by today’s standards) prices that could result from this, but it is very safe to say that pricing would be a lot different and a whole lot more variable than it is now. I think it is pretty safe to say that for most people, doing it this way probably wouldn’t save you the kind of money you think you’d save.

Also keep in mind that record companies can’t just jump 100% over to the Internet tomorrow. They’ll still have to keep the current structure in place for years and years to come.

I think it would be pretty safe to say that in the long run, on average, Internet distribution might cut out about 20% of the current cost of music. There may be some additional savings if marketing costs can be reduced. It might be a little, it could eventually be a good deal more, but most of the cost of promotion would remain.

So we’re talking probably an average savings ranging probably from 25% to 40%, probably coming in closer to 25% than 40%. “Average” means just that. A few of you probably would pay more than you do now. A few would probably a whole lot less, particularly kazoo listeners. 🙂

Those are pretty good savings, but I suspect that’s not what most were expecting.

Where’s All The Greed?

There’s two places where you can find it. The obvious place is in the company’s profits. They do fine, but Intel, hell AMD, would probably scorn at the profit margins.

The other place is hiding inside their expenses. I don’t doubt you’ll find greed there; I just doubt it’s much compared to quite legitimate expenses. No doubt a few people do very, very well, but even assuming you grossly overpay a handful of people, that doesn’t add to much to the cost of your CD.

I think it would be really tough to find that more than 10% of the end cost of your CD goes to “greed” by any reasonable definition. I grant you 10% is 10%, but I think most of you think it’s 90%, and it isn’t.

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