A Stock Market For Sound

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The plain text is Matthew; the bold text is Ed.

Dear Ed,

In your recent article, “Liking These Apples,” you said, “In any case, it is not likely in a digital era that
every song would cost the same. Recent, hot songs would cost more than cold
ones, probably a lot more.”

I have always said that the digital music industry needs to move to a more
practical, online supply and demand system that would govern the price of
specific songs and then the albums they come on: a digital music
stock market. I believe that if done right, such a system would far surpass any
previous pricing methods.

To do this, the following would have to be done:

Come up with a better digital format: MP3s are quick, easy and flexible when it comes
to players and platforms; but definitely not worth $1 a song. Quality sucks
unless close to 320kbps. So ideally, we should have a new format which rivals CD sound with
close to the filesize and flexibility. I would pay for that kind of file.

Set Up A Pricing Committee: Create a group that would evalute artist/song
demand, and set suggested pricing like there is a “blue book” for automobiles.
This doesn’t necessarily need to be done by the committee, it can be done by the music companies – backed up with statistics
and reviewed by the committee. These numbers would then be published for
digital music distributors to base their song prices upon. This “blue book” could be published before every tuesday release
day, then the full album prices could be governed by the songs they contain.
High demand = cost more, low demand = cheap.

Once these goals are accomplished, i believe we would see a revolution in the
music industry. The emergence of new online companies offering competing
prices on digital music. Viably, if this new digital music sales industry
plays their cards right, they could overtake the cd sales community with a
competitive product at equally competetive prices (hopefully well below those
of cd’s).

It would make for an interesting business plan. I tend to think that
eventually the music industry may follow a similar path that I have briefly
explained. I may be wrong, but it’s neat to speculate.

I’d love to hear your thoughts.

Matthew Swartout

Very well.

There seems to be a presumption that going digital would only change the means of distribution, lower the standard price, and nothing else.

That may well be how it begins, but it’s unlikely to stay that way. Digital music is likely to change just about everything about the music industry, just as deregulation in the United States changed close to everything about the telephone industry.

Even at this early point, we can see two broad approaches towards digital music: an “all-you-can-eat” approach for a monthly fee and a “pay as you go” for those not willing to pay (or want) quite as much.

You can look at music pricing one of two ways.

The current approach views music as property: this piece or clump of pieces of music costs this much. I think a lot of people think music prices will just be a lower-priced version of current pricing.

It may start off that way, but there’s no reason why digital distribution needs to give everything the same price all the time. There’s no reason why you need to compile albums anymore; there’s no 74-minute container to fill.

Nor is there any need to keep the same song at the same price all the time. Charge more when a song is in high demand; charge less when it isn’t.

If you think about it a bit, music is actually a pretty speculative market, probably more so than stocks or pig bellies. Some groups get hot, more do not. What’s hot today is cold tomorrow.

You could end up with a number of market conditions. It might look like the memory market, with big distributors with monthly or quarterly contracts, and little guys trading on the spot market.

Or you could have a real-time market.

This is something you could well eventually see. “Eventually” will be years and years from now, maybe a decade or two or even more. The media companies will have to be dragged kicking and screaming to this, and certainly will try to avoid it and keep as much control as possible, but I think it is likely they’ll fail in the long run.

Unless . . . .

The Almost-All-You-Can-Eat Model

With digital distribution, you need not look upon songs as pieces of property, but more as a utility or service.

The record companies have tens of thousands of albums for sale (maybe hundreds of thousands). Yet the average person only buys four or five or six CDs a year and spends $60 or $80 or $100 to buy four or five or six CDs a year.

Are you out to sell albums or get money from buyers? If you’re a media company and you could double the amount of money you could get from the average person, do you really care if that person ends up with five or ten times the amounts of music for that money?

Within some reasonable limits, you don’t. If you could guarantee a revenue stream each and every month that’s bigger than the total of the catch-as-catch-can buys of today, this could be a win-win for both consumers and producers.

Please note how much different this is from “a quarter a song.” Yes, you could have a package that works out to a quarter a song, but to get that rate, you’d have to agree to get billed for a hundred songs a month.

It’s doubtful that true “all-you-can-eat” could work long-term, simply because you would have bipolar downloading behavior. People would download thousands of songs for a few months, then burn out.

What’s more likely is several levels of service. All levels would have a radio function, and from there, the price would be determined by the number of allowable downloads a month.

Quality: The Way Out of the Stalemate?

Something that has caught me by surprise as of late is the insistence on quality recordings for good money, and a low price tag for not-so-good quality.

This suggests a new type of solution.

In the time I’ve talked about this subject, I’ve found two groups of MP3ers.

The first group I’ll call the “reluctant thieves.” They’re not against the concept of paying per se; they just think they’re getting a raw deal from the way things are right now.

The second group I’ll call the “real thieves.” They are against the concept of paying, period.

The first group can be reasoned with; the second cannot. The first will accept a reasonable offer; the second will steal everything that isn’t nailed down.

How many are in each group? It’s hard to say. I don’t think a lot of the people really know, either. I think most people are floating in the middle, and can go either way depending on the carrots and (particularly) sticks out there.

Good policy means trying to encourage the first group and criminalizing the second.

It would be pretty hard to separate out the two at the MP3 level. It’s hard justifying to the average person that taping off the radio or TV is OK, but doing the same thing over someone else’s computer isn’t.

However, raise the level of quality, and now you can do something.

Perhaps the best way to handle the digital mess is to offer sound tracks that sound (and are sized) more like .WAV files than .MP3 files. Within a couple years, hard drives sizes should be big enough to accommodate the bigger files. Charge real money for that, and use copy protection/DRM along the lines of what Apple suggests. Sorry, but the real thieves make that necessary.

Sell audio files at 128K MP3 quality for a negligible price (say five or ten cents a track) and/or tolerate the existence of transfers for low-quality files.

Do not tolerate at all the copying of the high-quality stuff. Make that a flat-out criminal activity, and charge a tax on legitimate recordings to fund serious enforcement.

I think that would separate the reluctant thieves from the real ones and provide a clear drawing-line between acceptable and criminal behavior.

Maybe You Have More Than One Enemy

This would be hellaciously difficult to implement, and really would require legislation. It would involve big compromises on both sides.

In that legislative battle, those who just want a fair deal will find out who their real enemies are.

It’s not the RIAA and Company; it’s the real thieves. Those people who just want to steal for themselves. The (relatively few but loud) cryptocommunists who think making money is evil and stealing is some sort of revolutionary act against capitalism and the more stooges doing it, the better. The economic illiterate and/or terminally self-centered people who think everything for them should be free and won’t understand that people can’t work all the time for free.

Those are the people who will not bend one nanometer, and will do anything and everything possible to block any sort of reasonable deal. That’s your real enemy.

They’re easy to identify, too. Just ask them one question, “Don’t you think people (and the companies that sponsor and finance the work) ought to get paid SOMETHING for it?”

The real thieves will not say “Yes” to that or any question that involves paying for anything, either now or for some better, future product. A few will say “No,” but the rest will just shuck and jive and duck.

This doesn’t make the RIAA and Company your buddies, not at all, but the relationship is more like employer and union. Both are out to get as much as they can for themselves, but both sides need each other.

The relationship between RIAA and Company and the real thieves is rather more like shopkeeper and shoplifter. There is no possible give-or-take there.

And the real thieves want the reluctant ones to have no choice but to continue stealing simply because it either further their political agenda, or simply provides those interested in sheer theft with cover.

Don’t get fooled as to whom your friends are and aren’t. Ask yourself why just about every group that says they’re lobbying for you never, ever say, “We agree that artists and record companies should get paid something for their work.”

Ask them why they won’t say that publicly.

Mind you, we’re not talking about how much. You can think RIAA and Company are greedy spawns of Satan, but still think they ought to get paid something.

Consider the possibility there’s more than one set of demons here.

The Economist recently said in an article:

“The outcome of this battle [over intellectual property], many industry experts argue, will determine to a large extent how fast the IT industry will grow. Without a balanced solution, online media and broadband are unlikely ever to take off. If its wares are not sufficiently protected online, Hollywood will not make them available. And if electronic devices are put into a technological straitjacket, consumers will not use them.”

Both sides have to bend. One side has to bend on the concept of paying; the other has to bend on the concept of how much.

Period.

Ed

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