The Freakonomics of the Music Industry

Continuing David’s music theme I urge people to read Stephen Dubner’s article for the New York Times: What’s The Future of the Music Industry? A Freakonomics Quorum.

In the article he poses the question: So what really happened to the music industry, and what will it look like in five or ten years? to five people with more up tempo brains than us and it makes for an intriguing thesis, herewith some choice samples:

‘Putting profitability aside for now, what is the explanation for the sales reduction that has occurred? The most obvious culprit is illicit file-sharing on networks such as Napster, KaZaA, eDonkey, and BitTorrent. While linking the two seems tantalizing — file sharing rose to prominence at roughly the same time that record sales started to fall — there is surprisingly little evidence to support the claim that file sharing has significantly hurt record sales. I co-authored a paper with Felix Oberholzer-Gee of the Harvard Business School in which we studied this link using download data from file-sharing networks. If file sharing hurts record sales, then albums that are more heavily downloaded should experience lower sales than comparable albums that are less downloaded. But, after controlling for the role of popularity, we found that downloads had little effect on album sales.’ (Koleman Strumpf, professor of business economics at the University of Kansas Business School)

‘My epiphany, if you want to call it that, was simply this: consumers of recorded music will always embrace the format that provides the greatest convenience. No other factor — certainly not high fidelity — will move consumers substantially to change their listening and buying habits. ‘ ( Fredric Dannen, author of Hit Men: Power Brokers and Fast Money Inside the Music Business )

‘One option that doesn’t seem feasible is making everything free and eliminating copyrights. Hopefully, someone smarter than I am will come up with the right formula to get music to consumers in the way that they want it, and to collect fees that are distributed accordingly. I hope that person shows up soon.’ ( George Drakoulias, music producer, artists & repertoire executive at American Recordings, and veteran of Def Jam Recordings )

‘I don’t pretend to know what the industry will look like in ten years, but the funny thing about all of this is that music itself is healthier than ever. The Internet, combined with low-cost (or even no-cost) digital tools, has led to an explosion of creativity, with millions of amateurs making music for every conceivable genre, sub-genre, and microgenre, and then sharing their creations online. Andrew Keen might look down on these results, and no doubt 99.9 percent of the music being created today is terrible; but that’s besides the point. Even that one-tenth of one percent means that there is more great music being created than any of us will have time to listen to — and that’s not even taking into account all of the “professional” music that still manages to get made. Many professional artists are discovering that, regardless of how well their music sells, they’re still able to make a healthy living from live appearances, merchandise, and licensing — and the Internet only makes it easier for them to build a fan base. It’s the Britney Spearses of the world that are hit hardest by all of this change. Manufactured pop doesn’t do quite so well when consumers have better options to choose from.’ ( Peter Rojas, founder of Engadget and co-founder of RCRD LBL, a free, online-only music label launched by Downtown Records )

‘Regardless of what created this mess, if we accept that free music has become the model for consumption, then we have little choice but to invest in advertising-supported free services that will make this type of consumption profitable. This step will require patience, leadership and a long-term view. After formulating a way to recapture the revenue it’s losing, the industry can then address the development of a new, secure file format that offers audio, meta-data, and other digital features superior to those of MP3s. This should be an easy task, and will give the industry access to both ad-supported free “iPod quality” MP3s, and higher-quality digital products that can be sold directly.’ ( Steve Gottlieb, president of TVT Records )

What’s most interesting to me is the statistical data regarding file-sharing’s impact on music sales as near negligible. p2p distribution is the most cost effective, viral channel that exists, the sooner content producers realise this and learn how to work with it the better. Though not for the foolhardy the benefits in terms of developing a fan base and creating hype are vast and new and innovative marketing models there to be devised.

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