REDEFINING THE MUSIC BUSINESS

Is downloading music wrong? I've refused making this judgment for two reasons: one, I can't afford music the way it's currently priced, and two, I'd like to understand how and why music costs as much as it does before deciding if free music, which isn't going away, is wrong at all.

Today, Dave passed along a piece titled "P2P Study: Music Crackdown Is Bad for Business" that suggests labels are missing out on potential income by condemning the P2P networks (like PirateBay). It makes a lot of sense and is a must read. Here's the hypothesis: "A study of P2P music exchanges to be revealed this week suggests that the ailing music business is shunning a lucrative lifeline by refusing to license the activity for money."

The study points out that in a week, a super-popular album (the example they use is Lady Gaga's new release) might be peer-to-peer downloaded 400,000 times. (Even when Radiohead offered In_Rainbows for free it was still downloaded 2.3 million times in the first three weeks on peer-to-peer networks, suggesting "the black market could potentially be even more concentrated.")

I've never used torrents to get music, and I still find any album I want (I consume around 1 gig of new music per month). So P2P downloads are a fraction of "illegal" downloads. What's the real number of unchecked downloads? More importantly, what's the real number of unchecked fans of an artist? Shouldn't real audience represent the real value of an artist? (Isn't real audience why Oprah can singlehandedly destroy the acai berry supply chain and double Twitter's sign-ups in a month?)

Gaga's album (to continue with the example offered in the story) is "merely" platinum, according to the dusty fossil that is the RIAA. That means the album Soundscanned a million copies. Guessing that another million people are downloading her album each week is conservative, but nonetheless spotlights how little of the real audience the "label" accounts for. Another big question: why does the industry only care about fans that will pay between $10 and $20 for a release? Where does that pricing model even come from, and why is it still relevant in the iTunes era (when the cost to upload and host a legal digital version of a song is miniscule)?

The article doesn't address that, but I'm going to make this blog a sort of living essay of discovery. The quest: to find the real cost of music, as well as the real value.

I'll hypothesize that there isn't a singular value, but a range that begins with "free." Likewise, I suspect that the cost to iTunes/labels/artists hardly justifies the $1 per song price tag, and that, in fact, the profit margin is criminally high to the consumer (especially for recouped catalogue releases). For iTunes, there's no physical product (eliminating materials, shipping, and storage) and fewer (or no) middlemen. Yet the prices haven't really dropped.

Above all else, I'd like to know at what price the most customers would pay for a song, and if the revenue/custumer base generated at a lower cost could outgross fewer customers at a higher cost. I occurs to me that Google generates a lot of revenue by keeping information free, and I can't help wondering what would happen if albums were offered on a custom web page composed of a pay-what-you-want box surrounded by ad space. That way, customers that don't pay for the album still add value to the advertising space, creating a net financial gain to the party holding the rights to the intellectual property (hopefully the artist). We already know that a free song can make money (see RCRDLBL).

To be continued.