In my last ThinkerNet post, Are ‘Name Your Own Price’ Music Downloads Working?, I discussed how the Internet might alter the business models for selling recorded music. The readers’ comments brought up several interesting ideas. But in these comments I detected a point of view that appears to be very common -- that it is OK to download copyrighted music files without paying anything for them.
There are lots of reasons why people believe it’s acceptable to download copyrighted music for free. It is possible, for example, to believe that private property is abhorrent and that stealing is perfectly justifiable behavior. Of course, rifling through your friend’s wallet, taking money from the collection plate, or putting steaks under your sweatshirt can lead to a punch in the mouth or some other form of punishment. Downloading music on the Internet is a much less risky form of theft for those too spineless to act on their anti-property beliefs in the offline world.
But I do not believe that most non-paying downloaders are responding to deeply held philosophical beliefs about property. In fact, I am quite sure that if you were to steal the typical pirate’s iPod you would likely hear howls of anger.
The best rationale? I think everyone knows that downloading a copyrighted sound recording, in lieu of a purchase, has the same impact on the owner of the song as theft. So why do so many people believe it's OK to download music without paying for it? The answer is: They have come up with ways to rationalize their actions and to mollify their consciences.
There are many forms of such rationalization. One is to suggest that piracy benefits record sales. There is a recent (and poorly done) "Canadian Government Study of File-sharing," which comes to that conclusion. Another study, the "Oberholzer-Gee/Strumpf paper," finds downloading is having no negative impact on record sales, but most economic studies have concluded that file-sharing strongly diminishes the revenues of the recording industry -- as evidenced by the steep drop in record sales since file-sharing began.
This leads to another, surprisingly common rationalization, which is the claim that artists get virtually no money from the record companies. This paints the record companies as evil ogres, so stealing from them is treated as a benign deed. Since musical acts are typically held in high regard by their fans, the pirates want to believe they are not harming the musicians. Check out the comments on my original post for examples of this belief.
Common sense should tell you that artists must receive substantial royalties from record sales. Why else would they care so much about their recording contracts? Why else would it matter whether they stay with the same company or sign recording contracts with a new company? What about the mega-deals -- for artists such as REM or Janet Jackson -- that received so much publicity in the mid 1990s?
To be fair, there is an otherwise solid paper, "Rockonomics: The Economics of Popular Music," which tangentially seems to support the claim that sound recording royalties are not very important to artists. To check this claim, I decided to work out the details of the relative size of payments artists receive from concerts and payments coming from record sales.
Record royalties -- from both mechanical rights and sound recording sales to customers -- appear to be slightly larger than the concert revenues going to artists. Although the specific calculations are somewhat imprecise, the conclusion is quite clear: Record royalties are substantial, and probably make up the majority of artist revenues.
So piracy, self-justified as an act harming only the record companies, also harms artists. Although the music pirates glommed onto the claim that record companies really don’t pay anything to artists, that is almost certainly just a rationalization that will merely be replaced by some other rationalization when shown to be false.
The real reason for piracy Music thieves seem unwilling to admit that their real reason is just old-fashioned selfishness -- to have more money in their pockets. No different than any other form of theft. I don’t expect everyone to act honestly all the time. If you find $100 on the ground, I don’t expect you to turn it in to the police. I do expect people to at least agree on what is the honest thing to do, however, even if they do not do it.
So let’s not kid ourselves. If you detest the record companies so much, boycott their products -- don’t steal them. But don’t pretend that you are not hurting the artists you profess to admire.
— Stan Liebowitz, Ashbel Smith Professor of Economics, University of Texas at Dallas
Thanks for your lengthy repose to my questions, I appreciate it very much. Also many thanks for putting the Pollstar numbers up. Let me address your reply one point at a time:
Alright, I missed that your '06 paper and the RIAA did include online sales––point taken. As you said yourself, in your report the download figures were too insignificant to lead to some valuable conclusions. In any case, when looking at the RIAA latest figures, I'm sure you would agree with me that the 103.3% increase in online album sales (plus the about 60% online singles increase) at least makes up for some of the 12.9% drop in physical record sales over 05/06. As for the RIAA, let us not forget that these people are on a mission too, which is in the best interest of the industry. I prefer to treat their figures with some suspicion.
Now I'm not an economist, but comparing these different data sets while attaching such wide reaching conclusions to these still seems strange to me. Connely and Krueger actually firmly contextualize their pollstar figures, by relating these to Courty's (2000; 2003), Krueger's (2005) and Rosen & Rosenfield's (1997) findings, plus by including a comparative analysis with movie ticket pricing. Your conclusions didn't seem to have included any similar contextualizing efforts––besides the RIAA/Rolling Stone figures––which explains my reservations. I regret though that both authors haven't gotten back to you, it may have resulted in an interesting discussion.
The point about composers not necessarily being recording artists was a mere side note that I wanted to point out. I understand why you chose to generalize here now, and thanks for the explanation.
Finally, I wish to debate your reaction to my original hypothesis that "artists want to have a recording contract, because this is the only option they have to get their music distributed within the traditional (offline) infrastructure––which is completely controlled by the music industry". First of all, *all* artists were new artists at some point. You have to start somewhere. Yes, you can go on tour based on reputation as an established act, but I thought we were talking about recording contracts here? The problem with many established musicians is, that there really is no way around a contract––their audience is not open to online experiments. Only by having a contract, most of these artists can generate attention. But of course, there are ways around this. Last year I wrote a case study on how one established 'pre-internet' artist––Prince––has managed to successfully balance online and offline music distribution, by means of an unusual record and world tour deal with Columbia. This is only one example, yet I hope my suggestions still draw your attention.
First, my 2006 publication notes, on the bottom of page 13, that digial singles and digital albums are included. It really wouldn't have mattered if I had excluded them since digital downloads were insignificant during the period of analysis in that paper.
Second, I wrote to Connely & Krueger on Jan 28th. I have not yet heard back. Perhaps you might try contacting them.
Third, the RIAA statistics do include digital downloads, at least since 2004 (they were too small to bother measuring prior to that).
As far as the actual calculations of artist payments from concerts versus sound recordings, I admitted that the calcuation is rough, which is why I used two approaches. I have put the Pollstar numbers up for you.
Of course the Pollstar numbers are from a different data set than the RIAA record sales numbers. But it doesn't matter. Both are denominated in dollars. We compare figures from different data sets all the time. Pollstar doesn't cover all concerts. But since the Passman book I cite mentions that tours for beginning gropus (with record contracts) tend to lose money, that would tend to make the reported figures from larger tours too high an estimate of the net revenue from all tours. I presume that this figure is not wildly off although I cannot be certain of it. Connely and Krueger didn't see a problem using Pollstar numbers for their analysis of concert revenues and applying the results to the entire industry. Nor, apparently, did it raise your suspicions then. So why now?
You also are concerned about my assumption that recording artists are also composers. You state that most pop artists do not write their own music or lyrics. First, this only affects the mechanical payments (per song paymens when records are sold). My assumption is that most mechanical payments go to people who are also recording artists. So when Jimi Hendrix covered Bob Dylan, Dylan gets the mechanical payments on Hendrix sales, and this is a payment to an artist based on the health of the sound recording industry. We are looking at artists as a whole and whether record sales matter to them, so this is the correct way to do it. It doesn't matter if some artists get paid more than others, even in the same recording group.
The mechanical payments, by the way, are the most solid data in the analysis. I left out performance rights, which come when songs are played on radio and television, because that is not directly related to record sales. If I merely wanted to strenthen my conclusion I could have included those.
Finally, as far as my point about artists being concerned about their recording contracts, your criticism only holds for new artists. Once they have a name they can go on tour based on their reputation. But the only disputes that make the news are those from well known bands, who seem to care about their recording contracts. To me, that implies that they make money from records.
I found the issue really interesting. I want to map the things. There is a box of gold pieces on the roadside. The box is open and anyone can take the pieces of gold. What will you do when you pass from that way? Look at the gold pieces , and if fond of take a piece and move or just move without taking a single piece?(And it is clear that if you will take a piece the owner will not be less in that, as the case of downloading).
When I see an article on the net , and if I find it interesting I try to copy it and if I am not able to copy it(some files are such, you cannot save or copy), then I leave it.
Why the users are able to download? The contents (such as previews of any album) can be posted on sites so that they can be downloaded and persuaded to buy the originals and the full version. I find this as the only solution. It is better also not letting people to illegally download the stuffs and no point of concerns for the owners also.
Here in philippines piracy is one of the biggest problem in th country and most of the pirated movies, music, anime are came from the internet most people download it and sell it to the inocent people not all filipinos are know about internet and how wide can u used it, It happened i saw an anime drama on tv, then i go to internet cafe and download the complete season of it for myself even i saw many pirated outside i never buy it. I know I'm doing a wrong way...even me a 22 yrs old woman doing that things.i don't want to do that to download for myself and copy it to the cd. bu internet is so expensive, even me i can't afford to buy a PC im just renting enable to watch to to listen music or mto surf the internet i am very fun of it. esp. reading blog. watching anime and reading but it sad to say my time was limired here not all the time i have money to rent for internet cafe.
Hello, Dr. Liebowitz!Yes, I download or buy pirate things- music,tv series, movies,software.I have to admit it.Do you know why? My month salary at home (in Russia-as a University Lecture is $200(!). And you know ,I really REALLY want to pay $5-20 for cds,dvds and hundred of dollars for the software.I really do...But unfortunatelly, it happens so,that I also have to live somewhere,so I have to pay the rent and moreover,I have to eat something- and all other stupid stuff like clothing, public transportation and a cup of cofee in cafes couple times a month with my friends-so,what should I do?Do not use my PC,do not listen to music, do not watch movies(though I am much more honest with movies- I could afford to go to movies once a month and I sometimes I rent them as well)?
P.s. and if I find wallet or cell phone- I will do my best to return it to the owner.I have done it before...
Inspired by the metaphor you used about the steaks, I would like to share this
analogy:
Suppose you are putting the steak to roast on a barbeque. People might
buy it to satisfy the need of eating something delicious, and if it happens to be
delicious indeed, they may be willing to pay premium prices. But would you ever
imagine yourself trying to sell the smell of the smoke? It is also an attractive
and pleasant intangible good, but who will buy it?. Will you try to enforce
laws so people that actually happen to smell the smoke are forced to pay or be
exposed as criminals? Would you think the community will be willing to support
your company on such legal venture?. Here is when I believe that current
barbeque sellers are smarter that the record labels, as they understood ages
ago that their smoke is the best lure they have to capture customers, it’s a by
product and while it please the one who enjoy it, it actually does not serve
any need.
Record labels must realize that trying to sell music you can listen to free
(or practically free in bundled services such as digital TV) on TV, radio
(standard, satellite, internet) video on demand, ring tones, videos on youtube,
etc. They must understand that, today, songs are no longer the steak they use
to sell but the aroma they may use to lure customers to the new steak they are
yet to find.
Hey and this also applies to the Movie Studios, remember that what you
consider “pirates” will be (if not already are) considered “corsairs” by
others.
Hey Paul, I highlighted former because I wanted to stress that I no longer download music illegally! However, I can't say I had any sort of moral epiphany -- I just stopped doing it because all of the viruses I got from the illegal files busted my harddrive. With regard to the law in the UK you mention, I wrote about my feelings on that yesterday in the editor's blog: Banning Web Users Will Not Solve Piracy
The headline alone should tell you that I think, no, it does not make sense. Let me know what you think!
Why did you highlight the word "Former"? Is it a multidimensional way to emphasized that you are now getting your music legally?????? Well i'm just interested to know at what point in time you convinced yourself or somebody convinced you that" music thieving" is not good. May be most of internet evolution readers would have you give a "sermon" on why you think it will be good for society if we can follow your footsteps!!!!
A new way Britain is fighting illegal downloads is this:
Thank you very much for this lengthy reaction to the comments on your previous blog post. You've apparently delved deep into the matter, and have come up with a detailed argument, claiming that (1) recording artists do gain substantial revenues out of record sales, which implies that (2) piracy of music does turn out to hurt musicians––and not only their labels. I'm interested what Connely & Krueger think of your findings.
Indeed, record sales are heavily affected by illegal file sharing. I personally rarely buy physical albums anymore, in contrast to before. To be fair though, and correct me if I'm wrong, but it seems that figures of albums sales you refer to in your '06 study do not include legal downloads through iTunes or Amazon, a growing market. The RIAA statistics you mention in this same paper only mention full-length album sales, whereas iTunes and Amazon also sell separate songs. I haven't been able to find (recent) studies assessing these legal alternatives and their influence on (physical) record sales, but I would presume these figures should be taken into account. Maybe something you could investigate in a new study?
Because I in turn found your claim that artists gain more revenues out of record sales than out of concerts hard to believe––to use your words––I decided to work out the details you worked out. Before I start, let me state that I very much appreciate the time and effort you've devoted to this discussion. Allow me though to assess your argument, because there are a few of your statements that seem debatable to me.
First and foremost: you compare the net revenues from concerts (1.0 billion) with the net industry revenues of 1.6 B provided by the RIAA. The post on your own site does not include a link to the Pollstar figures with concert revenues, so I can't check them. However, I find it hard to believe that both calculations of revenues come from the same data set––a database of all recording and touring artists, does this even exist? Moreover, not all recording artists necessarily tour, and the other way round. You've calculated the sound recording revenues by incorporating the Billboard/Rolling Stone figures in the RIAA calculations, which also is speculative. In any case, however, I wonder what justifies your choice to compare the 'hard' numbers of Pollstar with RIAA+BillBoard/Rolling Stone, while it is not clear whether both are based on the exact same data.
Second, a minor point of critique that nevertheless influences your findings. In multiple instances you loosely assume that the composer and performer of a song or album are the same people/person. In truth, things are not that simple however. Most pop artists do not write their own music, nor write their own lyrics. This is why most music played in commercials is an exact cover of the original: it is cheaper to only pay off the composer and lyricist, and not pay royalties to the performing artist. There are beyond doubt many musicians who write their own music and lyrics. For groups, things are more complicated though. The Beatles may be the performers of Maxwell's Single Hammer, but Lennon & McCartney are the composers––too bad for John and Ringo. So what makes you assume that artist and composer are "one and the same"?
Finally, you base part of your argument on the deductive syllogism that (1) artists in general care about having recording contracts, so that (2) they must make money from CD sales. Although I sympathize with your claim in your '06 paper that "Common sense is, or should be, the handmaiden of economic analysis," as a logic syllogism your reasoning does not necessarily hold. Based on a similar idea of common sense, I could state that artists want to have a recording contract, because this is the only option they have to get their music distributed within the traditional (offline) infrastructure––which is completely controlled by the music industry. Up until recently, no record deal meant none of your albums in stores. The internet poses a healthy alternative for musicians here, to distribute their work themselves.
So all in all, your argument hasn't convinced me (yet) that I should quit illegal file sharing because this does turn out to hurt artists. But you've certainly forced me to re-think my reasons for downloading, for which I thank you. I'm very much open to your further ideas.
On thinking about how illegal downloading of music can be stopped, as long as people are able to file share online, I don't see how it will. Of course, as you stated Nicole, about getting viruses, just that risk alone should be enough to stop the practice, but it doesn't seem to.
To be quite honest, if the virus threat doesn't stop people, and possibly getting caught by the record companies don't stop them, then I think short of litterally killing their computers when trying to illegally download music, not much will.
As far as not allowing the person online any longer, I can't see that. While I agree it is theft, and it is criminal, there are many more I would like to see off first...harmful hackers, virus creators, and others who use the internet for other much more dangerous reasons.
I guess there has to be something that can be done, but it will be tough going, unless there is just a way to totally block the downloading of music from shared sites. Other than that, it will not be easy to stop.
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The Internet will eventually become the primary mechanism for selling recorded music. Such a change in distribution might alter the corporate makeup of the industry, since Internet distribution allows a producer of any size to compete more effectively against major record companies. On the other hand, finding and nurturing talent, suggesting producers, and publicizing recordings may still be sufficiently important that the record labels will continue to dominate the market.
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