My Music Memo from the Class I mentioned

Here's the music memo I wrote about music sharing for one of my policy classes last year.


To: National Commission on Music Sharing

From: Douglas Call

Re: The Role of Government in Digital Music

The availability of digital music and the creation of peer-to-peer networks such as Kazaa and LimeWire have led to decreases in how much consumers are willing to pay for certain kinds of music. This memo will discuss the distinctions in the music market, if/why digital music is a problem and potential government action.

The music market

The music market can be generally divided into two segments: popular and classical[1] music. This memo will distinguish the two by referring to popular music as “for-profit music” and classical music as “not-for-profit music” as these terms help identify the major motives of each type of music. For-profit music generally relies on record sales, licensing agreements, and performance ticket sales for a profit. While music creation is a secondary goal, profit drives the industry. Groups that do not generate profits are dropped from the music labels.

Not-for-profit music consists of music generated by professionally trained musicians seeking first to create art, not profit. This music is chiefly funded through grants (including the National Endowment for the Arts), public universities, and private donations. Typically, performers of not-for-profit music support their profession through concert ticket receipts. Recordings generate much less profit and do more to increase the reputation of the performer or ensemble as a way of drawing an audience to live performances.

Possible problems resulting from the digitization of music

The digitization of music and the availability of this music on the internet have radically changed the music industry. Specifically, the nature of the medium has changed. Physical purchase of a record precluded another consumer from purchasing that specific record. In contrast, digital audio files may be copied without affecting the original. One consumer’s ownership of a file does not prevent another consumer from acquiring an exact copy of the file with no loss of information. This rapid expansion in the availability of audio files has led to the creation of peer-to-peer networks, third party systems that allow the exchange of audio files between unacquainted consumers without purchasing the tracks. This transfer is considered a violation of U.S. copyright law.

Additionally, there has been an increase in the number of companies that sell digital audio files. These sites allow consumers to purchase individual tracks for 99 cents or albums for ten dollars, much cheaper than physical recordings. Those consumers who are not willing to pay 99 cents, but are not risk loving enough to try and acquire free music through a peer-to-peer network take advantage of subscription programs that charge roughly 25 cents per track.

Many of the problems of the music industry revolve around the for-profit segment of the industry. The availability of free copyrighted music on peer-to-peer networks reduces would-be profits for music labels and artists. Music labels argue that reduced profits will limit their production capabilities and promotion mechanisms to generate sales and popularity for the label, reduce the number of artists that might be signed to a label, and reduce the incentive of artists to create new music.

The not-for-profit segment is fairly well-shielded from the loss of profits because of ongoing government support. Record sales of not-for-profit music are generally much lower than for-profit music and generate little revenue. Even if not-for-profit artists lose little profit from free file sharing, the activity of file sharing is still a violation of copyright law and illegal.

Government Action

The bifurcation of the industry suggests differing government policies for the two segments of the industry. The government is already involved in supporting not-for-profit music because of the belief that government support for art will enrich the lives of citizens and generate positive social benefits. One way for the government to continue this support and eliminate the possibility of file sharing is for the federal government to obtain ownership of copyrighted not-for-profit music and establish a national public access database for these recordings. This would entail purchasing the entire catalog of classical recordings from record labels (although classical music can be considered not-for-profit, much of it is still distributed through classical divisions of large record labels) For those citizens without internet access, government repository libraries could act as recording depositories as well. Composers and performers would continue to be supported through the three pronged approach of professorship, grants, and state-supported performing ensembles. Non-state not-for-profit performing ensembles would be eligible for recording grants to assist in the creation of recordings to be added to the government’s database. Little would change, except for an increase in grant funding, and the initial purchase of copyrighted materials. However, such an investment would greatly enrich the lives of citizens and would eliminate the possibility of violating copyright law for not-for-profit music.

The justification for government intervention into the for-profit music segment is less clear. As record labels and recording artists are for-profit entities, they do not present a clear case for government intervention into the market. Decreasing revenues do not justify government interference. The for-profit market has been responding to technological changes. Before new technology, music labels relied on consumers having limited information of the contents of the recording. However, current music providers allow consumers the option of listening to audio files before purchase and the option of purchasing individual tracks. It can be argued that previous music industry profits were at artificially high levels because consumers lacked information and that the introduction of information into the market has moved consumption patterns to the market equilibrium. The removal of all peer-to-peer networks would not be the panacea that music labels hope for.

Some music suppliers are keeping pace with technological change. Independent labels are growing, and for-profit groups at these labels are recognizing that profits no longer come from records, but from performances and merchandising associated with performances. However, instead of limiting creativity, records are used to increase performance attendance. The market is adjusting to the new technological changes without the assistance of government.

As mentioned above, the line between not-for-profit music and for-profit music is blurry. Some for-profit music becomes extremely valuable to a society over time and is considered art. Because of the dynamic nature of music and the music industry, attempting to guess at which musical form will be considered art in the next fifty years is difficult. The not-for-profit music promoted by government might not be considered art by succeeding generations. One option to this problem would be to reduce the number of years it takes for a recording to enter the public domain and, thus, the government database that already contains not-for-profit recordings. The number of years would be subject to discussion, but it should not be too short so as to limit justifiable profits for surviving recording and performing artists.

This discussion would not be complete without a mention of costs, which represents the largest roadblock to the creation of a national database of not-for-profit music. The costs of establishing and maintaining a database may seem small at first, but as collections increase over time, storage space and protection will loom as important future issues.

[1] “Classical” in this sense means music written or performed by professionally trained musicians.