Tuesday, November 30, 2004

The Fable of Kazaa I: You Can't Decorate Your Office With an MP3

by Tom Bozzo

I'd been meaning to blog the Daniel Gross piece from the 11/21 Times (already off to the paid archives -- this 'Wisconsin ideas' business, plus kids and visiting family, makes for slow blogging sometimes) on recent economic research into the impact of music downloading on the industry, not least because it turns out that the doyen of the economics of downloading is Stanley Leibowitz of UT-Dallas (many links to recent scholarship at his very useful website), some of whose other work (1) I know from my almost but not quite forgotten dissertation. In summary, the growing consensus is that downloading is less harmful than the RIAA would have people believe, though the extent of the harm has not been nailed down very well.

I reached the point of having an excessively long post on the subject that still needs lots of writing and editing. So in the interest of moving things along, I thought I'd start with the part of the economics of unauthorized downloading that economists essentitally all agree on: the substitutability of illegal downloads for legal purchases is adverse to industry, though it's silly for RIAA flacks to contend that a track off a file-sharing network is a perfect substitute for a legal download, let alone a CD.

Apart from the diminution of sound quality issue -- which I admit I can't hear, at least in higher bit rate MP3s in the car -- and the problem that the file sharing services are vectors of all manners of digitial contagion (why I abstain) and, rarely, litigation, record collecting nuts and some others do actually value the physical packages in which music is distributed. In that regard, even CDs are obviously inferior substitutes to LPs (2).

For more of the others, there are pricing models less taken in the U.S. that would capture some sales otherwise lost to downloads and still make a positive contribution to record companies -- in the UK, relatively low pricing helped yield a record sales year.

Part II, forthcoming: "librarying" is not just a really ugly word.


(1) Specifically, his 1990 Journal of Law and Economics article, with Stephen Margolis, "The Fable of the Keys," which purports to debunk a famous economic history paper on how path-dependent dynamics due to increasing return leads to adoption of inferior technologies. About which more later, though note that I'd be a very smug Macintosh user these days but for the nontrivial amount of money that might reach my paycheck if it weren't needed to keep my share of the office PC network alive.

(2) I'll stay out of the analog-vs-digital sound quality dispute. I am one of the nuts who misses the often elaborate cover artwork LPs. The brilliant folks at Restoration Hardware saw a marketing opportunity in this, and as the title of the post goes, voila, office decoration for the aging new-waver:

Clockwise from top right: Ultra Vivid Scene, self-titled LP (1987); New Order, Temptation 12" (1982); Happy Mondays, 24 Hour Party People 12" (1987); The Durutti Column, "The Return of the Durutti Column" LP (1980). Reflected (L to R): The Durutti Column, "The City of Our Lady" EP (1987); Section 25, "From the Hip" LP (1984).
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