[ExI] externalization of knowledge again

[Emlyn]

2009/10/24 Max More <max at maxmore.com>:
> Emlyn wrote:
>>
>> Everywhere that I see studies on the effects of free digital copies on
>> sales, the availability of free copies cause a boost in sales. Weird but
>> seems to be the way.
>
> Really? That's not what I've seen. How do you reconcile what you say with
> the well-documented decline in record sales? Are you saying that the
> musicians who give away their music the most vigorously are selling more,
> while the less vigorous givers are experiencing massive declines?

What's a record? Do you mean vinyl? Vinyl has shrunk down to a
dedicated niche due to CDs, but sales are now growing:
http://latimesblogs.latimes.com/music_blog/2009/06/vinyl-sales-to-hit-another-high-point-in-2009.html

Or CDs? Sure, they've been declining, but we would expect them to,
they're old tech. Eventually they should shrink down to some niche and
stay there (like vinyl and buggy whips).

Or maybe you mean the album format? But that was an artifact of
shipping physical objects around, an optimisation for extract revenue
from the target audience. In a pure information environment, an
optimisation like that is wrong, and we should see a new optimum
emerge, which is the single song.

Or do you mean overall sales revenue for the recording industry? See below.

> For instance, I read this piece a couple of days ago. The included chart
> shows strongly falling sales of CDs, even as music consumption grows:
>
> What the GDP Gets Wrong (Why Managers Should Care)
> By Erik Brynjolfsson, Adam Saunders
> MIT Sloan Management Review, Fall 2009 (October)
> http://sloanreview.mit.edu/the-magazine/articles/2009/fall/51119/what-the-gdp-gets-wrong-why-managers-should-care/

omg I had to sign up to read this; if I hadn't been trying to
participate in this thread there's no way I would have bothered.
Actually I'm glad I did, it's a good article, but still.

Here: "Consumers have changed their purchasing habits by buying fewer
physical units (CDs, cassettes or vinyl records). Sales declined from
more than 800 million units in 2004 to just 400 million units in 2008.
Contrast that with the vast increase in paid downloads of digital
songs. In 2008, more than 1 billion digital single songs were
purchased in the United States, as well as more than 50 million
digital albums. An even larger number of songs were downloaded
illegally, though that’s not reflected in our charts."

So people have actually been buying more units! The music industry's
woes then aren't that people are buying less, but that their margins
are lower; they can't make the ridiculous margins that they used to
make via an oligopoly in turn based on a massive barrier to entry in
terms of plant cost, vertically integrated supply chains that locked
others out, much creative use and abuse of gatekeeper status, etc etc.
Also, people buy single songs instead of albums, because they've
noticed that most albums are largely full of filler content - a couple
of hits, a bunch of crap, and you pay the entire album cost to access
the hits. Well boo hoo.

Also, when you look at the music industry's revenue, you must factor
in their great mistake. They had many opportunities to own the online
distribution mechanism, and screwed them up (especially killing
napster). Eventually along came Apple, and destroyed their future
status as bloated oligopoly. Hilarious.

>From your article:
"Yet this increase in the number of units has not translated into more
revenue — in fact, quite the opposite has occurred. Combined revenue
from the sale of songs for the record companies went from more than
$12.3 billion in 2004 to $7.4 billion in 2008 — a whopping 40%
decline. Even if we add digital sales made on mobile phones (which
would include ringtones), subscriptions from services such as Napster
Inc. or Real Network Inc.’s Rhapsody, and digital performance
royalties paid by Pandora Media Inc. and others, the digital total
expands to just $2.7 billion, making the overall total $8.5 billion —
still 30% less than it was in 2004. The recording industry is
disappearing from the GDP statistics."

Here Wired estimates that Apple made 500 million from iTunes in 2007;
by now this figure must be far higher.
http://www.wired.com/listening_post/2008/03/apple-apparentl/

Now Apple's profits probably aren't accounting for the music
industry's losses. However, there's the Craigslist effect to take into
account. Here's a classic chart showing the relationship between
billions lost by the newspaper industry, and millions gained by
Craigslist:
http://www.businessinsider.com/chart-of-the-day-craigslist-vs-newspaper-2009-6

That's what Apple is doing to the music industry. It's created a new
business, handsomely profitable, that just happens to be blasting a
prior industry an order of magnitude larger into smithereens. Creative
destruction! It's what libertarians crave! :-)

The claims of the record industry that piracy is killing it are
ludicrous. It's a structural shift that is killing it, piracy is a
blip. Think about all the people you know who listen to music and have
an iPod. Most of them never pirate on a large scale, and the ones who
do have probably always done and were never customers to begin with.
More likely, your friends with iPods listen to their own ripped CDs,
and to stuff they bought on iTunes. They probably buy more songs
overall than they used to, in fact. But all their new music is coming
from iTunes, and every song they buy is a body blow to the recording
industry.

Free availability of music is, I think, still something that boosts
sales. It's just that those sales are largely digital, and for the
recording industry that isn't helpful. For artists though, sales *are*
helpful. Those with major labels might be getting less revenue, but
there are a lot now who do their own thing, self promote and
distribute, and for those people, this is a bright new world. The
thing is, free availability of your music (be it legit or "piracy")
means more people listening to your music, which means more fame.
People listening to your music is good! The enemy for any artist is
obscurity! Fame, you can translate into cash. Obscurity means flipping
burgers.

For musicians trying to make a living in the digital world, you can't
look at every free listen and say that's a lost sale. You need to try
different strategies and see how your sales are affected. If only 1%
of your fan base pays, but you have a massive fan base, you can do
extremely well.


> I'm one of those people who likes to own rather than simply access. Why?
> Because I'm concerned that conditions will change and I'll no longer be able
> to access what I want, or a fee will be added later. This is especially a
> concern when you have to have a proprietary device or service membership to
> access the music.
>
> Max

Agree, especially with regards to proprietary services. But that just
shows that we need a better system of access, because there definitely
are things that you can access that you probably wouldn't care to own
just in case. You don't feel as though you need your own search engine
software running on your own servers, even though you could do it;
google will be fine. You probably don't bother to have your own email
server, even though many people do, access will be fine. You most
likely don't own a set of encyclopedias any more. etc.

Music will get there eventually, just by sheer pressure. Pandora and
last.fm are proprietary and could disappear, but Youtube looks pretty
stable, and the music available on youtube, wow! It's actually changed
the way musicians I know go about learning and learning about music.
Once apon a time, I would have learned a song largely from the sheet
music. Now, I use the sheet music, but I also watch many, many
different version by famous and excellent recording artists on
youtube, and learn nuances I once would have missed. It's a vast
improvement.

It's amazing how the innumerable improvements in life like this map
coincide with less money changing hands. How much of the increasingly
impacted GDP was just a kind of broken window fallacy?

-- 
Emlyn

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