Wednesday, Jul 9, 2008
It sounds like you've changed your mind ...
I try to let data tell me what's actually happening in the world. And when the theory says one thing and things don't work that way, then I say something's missing in the theory. A priori, I had a belief that [file sharing] was different and it was likely to cause real harm. That's what the Cato piece was about.
But if a year from now, when the economy picks up, we still don't see a decline of 15 to 20 percent at least, then file sharing is having a very small impact, considering how massive the downloading is. It's not that say, 10 percent of record sales is a trivial amount of money, but it's not going to be the death of the record industry.
Are you basing your shift in opinion solely on the lack of evidence showing damage to sales or is there other empirical evidence that supports the claim that downloading won't destroy the industry?
It's mainly the sales. That's where you would look, that's where there should be clear evidence. If downloading was 10 percent of CD sales, you can imagine it would be hard to notice because lots of things buffet the CD market. Is there someone who has a really hot CD this year? Have tastes changed? Things come and go and take up people's attention.
But with the amount of downloading as large as it is, if it's really going to have an impact, it should be pretty obvious. We have more downloads than legitimate sales; that's a very big market. You don't need sophisticated analysis to see a 30 percent drop in CD sales and to say that it wouldn't be due to a minor recession. And that's the kind of thing you should see if there's a massive amount of pirating that's much greater than what existed before.
So far, why do you think people are both purchasing music and downloading it?
It may be the cost of putting these collections of songs together. Even though it seems low, it's more effort than the typical person is willing to go through. That may be what the salvation of the record industry is -- that it's simply too hard to do on your own what they do for you.
Do you think that this new download use is likely to become a new revenue stream, just as videotapes were for Hollywood?
I believe it's more efficient to download music than to go to a record store. I think that digital products should be sold over the Net and they're likely to be successful. So I expect that the buying of records will eventually cease. But the tastes of consumers are a hard thing to know for sure. They like holding these things.
What do you make of the subscription services that have been popping up -- the vast majority of which don't allow for much flexibility? Are these viable alternatives to the unofficial file-sharing networks?
Certainly, if they're going to sell music that you can't make copies of, people aren't likely to pay as much for it. I don't know that the record companies really understand that. I think the pricing that they have for these services doesn't make any sense.
But again, you have to remember that what seems to take a long time while it's happening, in a historical context can occur very quickly. Videotapes when they first came out were totally mispriced. They used to sell them for about $100 because the idea was, no one really wants to have a library of videotapes. Why would you watch a movie more than once? The video rental places were going to be the ones to buy the videotapes, and since they were going to rent it over and over again, a very high price should be charged. It was only by accident that the movie industry discovered that gee, it's a much more elastic demand than we had thought.
They had a special on one of the big holidays where I think "E.T." was dropped down to $25 -- no one had ever done anything like that -- and the sales were just enormous, way beyond expectations. That's where they learned that if you lower the price, you can sell a ton of these. And now the revenues from videotape sales -- not rentals -- are larger than the revenues from theatrical releases.
Looking back, it appears that it happened quite quickly. But at the time, there were a couple years where videotape people were mispricing videotapes. So it wouldn't be surprising if we had mispricing here as well. They're learning what to do.
There's one other thing that makes it difficult for these services -- the big retailers. Stores like Best Buy should be dead set against the major record companies allowing inexpensive downloads. And it's still the case that almost all the business that the labels have will be through retailers. So they have the retailers pushing really hard -- they don't want the major companies to have affordable downloads and the labels don't want to alienate the retailers.
So if one of these companies, say PressPlay, really lowered its price, I presume that some of the major retailers would say, look, if you're going to charge such low prices, then we're going to push the other labels who aren't charging such low prices. We're going to put their CDs in more prominent locations. It will take a while for retailers to lose their power, and for legitimate downloading to get big enough. So there are some things going on that make me think it's going to be while -- maybe a decade -- before we get to reasonable pricing on downloaded music. But it should clearly be the way to do it.
At what point does the industry accept the facts that you're pointing out, and move on?
My experience with the industry is that they'll never accept it because they never accepted it with any of the other copying technologies ... I don't think they're going to back off. I'm not sure they'd believe it if you told them there wasn't any damage, even if you told them there was a statistical study that indicates no decrease in sales. What they'd say is, even if there isn't, let's just be safe.
What would it take for change to occur? Could the artists be a force for change?
If a couple years go by and the massive copying still continues while the artists see that it doesn't have a negative impact on sales -- if that turns out to be the case -- then I suspect that the level of concern will go down. They'll still talk, the record industry, but they won't be manic about it. They were concerned about audiotaping but after a while, they seemed to realize that it wasn't that bad. But it took them a long time.
Is their energy in fighting file sharing far more intense than what was expended to fight previous copying technology?
Yes, and you have to remember it's coming from multiple sources now. In the past, it was really just music. There wasn't a major concern about videotapes being copied. Now there's a concern even though it takes forever to download, that you're going to have movie file sharing. So you have the studios falling in line. And a lot of artists, in film and music, are more concerned than they used to be.
And to be honest, it looks like [file sharing] should really cause problems. I honestly believed it too. If you look at the logic of it, then you say this one is real, this one should really do damage. And I'm not willing to say that it's not going to. But I'm just saying it's beginning to look like a lie.
You also argue that the industry shouldn't have sued Napster. What should they have done?
They should have tried to negotiate with Napster to try to change the rules a bit. Number 1, they could have kept a bit of control over what was happening. They could have done a few things, like saying in order to download something you have to upload something. That would more likely make people want to buy originals. It's a more controllable form than the pure peer-to-peer without the central server.
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