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Having disposed of art and science, now music and economics...



Nobody has any comments as to whether the economic basis for selling a new Who album might have changed? Hmmm. Well, okay.

I notice the UN has temporarily blocked Mr. Bush's economic plans, so while they're figuring out what to do, I've been thinking about the music business. We've had a few discussions here of how artists are coping with the new economic climate, i.e. Internet access, and just now I'm very glad Pete and Roger are now set up with Eelpie and some individual contracts for distribution, and not just depending on MCA to handle things for The Who.

I was kind of alarmed to see that report last week that Sony was laying off workers. Other lists have reported the most recent drop in CD sales, which amounted to 7.2 percent in the first six months of 2002. That's pretty radical. The issue of new CDs has dropped sharply. Vevindi is for sale. The crash of the music business might be at hand.

Of course, the big record labels and the musicians are still blaming each other and relations are getting ugly, but it's occurred to me that they might both be laboring under a misunderstanding of how the business works. The record labels, of course, are blaming file-sharing and piracy for the drop in sales. Artists are blaming the record labels for failing to support and develop new talent. Here's what I think is really going on.

What we normally see when we look at the music business is the oligopoly of the bigger recording labels. Originally they held the resources for recording and distribution, but live recording eventually undermined studio recording to an extent. Still, they've held onto their market power (and their artists) because of their control of the distribution network. With the advent of file sharing, they've lost control of this, and now their business model is going to fail.

This much has been fairly obvious, though it may have come up quite a bit faster than I had expected. This is because what the artists are asking for is not a workable system. The record making and distribution business is built atop the business that bands and individual artists do, which is called a monopolistic competition. This is a large number of small businesses that have somewhat different products and compete against one another. On a small town basis, bands might have a artistic monopoly, but then it's harder to manage on the national or international tour circuit. The competition gets really stiff.

So, lets transfer this market structure to the recording business. Back when recording started out, it was quite a novelty. Consumers were thrilled with the recordings and sales of ANY recording were brisk. In the Fifties and Sixties, the recording business caught the rock explosion, which in retrospect featured real genius. About this same time, consumers became affluent enough to afford good recordings, so profits were unprescedented. However, the problem with monopolistic competition is that when the market is completely open, profits are eventually competed away. Fifty years later, the recording market is
saturated. The big problem for consumers is sorting through the HUGE volume of international recordings available to find something they might like, and it becomes impossible for the record companies to make enough money from current issues to cover their costs.

This is the problem that Pete is looking at when he says it's impossible to compete against what has gone before. The volume and the quality of it are just too much for consumers to deal with.

Part II later.


keets







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