Recording Industry Hits a Wrong Note

At the dawn of the Industrial Revolution, Luddites smashed power looms in a desperate effort to protect jobs. At the dawn of the digital revolution, the Recording Industry Assn. of America appears intent in following the Luddites’ misguided example. With the development of MP3, a new standard for the digital transmission of music over the Internet, the music industry is feverishly working to protect its profitable and well-worn business model. Instead of embracing the opportunities created by MP3, the RIAA wants to smash into every hard drive in America to root out illegally obtained copies of copyrighted music. In these attempts to thwart new digital technologies, the industry places at risk its profits and the composers, musicians, and music it purports to protect.

History demonstrates that music companies would be better advised to embrace MP3 and digitally distributed music as a business opportunity. Technologies that lower the costs of disseminating information have repeatedly been attacked by owners of established technologies.

Newspaper and telegraph companies fretted over the introduction of radio; film companies resisted TV; both film studios and TV broadcasters fought against home videotape machines. Music companies themselves fought against the proliferation of the recordable cassette tapes. The American Society of Composers, Authors and Publishers entered into protracted court battles to stifle attempts by radio stations to play records on the air, believing that free distribution of recorded music via the airwaves would diminish demand for recordings as well as reducing the value of live performances.

In each case, the establishment overreacted. The new technologies did not replace the old. Rather, after agreement to protect the intellectual copyright of artists was reached, the entrants added richness and breadth to consumer choices while lowering the costs of accessing information. The older technologies adapted and found new niches in changing marketplaces. Moreover, despite new and easier ways to copy books, films and music, sales of original content have continued strong. Last year, as MP3 supposedly allowed for the plunder of record companies’ current releases, compact disc sales increased 9%.

The RIAA’s antagonism toward MP3 is misguided on other grounds. By their own admission, record companies have become less interested in releasing singles. The release of singles free over the Internet could quickly and effectively build interest in an artist or an album. This could prove to be a valuable complement to radio distribution of free singles, especially in genres, such as jazz and world music, that lack a strong radio presence. Internet-based trading of digital music could actually increase record company sales by increasing visibility for artists. If fans use MP3 to send their friends several songs from a CD, the friends probably will not buy that CD. If they like it, however, they are more likely to buy other CDs by the same artist. If they buy one, the record company is no worse off. If they buy several, illegal copying is actually netting companies additional profit. In short, the RIAA is wrong to assume that every MP3 file traded over the Internet leads to a lost sale.

Finally, and most important, whittling away at the superstar system, which benefits a handful of recording artists and record company executives, will not reduce the supply of good music. The RIAA emphasizes the parallels between computer software and digital music, claiming that strong incentives are needed to promote innovation and progress. Musical creativity, however, is different from business investments. Good music has been produced for a long time without the “help” of record companies or CD sales. The next rock stars practicing in their garage will not give up their dream for fear that fans will trade digital copies of their CDs.

In many ways, music belongs to all of us. While we are not pleased that African-American blues artists never received their due credit or royalties for their contribution to our common culture, it is important to note that making blues music cheaply and widely available laid the foundation for a variety of American musical traditions. If blues artists had had the means or the money to jealously protect their work, musical innovation might have been substantially suppressed. Encouraging the RIAA to cease its rigid rejection of all digital copying will promote innovation in much the same way.

The digital revolution is changing the rules of business. Netscape, recently acquired by AOL in a $6.2-billion merger, grew its business by giving away its main product, Internet Navigator. Music companies need to learn from these examples and direct their efforts to building new value propositions in the digital marketplace. Bluntly applying the antiquated tools of copyright enforcement against the tidal wave of new technology will surely fail.