Music Copyright’s Biggest Winners Want You to Pay More Money

Many of the music industry’s biggest stars gathered today for a unique press conference to promote Tidal, a new hi-fidelity streaming music service. On stage, an ensemble cast of promoters — Jay-Z, Beyonce, Jack White, Kanye West, Rihanna, Alicia Keys, Daft Punk, Coldplay’s Chris Martin — declared their intent to revolutionize the music industry. The key here is that Tidal is “artist-owned” and controlled, as compared to studio-managed.
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Artists have long been critical of freemium streaming services, like Pandora, Grooveshark, or Spotify. Tidal, on the other hand, has no free option, but rather a two-tier pricing option: $10/month for regular streaming and $20/month for hi-fidelity streaming. Its co-owners (the stars listed above), proclaim that this will help return music back to the artists.
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As I argued when Taylor Swift launched her tirade against “free music,” the problem with our current system — for both consumer and average artist alike — is the publisher-centric model of copyright. Publishers benefit largely at the expense of consumers and the average artist. Hence, there are reasons to believe that this new service could be a welcome innovation. However, I specifically mention that copyright hurts the average artist, as, in addition to publishers, copyright’s prime winners are the superstar artists — the very ones who are launching this new service.

Thus, while I applaud a move to reduce studios’ rent-seeking capacity, I am skeptical about the effect this service alleges to cause. Without systematically changing the structure of the copyright system, we risk this firm simply becoming its own rent-seeking studio. Thus, the question of Tidal’s marginal benefit is twofold: whether it will improve the status quo of accessing existing works, and whether it will increase innovation.
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If Tidal only ends up being a “big boys (and girls) club” for the superstars (so far, the only artists appearing on it are in Jay-Z’s inner circle), it will simply be a new $20/month toll. Should all of the major artists pull a Taylor Swift and eject from the free streaming services to exclusively list on Tidal, then this certainly is a loss for consumers and a transfer to the elite artists. It will be much less an artists’ revolution in the music industry than the artist elite forming their own rent-seeking studio. Meet the new boss, same as the old boss.

One is also reminded of Neil Young’s recent flop with the “revolutionary” crowdfunded Pono service. Young’s service turned out to be pure snake oil not worth the cost — I wonder if Tidal consulted him on its own potential coup.
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Among artists, copyright primarily benefits only those 1% superstars that made it big. Smaller acts are probably harmed by copyright on net. Everyone involved in the copyrighted entertainment business, from consumer to artist to publisher, has to put up with higher transactions costs arising from the need to search for existing copyright holders, negotiate with them, and license their own work downstream in a tangle of red tape. However, those that have the most socially valuable (highest grossing) works can justify the cost of copyright because it helps them minimize their losses from piracy.

This is for two reasons: First, people primarily want to pirate the biggest stars. On average, consumers would rather illegally download Interstellar and Beyoncé than Final Destination 12 and your friend’s cousin’s high school cover band.* Second, those big stars have greater bargaining power with their publishers. Established musical artists with immense clout can demand higher advances and royalty rates from their record labels. These are precisely the people seen on the stage for Tidal.

Now, if there was evidence that this increase in price would stimulate greater innovation in the field, this might be justified on efficiency grounds. There is a well-noted tradeoff between innovation and access: ceterus paribus, the more you increase copyright, the less access there is to existing works, complements of added monopoly power, but it makes acquiring copyrights more profitable and hence gives a greater incentive for artists to produce new works. There are certainly diminishing returns at the extremes, particularly in a 100% copyright world, which becomes a pure tragedy of the anti-commons. The effects of a 0% copyright world are still up for debate.

If new independent or unknown artists support Tidal and begin to use it, then the new service might justify the added cost to users. These lesser known artists, however, are more likely to support piracy and streaming as free advertising to help them churn out the real money made by (non-superstar) artists — merchandising and concert revenues. Thus, unless they find that Tidal gives them a bigger boost relative to other methods, odds are this system will not stimulate much musical innovation. Should that be the case, then it seems like this move is just to raise rents for existing copyright holders, rather than stimulate a new music revolution.
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Let’s not also forget the obvious fact that raising the price for music services makes piracy all that more attractive to many consumers, should popular bands emigrate exclusively to Tidal. It was arguably Spotify and co.’s freemium model that dissuaded many would-be pirates in the first place such that nobody really talks about song piracy anymore (it’s video these days).

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* The modern age of Bittorrent, however, provides a potential caveat. One could argue that people who have diverse interests might be more likely to illegally download movies and songs that aren’t superstars to save money. Consider “I don’t want to waste my time at the movie theater to see that crappy horror flick X, I’ll just download it; but the new action [franchise] blockbuster movie in 3D, that’s something we have to go see!”

Further typologies of property

My first typology of property is here. In it I differentiate between contract enforcement among family/friend, anonymous strangers, and government.  Adam Gurri responded, postingray ban sunglasses Best Price

You are definitely correct that the literature and experience has demonstrated that voluntary mechanisms are possible and widespread. Instead, it’s a matter of whether you can stop strangers from breaking into your house and stealing your stuff without government, which to my mind is a separate question from how behavior within the context of transactions is disciplined. I’m not sure the answer is as clear there; certainly *some* sort of threat of force is often required.

His point made me realize my typology was incorrect. We must not only consider the enforcement of contracts, but also immediate violence and theft. Therefore, the typology can be further broken up. Below is a table illustrating the possibilities.

Contracts Violence/theft
Family/friends 1 2
Anonymous strangers 3 4
Government 5 6

The first question is what protects against breaking contracts or violence and theft among family and friends, 1 and 2 in the table. The answer, repeated interaction.  It is a losing strategy to defect when the person is able to defect the next round.  This is a consensus among economists that state enforcement is unnecessary for small homogeneous groups.
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The second part is more interesting, how to enforce contracts among anonymous strangers, 3 in the table, and how to ensure there is no violence and theft against anonymous strangers 4. Most economists are unclear on the distinction between the two options, however it is an important one. There is much evidence, international trade being the primary one, that state enforcement is unnecessary to protect contracts among anonymous strangers.  However, as Gurri pointed out, the state is likely necessary to protect against violent expropriation from anonymous strangers.
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As such, the state exists less to protect private property per se, and more to protect against a specific type of encroachment on private property. In fact, given that many major American cities did not have police departments until the mid 19th century, it seems state exist primary to prevent large scale violence.
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The last section is less interesting.  Government has little incentive to violate contracts because it is usually easier to directly expropriate wealth.  The disagreement is how to ensure government does not expropriate wealth.

A typology of property

Property is not a relation between men and an object. Rather, it is a relation between men and other men about an object. It is a set of implicit and explicit norms governing a set of rights over objects, who can do what to what object. My ownership of the computer I am typing this on affords me a series of rights about a set of actions I am able to take with this computer that others are not able to take.
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With this in mind, I want to propose a typology of property. Because property is defined by the relation of men amongst men, property can be differentiated by the different types of relationships amongst men. There are two sets of players in property, the owner(s) and the non-owners. By differentiating the non-owners there are three main categories which can be differentiated.  First, property where the non-owners are family and close friends.  Second, property where the non-owners are anonymous strangers.  Third, property where the non-owners are government.
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It is important to clarify that all property has all three relationships.  However, because each group of non-owners will treat the property differently it  is useful differentiating them as an analytic tool.  Family and friends rarely need explicit contracts governing their relationships.  Instead, repeated interaction is sufficient to generate incentives to prevent abuse of property.  Anonymous strangers require explicit contracts in order to ensure they do not abuse property.  Explicit contracts are insufficient to protect property from governments.  Instead, the government must be constrained by a series of norms which constrain its action set.
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Take, for example, a house.  With a house usually family is allowed to use it to a wide set of ends.  Of course, there are certain implicit rules, do not burn down the house for example.  However, immediate is generally given permission to raid the fridge, cook, sleep on couches, watch tv, etc.  Friends are typically a little more constrained.  Close friends might be able to enter and exit as they please, but usually the owner requires his presence for them.  However, no explicit contract binds them.

Anonymous strangers have a different set of rules for a house.  With the success of airBnB, we can see how renting a house to strangers differs from letting family members crash there.  There is an explicit contract detailing what the strangers may and may not do.  There is typically a defined way to resolve such disputes if they do arise.  Third party enforcement works for the anonymous strangers.
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Third party enforcement does not, on the other hand, work for government.  Because government has a territorial monopoly of force, they can choose to violate contracts if they wish.  Instead, government is constrained by two things; a set of norms which define acceptable actions for government and power relations among groups in the ruling coalition.
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Such a distinction is useful for analyzing economic growth.  Virtually all economists agree that contracts are stable in small homogeneous groups, essentially family and friends.  While there is disagreement over whether government is needed to enforce contracts among anonymous strangers, most evidence suggests markets can come up with mechanisms to enforce contracts among anonymous strangers.  However, ensuring a government does not plunder a populace is far more difficult.  Markets alone are unable to do so.
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While this typology is present in the works of many economists, Hayek differentiates between family and friends and strangers, Acemoglu and Johnson differentiate between strangers and government, it has never, to the best of my knowledge, been explicitly presented.  I imagine most of the dispute among economists is whether markets can enforce contracts among anonymous strangers without government.  However, as I believe a close reading of the evidence, the existence of international trade, and the sharing economy demonstrate, the real problem lies in constraining government.