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!”

About Ryan Safner

I am Visiting Assistant Professor of Economics at Wake Forest University. I earned my Ph.D in economics at George Mason University. I research and write mostly about ideas and intellectual property, but also have interests in public goods, public choice, and economic development. See my professional website at
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  • Deirdre McCloskey

    Dear Mr. Lutter,
    I am not sure what you read of mine, but internal evidence suggests that it might not have been quite enough to support your doubts. They come across therefore as slapdash, at any rate from the authors point of view. For instance, you wonder why conventional, Samuelsonian explanations are laid aside (you appear to think I am against economics more widely, which is an odd way of looking at my work). The wonder suggests that you have not encountered Bourgeois Dignity, which is 500 pages explaining why Samuelsonian explanations (in which neo-institutionalism fits handily, contrary to Doug North’s protestations) can’t come close to explaining a factor of 30. Likewise, you think a similar criticism would apply to my own explanation. I argue that ordinary people were empowered, which can indeed explain the order of magnitude involved. Canals, coal, property rights can explain little bits of the economy. A liberating and dignifying of all the people to imagine trade-tested betterments can explain the whole of the frenetic levels of innovation (institutional innovation, too) that characterizes part of the world after 1800 and now much more of it.
    Deirdre McCloskey

    • Mark Lutter

      Dear Dr. McCloskey,

      I am honored that you would comment on my piece. Despite my disagreements, I hold you as a scholar in extremely high regard.

      Admittedly, my critique is somewhat slapdash, such is the nature of blogs. I have read Bourgeois Dignity, but over a year ago so it was not fresh in my mind. I was asked by a friend to write a critique, so I obliged.

      My point regarding Samuelsonian economics is as follows. You explain the industrial revolution as resulting from a shift in ideas. North explains it from a price change. Stigler once wrote, and I am badly paraphrasing from memory here, “If something is not explained through a price change you might as well appeal to magical spirits.” I tend to agree with Stigler and think there is a relatively high burden of proof to argue that an economic change is due to something other than a price change.

      I agree that liberating and dignifying all people was part of the reason for the industrial revolution. However, given my methodological inclinations, I am inclined to believe the liberating and dignifying of people likely had some cause itself. The women’s rights movement could not have existed in the 15th century. Similarly, the liberating and dignifying itself likely required a set of preconditions to happen. It is those preconditions that I see as necessary to understand for a Samuelsonian (or Stiglerian or Northian) view of the world.

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