Metallica/Napster--An economist's view

[cate morrison <morrisce@jmu.edu>]

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I came across this while doing econ research...it makes the whole 
lawsuit seem so pointless.....

The Dismal Scientist www.dismal.com

Riding the Lightning with MP3
By Shaun Dougherty
4/25/00 11:59 AM ET

The music industry is currently dominated by two trends: a
riotous mass of teeny-boppers swooning at the sounds of the
myriad incarnations of boy bands, and a swirling storm of
controversy over computer-borne music files known as MP3s.
Indeed, the rock group (as opposed to boy band) Metallica has
just sued Napster, Inc., a producer of software that facilitates
co-op style sharing of MP3 files, claiming that the software
encourages the illegal exchange of pirated music. For our
money, Metallica should spend their time in the studio making
their first good album in a decade, rather than in court. 

Behind Metallica's suit is the broader issue of intellectual
property rights in the computer age. Presently consumers can
purchase CDs and then use their computer and downloadable
shareware to create MP3 files of the CD tracks. The software
provided by Napster allows users to then add these self-created
MP3 files to a searchable database. As a result, a user in (say)
San Diego can create an MP3 copy of the latest Metallica album
(that they purchased) and make it available to all other Napster
users at no additional cost. 

Clearly, the concern is that widespread distribution of the MP3s
over the Internet will hurt regular CD sales. To be sure, the
majority of MP3s are created and traded illegally. But while the
producers of any original good have the right to protect their
product, technological innovation and the distribution of MP3 
files will hardly ill affect profits in the music industry. 
Indeed, according to the Recording Industry Association of 
America,revenues have actually risen since the advent of MP3
technology two years ago. 

Whining from record labels and artists is hardly a new
phenomenon. Prior to the advent of cassette tapes, music could
not easily be copied and redistributed. However, when dual tape
decks were introduced, the music industry began to bellyache
that demand for professionally produced and packaged music
would decline. And now that CD burners are becoming an
increasingly common piece of computer hardware, one could
make the same argument about compact discs. But while
software such as Napster and other MP3 distribution channels
allows pirated music to be copied and distributed to a greater
degree than previously, it does little more than what dual tape
decks and CD burners--innovations that did not even come close
to putting record companies out of business--have offered for
years now. 

If anything, the new technology will increase the efficiency of
music distribution, to the benefit of the consumer. For example,
MP3 technology eliminates sounds that are inaudible to the
human ear, reducing the amount of memory needed to store a
music file. This is ideal for those who wish to listen to music on
their computer without taking up their entire hard drive. This 
also means that more music can also be stored on a CD, allowing
music producers to potentially use smaller or reduced memory
recording devices. Thus, the technology may reduce the real
cost of packaging and selling recorded music. 

In addition, digital and computer technologies also allow music to
be delivered via computer. In fact, it will likely not be long
before the music industry offers entirely computer-based recording
purchases. After all, the technology exists to transfer photos,
text, and music over computer already. Why spend money on
packaging, labeling, and brick-and-mortar retailing when the
same product can be delivered via the Internet? Indeed, the day
may soon come when well-known bands such as Metallica dump
their recording companies altogether and offer their music
directly to their fans via the Internet. 

MP3 technology will also give consumers greater flexibility for
their entertainment dollar. A standard CD usually contains
approximately 14 tracks. If it is a particularly strong record,
maybe four of these will get radio airplay. But if a consumer
wants to just listen to those four songs, she has to pay $18 for
the entire album. Music distributors could hence take advantage
of new technology to sell songs individually and at a greater
volume. This has the added potential to allow consumers to
make personalized compilations more easily than did previous
incarnations of cassette and CD singles. Consumers will still
have the option of purchasing entire albums (if one wants the
liner notes, for example), but pressure is placed on record labels
to stop padding albums with marginal music simply to justify
charging $18 for a CD. 

Of course, one obvious benefit of the MP3 technology for both
artists and the music companies is the huge upgrade potential
as consumers purchase MP3 versions of previously released
tracks. Record companies received billions of dollars in fees in
the 1980s as consumers who owned vinyl records purchased CD
versions of these same albums. 

In the end, MP3 technology won't kill the music business; it
won't even seriously wound it. Increased competition in the
industry will definitely be a good thing, especially since it is 
sure to mean that 20 year veterans like Metallica will have to 
have to "Ride the Lightning" and make good music again. Otherwise,
it will be "Fade to Black" for them. Sorry, Metallica. 

*~*~*~*~*~*~*~*~*~*
cate morrison
morrisce@jmu.edu
http://nothing-to-fear.org

america stop pushing I know what I'm doing
            --allen ginsberg, america


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