aTypical Joe: a gay New Yorker living in the rural South

Friday, November 25, 2005

Pyramids and Pancakes (again)

Or fewer rich stars and more middle class musicians!

Here’s some of what Chris Anderson posted on his Thanksgiving Day:

A fascinating paper from David Blackburn, a Harvard PhD student, on the economics of P2P file-sharing concludes that it does indeed depress music sales overall. But the effect is not felt evenly. The hits at the top of the charts lose sales, but the niche artists further down the popularity curve actually benefit from file-trading.

From the report:

[p.32] Artists who are unknown, and thus most helped by file sharing, are those artists who sell relatively few albums, whereas artists who are harmed by file sharing and thus gain from its removal, the popular ones, are the artists whose sales are relatively high.

This conclusion leads to further questions regarding the impacts that file sharing has had and will have on the recorded music industry. In particular, if file sharing essentially shifts sales away from established acts toward unknown acts, this has potentially very important implications for how talent is developed and distributed in the industry. As with the simple short-run effects of file sharing on sales, the direction of the impact is not clear. While one might guess that increasing the sales of new acts would lead to more investment in developing new talent, it is also possible that the investment in new acts is done as a fishing expedition to find artists who will sell millions of records. File sharing is reducing the probability that any act is able to sell millions of records, and if the success of the mega-star artists is what drives the investment in new acts, it might reduce the incentive to invest in new talent. This is, at its heart, an empirical question which is left to future work.

Chris looks at the data and concludes:

[F]ile-trading seems to help those in the bottom three-quarters of popularity, probably for the reasons stated above… The Long Tail implications of this are pretty clear. For the majority of artists further down the tail, free distribution is good marketing, with a net positive effect on sales. Which is yet another reminder that the rules are all too often made to protect the minority of artists at the top of the curve, not most artists overall.

And a reminder that the record companies who make money at the top of the curve will never embrace a world where talent can bloom and grow and be found lower down on that curve. Why should they? They’re quite comfortable and feel entitled to stay just exactly right where they are. They built that industry, they want to keep it.

In the world I want to live in, talent is everywhere, big and small, and niche audiences spend money so that talent can make a living wage. And a thriving industry makes money with them. A third giant - a Yahoo!, a Google, a Web 2.0 Google successor - will have to bring that about. I look forward to the day.

PLEASE SEE ALSO: My first Pyramids and Pancakes post.