Thanks to the fast-moving technology, millions of songs are available on the internet and we are able to download - legally or illegally - songs we want in minutes. In recent years, digital music players like iTunes have made it possible for consumers to download and carry over 100 songs wherever we wish. Online music has proved that it is here to stay. Unfortunately, these new advancements have led to a contant decline in CD sales which have also led to many artist complaints. Now the question is (thinking economically)what about the musicians? Will the decline in CDs sales and other money making opportunities that were lost resulting from file sharing be enough to keep new musician from entering the industry? Or are concerts, fame, and other money making opportunities enough for artist to keep entering? What incentives are keeping complaining artist in the industry? And if artist are staying in the industry, there must be more incentives to keep them in the industry. If that is so, is file sharing such a big deal?
4 comments:
CD sales are not how artists make their millions. They make them from concerts and the merchandise they sale at those concerts. The advocates that are so against online file-sharing, are the giant record companies. They stand to lose a lot more from the declining sales.
There are some cases where more music will be bought. Sometimes people just want one song from a certain artist and will not go and buy the cd. Because they are able to download the one song from the Internet this makes them more likely to buy it. There are many times when people buy singles instead of whole cd's because they are cheaper and they know they like the song. This also can hurt artists because many times they get all their songs out into the market by combining them with favorites or hit songs. If people buy single songs instead of cd's then these other songs will never be heard. I agree with Rufio that online music might just be the next step.
The next step is by charging more per song on the Internet so that people will just go buy the cd. In order to keep the artist happy, you might see the artist getting a percentage of the profit from each individual song. This will lead to consumers buying the entire cd because in order for both the artist and say Walmart to make a profit, the price for one song will become much higher.
-1 for spelling mistakes on Bryce Larkin's comment.
John_West is right: musicians do not make most of their money from CDs, they make it from performances and selling merchandise at those performances.
Songwriting is probably not a good money-making business. There are high fixed costs to writing the song, and then very low marginal costs for selling additional copies. This is very much like browsers - songs will end up being free, or very close to free, in an open market.
Performance, on the other hand, has high marginal costs, and quite likely many performers have some market power in that their fans will pay more than the marginal cost. There actually was a listing of most successful touring acts in this mornings paper (12/10/04) - and they are all people who are older ones with established records of doing good shows (Phil Collins was the top concert money-earner in 2004). Phil Collins is a good example because not only has he made money touring as a solo artist, but he was the front-man for Genesis when they were one of the biggest money-earners from the mid-70's to the early 90's. He can charge a high price because people see him as the only seller of a Phil Collins-like performance.
Record companies on the other hand are doing two things. First they are bundling songs together. Secondly, they are engaged in a prisoner's dilemna where the Nash equilibrium is that they all engage in excessive marketing. Those costs are recouped through high CD prices.
Really, what online file sharing is all about is the consumer pushing the record companies from the unfavorable Nash equilibrium, to the low cost equilibrium that the record companies would be unable to achieve on their own.
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