Simple maths

Seems like the music industry proved again this week that it is incapable of acting rationally (seriously, there is a great paper for any budding behavioral economist in how the music industry incentives got so screwed up).

The offending action came this time in the form of labels leaning on fabulous new music streaming service spotify to add greater restrictions to the service. No doubt a bunch of these restrictions were needed to support the arcane company and rights structures the music industry dreamt up over the years. As an example of how crazy this can be, if you want to set up a site which lets users watch, interact with and mashup music videos you need:

• at least 5 separate rights (covering the performance, the score, the recording, the video be the sync/mashup right - it's different in every country, but this is about it)
• deals with a ton of different subsidiaries and rights middle-men in each of the countries where your users live
• oh, and if your users want to use TV or movie clips, then try repeating the whole process with the moving picture industry - even hulu hasn't managed to get rights outside the US and they are owned by the TV industry!

But this is just another symptom of an industry that has become so overrun with lawyers that they have lost both the ability to do simple maths and the imagination to identify a massive opportunity when of comes to them and offers a substantial slice of the pie.

So let me spell it out for them:

People don't steal music
This is the first thing the industry needs to learn. When I see estimates of revenue lost to piracy they infuriate me. At the right price (and the right convenience) many of the folks that torrent stuff today would buy (especially if they knew that most of their payment went to the artist). That price might be very close to zero, but for legitimacy alone many folks would pay a nominal fee (either direct of
through advertising). The problem is that the music business has invested virtually no effort into providing a low cost, legitimate, easy alternative to bit-torrent and has instead spent lots of effort trying to shut down every promising avenue.


There is way more demand than you thought
Seriously, you did your elasticity calculations and optimised around your £10 price point. But you completely missed the explosion of demand when prices approach zero. You just labelled it piracy and moved on.

Distributing music is free now
Virtually. Which means you can make a gross profit at few pence per track if you think it through.

And then there is the simple maths:

£1 Pross Profit * 20k units << £0.01 GP * 20m units

So record companies, please, get with the programme. And in the meantime try to help build businesses that represent the bull of your future earnings rather than shutting them down.