(Alan Levine, Public domain)
CE Financial Observer: Is Paul McCartney wrong?
Professor Joel Waldfogel: About what?
About intellectual property rights and the internet. He claims that the former are insufficiently protected in the midst of the digital revolution. He has supported the EU directive intended to change that.
When celebrities such as Paul McCartney complain that their earnings from the distribution of music have dropped as a result of the digital revolution, there is no reason to disbelieve them. It’s a fact that in the music industry as a whole, revenues from distribution are still lower than in the 1990s, even if we add the revenues from concerts. Another thing is that theft is never justified and must be condemned. However, I would be cautious about strengthening the intellectual property rights through further regulation. Instead, I would put emphasis on increasing the enforcement of the ones already in place, so as not to harm the general growth of culture.
Many believe that this growth is precisely being harmed by the internet.
This claim is not warranted by the facts. We need to look at the problems of the cultural market from different perspectives. On the one hand, from the perspective of the producers of culture, i.e. the artists, and on the other, from the perspective of its consumers.
What, then, could be considered an optimal situation? When could we say that the cultural market is functioning well?
The answer is pretty simple. It is the situation in which the market offers new products of varying quality, from poor to good, at varied prices. This means that the consumers are satisfied.
And the producers?
In most cases yes, as they are creating and launching new works to the market. Incidentally, this also confirms that the intellectual property rights are working well, that they are secured and that they provide sufficient incentives to creativity.
I’m losing you now. So are McCartney’s complaints valid or not?
Possibly that they are, but this validity has to apply to a perspective other than the market perspective. The market is operational. The number of new works of art is growing. For example, in 1990 about 500 films were made in the United States, while in 2010 this figure had grown to 3 thousand new films. About 85,000 new books were published in 2008, and in 2012 that figure reached 400,000! About 50,000 new music tracks were released in 1988, while in 2007 their number reached about 350,000, and in 2017 almost a million new songs appeared on Spotify.
So it’s not true that the internet, and more specifically online streaming, is „killing the next Beatles”?
Is that what you think?
Not me, Gene Simmons of Kiss.
I understand that this relates to the concern that there will be no real big stars anymore.
That’s right. Because young bands are no longer getting the opportunities that the 70s or 80s bands were enjoying.
In my opinion, this concern is not warranted. In the world of digital music distribution, we have the stars at the forefront of popularity and income distribution who reap all the benefits, and the long tail dominated by less popular artists. Except that — and this is a difference compared to the era before the digitization of culture — today unpopular artists have a better chance of becoming popular than before, and that without external support! They can rise from the tail to the forefront. Justin Bieber was a YouTube star before he became globally recognized, and „50 Shades of Gray” is a book that was originally self-published.
And these examples are supposed to prove that the internet is conducive to culture?
No [laughs]. What I’m saying is that these days anyone can make a lot of money, not just Metallica or Beyoncé. This has to do with the changing business model in culture, and especially in music, the change having occurred over the past two decades. The revenues from the CD sales have decreased, and the publishers have had to find some solution in order to stay afloat. Before the digital revolution, record labels searched for a relatively small number of new artists and invested a lot of money in their development and promotion, hoping to achieve a return on that investment. Record companies were the patrons of art. Today they no longer act in this way. Besides piracy, the drop in revenues was driven by a decline in the costs of market entry for the artists.
In the pre-internet era, the supply of new artworks was directly dependent on the record label’s investment. Many of these investments turned out to be duds, and those that were successful were supposed to compensate for the losses and provide the profit. The functioning of a record label was based on making bets on who would succeed. The ones that made the best bets won. Today, you can enter the market with your own album, movie or book completely independently of a label. Besides, this applies to the entire culture — the cameras used to shoot movies half a century ago cost a USD250,000. Today, it’s a few thousand, and anyone can shoot a movie with a smartphone. But let’s stay on the topic of music. The lower entry threshold means much larger supply, and thus a much larger number of candidates for the charts and a greater number of potential hits. Hence, the chance that the labels will still bet on the right artists is smaller. The costs of searching for new promising talents are rising. Today, big labels are trying to take advantage of the artists who are doing well on their own. It’s them they invest in.
And what about the others?
There has also been an increase in the number of independent labels which provide the opportunity to all those willing to try their luck on the music market. In the United States the share of independent labels in the total sales increased from 12 to approximately 35 per cent between 2000 and 2010.
But is it really a good thing that there is more of everything? The quantity does not translate into quality.
If the market was entirely predictable, the digital revolution would not matter that much. It provides an opportunity to achieve success for those who would previously have no chance for publication and promotion. In the past, for example, in order to check whether a given song has the potential to be a hit, you had to put it on the radio. That was pretty much the only way. The airtime is limited, and the listener has to hear the given song several times in order to decide whether he likes it or not. In relation to the overall supply only a small number of tracks appeared on the radio and it was time-consuming to examine their potential.
Today, a video that has already been played a thousand times on YouTube can increase someone’s popularity on the basis of the snowball effect. Let’s suppose, however, that the market is predictable. All the new, additional cultural material that is being put out thanks to the digitization would necessarily be worse than the one published by the record labels of the old type. After all, they had the ability to predict, they simply knew what would sell above a certain threshold and what would not. In reality, however, the internet has shown, that they have been overlooking many valuable things, some of which they’ve even rejected themselves.
I’m not sure overlooking Justin Bieber would have been a major disaster.
Any discussion about art is always difficult, because it is difficult to define what is good and what is bad art. An economist with a narrow view of the world would say, for example, that good art is the art that appeals to people and that they want to buy — even if sophisticated art critics are of a different opinion. However, it is possible to measure the production of works of art that have been recognized as outstanding over the decades and ask whether there are fewer new critically acclaimed works today than in the past. For music, I constructed an index in which the input data is provided by various „best of…” lists (for example, the Rolling Stone magazine’s list of the 500 best albums of all time). It turns out that the best-rated albums were created in the 1960s and 1970s. After that my index peaks once more in the mid-1990s and then falls again. Since 1999, when the digital revolution broke out, or — as I call it — when the digital renaissance began, it has stayed at the same level (similar to the year 1980).
This means that the same critics who often formulate general assessments of the supposed „decline of culture”, have a pretty good opinion of the individual works of culture. The consumers are also listening to new recordings. In light of such data, there is no decline of the music culture. What’s more, since 1999 there has been an increase in the sales and in the number of new music tracks played on the radio. The situation is similar in the case of movies. Let’s look at the database of the movie review site Rotten Tomatoes. In 1993, less than 40 new films received ratings of over 87 percent there. After 2000, there have been between 80 and 100 such films a year. In the eyes of the critics, the quality of the movies is also increasing.
And maybe all the complaining about the internet is due to the fact that some genres are simply not as popular as they used to be? Rock musicians tend to complain more frequently than rappers.
Except that this is not the fault of technology but the preferences of the consumers. Music veterans still remember the old times and are used to a different model of music consumption. When you made your money from album sales and not from online streaming. Today, you earn money from the streaming services, because the consumers have access to all of your albums for a small fee. On the one hand, this means that artists who are currently popular make a lot of money. It’s no secret that new things are the most exciting ones. On the other hand, if the old model were still in place, artists who were once popular, and who are now forgotten and no longer publish albums, would not earn money at all. And now — thanks to streaming — they can still earn some money. Some earn less, and others earn more. Incidentally, in the United States streaming somehow compensates for the consequences of the flawed law as a result of which the artists do not make money when their tracks are being played on the radio. Only the songwriters receive royalties from that.
The digital renaissance is an era that favors niches. Before it started, I was afraid that niche culture would be stifled by the high cost of production, that people with an unusual taste would not be able to find suitable works on the market. But thanks to new technologies this is no longer a problem. Promotion costs have also decreased. If you are an aspiring artist, with a bit of luck you could, for example, post your song on one of the Spotify playlists, which will give you the access to hundreds of thousands, if not millions of „followers”. Incidentally, the book market is more difficult in this respect and requires greater promotional expenditures, but that is also changing. In general, the production of culture is growing, just like the number of artists.
Who — at least in the case of the music market — are being paid less.
But, as I’ve said, that is another matter altogether. For some artists these may be difficult times, but for many others it is a time of great opportunity.
You’re saying that the age of the digital renaissance allows niches to exist. Meanwhile, many argue that the internet, as one of the elements of globalization, is leading to the homogenization of culture. Are they wrong?
The digital renaissance has many shades. It certainly facilitates cultural exchange. In the past, it was very expensive to trade in works of art from other countries, to import and export them. In order to introduce an album recorded in Norway to the United States, you had to find a separate publisher, obtain the appropriate licenses, launch additional and very expensive promotional activities. Today, artwork crosses borders in the digital form in the blink of an eye. The cost of global dissemination has decreased — to almost nothing.
And that’s why the world is being flooded with American culture at an even faster rate.
This is an illusion. Thanks to the changes that I’m describing, the share of American culture in the overall consumption is falling, and the culture of even small countries is gaining worldwide popularity. In music, these are, for example, the Scandinavian countries. They are even setting the directions of development in genres such as pop or rock.
But that’s still English-language music. There is no difference between pop from the United States and from Sweden.
It’s true that it is the easiest to popularize music sung in English. But are the Swedes really bothered by the fact, that their artists are gaining international fame by singing in this language? No. They are proud of it. Although it is not the national folk music that is gaining global fame, that music is also probably produced in greater volumes than before. The cultural protectionists are afraid, that the accelerated globalization in the internet era will lead to the disappearance of the local art that reflects the identity of the given societies. These fears are unfounded.
Many countries, including Poland, have introduced minimum quotas of domestic performers that radio stations must follow while constructing their playlists. Does such policy make any sense in light of the technological change?
It depends on the purpose of such policies. If we simply want to raise the earnings of „our” artists, then it makes sense, because it will lead to an increase in their royalties. But, if we want to ensure the continuity of the national culture, then it’s not necessary, and certainly not to this extent. Moreover, what certainty do we have that the introduction of such requirements will increase the consumption of the local music? People can simply turn off the radio and turn on Spotify.
But digital platforms can also be regulated. The European Commission is trying to do that with Netflix. It wants to ensure that a certain percentage of the production placed on that platform is created in Europe.
And that’s supposed to guarantee that people will watch these programs? Today people are watching what they want, and not what they are told.
Many countries subsidize their artists. Do you think this also doesn’t make sense?
That also depends on the objective of the policy. In times of a radical decline in production costs, whether in music or in film, these subsidies could certainly be lower. In the Unites States and in Europe, billions are being spent on such subsidies each year.
You’re talking about a digital renaissance in culture. The renaissance that we know from history began after the invention of the printing press. Could the internet and the mobile technologies be seen as inventions of equal significance?
The internet is a „printing press” which enables us not only to copy texts, but also to produce audio and video forms at near zero costs. It constitutes a real breakthrough in culture.
Joel Waldfogel is a professor of economics and lecturer at the University of Minnesota.