Replacing DRM With A Music Tax Is Incredibly Stupid

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A couple of weeks ago The Register’s Andrew Orlowski published an interview with Peter Jenner about the future of the major music labels and DRM. A number of blogs picked up the story and wrote about it in a resoundingly positive way.

It certainly starts off well – Peter Jenner is a respected figure in the music industry (he was Pink Floyd’s first manager, as well as managing The Clash and other great artists), and he gets the ball rolling by saying the big labels are “fucked.” That’s an easy way to win over the crowd these days, who generally see big music labels as the antichrist.

He hits on all the points that outrage music consumers – DRM, pay-per-download, and per-device restrictions that force users to pay multiple times for a single song. He says the lables have “raped their whole business model” in the pursuit of short term profits.

But then Jenner goes off the deep end.

Jenner wants the government to step in and save big labels. He’s calling for a mandatory monthly tax in the European Union on broadband Internet and mobile phones of around €4/month that allows consumers to download and consume all the music they want without DRM. Payments will be made to rights holders according to popularity of music – if a song is very popular, it will get a higher percentage of total fees collected.

The idea is based on the UK’s television licensing scheme – if you live in the UK and own a television you are forced to pay a tax of £131.50 per year. The BBC gets these fees – how they spend it is broken down here. The BBC literally has vans roam around the country trying to determine if people who don’t have licenses are watching tv in their house, and there are big fines if you are caught without one. In 1995, 235 people were jailed for not paying the TV tax.

This is exactly how Jenner sees enforcement of the music tax. He says:

And if you swear that you’re not going to listen to any music, you’re not going to pay. It’s going to be very hard for you not to pay, and the network is keeping an eye on you to see you don’t download any music. And if you do without a license, we’ll sue the hell out of you – because you’ve been offered a cheap deal like the TV license.

Why Europeans are not up in arms over this is beyond me. If this were to go through the results are inescapable.

Music industry revenues will be a set size, regardless of the quality or type of music they release. Incentives to innovate will evaporate. There will only be competition for market share, with no attempt to build the size of market or serve less-popular niches. Forget labels building new brands and encouraging early artists to succeed – they’ll bleed existing big names for all they are worth and work hard to keep anything new – labels, artists, and songwriters – out of the market. New entrants just means more competition for a static amount of money. Collusion by existing players will run rampant.

Soon labels will complain that revenues aren’t high enough to sustain their businesses, and demand a higher tax. It will go up, but it will never go down.

And the government will be responsible for enforcing these laws. And they will be putting people who avoid the law in jail.

What I think

I agree with Jenner that the music labels have “raped their own business model” and are in a very difficult situation. The projections that CD sales will decline by 50% over the next few years sound about right to me, given the alternatives that people have online.

But I do not think that the government should step in and help these people. I do not think that we should legislate a tax on broadband Internet access and mobile phones that gives the music industry guaranteed revenue, and guaranteed profits, while simultaneously removing their incentive to innovate and serve niche markets.

Asking the government to prop up a dying industry is always (always) a bad idea. In this case, it is a monumentally stupid, dangerous, and bad idea.

More on this in a later post.

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