The Music Industry's Last Stand Will Be A Music Tax

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It is becoming more and more difficult for the music industry to ignore the basic economics of the their industry: unenforceable property rights (you can’t sue everyone) and zero marginal production costs (file sharing is ridiculously easy). All the big labels have now given up on DRM. They haven’t yet given up on trying to charge for their music, but it’s becoming more and more clear that as long as there is a free alternative (file sharing), the price of music will have to fall towards free.

You can disagree as to whether it’s “fair” that the price of recorded music will be zero or near zero, but you can’t disagree that it’s going to happen. I presented my arguments here last October. Subsequently, we noted that even offering the new RadioHead album for free didn’t stop massive file sharing on BitTorrent. More recently, NIN’s Trent Reznor was disheartened to see that, when offered a choice between downloading a new album for free and paying $5 (and, thereby “feel good about supporting the artist directly”), only 18.3%, or less than 1 in 5, chose to pay the $5.

Personally, I think a new era of free recorded music and paid live performances is a very good thing. Recorded music will become a marketing tool to get people to pay for concerts and merchandise. Overall the music industry will be smaller in terms of revenue. But the artists who are driven to create their art will continue to do so, and many will make a very good living from it.

But before that happens, the music industry is going to make one last stand to preserve their “bloated bureaucracies.” And that is going to be a call for a music tax to create guaranteed revenues.

Reznor called for it today, saying “I think if there was an ISP tax of some sort, we can say to the consumer, ‘All music is now available and able to be downloaded and put in your car and put in your iPod and put up your a– if you want and it’s $5 on your cable bill.'”

This isn’t the first time its popped up. Over a year ago, Peter Jenner (he was Pink Floyd’s first manager, as well as managing The Clash and other great artists) called 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. I attacked his plan, and he responded here.

Mathew Ingram notes that similar efforts are being made in Canada. Last month the Songwriters Association of Canada called for a mandatory $5/month ISP music tax.

So far they’re just testing the water. The big push will come when the labels put lobbying dollars behind the effort, sometime in the next few years.

Music Taxes Will Kill Music Innovation

Forcing people to buy music whether they want to or not is not a solution to this problem. The incentives created by such a system are perverse – guaranteed revenue and guaranteed profits will remove any incentive to innovate and serve niche markets. It will be the death of music.

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.

As I said before, 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.

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