Washington, DC, January 27, 2004 --  

With fear heightened by new round of anonymous lawsuits against Americans who downloaded music over peer-to-peer networks, the recording industry has gained a new set of recruits in its battle to protect its obsolete business model. Many of those who sat on the sidelines during the heyday of free music downloads now lecture peer-to-peer users with a smug I-told-you-so glee that can only come from a feeling of sour grapes.

They repeat the mantra of the Recording Industry Association of America that downloading music is not only a technical illegality, it is wrong, because it deprives hard-working activists of the fruits of their labor. Repeating this nonsense may make people feel better about wasting money on expensive licenses from the music cartels, but it doesn't hold up to the evidence.

The simple true is that hard-working artists are the least threatened by online music sharing. While royalty revenues from recordings have declined in recent years, royalty revenues from performances have continued to increase. These performance-based royalties have long been greater than royalties from recordings - $500 million vs. $350 million at the dawn of the Internet in 1993.¹ Although CD sales have slipped since Napster became a giant hit in 2000, performance royalties have continued to increase. They hit $900 million in 2002, more than double royalties earned from recordings that same year.² Even when adjusted for inflation, 2002's royalties from performances alone are nearly as high as combined recording and performance royalties from 1993.

What these data suggest is that critics of the Recording Industry's business model have been right all along. There is no magic formula that says artists can only earn a living by selling CDs. Some of the most successful performers have long known that touring can be the most lucrative way to earn a living - witness the piles of money made by the Rolling Stones over 40 years of nearly non-stop concert tours.

The relative profitability of performing is even greater at the lower-end of the popularity scale. Few hometown bands make money off of CD sales - indeed, many groups actually waste money creating vanity recordings. Instead, these groups make money by entertaining audiences at live shows. With this hard work, bands can easily earn compensation proportionate to the popularity of their recordings. People pay over $100 per ticket to see superstars like Sting and Bruce Springsteen play stadiums. A lesser-known local band might convince fans to pay only a $3 cover charge at a neighborhood club. This is certainly a fairer means of compensating artists than through royalties on CD sales - the latter system has never been able to give significant revenues to any but the most popular artists.

If trends continue along the lines of the past few years, selling recordings will soon become a small component of artists' earnings, while direct performance revenues and performance royalties will provide the lion's share of income. This revenue will be more than adequate to support the industry - the noisy battles being fought today are but the last gasps of a greedy recording industry giant, desperately trying to retain the unnaturally high earnings of its 1999 peak.

If and when this change in the business model happens, album sales will be a marginal enough earner that peer-to-peer music traders will no longer suffer the obnoxious series of lawsuits and obstructionist tactics by the recording industry. Having adjusted to the new model, artists will be willing to offer their music for free or a nominal fee, secure in their knowledge that performance-based earnings will only increase with greater exposure. The generation of inflexible and inconveniently crippled music formats offered by today's online music retailers will be abandoned in favor of open and easily duplicated formats like the trusty old MP3. In the future, with a performance-based business model in place, copying and downloading will be met with encouragement, not litigation.

Jailing the Peasants
The Social Value of Civil Disobedience, September 16, 2003

Notes:

1. New York Times, Music Royalties Rise, Even as CD Sales Fell, January 26, 2004

2. Ibid.