Patrons or Pirates: the music industry has to choose

Pirates The music industry is trapped.  The more it enforces copyright, the more piracy it provokes. 

The long term picture is grim.  Digital sales from the likes of iTunes do not compensate for lost hard copy sales.  (Unless people are buying less music, this means that piracy continues to grow.)   For many younger consumers, piracy is the way you get music.

The industry is mobilizing to respond. According to Victoria Shannon reporting from Midem in Cannes,

…at least one of the four major record companies could move toward the sale of unrestricted digital files in the MP3 format within months.

But this raises a problem: how to capture value.  The industry hopes that MP3 format will woo the consumer back to purchase, but the pirates might actually see it as the white flag of surrender, an invitation to board the industry and strip it clean. 

Here’s a thought.  What if the music industry came up with a new pricing scheme?  What if the music industry started charging fewer people more?

I remember as a kid being impressed with how little I had to pay for my favorite "album."  I remember sitting there staring at the cover and thinking, "wow, I can actually own this!" 

Now that I have taught at a business school, I know what this is.  This is the failure of an industry fully to capture the value it is creating.  In point of fact, I would have happily paid the industry 4 times what I did for that album.

The notion here is that every artist has a deeply passionate core constituency.  For this constituency, the artist creates value like crazy.  The fan is not only willing to pay the full sticker price but to pay more than the full sticker price.  And this passionate engagement makes up for all those unpaid MP3 in circulation, which may now be regarded as loss leaders.  Some of them will end up in the hands of a would-be fan who will, it is hoped, convert to core constituency status.  Think of it as a "user pay" model.  Lots of people benefit, but only the real users pay. 

The fact that I taught at business school doesn’t mean that I can run the numbers.  But I think the calculation would look something like this.  My generation listened to lots of artists, followed  some subset of artists, and committed to a mere handful, 6 or 7, say.  This model of music consumption looks a lot like a peak.  The pricing model proposed here supposed that I will pay more for those 6 or 7.  Whether this throws off enough funds to sustain the industry, to pay, in other words, for all the other artists and the rest of the landscape, is an open question.

Younger generations of consumers exhibit a different pattern, less a peak, more a mesa.  Kids, that is to say, tend to consume more music, listening to more genre sand more artists, following more artists, and committing, finally, to more than 6 or 7.  Or so I think.  I may be that 6 or 7 is the core loyalty number.  But if this distribution is "flatter," with more artists but less loyalty, my pricing model has a problem. 

What I am assuming here is that the motive for and the nature of purchase would change.  The consumer will pay more, but he or she wants to know that proportionally more is going to the artist.  Consumers have still not forgiven the industry the digital transition.  CDs cost less to make but the industry didn’t charge the consumer less or pay the artist more.  It kept the difference.   (A penny of this difference could have funded a beautiful or at least effective jewel case. Instead, we got a piece of crap that breaks almost immediately.)  I think it’s probably true that some part of the piracy problem can be put at the door of industry bad behavior.

The purchase decision becomes in effect a reward system.  I am not paying money to buy a copy of A Night in San Francisco from Van Morrison, say.  This is available online for free.  I pay for this music in order to thank and support the artist.   I am a little bit more like a patron, and a lot less like a consumer.  We are all Medici now.  Actually, the Medici model works twice.  My "purchase" supports Van Morrison’s work and makes his music available free to a larger public. This is the public art model, I think.  Every "core fan" plays benefactor to every non-core listener.

We know that the fixed price is a historical invention that installed itself relatively late in the Western markets.  But certainly we have seen the reemergence of variable pricing.  This has not always gone well.  The CEO of the Coca-Cola Company proposed variable pricing for Coke vending machines (the machines were to charge more on hot days) and he was made to pay for this act of temerity with his career.  But it is surely contrary to the vaunted rationality of the marketplace that we should cling to pricing conventions merely because they are habitual. 

Every business school appears to believe in a Platonic cave concept of capitalism.  There is a perfect original of industry and organization there in the cave, and all the real world industries and organizations are so many shadows.  These real world industries and organizations differ from one another only because of the accidents of history and the irrationalities of the world outside the cave.  Actually, all industry and each organization is formally the same.  (This is why b-schools insist on one-size fits all instruction, treating industry-specific courses as so many trade schools.)

The music industry has followed suit.  It has never made much of its difference from other industry.  By and large, it sells music the way the Gap sells clothes the way Detroit sells cars. But it is now an industry in crisis and perhaps this is inducement enough to rethink the business model and reach out to its consumers as patrons. If we don’t treat them as patrons, they can be relied upon to act as pirates. 


Shannon, Victoria.  2007.  Record Labels Contemplate Unrestricted Digital Music.  New York Times.  January 23, 2007. here

LaRacuente, Nicholas.  2007.  Free Culture Labs.  Free Culture Blog: voices fo the student movement for free culture. here.

12 thoughts on “Patrons or Pirates: the music industry has to choose

  1. aj

    Of course this presumes that we need a music “industry” intermediary at all. What about the model of direct-to-consumer — as so many artists are doing through platforms such as MySpace and their own websites? It seems like the referral model (if you like Momus, you may enjoy the Magnetic Fields, etc.) and the abundance model both work here.

  2. Mark

    It may be that the pricing model drove you to commit to only 6 or 7 artists. Commitment then meant financial as well as emotional. With the financial part removed now, it is easier to commit to many more artists. Nonetheless, a “patron” or even a “dedicated fan” model may be the answer, with patrons able to receive more value than simple listeners (special access, first shot at concert tickets, etc.).

  3. Peter

    Mark’s comment leads me to think a Linux business model may also be appropriate for music — actual content free to download to everyone, with some people paying for after-sales and other value-added services. For example, I would pay extra (as presumably would Grant) to receive robust CD cases and booklets printed using a legible font-size. (It is typical of the music industry that the main market for classical music is middle-aged and over, yet the CD booklets are written for people with a teenager’s vision!)

  4. Mark Schultz

    There is one community of music fans and musicians that already looks a lot like what Grant describes here–the jamband community. Jambands like the Grateful Dead and their progeny (Phish, String Cheese Incident, etc) treat their fans rather well, allowing taping and trading of concerts and generally treating fans better than most of the music industry. They charge less for concert tickets when they can, provide lots of free music releases, communicate with fans directly, and focus on making concert experiences very fulfilling, major events. In return, fans are quite devoted (Deadheads are of course legendary for their devotion) and even have social norms that support and encourage paying for commercial releases. As a result, jambands can get away with selling non-DRM protected files online. I think this model is *one* future for *part* of the music industry, especially the long tail part of it. Shameless plug (but I wont try to link): I’ve written about all this in a law review article about jambands and copyright law in the Berkeley Technology Law Journal. It’s out there on the web, and tediously long as such things are.

  5. John

    Issa, the artist formerly known as Jane Siberry, instituted a policy of “self-determined pricing” about a year ago in her online store, the only place her music is currently available:

    One can choose exactly how much one wishes to pay (including nothing). Part of her expressed rationale: “Like many, I’m restless and impatient with living in a world where people are made to feel like shoplifters rather than intelligent peoples with a good sense of balance.” As the statistics in the store show, most people pay the same prices that were charged before the self-determined policy. More people pay MORE than that cost than pay LESS than that cost. There is also a “patron” option, if one wishes merely to donate money to her efforts without purchasing downloads — it was placed there at the request of fans/customers.

    What if the **AA just asked nicely? When offered a true, respectful choice (and no DRM) by the industry — and maybe I’m being mind-blowingly naive here — I’d like to think that most people wouldn’t behave like thieves.

  6. Daniel Rosenblatt

    Mark’s comment that the pricing model may have determined the number of artists you could commit to makes sense. And maybe the way this could work now (to address people’s wider and possibly shallower interest) would be to combine getting more money from a few people (via value added services such as Peter describes) with getting less money from lots of people: by charging little enough that one doesn’t have to be very committed at all to buy: what if music were 25 cents a song? Would it be worth looking to see whether it was available somewhere else for free? Worth buying a single song rather than the whole album? I’m not sure you would sell 4 times as much of any individual song, but you might get people to spend as much or more on music in toto. On a related note, I’m not sure that business schools are correct to say that if you felt like you would have paid more for a record, then the record companies weren’t fully realizing the value of the music: in the long run it seems good to leave you feeling happy & not ripped off or even having paid a fair but not great price. You’ll be more likely to come back.

    (And on an unrelated note, but the business of “feeling good” reminded me: buy Target, sell Walmart–I was in the former the other day and overheard 3 teenagers: One said to the others, “you know Target is so much nicer than Walmart.” One of the other’s replied, “yeah, its not even the stuff, its just happier to be in here.”)

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  8. Mathew Ingram

    Great post, Grant. And I think Mark Schultz is quite right — the type of model you describe already seems to be functioning fairly well with bands such as Pearl Jam, where most of the band’s music (the live performances at any rate) is released in the form of unencrypted mp3 files. Hardcore fans then pay for a number of features and add-ons, including faster access to the mp3 files of concerts, better quality files, interaction with the band, early-release concert tickets, etc.

    P.S. The tribute/profile in your sidebar, the one written by your nephew, is one of the funniest things I’ve read in a while. Thanks for including that.

  9. mle.detroit

    I always thought the Coke proposal was backwards. If a can of Coke is usually 80 cents in the machine, on a hot day make it 60 cents. Goodwill and loyalty go up and I’d bet unit sales would double. Speaking of hot days, the air conditioner at my office went out one day in July. Under the flat roof, temperatures and bitching soared, along with much tramping and cussing up above. At 3:00, the building manager came around to our cubicles with a cardboard carton — handing out Dove bars. That was 4 years ago…warm fuzzies still remain.

  10. Louise Pierrel

    The interesting thing is that dedicated fans already are paying, this differentiated price according to commitment: On sites like Discogs and other e-auction houses… The problem is that the added value is happening on a secondary market where the original producer (and promoter) with the productions cost most likely will not benefit. The dilemma is the same as that of the art world, where an artist can denounce an early work as bad or un-important, but the sheer reputation of an artist later work will drive up prices just the same.

    I do think that the way musicians will handle this will show the way for other industries. Just as musicians where some of the first to use websites to gather hype around new products e.g. upcoming records (back in the day) and concert tours, and interacting with fans through blogs.

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