Some thoughts on the RIAA

26Jul06

Alright, I’ve been confused about this for a while now. If you read Techdirt or Ars for any length of time, you will invariably run across a story about iTunes, or DRM, or Microsoft’s upcoming Zune. But what will be mentioned in nearly all of these articles is how unhappy the record labels are with Jobs’ flat-rate pricing. This is a position…. that quite honestly confounds me.

First, let’s ignore the irony that because the RIAA’s imposed DRM upon all digital download retailers, it granted Apple the very monopoly it’s now fighting against.

Second, I can understand the motivations of the RIAA. As a trade group of record labels, they want to make as much money for themselves as possible. And hey, we all want to earn our way somehow. However, it appears that the RIAA in particular goes about it a bit less than completely honestly, like when they attempted to rewrite copyright law to make all songs from artists classified as “works made for hire” in essence drastically swinging the balance of power in favor of the record labels. Read up on the 1999 case, its worth reading (and noting that they lost).

On to the present. So the record labels want variable pricing. I understand that the economics would work out so that price discrimination on the more popular content would capture more of the dead weight loss as opposed to a flat pricing scheme given a sloped demand curve. And that’s presuming all the content is bought equally. Given that popular content is bought more often, the numbers would probably add up even higher than simple dead weight loss for the labels. On the other hand, if consumers start to expect to pay only a dollar for the newest hit song, the reduced expectations will shrink the aggregate demand curve, which is bad any way you slice it for the labels.

But… ummm… that’s on the retail supply and demand side of the equation. As I understand it, the labels are engaged in wholesale trade, licensing music to Apple. Last I checked, they can’t dictate Apple’s prices… I’m pretty sure that’s illegal… price fixing or something of the sort. However they should be able to price discriminate themselves, license music to Apple at whatever cost they like. Normally it would then force Apple to raise its prices in turn, but apparently selling music as a loss leader changes your outlook on things.

Or… music licensing could be a flat fee regulated by the government. In which case the RIAA’s actions would make much more sense.

I don’t have the time to research this one thanks to the increasing difficulty of Japanese in these next few weeks. Can anyone shed some light on this subject? I’d very much appreciate it.

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