[LINK] $60 million music piracy operation and economics
oleary at alphalink.com.au
Mon Apr 28 14:20:42 EST 2003
At 11:20 AM Monday 28/04/2003 +1000, Dean Povey wrote:
>On Mon, 28 Apr 2003 10:52:23 +1000, "Chirgwin, Richard" wrote:
> >James - I go with TL on this one. $60 million of "what" is the question.
> >It's the old "street value" question. If they're saying "these three people
> >took orders worth $60 million" then the question begged is "why give money
> >to these guys but not buy the stuff legit?"
>Right. This spouting of "X millions of dollars lost due to MP3 downloads"
>by the recording industry does not take into account the simple economic
>effect of price on supply and demand. It assumes that the people who
>downloaded hundreds of songs for free, would have forked out money for them
>if they had not been able to download them.
More importantly it assumes that if you downloaded say a Radiohead new
album that you would NOT spend the money saved on any CDs by other artists.
I think classic economic theory might say something more along the lines of
If an angsty, sullen, spotty but nevertheless lovable teenager in his / her
bedroom has made a rational decision to spend $28.95 on music each month
then he / she will download the new Radiohead in MP3s instead of buying it
but will still spend that $28.95 on music. However that $28.95 may go to
the new Eminem CD or to a DVD of Eminem's new movie or even to a Radiohead
DVD. If it is the DVD it will add to the media companies revenue but will
also contribute to a decline in official figures of sales of music CDs.
There may be no loss of income to music industry through forgone purchase
of a music CD directly due to downloading.
[A side note about something that is always ignored in downloading
discussions: if that aforementioned teenager is over the family BigPond
broadband limit for the month it would cost about 15c a MB to download
anything. Assuming an MP3 compression to one third the size of a 650MB
music CD then 220MB of Radiohead MP3s @15c = $33 costs - I make no detailed
mention of the dreadful sound quality of compressed music at these
>A similar, and even more incredulous lie is told when the recording
>industry tells you that "piracy adds $X to the cost of the CD". Again, the
>simple economic fact is that competition generally works to decrease costs.
>In theory, piracy (and P2P/Internet downloads in particular) should work
>to keep the price of a CD down, by greatly decreasing the scarcity of the
I don't have Adam Smith in front of me (or Karl Marx and Hayek for that
matter) but I think that the fact that CDs prices have not come down would
suggest, in economic terms, that supply / demand has not been greatly
effected by online downloading. Reduced sales should mean prices become
lower and tend towards the marginal costs and therefore those with greater
efficiencies (lower costs) or greater added or perceived value, survive and
other firms leave the market due to un profitability.
From memory black markets are said to arise from restrictions, imposed
scarcity, monopolistic pricing and lack of different price points (demand
curve) in the primary market. I'm not clear if downloading for _free_ is a
black market. Of course I could be wrong about all this and I should be
reading The Tragedy of the Commons again.
note: If these guys were selling this stuff then a whole new set of numbers
and assumptions come into play.
oleary at strategos.com.au
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