Illegal Music Downloading: An Economist's View

One year ago, David Lowery (musician of Cracker and Camper Van Beethoven fame) wrote a blog post in which he decried the practice of illegally downloading music. The post proved a subject of great argument that summer, with other musicians and tech folks chiming in with surprising intensity.

I take an economist's view of the issue: if the Internet has brought the market value of recorded music to zero, this constitutes a market failure. In the event of a market failure, an economist would prescribe government intervention. I will briefly describe the problem with illegal downloading and then offer several solutions for government intervention. Finding them lacking, I conclude that only enlightened consumerism will do until governments can better address the problem.

The Problem
The demand for recorded music is obviously high. There may be an 'oversupply' of different music online due to the ease of online distribution and to the pull of digital stardom dreams. Songs and albums, however, are highly imperfect substitutes (e.g., Ace of Base vs. John Coltrane) and people should ordinarily be willing to pay more for quality (i.e., what matches their tastes).

The market failure is precisely that the Internet offers a seemingly boundless supply of digital music for zero/negligible cost in terms of money or time. This leaves the the market value to fall to $0 for some people.

This failure is problematic because it discourages less-popular artists from making recorded music. If fewer and fewer people are willing to pay for music, artists will receive less and less monetary reward for their output. Even if recording costs themselves are low -- and often they are not -- the costs (in terms of time) to develop and practice good music are not low.

This does have some good repercussions if less 'bad' music gets recorded, but it also discourages perfectly excellent musicians from pursuing music as anything but an expensive hobby. Moreover, as Lowery states, the profits from 'free' downloading flow away from musicians and toward illegal servers/sites and their ad providers.

When you get rid of all the emotional window dressing of Lowery's argument (and the economic flourishes of mine), it boils down to this: if we want good artists to continue to make good music in the quantities we desire, a free-download attitude is untenable.

Assuming we do want good music, someone -- perhaps the government -- needs to correct this market failure.


Possible Solutions

1. Penalties/fines for individual music downloaders - We have been through this. Fining teenagers for downloading does not make us feel good about ourselves.
2. Crackdown on illegal download sites/servers - This needs to be part of the solution. It would be a tough row to hoe, because piracy always seems one step ahead of the law and because it can be tough to separate the illegitimate file sharing from the legitimate. This would also tap into big-picture issues about cross-border law enforcement in a fuzzy-bordered digital world, but that's another story for another time.
3. Crackdown on legitimate businesses linked to illegal downloading - This may also be part of the solution. Most sites are not sharing files for the fun of it, but for the profit it brings. Lowery mentions how Google and other ad providers provide revenue to illegal download sites. If law enforcement could more effectively dissuade these companies from providing ads, this would reduce the supply of illegal downloading. This solution would, however, get into a lot of the same problems of solution 2.
4. Subsidize creation of good music - Private patrons or governments could pay for music/art without an expectation of revenue in return. This already happens in many spaces: local governments providing free concerts in the park, the Kennedy Center offering a free performance every day, and European governments sponsoring local artists. This is not enough to sustain an adequate supply of good music, especially recorded music.
5. Appeal to emotion for music consumers - This is what Lowery is doing. Since other solutions are slow-moving and/or incomplete, it seems not unreasonable to ask people who love music to pay for it. If people are willing to boycott companies for their poor labor practices or political funding decisions, perhaps they could boycott (or reduce) illegal downloading in the interests of good music.

Given that regulators and law enforcement authorities will be slow to enact solutions, for now we should simply be enlightened consumers. Think before you click.