MAD versus RAND: Structures of Competition in Music

The more legislators intervene in copyright regulation the more chimerical seems the notion of a ‘fair and transparent’ market for creative work that also delivers economic growth. Perhaps they just need to try harder, or perhaps buried in the megatonnes of comment and consultation there are a few very small and simple ideas that might have a surprisingly big impact.

It is not hard to see in music which parties might want which policy outcomes. Collective rights management organisations are arguably obsolete in an age of massive and complex data processing – they obfuscate and fudge rather than deliver granularity in either licensing or royalty distribution. If that seems controversial, imagine an Ebay where the sellers could not see the buyers, and the payments were pooled and shared on weighted algorithms, and you have a reasonable analogy for most collecting societies. Do collecting societies instinctively like levies, ECL, compulsories and blankets? You bet they do.

Performers and creators want fairness and transparency, not necessarily because they would be better off (it creates no new money and might be a disincentive for their traditional publisher and record label representatives). The career trajectories of artists in particular have been so uncertain, subject to the need for an against-all-odds breakthrough, that early career deals are almost inevitably unfair and the unscrupulous have almost a legendary status in the recording industry. Knowing that nobody got rich will always be better than suspecting that somebody else might have got rich off your music. More important is the need for better career data with which to plan holistically; this data is the first casualty of lopsided dealmaking, where one party prefers the other to stay in the dark about what sold and where, and what other bits of value might have been picked up on the side.

Naturally owners of the most valuable exclusive rights want to be able to set their own price, and withhold their music where doing so supports their commercial interests. In markets characterised by media competition, exclusivity on compelling content has been shown time and again to have a huge premium value. Whole books have been written about such blockbuster strategies; it is likely that the concentration in the recorded music industry has been largely driven by a process of blockbusterisation rather than any particular efficiencies in production and distribution, both of which have arguably democratised over the last decade. And of course one of the biggest enemies of exclusivity is piracy, so an enforcement agenda is naturally going to dominate the biggest record labels’ government relations agendas. It should not go unnoticed that while concentration inflates the cost of talent at the top of the market it depresses it everywhere else, meaning that middle class artists do relatively badly in concentrated markets.

So that is part of the background to the Featured Artists Coalition’s statement, in response to a fairness initiative from independent labels, that “all labels should have a fiduciary duty to artists, as well as their shareholders, to protect and grow the value of the copyrights which are core to their business, and conduct third-party agreements with artists’ best, long-term interests in mind.”

It is hard to criticise the FAC’s response to an EU consultation on copyright that closed in March 2014:

The purpose of copyright reform should be to provide a single European market with…

No territorial boundaries; access by consumers to legally available content from wherever in the EU.
More fair and transparent remuneration for creators and investors.
A licensing environment that is simpler, quicker and more transparent so new competitive services can launch.

What if the effect of this turned out to shrink the aggregate value of recorded music, flatten the market, and remove incentives to invest in new sound recordings? The fear that it might is enough to bring copyright owners out on the streets – well, not quite, but they certainly become more prone to lose their composure in meetings with politicians. And apparently in defiance of the smoke signals from regulators, and the general direction the zeitgeist is heading, exclusivity and private licensing seems to be the main strategic direction of the hitherto well collectivised music publishing industry. Such exclusivity one might consider a MAD strategy, where each party’s exclusivity can destroy the whole market for every other player; one would expect the spoils of success to be shared between a very small number of players that magically keep a kind of equilibrium between themselves as they wend their winning way from deal to deal.

The other extreme looks much like a RAND regime, where reasonable and non-discriminatory deals make fairness and transparency much more achievable, and where collecting societies pool costs and create efficiency rather than distortions. RAND works well where underlying IP from many parties is needed to enable interoperable products such as mobile phones. The big difference with music is immediately obvious – phones and the networks they use are very big and complicated and involve the coordination of skills and supply chains on a massive scale compared to music. One might think of this as the difference between a pool of IP with a thin product layer in front of it (music) or a thick product layer (mobile phones). Thick product layers make competition much more useful, and so we get better and cheaper phones. The ability to deliver a merchantable audio file is not a significant advantage in the music market; RAND might just shift the competition and the rewards out of music and into platforms and devices (arguably it already has).

So for a flippant summary, MAD looks like it would destroy the value that RAND would fail to create. Let’s look again at the artist and creator perspective. Are not ideas like ‘fairness’ valuable in themselves? Perhaps the music industry just needs to grow a soul, and help creators and artists sell a positive story to consumers. As well as fairness, that story might include authenticity, and provenance, the holy triad of modern consumer marketing. Of course this cannot happen without transparency, and will not happen without the ready collaboration of the artists. And this outcome is in the hands of artists themselves when they are offered the deals that will become the foundations of their careers. Perhaps such virtue might need to be bought with a small sacrifice on the terms and cash advances in order to pay the costs of the extra investment and compliance… What was that? Ah yes, labels have all the cash, and the devil has all the best tunes!

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