A new paper published by the American economist Joel Waldfogel shows that music piracy hasn’t hurt the creation of new music as the RIAA, IFPI and other industry representatives have often claimed. Instead, music has democratized in recent years with the balance of power shifting from the monopoly of the major music labels to smaller, independent ones. Music itself may be more alive than ever before.

In recent years many academics have researched the supposed link between Internet piracy and the revenues of the major music labels, with varying results. Some have concluded that there is no adverse impact of piracy on sales, others argue that there’s a moderate negative relation, but the overall consensus is that the losses as claimed by the industry itself are hugely exaggerated.

Another claim of the music industry, that piracy hinders the creation of new music, has now been debunked by Applied Economics Professor Joel Waldfogel of the University of Minnesota. In a recently published paper he shows that there is no evidence that piracy hurts creativity or slows down the supply of recorded music.

“The legal monopoly created by copyright is justified by its encouragement of the creation of new works, but there is little evidence on this relationship,” Waldfogel starts in his introduction of the paper catchily titled: “Bye, Bye, Miss American Pie?”.

“The supply of recorded music appears not to have fallen off much since Napster, and there is at least suggestive evidence that independent music labels, which operate with lower break even thresholds, are playing an increased role in bringing new works to market,” he later concludes.

Where some researchers focused heavily on finding out what the link between piracy and music industry revenues is, another major shift in the music industry in the past decade was left mostly ignored. Without going into detail on the data provided, we want to highlight some excellent points Waldfogel lays out in his paper.

The Democratization of Music

In the paper Waldfogel reiterates some of the points we’ve made here earlier, namely, that alongside the increase in file-sharing, the state of technology advanced at a rapid pace as well. With new and cheaper recording technologies, digital music outlets and social networks, many of the tasks that were previously fulfilled by the big labels could easily be taken over by independent labels, or even the artists themselves.

To a certain degree the big labels are slowly becoming obsolete. At the least, their monopoly is falling apart as their role can be taken over by independent labels that operate with a much smaller profit margin. Where the majors sometimes have to sell half a million albums to break even, independent labels can do the same by selling 25,000 or less, Waldfogel illistrates.

On a broader scale it’s not hard to see that new technologies and the Internet in particular are a huge game changer for the music industry.

Production, Promotion and Distribution

“Bringing music successfully to market has three component activities – creation, promotion, and distribution – and new technologies have changed each of these substantially,” Waldfogel writes in his paper, explaining how each of the three components changed drastically in recent history.

Since the Second World War the costs of producing music have decreased decade after decade, and this process accelerated in the post-Napster era. Nearly every garage band can now record an album with high quality sound with a limited budget. This was pretty much impossible a few years ago.

Similarly, thanks to the Internet there are a million ways to promote one’s content, with the only cost being the time that’s invested in it. Thanks to Youtube, Facebook and more specialized music services such as Last.fm and Pandora, artists have many platforms to promote themselves. Previously, although illegal, labels often paid radio stations to promote their music.

On the distribution side things have changed too. With a minimal investment artists can now put their work up for sale on iTunes, and those who wish to give it away for free have hundreds of options to do so as well. Now compare that to a decade ago, when the iPod had yet to be invented and artists had to physically ship their CDs all over the world.

The changes the music industry has gone through are unprecedented, but instead of adopting to the new reality the big labels have been focused almost exclusively on piracy. And yes, the revenues are down for the major labels, but thousands of smaller independent labels have been started during the same period, many of which are turning healthy profits.

In sum, Waldfogel’s paper concludes that, unlike the major labels often suggest, the supply of new music has not decreased because of piracy. Instead, the entire music industry has changed with more power going to the artists and smaller labels. Although this is hurting the majors, piracy is not to blame and music is more alive than ever before.

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