Calling Competition A 'Race To The Bottom' Won't Make It Go Away

from the it's-called-competition dept

Tue, Nov 13th 2007 1:12pm — Timothy Lee

Bill Rosenblatt has a puzzling article accusing Radiohead of sparking a "race to the bottom" with its name-your-price experiment. There are a couple of big problems with the article. In the first place, Rosenblatt tries to paint the experiment as a failure, but the facts don't support his conclusion. Rosenblatt seems horrified by the fact that 62 percent of downloaders paid nothing, and the remaining 38 percent paid about $6 per album. But that works out to $2.28 per person, which, according to some back-of-the-envelope math by Luis Villa, is right about the average royalty for a major-label CD. If Radiohead got roughly the same amount of money, and got a ton of free publicity in the process, that sounds like a smart move to me. And most likely, this reasoning understates Radiohead's revenues, for two reasons. First, a lot of the people who downloaded without paying probably wouldn't have bought an album anyway. And second, Radiohead has signalled that the comScore statistics Rosenblatt is using are inaccurate. So the results may actually be even more favorable for Radiohead than Rosenblatt's numbers suggest.

But the strangest thing about Rosenblatt's article is the pejorative use of the term "race to the bottom" to describe competition in the music industry. When Apple cuts the price on the iPod, we would be really surprised to see a columnist complaining about how Apple had started a "race to the bottom" that will undermine profits among consumer electronics companies. We understand that, as painful as competition can be for producers, consumers and the economy as a whole benefit from such aggressive price-cutting. Talking about a "race to the bottom" is the language of cartels, which try to hold prices above the competitive level. Music is like any other product As the marginal costs of production and distribution fall, it's natural that the price of music will fall as well. Smart musicians and companies will find ways to adapt and prosper in the new, more competitive marketplace. As we've said before, saying you can't compete with free is saying you can't compete at all. The sooner musicians and record labels realize that, the more prepared they'll be when the price of music drops out from under them.

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Filed Under: business models, competition, free markets, music, radiohead

23 Comments

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Anonymous Coward, 13 Nov 2007 @ 1:42pm

Cost
That would be fine if we lived in a world where recording and album cost nothing, but I am guessing that Radiohead's budget was not nothing. So the question would really be what is the net from each album.
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Anonymous Coward, 13 Nov 2007 @ 1:44pm

correct to #1
"an album"
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- Anonymous Coward, 14 Nov 2007 @ 4:43am
  
  Re: correct to #1
  When i see "an album" all i can think of is the SNL Jeopardy skit where Sean Connery says anal bum cover instead of Album cover...
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4-80-sicks, 13 Nov 2007 @ 1:47pm

Laughable:

"the original vision of DRM...was not about major labels or CE vendors; it was fundamentally about offering choice in the market so that the race to the bottom does not happen."
I'd like to know how restrictions upon content that affect device compatibility represent choice. Many times these arguments are couched in terms that are supposed to sound like they apply to the consumer, when in actuality they apply only to the industry. They love to have "choice" of how, where, by whom, and with which hardware (made by a cooperating manufacturer) content can be accessed.
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4-80-sicks, 13 Nov 2007 @ 1:51pm

Re: #1
Anonymous Coward, what is your solution to the problem faced by the recording industry? Is it your belief that endless lawsuits against consumers, and demands placed by the RIAA upon schools, congress, and internet service providers, are a good idea? Or is there something else, that you're not telling us?
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- Eliot, 13 Nov 2007 @ 2:07pm
  
  Re: Re: #1
  Wow. That didn't take long at all.
  
  Notice RIAA and its affiliates were never mentioned in the first comment. Just Radiohead. I think the first comment was suggesting that Radiohead made even less money than the $2.28 that was suggested by Tim since they had to cover their own recording and publishing fees.
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  - dorpass, 13 Nov 2007 @ 2:19pm
    
    Re: Re: Re: #1
    And since this is 1920s, recording and publishing is sooooo expensive. We all know that recording studios pay a lot of money for that recording/publishing, while they don't have to spend a dime on marketing and PR. Oh, wait! It's the other way around!
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- Anonymous Coward, 14 Nov 2007 @ 5:40am
  
  Re: Re: #1
  Why do I have to give a solution? Shouldn't you have to give a solution. I was merely pointing out that they probably lost money by giving it away for free. Just because I point out a flaw in your little world of free music does not mean that somehow I owe you something.
  What about people stealing music as if they somehow are justified, because they believe that the recording industry is evil. I guess in the world of downloading music illegally two apparent wrongs make a right.
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  - 4-80-sicks, 14 Nov 2007 @ 8:38am
    
    Re: Re: Re: #1
    Don't give a solution if you don't want to, that's fine. But what the music industry, and guys like Rosenblatt do, is whine and piss and moan that "it's not fair." Guess what? Life isn't fair. Ever heard that one? It's true. You can't whine about it, you have to do something.
    It's not "my" little world, because I buy CDs (directly from the artist whenever possible--which is frequent with the ones I listen to); I buy CDs because I like the physical artifact, liner notes in my hand, and so forth. And direct from the artist, prices are far more reasonable than the cost from a retail store, and they make more money per piece. And the world is not "little" either, or else we wouldn't have this conversation.
    Two wrongs do not make a right, but they cannot be stopped--unless the business model is adjusted so that "stealing" (an incorrect term) ceases to have a significant effect. I don't defend "stealing," but I do insist that producers absolutely need to adjust if they want to survive.
    I apologize for going off on a tangent, but your original argument was actually answered by the original blog post:
    First, a lot of the people who downloaded without paying probably wouldn't have bought an album anyway. And second, Radiohead has signalled that the comScore statistics Rosenblatt is using are inaccurate. So the results may actually be even more favorable for Radiohead than Rosenblatt's numbers suggest.
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  - Mike (profile), 14 Nov 2007 @ 11:50am
    
    Re: Re: Re: #1
    I was merely pointing out that they probably lost money by giving it away for free.
    
    Actually, that's quite difficult to believe, based on the reports of how much people have paid. Add it up and it's millions of dollars. On top of that, many people have also been paying $80 for the new box set that they're offering as well, with the music downloads giving a huge promotional push there.
    
    What about people stealing music as if they somehow are justified, because they believe that the recording industry is evil
    
    Odd. I have never, ever used that argument -- and actually argue the reverse. First off, it's not "stealing" but I'm not getting into that debate again. If you read what I've written, I make it quite clear that by embracing these kinds of models, you can actually make a lot more money. That's got nothing to do with the moral issue of who's "evil" or not. I'm trying to help the industry make more money. Why would I do that if I thought they were evil?
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Anonymous Coward, 13 Nov 2007 @ 2:28pm

You missed the point. He says "Radiohead has benefited from this strategy by getting gobs of free publicity, but that benefit will decrease rapidly for subsequent artists who try the same thing." which makes the question of how much money Radioihead made irrelevant to the point of the article.

He also writes that the idea of the Radiohead experiment (since it is only and experiment) wouldn't be popular with aspiring artists.

You might not like these points and you might not know how to present a counter argument, but pretending he wrote something else is just stupid.
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Tim, 13 Nov 2007 @ 2:37pm

Race to the bottom
The record industry started the "race to the bottom" years ago when they decided not to innovate and continued to pump ridiculous sums of money into advertising. You can get all the celebrities in the world to endorse a turd, but after a couple people realize that its still just a turd, word spreads fast and soon your left with only those consumers that a dumb enough to pay money for a turd.
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Bob Knight, 13 Nov 2007 @ 2:42pm

buy it for 3 dollars
So we have a person writing for the DRM Watch Website, telling me that open music is not the way to go. LOL I laugh in his, Bill Rosenblatt's general direction.
Bill (of course) says DRM is a wonderful thing, but the market say otherwise.
Once during the mid 80's we were robbed in the shift from vinyl to cd. (when we bought on cd what we had on records)
The industry DRMers want us to pay for each player, change of player, computer, and any other device we want to use the music that we buy on.
DRM free music is freedom, and radiohead is the vanguard.
I just love how these international mega corporations who's sole purpose is to keep the money that the wandering minstrel makes.
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Lucretious, 13 Nov 2007 @ 2:44pm

#7

If you want to go down that road then Radiohead is actually irrelevant to the entire argument. I believe Radiohead "experiment" was more of a political statement to reveal just how numbered the days of traditional publishers and their business models really are. Aspiring artists, those who have realistic goals and are aware of whats going on in the industry, already know that they will need to take a much more proactive role in their gaining popularity.

Lastly, why pundits, industry heads and the like can't get it through their thick skulls that end users will determine how this will all play out is beyond me. Bitch and whine all you want, if people aren't buying then its tough shit. You either do things their way or die a quick financial death.
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Chuck Norris' Enemy (deceased), 13 Nov 2007 @ 2:50pm

And...
How many free downloaders are going to buy the physical disc which has yet to be released? They may not want to pay twice for the same thing. The band still gets a cut of those sales. The band realized that the digital tracks are infinitely available but they felt that some would pay for them legitimately and never buy the physical CD, pay nothing ever, or buy both. It seems to have got them to the same place without signing to an unnecessary record label to print copies of their music and distribute it, cutting out an unnecessary middle-man who just sues customers.
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Lucretious, 13 Nov 2007 @ 2:51pm

wait, why are you even giving this asshole Rosenblatt a forum to discuss his ridiculous blatherings? Its a site supported but the recording industry trade association and Rosenblatt is simply a little puppet doling out the propaganda as he is told to.
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Kmac, 13 Nov 2007 @ 3:12pm

Wait until the tour before you count the money
If I went on tour next week I would starve to death since no one knows me and I sing like crap. I believe that is the point though I have to gain market acceptance and have a quality product to expect to succeed which is what Radiohead is doing. From a business standpoint Radiohead has exchanged some of the profit in the music sales to gain wider acceptance in the market and saves some of the cost of marketing the CD. On tour they should reap the benefits by larger audiences and stronger ticket prices. Beyond the music sales there is also the shirts and other junk that people buy at the concert which I doubt will be pay what you think it is worth. If they are as clever as they appear they should net the same profit before the new wears off.

It is too early to be offering success or failure opinions in this venture. Wait until they have enough evidence in the form of net profits to express a qualified opinion. Personally I hope they get filthy rich since they took a risk while everyone else is standing around griping about how rough it is and that is how capitalism should work.
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Tony, 13 Nov 2007 @ 4:24pm

flawed math
I'm sure their calculations are are incorrect. For example, when I downloaded it I didn't pay anything. After listening to it, I decided It was probably worth $5 and so I went back and paid them accordingly. So I accounted for a "Free Copy" of the album and for a paid copy when in fact I only downloaded one copy. I'm willing to bet there were a fair number of folks who did the same.
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- PaulT (profile), 14 Nov 2007 @ 12:56am
  
  Re: flawed math
  Yeah, I was thinking the same thing, and I'm sure the industry pundits would have a hard time getting their heads around the fact that some people downloaded for free, then downloaded again in order to pay. Therefore, in Tim's article, it's not "$2.28 per person", but "$2.28 per *download*", and probably a higher price per person.
  
  That's why I can't understand all the hoopla surrounding the fact that so many people paid nothing. It's the same misunderstanding that surrounds P2P/torrent downloads - many people will use such services to try before they buy. After all, the whole point of Radiohead's model was for people to pay what they thought the album was worth. How do you know what it's worth before you listen to it?
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Alisha, 13 Nov 2007 @ 5:01pm

Once again, F--k the RIAA and DRM'ed music
This DRM crap really needs to stop. My brand spanking new Samsung cell phone is a real beauty, and I would be happy to be a sap and pay for music downloads through Verizon. The only problem is that the music is locked into Windows Media player format, and I've already chosen the side of Itunes and my IPOD. I also have a lifelong hatred of Windows Media player.

All of my MP3 files that I ripped from my own CD collection play fine (and free) on the new cell phone. Yet, if the RIAA would remove their heads from their asses for two seconds, they would realize that a lot of consumers are happy to pay for music.

What I won't do is let the RIAA take me hostage in the form of music downloads that are DRM'ed to death. I would pay for the freaking downloads from Verizon, as long as I could also play the songs on my IPOD. How complicated is that for the music industry suits to understand?
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4-80-sicks, 13 Nov 2007 @ 5:02pm

Re: #7
Radiohead has benefited from this strategy by getting gobs of free publicity, but that benefit will decrease rapidly for subsequent artists who try the same thing.

This is simply not true. You're right, I can't argue it, because he has no bearing on which to base the original point. I wouldn't say that tomorrow every well-known artist could release all of their albums for free, but I would say that the music market is capable of evolving to a point where musicians on the same level as Radiohead is today can make equivalent money in ways that don't directly involve today's model.

the Radiohead experiment (since it is only an experiment) wouldn't be popular with aspiring artists.

This is also completely baseless. I can point already today to other artists who use a similar model. Rosenblatt says bands have to stick to CDs or copy-protected files, but it doesn't make a difference. If it did, filesharing would hardly ever show up in the news. The point is that bands, whether on their own or with the assistance of labels, have to find other revenue streams, and it can be done, and giving away some content for free is a big part of that.
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enigma_foundry, 13 Nov 2007 @ 6:19pm

& sell your stock in the big 4 labels, (if you hav
Well, I paid about 6 pounds, so, I guess I paid a little above average.

But it is important, I think, to focus on the competition for artists from these two very different business models.

That competition occurs in many dimensions, one of them being price. Other things that artists are likely to value are independence and lack of interference in the artistic process that comes with that.

So, if the 'In rainbows' model is anywhere close to competitive on the price front, artists will gravitate to it for the other benefits the model confers.

I am sure that someone will list the benefits of being under contract with a major label, and I would be very interested in seeing those, but, unless I am overlooking something, we are witnessing an example of creative destruction..

& the big four labels are toast...
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straif, 14 Nov 2007 @ 6:06am

It doesn't matter what the per download profit is. If you make half the usual profit per item but sell four times as many, you have just made twice as much.
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