The music market, for the last several years, has exhibited a severe inefficiency. Illegal downloading of songs has become second nature to people of all ages, but particularly for students as Internet technology advanced and diffused throughout American culture.
Record producers are now trying to plug their leaky consumer base by intimidation, through apparently random lawsuits against a small number of illegal downloaders. The Reign of Terror has arrived on campus at Tufts, as six students were recently notified that they are targets of lawsuits by the Recording Industry Association of America.
Unquestionably, the recording industry holds the moral high ground. It is impossible to argue that illegally downloading music is not stealing. But in order to come to an equitable and effective solution to the problem now facing record producers, and to return the music market to a sane and healthy state, the morality of the situation must be ignored in favor or utility.
The problem stems mainly from two factors. The first of these is high profit margins on compact discs and even individual songs sold by legal online sources such as iTunes. This is simply a function of the music market's structure. As an oligopoly, it consists of a few firms which sell products which are roughly equivalent to each other. The problem becomes clear upon consideration of the market for oil, which is also an oligopoly. It costs between one and five dollars to extract a barrel of oil from the ground. For the past several months, however, a barrel of oil has sold for roughly $65. This gigantic profit margin occurs partly because markets with a small number of firms are prone to price-raising cooperation between firms.
In the past music consumers generally behaved as oil or automobile consumers did. They bought records, and later tapes and CDs, even though the prices were high relative to production costs. This changed in the mid-1990s, with the rise and increased popularity of the Internet, the second factor in the rise of illegal downloading. As online music became widely available for free, individuals realized that they no longer had to accept the price-gouging of the music industry, or even leave their desks to enjoy the musical stylings of Live or Chumbawumba.
The effect was similar to what would happen if oil suddenly became available illegally through a very common household appliance, such as a toaster oven. The music market started leaking consumers and the industry started losing money.
The response of the record industry was to become outraged and demand that people stop stealing its product. This is fair, but ineffective. Until the record industry decides that suing the majority of illegal downloaders is more important than not spending all its money on lawyers, people will still download illegally. The trick is to minimize consumers' deviant behavior by decreasing their interest in stealing music.
The war can be fought on two fronts. First, the RIAA should continue to pursue legal action against illegal downloaders. But to encourage moderation among cyberthiefs, the lawsuits should be concentrated on the most blatant violators. Psychological studies suggest that people tend to undervalue outcomes which are extremely unlikely. Thus, the remote possibility that a small-scale violator will be sued is unlikely to change this person's behavior.
The second front in the war on illegal downloading should be fought by the RIAA at home. Record producers need to increase consumers' interest in buying music legally. This means either adding features which are unavailable illegally, or simply lowering prices to the point at which a majority of consumers will no longer risk prosecution. Innovative online applications such as iTunes can play a large role on this front, but they must be willing to drastically lower prices and offer features which legitimately impress the average consumer into paying for their product.
While any solution to the illegal downloading problem will be incomplete and complicated, a successful strategy will not include small-scale random lawsuits and an overpriced product. Innovation, proper legal aim, and a willingness to accept a somewhat lower profit margin will be central to restoring American musical morality.
