The Knockoff Economy (36 page)

Most of these suits never reached a courtroom, because the very stiff damages available led the defendants to settle. And yet this strategy too failed to pay off. The cases that did go to trial cost millions in lawyers’ fees and generated a significant popular backlash. Nor did the individual lawsuits discourage much filesharing. Filesharers numbered in the tens of millions in the United States alone, so any individual’s chance of getting sued was minuscule. Like a lion attacking a huge herd of gazelles, most simply got away. By late 2008, the labels announced that the consumer lawsuits would stop.

The labels have little to show for their frontal attack on copying. But the real long-term damage is not just about money, but control. While the industry was locked in a futile struggle against ever-easier copying, the late CEO of Apple, Steve Jobs, was quietly positioning his company to be the next kingmaker in the music business.

Apple’s first move was the iPod. Introduced in 2001, it was a runaway hit. Then, in 2003, Apple struck a deal to license music from the major labels. The labels thought that they could control Apple, which seemed at the time like a failing company with a tiny share of the personal computer market. Less than a decade after its iTunes Store opened for business, however, Apple controls almost 75% of the US market for paid downloads. Indeed, Apple’s business is so large that it controls more than a quarter of all sales in the
total
US music market. That’s more than the combined share of the #2 and #3 players, Walmart and Amazon.

iTunes had another trick up its sleeve, and the labels another fumble. Consumers who purchased music from iTunes became effectively locked into Apple’s platform. If a consumer wanted to move to a rival portable music player, his music would no longer be playable. He could work around this by burning his music to a CD and then transferring it, but this is a very labor-intensive process. So once consumers start to use Apple’s platform, they are almost certain to stay with it.

The labels had an opportunity to break Apple’s lock-in when, in 2006, Microsoft introduced its competing music player, the Zune. If they had
vigorously supported Zune, that might have put into play a company with the resources to challenge Apple’s dominance. But Zune faced a serious problem—consumers who had built iTunes libraries could play these only on their iPods. Why switch to the Zune if doing so meant walking away from their music collections?

The labels could have helped Microsoft solve the music lock-in problem by offering to license to Zune users, for perhaps a penny a song, replacement copies of all of the music they had bought on iTunes. This did not happen, with the predictable result that the Zune—have you ever seen one?—never caught on.
^*
Apple’s dominance remained secure.

Where does this story lead? To a critical point about the respective roles of copying and copyright. Copying certainly hurt the labels. But
copyright
is also to blame. Instead of being a tool the labels used as part of their overall business strategy, strengthening rules against copying became the principal focus of their business strategy. That strategy won a few battles but largely lost the war. It created bad publicity and proved a distraction from the task of reforming the industry’s business model to survive in a world that had been changed irreversibly by the Internet. And in the end, it delivered up the music business not to the pirates, but to Apple.

What happens next? Copying is not going away. Indeed, it seems to be getting easier by the day. The entire music industry is increasingly living—whether they like it or not—in the copy-friendly environment that characterizes the other creative industries we’ve examined in this book. Understanding how creativity thrives in these industries can point toward a future in which the music industry might adapt and even prosper.

There was nothing inevitable about this tale of decline. Hollywood, for example, has fared better. To be sure, Hollywood worries a lot about piracy. But while there is plenty of it, especially overseas,
^*
piracy has yet to threaten
the existence of the major film studios. Box office revenues have increased steadily for years, and even given some ups and downs are now almost double what they were in 1992, when the Internet first began to take off as a social phenomenon.
⁵
These figures also don’t account for DVD releases, a major income stream over the past two decades, though decreasingly important today.

Why has the movie industry’s fate been different? For one, technology gave them a few years’ reprieve. Video files are much larger than music files. As a result they were, until recently, relatively difficult to download and upload. More important, Hollywood learned some lessons from the music industry’s straits. Hollywood fought copying, but as a part of a broader overall strategy aimed at capitalizing on the opportunities the Internet offered, while blunting the effect of piracy. We will examine some of the details of Hollywood’s thus-far more successful strategy as we consider music’s future.

That future is bound to be different from music’s past. Copying music is easy and the risk of getting caught minimal, and this is unlikely to change. But easy piracy does not mean the death of creativity in music. Nor does it mean the end of profits from music. Here are some ways that the music industry could adapt—and in some cases already is adapting—that mimic strategies we’ve seen deployed by other copy-prone creative industries.

The most obvious adaptation is changing what the music industry sells from product to performance. We argued in the Conclusion that products often are easy to copy, but performances are not. One of the reasons chefs remain so creative is that competitors can copy a restaurant’s signature recipe but they cannot so easily copy the quality of the preparation or the restaurant’s ambience or service.

We won’t repeat the discussion here, but we do want to underscore the centrality of performance. Millions of people every year already attend concerts. A greater shift to performance will never replace all the revenues that currently flow from recording. But shifting the business model away from the easily copied product (the song or album) and toward the hard-to-replicate performance (the concert) can help to stabilize the fortunes of musicians.

In many ways, this is simply a return to the reality of the last two centuries of popular music. As Mick Jagger rightly noted, the era of making riches off of
recording was really just a brief window in the history of music. The past was, and the future is going to be, much more about performance. In this new world, recordings often function more as ads for concerts than as money-makers themselves. (And sometimes they are bundled with concert tickets, as Madonna’s latest album was.) As a result, copying looks a lot less fearsome. An illegally copied ad is just as effective—and maybe much more so—than the original.
⁶

As the cost of producing and distributing a product falls, basic economics predicts that more of it will be produced and consumed. This axiom certainly applies to music: as digital technologies have slashed the cost of producing and distributing music, we see an unprecedented amount and variety of music on offer. But there’s another change. Digital technologies also change how the rewards of the music industry are distributed. In the heyday of the labels, a lot of revenues unsurprisingly went to them. This system produced some very successful stars, but a lot of musicians—even very talented ones—made little or nothing.

This picture is changing, and where it is heading is uncertain. Yet, while mega-stars still exist, there are signs that a larger and more stable musical middle class may be emerging—artists who are able, by making recordings, touring, and selling merchandise, to sustain a decent living. Because it costs these artists less to produce music, a viable career is possible at a smaller scale. And this can be done with less reliance on intermediaries like record labels. The same technologies that have made pirating music so easy also facilitate direct communication between musicians and their fans.

Just ask pop singer Colbie Caillat. Caillet’s music career began in 2005 when a friend posted several of her home-recorded songs to MySpace. One song,
Bubbly,
began to get word of mouth among MySpace users, and within a couple of months went viral. Soon Colbie Caillat was the No. 1 unsigned artist on MySpace. Two years after posting
Bubbly,
Caillet had more than 200,000 MySpace friends, and her songs had been played more than 22 million times. Caillet had built a global fan base while never leaving her Malibu home. In 2007, Universal Records released her debut album,
Coco,
which peaked at No. 5 on the
Billboard
charts and reached platinum status.

Or ask rap artists Mac Miller, Wale, and J. Cole. Each of these artists built up a fan base by releasing free material on the Internet and interacting with
fans on social media and blogs. And in a space of two months in 2011, each released a debut album that rose high in the charts (Mac Miller’s debut charted at No. 1 and sold 144,000 copies in its first week; Wale debuted at No. 2 the week prior and sold about 164,000 copies in its first week; a month earlier J. Cole’s album debuted at No. 1 and sold 217,000 copies in its first week).
⁷
Fans could have pirated these albums—and doubtless some of them did. But thousands ponied up the money to buy them, perhaps partly out of appreciation for the free mixtapes that they’d downloaded previously.

Social media and the fan base it enabled made the music careers of Colbie Caillat, Mac Miller, Wale, and J. Cole. Social media also broke UK stars Lily Allen, Kate Nash, and Arctic Monkeys, among others. This illustrates an important facet of the relationship between music and copying. Music fans love music, and they often want to support those who make the music they love. The Internet turns some fans into pirates. But it also turns fans into promoters. And the same technologies that enable piracy are also restructuring the industry in ways that create an entirely new relationship between creator and listener.

The 2007 release of UK band Radiohead’s album
In Rainbows
is an intriguing example. The previous year, Radiohead had terminated its recording contract, and the band decided to release its new album itself. Thom Yorke, Radiohead’s lead singer, explained the reasons for that decision: “I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say ‘Fuck you’ to this decaying business model.”
⁸

The particular way in which Radiohead released the album was unprecedented. They put up a Web site, and allowed fans to pay whatever they wanted to download the album—including $0.00. And then about two months later, the band released a limited made-to-order “discbox” that contained 2CDs and two 12” heavyweight 45-rpm vinyl records with artwork and lyric booklets. The overall set, packaged in a hardcover case, was priced at approximately $80. The CD itself was also released in normal packaging and with standard pricing.

So how did Radiohead’s experiment work out? Exact figures have not yet been released, but about a year after
In Rainbows
’ release, the band’s licensing agent confirmed that Radiohead made more money from paid downloads of
In Rainbows
than they made in total on their previous EMI-released album,
Hail to the Thief.
In all, there have been 3 million purchases of
In Rainbows
(including CDs, vinyls, box sets and digital sales). Radiohead has admitted
that more people downloaded the album for free than paid for it. Still, the 3 million in total sales—100,000 of which came from the $80 box sets—is a hugely successful number considering that the album was both given away for free and was actually
downloaded more times via BitTorrent than legally through Radiohead’s own site.

Radiohead’s experiment garnered enormous publicity. And it likely is not the last stab at a new way of selling music, because the music industry is changing in ways that make a variety of business models possible. There are two changes that are, in our view, the most salient, both of which flow from digital technologies. First is the
fragmentation
of the audience into smaller and smaller groups, as more music becomes more available and hence the universe of choices far more diverse. Second is the ability of these smaller groups effectively to
communicate
both with one another and with the artists they like.

What is likely to flow from these changes? These are the conditions—relatively small groups, able easily to communicate—under which social norms can help to regulate behavior. As we described in
Chapter 3
, this is precisely what we see in the world of stand-up comedy—there are a few thousand touring comedians, and because they often appear together in the same comedy clubs, they communicate readily. These conditions allow comedians to control copying not by relying on copyright law, but through norms.

The problem of piracy in music is, of course, very different from the problem in comedy. Stand-up comics worry most about a rival, not a fan, copying their jokes. Still, the reduction of consumer copying of music via norms may be possible, and will become more imaginable if the music industry experiences ever-greater fragmentation and communication. There is already an interesting example of norms playing a substantial role in controlling copying in music. In the culture of jambands, we see the fans themselves taking action to deter pirates.

What are jambands? In a fascinating 2006 article,
⁹
legal scholar Mark Schultz studied the unique culture of a group of bands that belong to a musical genre, pioneered by the Grateful Dead, characterized by long-form improvisation, extensive touring, recreational drug use, and dedicated fans. Although acts like Phish, Blues Traveler, and the Dave Mathews Band vary in their styles, they are all recognizably inspired by the progenitors of jam music, the Dead. But the Dead’s influence is not only musical. Most jambands adhere to a particular relationship with their fans that also was forged by the Dead.