Friday, June 6, 2008

Paul Krugman Joins The Freetards

I used to have a lot of respect for Paul Krugman as an economist. That is until I read his latest column in today’s New York Times. The gist of the piece is that the Internet is killing the old economy, but that new business models are replacing the old ones. I think we can all agree on the first part. But the part about the new business models, where does he get that? Answer: Rolling Stone magazine!

Here’s the quote:

Rolling Stone recently published an article titled “Rock’s New Economy: Making Money When CDs Don’t Sell.” Downloads are steadily undermining record sales — but today’s rock bands, the magazine reports, are finding other sources of income. Even if record sales are modest, bands can convert airplay and YouTube views into financial success indirectly, making money through “publishing, touring, merchandising and licensing.

First, as a news flash, publishing, touring, merchandising and licensing are not new revenue streams! Artists have always made money from these sources. So the question is, are there *increased* revenues from publishing, touring and merchandising to offset declining record sales? There is no evidence of it.

The music industry is indeed hemorrhaging. And it is possible that the music business declines and nothing replaces that revenue. But for Krugman, an internationally noted economist, to suggest, based on a Rolling Stone article, that new revenue streams are effectively, replacing the old ones is shameful. While I would not expect Krugman to maintain scholarly standards in a general interest paper like the New York Times, I wouldn’t expect him to entirely abandon such standards either, particularly in the field of his expertise.

I guess if Maureen Dowd had written this I wouldn’t be so exercised. But Paul Krugman seems to have entirely departed the field of professional economics.


  1. Hank- I think you're missing the point of Krugman's argument. From what I could gather, Krugman was saying that bands are replacing their reliance on sales as their sole source of income. Now bands are looking to other areas (such as advertising, etc...) more than their sales, to be their "complete source of income." Furthermore, these areas are other ways for record companies to measure the success of these bands. So while not much has changed in terms of WHAT they do, what has changed is the significance of those actions...

  2. Hank, I think you're beating a dead horse with all these posts about the music industry. It's an inevitable thing, there's nothing we can do about it. I used to check your blog every day until every other post was about music. Write something interesting! Write something that pertains to us readers. Write something that can actually starts a discussion, other than people taking turns saying "I agree".

  3. Hank: I also think you're misreading Krugman's piece and being quite unfair to him. He didn't say that these other revenue streams were entirely "new"--in fact he quotes Dyson to help underscore the point that what was ancillary revenue may become primary revenue. Nor does Krugman argue that the new revenue streams will necessarily make up fully for the drop in music sales. All he really seems to be saying is that the business is changing and so, too, may the composition and sources of revenue. This may lead to a smaller business--but that's better than no business at all. All in all this seems quite uncontroversial and it hardly seems to warrant impugning his academic reputation.

  4. A lot changed in the music industry the day personal computers allowed you to Record & Burn your own CD. Then the internet allowed bands to promote their music for next to nothing. I’m a musician & have been in the scene enough to know music is finally getting better again. Bands don't have to rely on a ‘Record Producer' to record/promote the band. Now bands have the creative freedom to create songs how they feel they should sound. Not the way a ‘Record Producer' thinks they should sound. I have a feeling that’s it really the Music Producers & Recording Labels that aren’t making the $$$’s like in the past and are crying “Where did the money go!”. BUT that’s OK for me because now there is more variety of new music coming out. Instead of just one type of music… Boy Bands, Pop Groups, Hair Band 80’s rock bands… I so glad these things are DEAD. Like the majority of money hungry ‘Record Producers’ that made these bands & knew how to fool bands and fans into buying Doo Doo. Essentially killing the music industry. The fans & bands just got wise to the game and have managed to by-pass the BAD music producers…. But Music Producers like George Martin did give The Beatles a lot of their sound. So I guess just 99% of them are crap!

    I agree “The music industry is indeed hemorrhaging”. The industry is purging all the crap out of the system. I bet more bands are making at least $300-$1000 at small gig and getting to pocket the entire amount. Instead of giving the Producers a ridiculous cut.

    Papi Julio

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  6. You guys need to get over it and stop shooting the messenger. Despite all the protests to the contrary, no one seem to want to front up just how money is made based on free music.

    Pearl Jam? Are you kidding me? Sure, a band that was built up as a record company priority, with all the professional marketing and resources that went into it can now turn around and try to sell its enormous fan base. A base that was built through entirely traditional methods.

    The fans had a chance to make a statement when Radiohead put out "In Rainbows." Instead, they cheaped out and gave the band miniscule sales revenue that barely even registered.

    Put up or shut up. Enter Hank's survey. Name a band that makes significant downstream revenue based on free that DOESN'T include ultitmately signing to a label and deriving income from the label. Income which is itself entirely dependent on actual sales.

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  8. BTW, here's a great quote from/about Trent Reznor in today's NY Times.

    "Last year Mr. Reznor produced and bankrolled an album for the socially conscious hip-hop poet Saul Williams, “The Inevitable Rise and Liberation of Niggy Tardust.” When record labels didn’t want it, Mr. Reznor put it online: free to the first 100,000 downloaders as good-quality MP3 files or $5 for more high-fidelity files. He had thought that fans would willingly pay the price of a latte to support musicians directly. But fewer than 20 percent did so. “I think I was just naïve.”

  9. One problem is that while online music sharing enables artists to reach the long tail of listeners, the structure of touring does not enable artists to exploit that dispersed audience.

    So while music sharing and myspace may make it possible for an avant-garde jazz artist to gain 20 new fans each in Texarkana, Missoula, and Bangor (where the local radio stations do not presumably feature that genre), the economics of touring - the chief revenue-generating activity - do not make it feasible for the artist to hold shows for the 20 people in those cities.

    The long-tail audience - which free content attracts - is still unreachable from a revenue generating perspective.


    Perhaps this all represents a reversion to history. I suspect that musicians have, for most of time, not been well-compensated. And the LP era (1950-2000) might represent a blip of sorts. Everyone's a jazz musician now.

  10. So Krugman drinks the Kook-Aid of "the new music paradigm". Big surprise.

    However, as a working musician for the past 25 years I can tell you that these other sources of revenue are a red herring.

    Original music is the product. It is the one thing that has value. No large company can stay in business giving away their main product or having it pirated.

    This is why the Coca Cola Company does not give away Coke for free in the hopes that people will buy their Tee Shirts, stickers and cup holders. Those items are not their product. As a musician we are not in the business of competing with Old Navy to sell Tee Shirts. If so, we would not be learning, practicing and polishing our music making craft just to sell Tee Shirts.

    Every one of my peers know this. None of them are making a living wage selling "merch" or playing live. Besides, as was stated in another comment, we were already doing that. We were already earning royalties from radio play. We were already selling Tee Shirts. But the "living" income was coming from selling our music.

    As for that "blip" don't tell the ghosts of Rossini Berlioz, Wagner, Foster, Debussy, Copeland, Scott Joplin, Irvine Berlin, Cole Porter... Yes, the days of super-rockstar may have been a blip, but not of supporting yourself on original material.

    And let's be honest about what kind of "Downloads are steadily undermining record sales". Sales of albums on iTunes could support an artist, if iTunes didn't have to compete with rampant, illegal copies.


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