Freakonomics

So I’m sitting in the urologist’s office reading "Freakonomics" about
conventional wisdom.

First the authors start off with the concept of asking questions.  It is said
those questions that have not been asked are not going to yield interesting
answers.  That all the GOOD questions have been pondered again and again.  The
goal is to ask a question that people REALLY care about and come up with
answers they don’t expect, if, that is, you can battle the conventional wisdom.

Turns out the term "conventional wisdom" was coined by John Kenneth
Galbraith.  He said "We associate truth with convenience, with what most closely
accords with self-interest and personal well-being or promises best to avoid awkward effort or unwelcome dislocation of life."  And where does the conventional
wisdom come from??  Self-declared experts.  Who are interested in burnishing
their reputations.  And journalists feed on the words of these experts, needing
to fill pages.

But it turns out conventional wisdom is often wrong.  Hell, that’s almost the
ENTIRE point of "Freakonomics".  Conventional wisdom said that crime
dissipated in New York because of Giuliani, who got rid of the squeegee men, who
cleaned up the subways, who took the streets back from the criminals.  Oh, a
million reasons have been posited about the crime decline.  But Steven Levitt has
the answer.  Proven with statistics, not pulled out of his ass.  It’s abortion. 
Legalized abortion.  It’s the unwanted children of single parents who commit
crime.  Not quite twenty years after abortion was legalized in New York, crime
dropped precipitously.  And this correlation can be proven because other
states legalized abortion LATER than New York, and their crime rates dropped too,
but only after the difference in time between the passage of abortion laws had
run.

This got me to thinking.  What exactly is going on in the music business.  Is
the media, touting the words of so-called experts, putting forth conventional
wisdom that is just plain WRONG???

Essentially everything being sold in record stores today is available for
free to those with computers.  Well, maybe you really need a high speed
connection to take advantage of free wares, but still, in excess of fifty percent of
the public has ready access to these fat pipes.  Shouldn’t the sale of CDs be
off FIFTY PERCENT??  Think about it.  No matter how low you drop the price of
CDs, no matter HOW many extras you offer, can you really compete with FREE? 
Think about it this way.  If a supermarket that charged was side by side with a
store that gave it away for free, would the pay supermarket stay in business?

Now business in the pay market wouldn’t go down to zero.  Because one can
envision long lines to get free food.  There are always SOME people willing to
pay for convenience.  So, is this what is going on in the record business, are a
certain number of people paying for CONVENIENCE??  The lack of viruses,
artwork, improved sound quality?  We can debate this, but the more interesting
question is the one stated above, HOW COME CD BUSINESS HASN’T TANKED COMPLETELY??

It hardly matters why people ARE buying CDs.  It certainly isn’t about the
extras, most CDs come sans extras.  If business is off less than twenty percent
in the last five years, could it be that downloading has NO IMPACT ON CD
SALES???

Really, think about it.  For every person trotted out in the media who says
he’ll never buy a CD again, there are people trekking to the store, to BUY
discs.  Could it be that these people downloading were NEVER really buying CDs? 
And that really, it’s not an issue of a declining market, of eating away at CD
sales, rather this is an EXTRA MARKET THAT SHOULD BE TAPPED?

Does suing people for trading files P2P really benefit the labels?  After a
brief bump, CD sales are off a few percentage points again.  There seems to be
no cause and effect.  If suits really worked, wouldn’t CD sales GO UP??  Never
mind that trading, contrary to what so-called experts have been saying is
actually WAY UP, isn’t the major labels’ focus on the problem JUST PLAIN WRONG???
Shouldn’t they be worried about MONETIZING trading instead of eliminating it??

Oh, don’t tell me about Snocap, don’t tell me about expiring trades, don’t
tell me about trades at ninety nine cents a track, that’s not what P2P IS!!  P2P
is a giant smorgasbord, where you can check out new stuff, even acquire stuff
YOU’RE NEVER GOING TO LISTEN TO!  It doesn’t resemble the conventional CD
model WHATSOEVER!  As a matter of fact, people DELETE a lot of what they acquire
through trading.  Most people don’t throw out CDs they paid fifteen plus bucks
for.

Well, you can say that Yahoo Music Unlimited and Napster and Rhapsody are
equivalent to trading.  But you’d be wrong.  Because it misses a key element of
human reality, of the nature of P2P, people want to OWN!  Think about it, if
Yahoo Music Unlimited was SUCH a good deal, and it certainly is CHEAP, wouldn’t
MILLIONS of people have already signed up for it??  All the music you can eat
for fewer than ten dollars a month?  SOME people want this.  They want the
convenience, they want the security, but it turns out most people don’t.  And,
it’s not only about the price, P2P delivers music that is NOT AVAILABLE on the
so-called legitimate subscription sites.  There’s no plethora of live tracks,
no out of print items, no rarities, and these DRIVE P2P.  At least keep people
addicted.

But what about the iTunes Music Store??

Well, look at EMI’s just-released financials.  With all those iPods in
circulation, if the iTMS was so good, wouldn’t it represent TWENTY percent of EMI’s
revenues instead of the low single digits??

The key is not to focus on enhancing the disc product.  This has no impact on
the people who ARE buying discs.  They’ve already made the decision to buy
CDs.  The bonuses are like…McDonald’s Value Meals.  More for your money.  But,
for those who don’t like Quarter Pounders, who don’t like McNuggets, who
don’t like Big Macs, IT MAKES ABSOLUTELY NO DIFFERENCE!  Furthermore, if these
extras were so enticing, wouldn’t business be going UP??

At some point in the future, disc business will decline because of computer
music.  Almost everybody will have an iPod, almost everybody will have a high
speed connection, discs will seem antiquated, like vinyl.  Oops!  The labels,
RETAILERS killed vinyl to drive everybody to the more profitable CD.  Make no
mistake, if the INDUSTRY didn’t kill vinyl, CD acceptance would have been MUCH
slower.  No, that might not be true.  But, what WOULD be true is that vinyl
would have sold in quantity for MUCH LONGER!  Not everybody had a CD player at
first.  Some were driven to purchase them because of the extinction of the
vinyl configuration, but would they have done this if vinyl were still available??
 And, even today, vinyl is STILL being sold.  Which makes one wonder if as
long as companies still produce discs, there will be SOME market for them.  Then
again, once labels move on to selling files, which require no shipping, no
inventorying, fewer COSTS, won’t business principles tell them to stop
manufacturing discs, moving the rest of the market to FILES, just like they moved to
CDs??

The file-trader is a different customer.  Acquiring and using music in a
different way.  The key is to monetize his behavior, not try to change it.  The
file-trader obviously doesn’t want CDs, and doesn’t want to rent music and
doesn’t want to buy AACs from the iTunes Music Store.  As stated above, he wants to graze and take a cornucopia of stuff, utilizing it completely differently
than conventional CD buyers.  Hell, look at their libraries.  Kids have THOUSAND
of MP3s.  Divide by ten, for there are usually ten tracks on an album, does a
vast quantity of kids have HUNDREDS of CDs??  I mean hard core music buyers
do, but the magic of P2P is it makes a VAST SWATH of the public music junkies. 
Isn’t this a GOOD THING?  Expanding the MARKET?

The conventional wisdom is wrong.  If P2P is affecting CD sales, it’s
relatively marginal.  Lawsuits are not driving people into the stores to buy CDs, nor
are they driving people to so-called legitimate online music sites.  Rather,
P2P is a whole new marketplace, which, if shut down, will stunt the overall
music business for no good reason other than to fit the paradigm employed by
ancient record men afraid of change.

It’s not about the Supreme Court.  And it’s not even about illegality.  It’s
about economics.  Wake up and smell the coffee.

This is a read-only blog. E-mail comments directly to Bob.

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