By Brian Carnell

Wednesday, July 19, 2000

The latest issue of The Nation features an article by Siva Vaidhyanathan on the controversy over Napster. As far a Napster is concerned, I think it is a great tool, though the people who use it to trade pirated MP3s are not so great. The part that grabbed me, though, is Vaidhyanathan's repeating of a claim that appears in almost all pro-Napster pieces: the price of compact discs is too high. But is this really true?

I keep wondering where these people are buying their CDs from. Most of the CDs I buy cost $13-$15, and if I cannot find a CD for that price in my local store I can always go online at a place such as CDNow.Com and get pretty much any CD for that price range. After adjusting for inflation, that is an extremely low price, by historical standards, for the enjoyment of a music composition.

The other part I had to chuckle at in the article was Vaidhyanathan's claim that the recent settlement between the largest record companies and the Federal Trade Commission over obscure advertising issues proves the record companies are oligopolistic price-fixers. The problem with this view is that the record companies were simply doing what any number of Nation writers have urged for years -- they were trying to help out the little guy.

In the mid-1990s large retail electronics chains such as Best Buy decided to sell compact discs as loss leaders; they were actually selling the compact disc at a price slightly below what it cost the store to entice customers to come into the store. The theory is that some person stopping in to buy his favorite CD for $10.99 will, in turn, take a gander at the new stereo in aisle 5 or the computer on aisle 3. It is an expensive way to build a customer base, but one these outlets were willing to pay.

Only relatively big companies, however, could afford to take advantage of this sort of strategy. All of a sudden the smaller mom & pop CD stores were screaming that if Best Buy and other stores were allowed to sell CDs below profit, the small stores would be run out of business because there was no way they could compete. It would be the Wal-Mart-ization of the music business.

So the record companies decided to help out its smaller sellers (not out of any love for them, but because they make up a significant portion of the market) by making it harder for the big chains to sell at below profitable prices. The record companies usually kick back the price of advertising to record stores. Anytime you see an advertisement for Target or Wal-Mart selling the latest Brittney Spears album, Spears' label pays Wal-Mart for the price of that advertisement. What the record companies did was tell retailers they would no longer kick back the price of advertising if a CD was advertised at an unprofitable price. The chains could still sell CDs at a loss, and they could advertise the low prices, but the record companies would not subsidize advertising for such products.

The small stores cheered, the big chains whined and moaned, and the FTC (and apparently The Nation) came down on the side of the big chain stores.

Another fallacious argument commonly cited in pro-Napster articles and repeated here is that pirated MP3 files drive CD sales. This might be true at the moment, but largely only because of the lack of portability of MP3 files. If you want to take your MP3 files on the road or for a jog, you can do it but the price is extremely high at the moment. That is going to change drastically in the next 6-8 months as cheap MP3 players come on the market (I know I will be first in line to get one).

Which is not to say that record companies do not suck -- they do. Whereas some of the MP3 pirates think music should not cost a dime, the record company executives think you should pay a licensing fee every time you listen to a CD on a different device. That was crystal clear in testimony before Congress where an RIAA flak pretty much came out and said it was the record company's position that making a copy of a CD you own to play in your car was illegal (though the courts disagree with them on that point and such copying is very much legal).

And this is the part where Vaidhyanathan gets it right -- the real problem is the way corporations have lobbied to transform copyright law from a reasonable protection of intellectual property to a monstrosity that today inhibits production of music and other cultural artifacts as often as it promotes it. Reform the copyright law, and start creating independent distribution channels for music using the Internet, but do not glorify music pirates.

Source:

MP3: It's Only Rock and Roll and The Kids Are Alright. Siva Vaidhyanathan, The Nation, July 24/31, 2000.

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