The Music Industry’s New Extortion Scheme

Musicians themselves may just be crazy, but the music labels are dangerously stupid, and need to be stopped before they can do any further damage to the music industry. Case in point: Warner Music, fully aware that the days of charging for recorded music are coming to an end, is now pushing for a music tax.

This isn’t the first time someone has called for a music tax. Peter Jenner argued for it in Europe in 2006. Trent Reznor said the same thing last year (as did the Songwriters Association of Canada). Mathew Ingram has other examples.

But Warner Music is doing more than just talking about a music tax. They’ve hired industry veteran Jim Griffin to create a new entity that would create a pool of money from user fees to be distributed to artists and copyright holders. Lawsuits against their customers aren’t working (The RIAA sent out 5,400 letters in the last year, says Portfolio, settling with 2,300 of those individuals and suing 2,465 who didn’t respond).

The goal? $5 per month from everyone, or fees of $20 billion per year. That’s double the current size of the recorded music industry ($10 billion).

Akamai’s David Barrett has an interesting angle on the issue. He calls the plan “tantamount to extortion, because it forces everyone to join,” and “It’s too late to charge people for what they’re already getting for free.” I agree - the music tax is little more than a classic protection racket.

As I wrote two months ago, a music tax will be the last stand of the music industry, and their last attempt to preserve the hierarchy that exists today. Here’s what I said then:

Music Taxes Will Kill Music Innovation

Forcing people to buy music whether they want to or not is not a solution to this problem. The incentives created by such a system are perverse - guaranteed revenue and guaranteed profits will remove any incentive to innovate and serve niche markets. It will be the death of music.

Music industry revenues will be a set size, regardless of the quality or type of music they release. Incentives to innovate will evaporate. There will only be competition for market share, with no attempt to build the size of market or serve less-popular niches. Forget labels building new brands and encouraging early artists to succeed - they’ll bleed existing big names for all they are worth and work hard to keep anything new - labels, artists, and songwriters - out of the market. New entrants just means more competition for a static amount of money. Collusion by existing players will run rampant.

Soon labels will complain that revenues aren’t high enough to sustain their businesses, and demand a higher tax. It will go up, but it will never go down.

As I said before, Asking the government to prop up a dying industry is always (always) a bad idea. In this case, it is a monumentally stupid, dangerous, and bad idea.

If this happens, it will put an end to the endless creative/destructive energy that is reshaping the music industry today. Good musicians will always find a way to make money. Others may have to follow their passion as a hobby and (shudder) get a day job to pay the bills. But if a music tax is put in place, that innovation will die, and with guaranteed revenues and profits, the need to innovate, market and compete will also die. A music tax is a sure fire way to destroy an industry that is just beginning to really blossom.

Yes, blossom. As terrifying as these days must be for music industry players, it’s clear that a golden age of creativity and innovation is ahead of us, all led by the Internet as a nearly perfect distribution mechanism for their product. Music labels must die. Hopefully, before they do any more damage.

Original post

Comments

[Paul Clisby]

Amen brother.

[None-Too-Great Hits]

Unless they pay every single independent musician his or her accurately proportionate share of the revenues, this proposal would make the established stars even richer at the expense of the small fry like me. Either I would become nothing more than a rounding error in Paul McCartney's favor, or I would get royalty checks not worth cashing. In reality, of course, the effect would be permanently deferred royalties.

[bluesmoke]

This tax idea is so stupid it almost doesn't even warrant a response. The whole industry needs to be turned upside down, held by it's ankles, and shaken down. Let the free market work with the internet as the perfect distribution model.

[fanfare]

I completely agree with this article. A music tax is a very stupid idea. Taxes are already out of hand in this country; allowing a private industry to tax citizens in order to prevent the progression of that industry's life cycle would be a crime. Industries change. Disruptive technologies often cause a displacement of industries. The telephone changed Western Unions way of doing business. In fact, the advent of the telephone nearly destroyed Western Union as a company, and it surely replaced the need for telegrams. Western Union adapted by finding another way to make money. Should the government have allowed Western Union to tax citizens simply because people no longer needed to pay for telegrams? One could argue that telegrams, because they performed a necessary function of communication, should have had the right to be protected as a necessary utility. Music doesn't even qualify for that status. Yet they want to arbitrarily tax the public? What kind of Pandora's box will be opened by such an endorsement?

Now that advertising mediums such as broadcast television, radio, newspaper, etc. are losing money because of new advertising mediums that operate via the internet (Google, Yahoo, etc) should we now pay taxes to newspapers, TV, etc. because the standard way of making money has been displaced? Perhaps inventors of board games (Hasbro etc) should also tax the public now that children are not buying board games because they prefer to play electronic/video games?!? Before the internet, people used to pay automobile dealerships $1500 to $3500 over sticker price for new automobiles. Now that people can get prices online for cars they are now paying only $100-$500 over sticker price (on average) for new cars. Should the automobile industry also be allowed to tax? How about the cost of stereo equipment?... Computers? Hey, what about stock brokers? Boy, everyone used to pay broker fees of $100 to $200 to make a trade buying stocks. Well, since the internet made trading stocks almost free ... brokers cannot charge outrageous fees any longer. Brokers are losing money due to disruptive technology. I suppose they should be taxing as well. What about banks (lending rates?)?

The list goes on and on. The point here is that the music industry has been making fat executives rich by raping society for the priviledge of listening to music that is created by artists with talent. The internet allows artists to distribute their music and make money directly by selling their creations. They no longer have to pay some slick thieving middle man in order to have their music heard by the public. The music industry can no longer keep musicians and their fans prisoners by taking all the money. If an artist is good ... he/she will get paid.. and paid well. At the same time, the listeners/fans won't have to go broke because some middle man is trying to get rich simply because there is a lawyer, a contract, and a copyright law.

[Texrat]

I think such a fee is only fair and reasonable. A fee like this might have mitigated or even prevented the DRM/pirating nightmare that's been plaguing society for years. It doesn't have to be exorbitant, either, to be useful. It doesn't even have to be the nightmare (ie, "extortion") it's alleged it will become.

Bottom line, there's no perfect system, and artists deserve to be paid. Period. But I agree that the labels are a huge part of the problem. Implement the fee, have the funds managed by BMI/ASCAP/et al, and leave the labels out of it if possible.

[JadeBlade]

The plank for the labels!!! Over 10 years ago they were handed a study by the Gartner Group that told them what the internet and electronic media would do FOR their industry. They could have had full control. Thank god they are very un-intelligent. I like the new publishing and distribution channel. Send them a good-bye email before they are all gone.

[A midwestern neighbor]

Texrat, you've been duped! "fair and reasonable"? Since when? Stop being an idiot! Pay for products you consume is the only "fair and reasonable" way to do business. In what other aspect of your life would you consent to being taxed regardless of whether you even get anything in return?