Artists, Musicians, Consumers To Win Internet Music War

If you can’t fight ’em, join ’em. Bertelmann Music Group’s recent absorption of Napster won’t rein in file sharing, or ‘piracy,’ among Internet users, says a University of Alabama economist.

Dr. Sami Dakhlia, assistant professor of economics, says Napster is vulnerable because its database of music and users is centralized, and it can be acquired or regulated, monitored or even shut down. Gnutella or Freenet, on the other hand, provides decentralized file-sharing capabilities, which are not vulnerable to any outside meddling.

“This means that despite all the legal commotion, the fundamentals won’t change,” Dakhlia predicts. “As the Internet revolution spreads and more households get connected and learn to navigate the web, it will become even more difficult for music producers to charge high prices for their goodies.”

So, what will happen to the music industry? “Obviously, no firm, motivated by profit, would want to produce a good it couldn’t charge for,” Dakhlia said. “Most observers argue that piracy will lead to a sharp decline in the supply of music, a loss for producer and consumer alike. Producers will lose; indeed, they are becoming obsolete. Artists and musicians, on the other hand, stand to win, and so will consumers.”

Dakhlia says there are three reasons why, despite the expected decline of the music industry, a revival of music should be expected: “First, so far, musicians and distributors have been separate. When the means of distribution change, only the distributors will lose. Recording artists, as a rule, do not create music for the sole purpose of maximizing profits. Music, in its purest form, is not a commodity. As an art, it is its own reward and will still be created in a commercial void where musicians don’t make millions.

“Second, musicians still have earning potential because, thanks to the Internet, they can become their own promoters and distributors. Free of large overheads, such operations are sustainable.

“Thirdly, as the price of compact discs goes down, the time-consuming hassle of piracy will no longer pay off for most consumers. This means artists turned distributors can still charge a little for a CD or a download.”

Now, if CD prices fall, as they must to compete with their unauthorized Internet-music brethren, CD producers will have no choice but to cut costs to stay profitable, Dakhlia said. This will have two effects: Fewer promotions will mean fewer superstars. Fewer superstars will mean that resources are spread wide rather than lavished on a select few, he said. Therefore, expect more diversity in music stores.

Without the cost of promotion, new firms can afford to enter the market, Dakhlia said. While recent talks about further mergers among the large companies may be driven by attempts to resist a downward pressure on prices, such strategy is doomed, he said. In the long run, look for a large number of independent producers.