Making money in a bazaar

Lots more people wearing suits. That's the primary impression I had when I walked into the second annual MP3 Summit in San Diego, CA, comparing it to the first one. It was a lot bigger too---the audience was at least thrice as big. The agenda was slick and the exhibition hall was sophisticated. In spite of the glitz, I was most heartened to see a sign proclaiming has "musicians who still own the rights to their souls."

While I am nostalgic about the first summit (last year at this time was a four-employee company; mp3s were still a relatively new phenomenon), Michael Robertson, and the conference as a whole have stayed true to their ideals, primary among those being the welfare of the artists. As a result, the second summit proved to be one of the most important places to discuss the issues about the complex nature of music distribution in a digital world. However, like with the first conference, the same ideals weren't espoused by all the attendees.

John Perry Barlow, a person who has influenced my thoughts tremendously, marvelously kicked off the show by putting forth his views about the economy of ideas. A primary focus of the conference then became: how does one make money in a world where you cannot place containers to control the flow of intangible information? All the panels focused on this issue to some degree.

The first panel, "Music As A Virus: Biological Warfare", which included rapper Ice-T as a surprise guest, focused on the uncontrollable viral-like spread of digital music (mp3s specifically). While a ludicrous suggestion was made that stricter enforcement of copyright law could control the "virus", Ice-T summed up the message in this panel by saying he was betting on the virus. This view clashed with the purveyors of copy protection mechanisms who basically felt they could control the virus through technology.

Likewise with the panel I was on, "The Triumph of Technology: The Defeat of Copyright Law." Given the title, we still focused on application of copyright law and other various legal issues to online distribution of music. While this is all great from an academic viewpoint, what the panel and subsequent questions made me realise is that people still don't get it. While a lot of people at this conference realised the futility of a per-copy based economic model, the party line was still toed. The problem (and this is related to making money) is that the traditional revenue streams are a lose-lose proposition on all ends.

First, it hurts the popularity of the artist. The greater the desire to control a piece of one's work, the lesser the distribution. Second, SDMI and other copy protection initiatives are doomed to failure because a digital->analog->digital conversion will always circumvent any "secure" digital music initiative. Finally, it's simply unworkable! For all the statistics presented, I know first hand that there is no way the people I know who have thousands of mp3s saved on their hard drives (a 23 GB hard drive costs around $300 now) would've paid a dollar for all the songs. No amount of education, no amount of policing, will change the fact that there are billions of people in this world who don't give a rat's arse about the so-called intellectual property "rights" of artists or labels. What is to prevent someone in China from downloading a mp3 file for a dollar and then putting it on his server and allowing millions of people to download it? What is prevent a hundred or thousand people from doing the same thing? Nothing. These actions are actually beneficial though: this kills the commercial bootlegging industry and the only "pirates" are the real fans of the music.

Anyone can break copy protection schemes easily. Anyone can distribute digital music to billions of people. While not everyone has the ability or the desire, it just takes one person to start a chain reaction spread. This is the situation that must be considered when contemplating how a musician makes money in this brave new world. In The Future of Music article, I apply the Cathedral and Bazaar paradigms used by Eric S. Raymond to the music industry where I liken the major label oligopoly to the Cathedral and the mp3 scene to the bazaar.

A fundamental motivator of economics in the world is that the greater the number of people you (or your creation) attract the attention of, the more money you (or it) will make. In other words, there is value in popularity. In a Cathedral, limited monopolies and oligopolies make sense and are a way to maximise profit. In the Cathedral, the value is based on scarcity. But the economics of the Bazaar is dictated purely by the tenet that the most popular is the most economically viable. In the Bazaar the value is based on abundance. Attempting to restrict copying of a creation only makes the creation less popular. Using Cathedral-based models in the world-wide Internet Bazaar which operates using bottom-up rules is unworkable in the long term.

Bottom-up adaptive approaches are a means by which extremely difficult problems in complex systems of many interacting agents and variables can be solved (this is a lesson we learn from observing nature in action). Like in the software world, where the Bazaar model has produced far more robust code than any of its Cathedral counterparts (for example, Linux vs. Microsoft), thereby solving the difficult problem of producing millions of lines of relatively bug-free code, the bottom-up adaptive nature of the Bazaar solves an extremely difficult problem that has plagued the music industry since its inception: figuring out which acts are going to be popular. I personally feel there are a lot of lessons to be learnt from the software world where a huge, working, and thriving economy has been created based on free software.

I had a frustrating time talking to several intellectual property attorneys and people who were motivated by money. The question people kept asking me was "how do I, as a lawyer, make money for my client through the sale of music?" In the last panel, "Keeping the 17 year old happy: How to Monetize the Online music Community", a statement was made to the effect that everyone in the audience was there to make money (an illogical statements on its face). A lot of the people I spoke to shared my viewpoint (a number that went up compared to last year), but the middlemen in the music industry still wanted ways to make money that was based on restriction of copying.

It's not that I don't think these people don't grasp the issues, but some are finding it really hard to let go. Besides, they have a vested interest even as copyright law is being overturned. Ice T mentioned that there's money to be made in building things, and in tearing them down. In all the lawsuits that have arisen because of the proliferation of digital music on the Internet, it is the lawyers that are the real winners.

Having said all that, it warmed the cockles of my heart to see panelists in Artist Econ 101 actually proposing that artists sell other things, a service (live performances, product association) or a tangible product (merchandise), and dare to suggest that the music itself be simply a means of acquiring name recognition (a loss-leader, so to speak). These are views that have been espoused for over six years in the Free Music Philosophy, and related articles, and it indicates that at least some people in the industry are thinking forward. It's not that current models don't work (they do for now)---it's that they won't work in the future and I believe the object of all this debate is to deal with the gradual deterioration of existing per-copy based payment systems.

As an aside, the acoustic concert by Lisa Loeb the evening of the first day was fairly decent. The highlight was the single instance where she took a video camera away from an audience member who was filming her. Certainly, it would've hurt her image and record sales massively when the person filming her saw his shaky home video when he was trying to reminisce about the event. At this point I lost whatever interest I had in the show (even though some of her comments were amusing, she was talking way too much anyway).

The best part about the whole conference was meeting some very cool and bright people (including a bunch of people from the Electronic Frontier Foundation, people who I knew by reputation but had never had a chance to say hello to). The networking aspect of the mp3 summit is what makes it a huge success in my book, and all credit goes to the folks at who brought together such a diverse set of people. I can't wait for next year.

Free Music || Ram Samudrala || || June 15-16, 1999