Tragedy of the Digital Commons?

On March 3, 2010, in P2P, Law, & Piracy, by Merlyn D

**Note: For my blog post, I will focus on music in P2P, although P2P technologies are also used to share books, software, and personal files.

There was an era just a few years ago when P2P was the way to get music for cheap.  P2P, which is a network architecture system through which users are both consumers and suppliers, filed into the mainstream with the advent of music sharing.  Back in 1999, Napster up-ended the way music could be perceived as a “private” good when it became easy and free to obtain music.  Over the last decade, P2P technology has grown to enable the mainstream public (the more the better) to obtain music for free. As music is increasingly more characterized as a public good (that is, the only real “price” of obtaining music is the small amount of bandwidth necessary to download), will there be a tragedy of the digital commons? [the link provides background info], and how does anyone prepare for it?

The landscape of P2P has changed.  Interestingly, The NPD Group research company announced that in 2009, there was a 25 percent decrease in illegal file d

ownloading in the U.S. on P2P web

sites.  Interestingly, NPD reported that despite the decrease in file downloading and move toward ad-supported music web sites, the “musical industry saw 24 million fewer legal

music buyers in 2009,” which included, “1 million fewer buyers of music downloads” (CNET).  This trend means that not only are music industries losing money, but the file sharing rates (including, but not limited to music) have fallen as well.  With falling levels of use of legitimate forms and illegal forms, is there a winner?  How can there be a winner?  Is there a better way to balance social surplus (the pleasure of having music) with the surplus of a company (revenues)?  The grave question is: will there be a point at which neither music producers nor users will be incentivized to keep producing music for consumption?

This could mean several things: 1)discouraged by the now “expensive” costs of official music, consumers opt out of buying; 2)accumulated files from P2P sharing means there are fewer reasons to purchase music; and 3)consumers have found superior options.  Undoubtedly, the trends seem to suggest that there is a move away from ownership of music, whether it’s legitimate or pirated.

In our readings, we discovered that the battle over the ownership of media is not new.  In fact, during radio broadcasts were treated similarly until collective licenses were distributed.  Without a way to eliminate such illegal web sites, music producers/distributors are forced to come up with new ways to bring up revenues.  The models today for how music can be distributed generally fall into three areas (please refer to Fingertip for specifics), which include free music, a fee for music (access), and a monthly “bill” for music.

The model that Matt brings in seems to suggest there is some sort of equilibrium through which, the resources that we have now charged at a fair price will create an effective sharing of music that somehow maintains quality, profits, and demands.   If NPD’s numbers are correct and the trends will continue to demonstrate that p2p utilization is falling along with music industry revenues, that means that “choosing the right package” may not be as feasible (or a stable solution).  As distribution rates fall with musical industry revenues, any “model” to fit does not appropriately predict for future environment for music sharing.  Even if music industries were able to obtain collective licenses to create such pricing models, I question whether there is truly a stable state where the profits of these companies will be able to large enough to compensate for falling demand.

 

2 Responses to “Tragedy of the Digital Commons?”

  1. Elie C says:

    I’m actually pretty skeptical about the conclusion that (less legal music sales) + (less P2P sharing) = (less demand for music (files?)). Without naming names, there are other ways of downloading music files outside of P2P and licensed distributors, not to mention whether the NPD measures closed P2P communities or just open P2P networks.
    Are you suggesting that the future of music consumption is temporal free-streaming versus ownership of music files? Or that general demand for music falling? If the latter, I wonder if there’s some larger social change we’re all missing… Or maybe record companies’ profits are the dead weight loss that current models fail to account for – with digital distribution and low marginal costs of production, neither artists nor consumers really need this middle man.

  2. Merlyn D says:

    For less legal music sales + less p2p sharing = less demand for music to hold true, that means there could be rising “inventory” of files. If that’s the case, general demand of music is falling. Which points to a larger social change. that is, from early history music was a public good (it was played in public, non-excludable, etc), became a private good (music as commodities), then further, music is both private and public (hard to exclude, but are considered commodities).

    Not sure if you can say neither artists nor consumers really need the middle man…that is, cut out record companies altogether and have a world like youtube (where it’s artists direct to consumer) with no cost on the consumer except small bandwidth used for ad revenue? I guess it would suggest that the musical industry is the real problem and distributors are obsolete. Would love to talk more about this today.