Some people say the future of music is more access. Spotify, Pandora, and other digital service providers should be able to offer all songs as inexpensively as possible, even free to consumers in some cases. Others say the future of music is dependent on more control. Music owners should have the right to make their songs available when and where they choose, and at a rate determined by the owner, including the right to say “no”. These appear to be two diametrically opposing directions. Which way is the best? Which direction will increase the overall music revenue marketplace?
To explore, let’s take a look at what we know about taxes and tunes.
There is a simple formula some in the world of economics believe; if you increase the tax rate, more taxes will be collected. So it stands to reason that the further you continue that direction, the more taxes are collected. Right? The top tax rate in the U.S. for 2014 is 39.6%. If we double that, to 79.2%, as the theory goes, the taxes should double. It’s a simple straight line increase. But hey, why stop there. If doubling the rate increases collections, why not continue to increase the rate even more? Wouldn’t that provide even greater taxes that what the government is now collecting? (See diagram A.)
On the flip side, others say tax cuts will incentivize individuals to make and spend more money, thereby increasing the government’s take by raising the overall revenue picture. Using that theory, if we cut the current rate in half, that should increase overall revenue. And if that’s true, shouldn’t it increase revenue even more if we continue that straight line theory and cut further? (See the diagram B.)
As I hope we can all agree, neither of the above models, if taken to the extreme, will work. In both scenarios, taxes will end up being zero, simply because in the first example, people will stop working because taxation is 100%, and there is no incentive to continue, and in the second example, the government has no ability to collect tax revenue, so there are no taxes at all. These models are known as “linear” models, which are represented by straight lines. The basic, but faulty, thought behind these linear models is, if the line going one direction increases the goal, then continuing that line as far as possible continues the positive effect. To the true followers of each of these opposite beliefs, the direction we need to go seems clear.
Let’s apply that to music. If making music easier to get and more readily available is good, then making music even more easier to get and readily available should be better. Right? That’s called “false linear thinking”….using a straight line. It doesn’t work with taxes, and it won’t work with music.
In 1974, an economics professor at the University of Chicago, Arthur Laffer, was having dinner with Dick Cheney and Donald Rumsfeld, who were then part of President Gerald Ford’s cabinet. They were discussing Ford’s tax plan, and to illustrate a point, Laffer began to draw on a napkin. The picture he drew took into account both tax ideas from above, only it did not include a straight line. Laffer’s line was curved. His theory was, since neither extreme of straight lines is best, there must be some “sweet spot” where the balance in just right, and taxes are collected at their highest level. He called this “non-linear” thinking. Others have since called his example the “Laffer Curve”. (Interestingly enough, the Laffer curve was mentioned by actor Ben Stein in his ad-lib lecture as teacher to his class in the 1986 movie, “Ferris Bueller’s Day Off”. “Anyone know what this is? Class? Anyone?….anyone?…anyone seen this before? The Laffer curve. Anyone know what this says?…..something-doo economics”).
The basic premise of the Laffer curve is we must consider both factors to find the right balance. Following one idea on a straight line to the extreme does not work. Knowing the best direction to go is not clear. In other words, with this non-linear thinking, the direction you should go depends on where you are. (See diagram C.) At point A you should move toward B; at point B toward A. For the music industry to improve, do we need more control, or do we need more access? Which way we should go depends on where we are.
When Napster was introduced in 1999, the industry tried to lock it down and prevent file sharing by mighty control. It didn’t work out very well for the industry or Napster. Napster pushed the linear line one direction to the extreme, and the industry tried to push the line the other direction to the extreme. It all pretty much crashed and burned. So a little later, when legitimate digital providers began to provide music, even though the rates were minuscule, the industry’s position seemed to be, “at least it’s not free, so we need to support it….give them more access”. Problem is, today, the marketplace has been lulled into accepting the notion that, for a digital service provider to launch, they must have access to 100% of the songs in the market, and it needs to be cheap. Maybe there are other industries that operate this way, but I can’t think of one. Should we have more control? Or should we have more access? Which way we should do depends on where we are.
Today, music is even being used as a loss leader in certain businesses. For instance, by becoming a member of Amazon Prime for $99.00 a year, you get free second day shipping, streaming movies, Kindle library, and unlimited access to over a million songs. Plus…you’ll get a one carat diamond each and every year for your loved one, all for $99.00 per year. Okay…just kidding about the diamond. That would never happen, because it would devalue the diamond market. Ummmm….
So where are we? Too much access or too much control? The direction we should go depends on where we are. Where are we? Anyone?….anyone?…..Bueller?
John Barker is President & CEO of ClearBox Rights, LLC, an independent rights managements company based in Nashville, TN. He is also Chairman of the Copyright Society of the South. John publishes a blog related to songwriting, publishing and copyright issues which can be found at http://clearboxrights.wordpress.com or www.clearboxrights.com.