The Price Tag on Free Music

How many people can you name that legally own all of their music? I can name two– my parents. Websites such as pirate bay and many other P2P (peer to peer) networks make it simple and fast to illegally acquire almost any song or other form of downloadable media for no cost at all. Even with the demise of LimeWire, a popular media sharing application in 2012, an increasing number of file sharing websites are emerging at a rate that is seemingly unstoppable. The average teenager claims to have around 8,000 songs in their music library, yet at the 99 cent price tag that most websites charge for these Mp3s it would be impossible to assume that high school students can afford to dish out even a couple hundred dollars on their desired media, which is nowhere near close enough to purchase the average library.

What does this mean for the music industry? Many record companies have seen their profits decrease, which has caused them to cut employees and positions with over 70,000 jobs claimed to have been lost as a result of this increase in file sharing, with the number growing daily. As a result, many artists have become independent– meaning they are faced with producing, promoting, and distributing their content on their own. Instead of relying on music downloads for profits, many companies are turning to digital licensing to music sites such as YouTube and Pandora, as well as seeking out touring and promotional deals.

But many critics of illegal music downloads fail to address the question of whether or not it is fair to assume that every unauthorized download should be calculated as a lost sale. The clear answer is no, and to a large effect. Many of my college peers make minimum wage, or have no source of income. Those of them who do not use “listening” applications such as Spotify, admit to solely using P2P networks as a means of getting the music they want. When asked if the disappearance of these file sharing websites would make them resort to buying their music, the answer is always no. It’s far too expensive at the rate they want songs, and they would always rather put that dollar towards something else.

Now that we can predict that a large percent of illegal downloaders would have never paid for their music, what does this mean for the market itself? The benefits that these downloaders receive from every Mp3 are directly going into reducing “deadweight loss”. Simply put deadweight loss occurs when there is an imbalance or loss of efficiency between the benefits consumers and producers get in any given market.

Lets say that the marginal cost, or cost of selling another unit, of Taylor Swift’s new album is $1. If she chooses to charge $15 dollars for her album, only people who would gain $15 or more worth of enjoyment would purchase it, leaving the firm with a profit of $14 for every unit sold. But if there is a consumer only willing to pay $10 dollars, there is still a potential to increase the benefits to both groups. In this scenario if, say, this person could buy the album for $7, then the consumer benefit would be 3 and the producer profit would be 6. But what inevitably happens is a missed opportunity to benefit both parties, representing a deadweight loss. But P2P websites allow those who are unwilling to pay the high price to enjoy the music for free, ultimately reducing the deadweight loss in the online music industry from the consumer side, with no benefits going to the producers.

A reduction of deadweight loss, or an increase in the overall wellbeing of a consuming population is not an excuse for illegal activity. What it does demonstrate is the error in accusation that record labels and music patrons put on the alternative ways of acquiring music and media files, and its effect on the revenues of the artists. Yet websites such as iTunes and Amazon still bring in enough to operate, with iTunes ringing in over 4.5 billion dollars in revenue in 2014, proving that they and their competitors are not yet critically threatened by illegal file sharing websites. If these record labels and music distributers could come up with a way of solving this missed opportunity for a mutually beneficial transaction between consumers only willing to pay less than the set selling price and producers only willing to sell at that price than we would see a reduction of deadweight loss and increased benefits to producers and consumers of music, and a decrease in illegal file sharing.

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