1. CUT AND PASTE CULTURE: WHAT TO DO WHEN COPYRIGHT MONOPOLIES OVER DIGITAL MUSIC FILES BREAK DOWN Seth Chapman schapman@oxy.edu Advisor: Professor Moore (Economics)

2. “740 more sued; 10,777 total.”[1] … and counting[1] [1Recording Industry Association of America (RIAA) Watch (Friday, May 27, 2005) at http://sharenomore.blogspot.com/ [1

3. My BIG Assumption : Technological and legal control over copyrighted music will soon become extremely limited. DID YOU KNOW! As a student of economics, I get to make assumptions whenever I want. Take that hard science!

4. Copyright for digital music should be discarded as unworkable. HAVE YOU EVER WONDERED? No, I’m not an anarchist. This proposal does not advocate digital anarchy; rather, it recognizes its existence and looks for market solutions to the problem of providing incentives to produce digital music. Photo Taken (with permission?) from: http://capedmaskedandarmed.com/jonathan/MAY_8_04.html

5. But how can artists be rewarded for their work in a world without copyright? Jargon of the day! business model = a plan to make money DRM (Digital Rights Management) = prevents unauthorized use of file price discriminate = charge consumers different prices for same good

6. New Business Models 1. pay-per-download; “a la carte”  Consumers pay to download each song. The inability to price discriminate with pay-per-download services means that this model leads to substantial market inefficiency because consumers who want to contribute to the artist may be priced out of the market. This would lead to a shortage of incentives to record music. 2. subscription; “all-you-can-eat”  Consumers pay a monthly fee for unlimited access to a catalog of music. Revenues are distributed to musicians based on the subscriber’s listening habits. This is better than the pay-per-download model because it takes less time for the user to access the content and reward the musician. Another appeal to consumer is the regular billing rate. 3. Tipping Consumers volunteer to be automatically charged for all content they access. They then review charges at the end of the month and cancel or modify any charges as they see fit. This model is far better than the pay-per- download and subscription models because it preserves consumers’ spending discretion, saves time, and allows perfect price discrimination. Nobody gets priced out of the market, which is the efficient outcome for a public good like digital music. This should work best for lesser-known musicians. 4. loss leaders Musicians give away content for free to promote sales in periphery markets such as concerts. This should work best for pop stars who have a large and dedicated fan base. Popular artists may not be able to receive much from tips because consumers have an aversion to the inequity of high pay for pop stars and low pay for lesser-known musicians. 5. superdistribtuion  Consumers pay-per-download to unlock content. They then share the file and request others to buy it from them to earn money. It’s possible to profit from this shared equity scheme. However, users probably will stay away because DRM-protected superdistribution is too time consuming. Tipping offers a faster, more direct way of rewarding musicians. 6. ransom Musicians hold an unreleased piece of music hostage. Consumers aggregate their demand by pooling together a pot of prize money for delivering a certain piece of music to the public. Payment is made conditional on releasing the work. This is a good pick for any musician. 7. auction Consumers bid their maximum willingness to pay to have an unreleased work given freely to the public. The best price – the one that generates the most revenue for the musician – is selected if it meets the musician’s requirements. All successful bidders pay the same price and the work is released to the public for free access. This is a good pick for any musician. Email: schapman@oxy.edu for draft of working paperschapman@oxy.edu