Nova workboard

a blog from young economists at Nova SBE

Let’s Face the Music – and Tax?

Let’s start, as all economists do, with some reasonable assumptions:

Assumption 1: You’re reading this on an electronic device.

Assumption 2: You have an electronic device nearby that can play music (it may be the device mentioned in Assumption 1).

Based on this assumptions, it is certainly possible that you’re listening to music while reading this blog post. I’m willing to go out on a limb and state it’s likely you’re listening to a song right now as you’re reading these lines. This outrageous assertion is based on the observation that, nowadays, music is seemingly everywhere all of the time. No longer do we have to carry our 12 favourite tunes on a CD (let alone vinyl) waiting for the right sound system to be able to enjoy them: our mobile phones, PC’s, mp3 players and the like, with their ever-expanding storage, allow us to carry and listen to more music than what Beethoven heard during his lifetime[1].

Part of this increased access to music can be explained by simple(r) piracy. That’s not the focus of this post though, as legitimate companies have recently developed a bevy of music streaming platforms. In Portugal, Spotify only requires an Internet connection for consumers to freely listen to any song from a huge collection of albums and genres; the ads, interspersed among the songs, can be removed by a monthly payment of €6.99, which also allows for offline playlist storage. In the US, similar services have arisen with Rdio and Pandora, albeit with slightly different modes of use.  However, it has been claimed that Spotify and other such services don’t channel almost any revenues to the artists themselves, which led musicians as diverse as the Black Keys, Taylor Swift and Radiohead to withdraw the music they own from the platform.

With the arrival of these new streaming services, it’s clear that the nature of music consumption has changed over time. While only 15 years ago we would have to buy CD’s from the record store to enlarge our music collection, now the only thing stopping people from accessing billions of songs is not having of internet connection – which is becoming increasingly more prevalent in this 4G, Wi-Fi world we’re living in. Also, songs are now digital, which lets people share their music with others at a nearly limitless rate; the music I buy can be listened to by others pretty quickly.

These two traits – difficulty of restricting access and multiple consumers benefiting from one purchase – allow us to think of music as having characteristics of a public good, which has huge economic implications. For one, it helps to explain why music producers (songwriters included) aren’t happy with the current state of the industry: the fact that their songs are freely available online with almost no compensation may lead people to enjoy all the benefits with no cost – a classic free rider problem. Another possible line of thought is that, if private actors don’t seem willing to continue their activity on the same grounds as before, there may be a role for the state in promoting music making. The idea of a “culture tax”, apparently revolutionary, has in fact already been proposed in some way or another, such as in France.

Nonetheless, let it be clear: I’m not arguing for a straightforward implementation of a global tax to subsidize musicians. Such an assertion is economically imprudent, for a number of reasons. Firstly, not all music is alike: Wikipedia lists over 100 genres, and most people do not like all kinds of music equally. In this case, speaking of a socially optimal level of music that people want may be misleading. In addition, music may be just a way of people meeting their cultural needs – meaning that they can shift away consumption to other art forms, such as painting or photography. Finally, the producer side can also create exclusion mechanisms that prevent people from listening to songs they did not pay for.

After all this discussion, what to take away? Should the state impose a tax to ensure that we don’t suffer from a shortage of music, or is the industry going to adjust naturally to the best outcome to all involved (consumers and musicians, as well as intermediaries)? I’d be foolish to pretend I know. However, this much is clear: the recent advances in technology have forever changed the way we access and consume music, and old models should be updated in order to better understand the economics behind it. And yet, it seems like yesterday, all these troubles seemed so far away

Rui Mascarenhas

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[1] The fact that Beethoven gradually lost all of his hearing probably didn’t help, either.

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Author: studentnovasbe

Master student in Nova Sbe

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