A Critical Analysis of RIAA Litigation and the Economics of Music

Co-authored by Eric Newport and Adam Rust on 2007-10-15

Earlier this month the Recording Industry Association of America (RIAA) was awarded $222,000 in a lawsuit against Jammie Thomas, a single mom in Duluth, MN, for file-sharing twenty-four songs on Kazaa. This was the first case to go to trial in what has been a nation-wide ten year campaign by the RIAA to end the practice of file-sharing on the internet through litigation.

And just because you don't download doesn't mean you're in the clear. During trial testimony an RIAA representative stated that even making copies of music you own for your own private use is considered piracy. Under this broad, vague, definition any of your music that you put on your iPod or similar technology is illegal.

The public response to the RIAA after the verdict has been far from positive. In addition to backlash from consumers, high profile artists like Nine Inch Nails, Radiohead, Madonna, and Prince have set out on their own, removing themselves from the RIAA business model.

But this model wasn't always negative. When recording technology was first developed, the cost of album production and distribution was prohibitive for new musical talent. Record companies developed to provide a necessary service: the artist would produce quality work for the company and the company would bear the financial brunt of production and distribution. Ideally, both reaped the financial benefits.

Computer technology has changed all of that. With minimum investment and tech savvy musicians can have quite competent recording studios at home and distribute their music over the internet themselves. Recording technology has outpaced the RIAA economic model. To put it in basic economic terms: when the cost of production approaches zero, the price of consumption does as well.

This doesn't mean that record companies don't have a place in this new system. Just because nobody wants to buy music anymore doesn't mean there isn't any money in it. Illegal downloading services like Kazaa and BitTorrent sites make considerable money off of advertising; there's no reason why recording companies can't adopt a similar model. The money would no longer come from consumers but from advertisers, similar to how broadcast television and radio works today. Under this model, record companies would then make the piracy services obsolete, as long as the content offered is in full quality, without DRM or other restrictions.

The old way of music distribution is passing away. What is needed is not draconian reactions, but forward thinking. Instead of suing single mothers, the interests of RIAA would be better served by reconsidering their place in the music business. If they don't, it's only a matter of time before the existing record labels lose all their artists to some visionary new label from the next generation.