Schlagwort-Archive: Economics

compulsory reading, Economics, intellectual property rights, music industry

They’ll get the pricing wrong.

For at least five years. If you search my blog you will find that I have repeatedly said that all attempts to sell musical downloads will suffer from problematic price policy. Apple’s new itunes download service is no exception. True, it is probably closer than anything previously seen to actually enhancing the user experience with digital music. According to wired news,

“… opening day downloads equaled the number of songs legally downloaded over a six-month period last year.”

But it is nonetheless bereft with a pricing dilemma. A dollar a tune is not always a justifiable price, even though NY Times columnist David Pogue is ridiculing criticism of this pricing policy.

In fact, for most downloads it is clearly too much, even though things are cheaper when an entire Album is downloaded – for 10 dollars. While a tenner a disk makes downloading for some albums cheaper than your local record store, it is, on the other hand, probably a prohibitive price for DRM protected material, and, moreover, a price justifiable only due to the channel conflict with the non-digital distribution universe, which still makes it necessary to spend millions on marketing songs to people who are not interested in them anyway. It is a price only justified if the advantages of the internet, especially in the realm of marketing to a smaller, but more appropriate audience, are not exploited.

Thus, a dollar a buck can just be the beginning. People will continue to negotiate this price by using KaZaa and Grokster. Record companies will continue to try to scare unwitting conservative politicians about “the end of property” as well as send cease-and-desist letters to people sharing songs.

The big unknown variable is the political one. Will politicians be willing to understand the conventional definitions of property are just not appropriate in the digital age? Or will they allow the record industry to gain a windfall from perpetuating the economic structures of previous times for an unknown amount of time? I firmly believe that eventually, the social and economic institutions will adjust to a new reality.

But again, it is a matter of pricing. This time, a matter of the price that our information societies will be willing to pay for patrolling people’s hard drives and digitally fingreprinting their lives. Maybe US Sen. Santorum’s intervention telling homosexuals that they do not have a right to privacy came at the right time. I don’t know. But it is more important now than ever to tell people that digital privacy is an important issue. Something, many people were concerned about when it wasn’t a real issue yet, back in the 1980s.

Now that it is one, people don’t seem to realise that the same mechanism that allows to reduce the prices of individual songs could be the reason for the end of civil liberties as we know it. [ author off to pay to see a film in a real movie theatre…]

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Economics, quicklink

Semi-daily discussion on Sen’s paradoxon

A neat little discussion occurring at Brad DeLong’s Semi Daily Journal, regarding the question whether Sen’s paradoxon – which basically says that it is possible to dream up utility functions which would allow liberalism and the pareto principle to be in conflict – is actually a paradoxon. And it is evolving into a real debate about the different meanings of liberalism/libertarianism. Be sure to check read the comments, at least flip through them if you don’t have two hours to spare…

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Economics, US Politics

Understanding The Bush Economic Stimulus Package. W’s getting scared.

I don’t know if I am understanding the package correctly. Most of those throwing their opinions in the ring certainly know American politics a lot better than I do.

Their predominant interpretation of the package is that it is not actually intended to stimulate the US economiy but to get Bush reelected in 2004 – that’s why he is handing out even more cash benefits to wealthy Americans not likely to increase their marginal consumption. The Economist tells us that

“[i]t certainly lays Mr Bush open to the familiar charge that he is favouring the better-off. One study has shown that the average annual benefit for people earning less than $10,000 a year would be $6, while that for those with million-dollar-plus incomes would be more than $45,000. Conventional economics suggests that the richer people are, the less propensity they have to spend each additional dollar of income. America might have a long-term need to boost savings rates, but that will not help stimulate the economy.”

Also check these two links [ 1 , 2 ] to Berkeley economics professor Brad DeLong’s blog, if you want.

It is probably right that Bush had his reelection prospects in mind when designing the tax-cut [ ok, he did not do it himself ;-) ]. But I believe, the package’s design also reveals something else: His team is already getting scared. They’re not too sure they’ll be able to supervise the already announced tax-breaks in 2006 to 2010. So he’s delivering to his constituency now as the promised tax-cuts could be repealed later on. Timing is the keyword here. W clearly remembers the fate of his dad back in 1991. He lost the Presidency to Clinton in 1992 because of the post Desert Storm economic slump. As another Iraq war does seem to become increasingly unavoidable from his team’s hawkish perspective, the US administration realises that it could cost W the presidency in 2004 should the possible war’s timing be unfortunate. If things go “well” (again, from a hawkish perspective), it could be over this summer and economic consequences could be bearable. This is the scenario most strategic planners in financial institutions apparently believe to be the most probable.

However, Murphy’s law looms large over all armed operations and things could very well turn out differently. And there are enough military people in W’s administration to remember good old Murphy. That’s why I think this tax break shows the Bush administration is starting to believe their man could lose in 2004. The big question will be – to whom?

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Economics, intellectual property rights, music industry

The Future Of The Music Industry. It’s so simple.

Sometimes it really does take ages for people to understand things have changed (and sometimes I have to include myself here). The Music Business will be a wonderful case study to illustrated the argument – in ten years. Right now, the industry is still struggling to come to terms with its new economics.

Yesterday Wired News informed about a policy conference held by the Future of Music Coalition in Washington, DC this week. The predominant idea was apparently that everybody involved in the business – musicians, independent and major labels, politicians, consumer electroncis and computer manufacturers as well as consumers should try to seek a compromise regarding the alleged problem of unpaid digital downloads. Jenny Toomey, exectuive director of the organising committee summerised the general approach as follows – “I think we’re looking for a kinder, gentler, more equitable model where more people can make a living off of this stuff.”

Sweet. Lovely. But I don’t get just why so many people in the industry can’t seem to see the wood for trees. There’s no real need to sit down and hold hands for all these groups with seriously conflicting interests. This is one of the instances where the market is actually going to solve the problem (in the longer run).

Sitting down and holding hands will only serve the interests of those who are trying to extend the cash flows of times past into the digital age while they are transforming their business to become less dependent on record sales – there’s a reason why vertically integrated media conglomerates are flooding our screens with instant-star shows. Teenagers (still one of the industry’s most important target group) may buy (~15%) less records these days than they did before Napster, but now they watch more advertisments.

Information goods are tricky when it comes to economic analysis. This even more true in the case of music. As opposed to most other products, economics have a hard time telling us about “the optimal level” of music production and consumption. What’s even more important – most models don’t take the intrinsic musical motivation into account. Given that most people create music without ever even intending to make money with it, those models are not exactly representing reality.

The new digital distribution model allows to target smaller audiences and make more money than before – if you do it correctly. However, while a lot of musicians who have not been able to live off of their art in the past will increasingly be able to do so in the future, it will be much more difficult to get into the average Madonna income range by performing music. The current winner-take-all market structure will likely disappear.

I find it startling that artists like John Flansburgh of They Might Be Giants say that they would prefer the semiotic control of a major label’s product manager to the control exercised by an audience/market. Wired cites Flansburgh saying that “it’s ironic that we’ll miss the majors when they are gone.” Madonna might. You probably won’t.

While electronic markets for music are still in their infancy, things are already changing with the advent of useful machine listening software. Just think about a catalogue of all the music that matches your style preferences, whoever wrote it, whoever performed it.

According to the article, The Hooter’s Eric Bazilian stipulated that “[t]here’s an incredible amount of mediocrity,” due to the reduced costs to produce songs and put them on the web. That is very true. But there are also so many gifted, struggling musicians who never had a chance to create a market for their music because of the Major label’s gate keeper function. Now they are able to reach an audience and transform their cultural achievements into a product. I don’t understand why a musician would believe that it is a good thing to keep music from being published?

There will be new sources of information, like trustworthy journalists reviewing new songs, online fora. People providing valuable services, possibly for money. Or, as I believe, there will be quality settings in the machine listening software allowing the customer to get exactly the recording quality she wants.

Don’t tell me people would not want to pay for such a search engine which, in turn, would be able to pay for the creativity. Not the amount BMG pays Withney Houston, obviously.

But there will be a whole new middle class of artists. And they don’t need to sit down with anyone. They just let the technological development work in their favour. And in ten years, they will teach the music industry case study. If the latter should not be able to use its political clout to perpetuate its current powerful structure into the digital age.

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Economics

The Spam Way Of Life.

I just realised to which extent the ever increasing amount of spam has already led me to develop instant deletion reflexes.

I just deleted today’s Wired News without even looking at the sender, because the subject line begins with “Korean Housewives want…”. Housewives has definitely become a keyword for instant deletion. Just like the the three daily emails trying to tell me that “someone has a crush on me” or those from, eg Mrs. Mariam Mobutu Seseseko with subjects like – Urgent Assistance Needed PRIVATE AND CONFIDENTIAL / Amount: US$ 18 MILLION.

This so called 419-spam, where a complete stranger who received your email address “through a mutual firend” tells you that he/she is a relative/close friend/doctor/pet of the now dead previous strong man of [put sub-saharan country of choice here] who was able to steal zillions of development aid and now needs your account as a laundry shop, seems to have some sort of celebrity status, as this Belgian collector’s website indicates – Google did not find a single collection of spam concerned with erectile dyfunction or breast enlargement.

I wonder if this kind of communication should actually be collected somewhere, if only to document for future generations what happened in our mailboxes in the post-millenium-years. An all-spam-encompassing collection could also help answer the ultimate question behind the phenomenon – how many people do actually react to spam? And why? Sending spam is certainly cheap, but it clearly does cost something: Someone has to be paid for collecting all those email addresses and then handling the sending process. Given the amount of spam I receive every day I have to draw the conclusion that it must somehow be profitable.

Thus, there must be people who pay money for the services promoted by spam.

While I can imagine people being interested in breast or penis enlargments, I have serious difficulties to understand how their interest could be sparked by a spam email or why they would believe that a product/service which is advertised in the cheapest way available could solve their problems. Remember my previous entry about covers that reveal something about the content of a book? Doesn’t a spam cover scream “click on me and I’ll rip you off”? However, its mere existence reveals that demand for those products and services promoted must be attributable to the emails sent out.

One more entry on my list of things that I will never understand.

PS: The Korean housewives simply wanted “a speedy net”. Sometimes looks do deceive, even with respect to spam – but it’s luckily rare.

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Economics, US Politics

More about the 19% of millionaires mentioned below

(Link) I don’t know what kind of organisation the group “citizen’s for tax justice” are. So I would not rely too much on the information – but in case they are reporting correct figures for the averge US income (and the ranges seem not implausible – note: not GDP/capita but income per working person) on this website that I found today, then it would be even more astonishing that 19% of Americans believe they are in the top 1% income range and another 20% believe they will be there at some point.

According to the figures reported on the page, the average income for the top 1% of tax payers in the USA in 2001 was 1,028,000 USD. Thus given the usual outliers, I think the top 1% will start somewhere between 400,000 and 500,000 USD, as the avergae top 5% income is 204,000 USD. The general average is 56,500 USD – again, according to this source.

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Economics, US Politics

Un-f***ing-believable

Brad Delong quotes a very interesting paragraph in his Blog. It goes as follows:

DAVID BROOKS, ATLANTIC MONTHLY – During the most recent presidential election a Time magazine-CNN poll asked voters whether they were in the top 1 percent of income earners. Nineteen percent reported that they were, and another 20 percent said that they expected to be there one day

If correct, this number shows a) that Americans are ignorant to a scary extent about their relative economic situation as well as about the absolute levels and distribution of income and wealth in their society; and b) that material affluence (or the social standing associated with a high income) and “winning” have become important the US to an extent people either choose to lie about their relative financial statusnot to they choose not to know about not being part of the top 1%.

I think comparing these percetual numbers with the real income distribution will lead to intreresting insights regarding the “rational” political behavior of those electing and those elected. Likewise international comparisons would be interesting – in this country everybody tries to calculate himself poorer than factually correct.

Very interesting. Clearly more thinking is needed in this respect.

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Economics

Perks.

Robert Mundell, winner of the 1999 Nobel Prize in Economics, apparently created a list of the ten most important perks of winning the Nobel Prize and presented it on the Letterman Show. You can find the list in Bradford DeLong’s Blog. It might be due to cultural reasons, but I can’t find a lot on this list funny. And there’s only two items worth all the long years of hard work which usually precede such an award –

  • 3. Any meaningless crap I say, the next day it’s in the Wall Street Journal
  • 10. Can end almost any argument by asking, “And did you ever win a Nobel Prize?”

Let’s be honest. Who would not want to be able to stir up the financial world if in need of cash or be able to end a discussion by intellectual superiority without having to prove it ever again…

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Economics, Germany

Bye, bye, Neuer Markt

poor baby

Deutsche Boerse, the main German stock market operator today announced that the Neuer Markt (new market) would be dumped by the end of the year. It’s a widely welcomed and probably useful decision to get rid of a market and respective index that has plunged for 2 1/2 years in a row. Fair enough, what goes up like a rocket, must come down once the boosters burn out. But I remember all the success stories back in 1999. I remember the days before those 2 1/2 years, when “going public” was the main subject in my business schools cafeteria. When the Neuer Markt was synonym with getting rich, fast.

There will be a new, more efficient trading system for tech stocks. I guess it’s a good sign that the market is being cleared from all those penny stocks, whose IPO was probably planned in a cafeteria just like mine. It’s not that the digital revolution is dead. It’s just that it is eating is children. Another revolution to prove that rule.

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