Document Type

Article

Publication Date

January 2011

Abstract

The popular music industry is in the middle of a technology-driven revolution. It is clear that the old order has been swept away, but it is not yet clear what form the “new order” will take. The major labels are on life support and will not survive in anything like their previous form. Compact Discs are dead as a distribution medium. Copyright is unenforceable and hence essentially irrelevant except at the margins of the “new order.” Barriers to entry have been reduced dramatically as the costs of producing top-quality recordings have declined by a couple of orders of magnitude. Portable music players such as the iPod permit consumers to listen to music all the time and this enormously increases the potential demand for music.

The amount of new music generated by indie musicians will increase as the demand for music increases because of its portability for consumers. Copyright protection, in the form of digital rights management (“DRM”), will become even less effective for recorded music and technological protections and will be abandoned altogether. The result will be continued downward pressure on prices for recorded music and soft demand for paid record sales.

Increased supply and demand mean increased search costs—how are musicians and their potential fans to find each other? As in the past, intermediaries must match consumers with the music they like, but this will happen in new ways. As music MySpace pages and independent websites proliferate, the burden of finding new music only increases. Someone has to perform the matchmaking function formerly performed by the major labels and the radio-station chains. Who will do it? Innovation and experimentation will increase as new kinds of intermediaries try to find the best way to connect musicians with their potential fans. A handful of these will become the dominant gatekeepers.

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