Slaughter & Rees Report: Don’t Download This Song

New technologies invariably produce winners and losers, but the music industry in particular has been pummeled.

Taylor Swift is one of the most popular music performers in the world today and counts more than 100 million followers on that most modern of popularity-measuring meters: Instagram.

While her songs frequently focus on the travails associated with boys and breakups (“We Are Never Ever Getting Back Together” is a perennial fan favorite), she also possesses a nuanced understanding of an issue that faces virtually everyone in the entertainment business: protecting and rewarding intellectual property. “Music is art, and art is important and rare,” she wrote a few years ago in the Wall Street Journal. “Important, rare things are valuable. Valuable things should be paid for.”

She’s right, and her stance puts her in good company. America’s Founding Fathers placed such a premium on intellectual property that protections were written into Article I of the U.S. Constitution: “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

The economic insight here is simple but vital: the social value of new ideas often exceeds the private value, in part because your consuming an idea typically doesn’t destroy its worth to others. Because of this positive externality, people and firms will tend to underproduce new ideas relative to what a benevolent social planner would want. Thus is some form of government policy warranted to induce greater knowledge creation. Patents and other forms of intellectual-property protection aim to do just this. By granting inventors some form of exclusive monopoly to realize gains from their new ideas before those ideas transfer into the public domain, the hope is that more overall innovation will be realized.

Total sales of CDs last year was the lowest level of revenue CDs generated, on an inflation-adjusted basis, since 1985.

This issue has taken on heightened interest in recent years as technology has radically simplified the once-arduous task of copying intellectual property and distributing it. Some of these same technologies have been upending countless industries (magazine and newspapers, book publishing, and movies), but music in particular has been pummeled. The industry’s U.S. revenues last year were $7.7 billion—down from $19.8 billion in 2000. The decline in CD sales is illuminating. As recently as 2002, they accounted for more than 95 percent of total recorded music sales. Last year, they accounted for less than 16 percent. And total sales of CDs last year—about $1.2 billion—was the lowest level of revenue CDs generated, on an inflation-adjusted basis, since 1985. Suffice to say, these dramatic declines are not a function of consumers suddenly deciding to dramatically scale back their music consumption. No, they’re just paying less—and often not paying anything—to access it.

New technologies invariably produce winners and losers, and the biggest winners have been Google, Facebook, and Amazon—which today have three of the six largest market capitalizations of any American company. While each company clearly has legions of devoted customers and users, there’s also a dissenting view, which says that these companies are unfairly capitalizing on the intellectual property of others while diminishing the quality of content, and invading our privacy, along the way. That’s the argument made in a recently published book, Move Fast and Break Things, which one of us reviewed recently for the Wall Street Journal

Once you’ve waded through the review, find time to listen to perhaps the only pop tune ever devoted to intellectual-property protections, “Don’t Download This Song,” by that musical genius, Weird Al Yankovic.

Don’t take away money
From artists just like me
How else can I afford another solid-gold Humvee
And diamond-studded swimming pools
These things don’t grow on trees
So all I ask is everybody please
Don’t Download This Song. . . .