One final point about Recording Industry Association of America (RIAA) CEO Cary Sherman’s NYT Op Ed on “how the Internets did us wrong.” Mr. Sherman notes that:
They [Congress] knew that music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and that direct employment in the industry had fallen by more than half since then, to less than 10,000.
There are two caveats here worth noting. The first is that when Mr. Sherman talks about sales and the “music industry” generally he means his organization’s members — specifically the four (soon to be three) “major labels” and all of their various sub-labels and subsidiaries.
This is important because in 1999, according to the Federal Trade Commission (FTC), the major labels were engaged in an illegal price fixing scheme. The major labels agreed to discontinue their price-fixing practices as part of settlement decree in May 2000. Not surprisingly, once the major labels stopped violating antitrust law, their artificially inflated profits declined and independent competitors saw a significant rise in profits.
Needless to say, as part of the general magical thinking problem of the industry, Mr. Sherman and his fellows don’t believe the loss of their stranglehold on industry distribution and the rise of competitors (online and offline) has anything to do with their fading fortune. No, it is all that evil Napster and its wicked legacy of Internet piracy. But any legislators and policymakers who expect to be taken seriously ought to seriously consider using a benchmark other than the period from 1995-2000. It would be embarrassing for those not explicitly in the pay of the music industry to believe that it is the responsibility of government to return the industry to glory days of price fixing and monopoly profits.
Stay tuned . . . .
Econoklastic
Spectrum Auction Theory v. Competition Theory
As I’ve previously reported, Congress is weighing spectrum legislation as part of the Payroll Tax Holiday and Everything Else extension. One critical change pushed by House Republicans (with the enthusiastic support of AT&T, surprise surprise . . .) involves whether the FCC should be able to keep companies that have a lot of spectrum (AT&T and Verizon) from bidding on some licenses in the future. This is called “eligibility restrictions” (i.e., are you eligible to bid in the auction or not). The FCC has authority to impose eligibility restrictions now, but generally doesn’t. As the spectrum gap between AT&T and Verizon and everyone else in the wireless world gets bigger, however, there is some talk of possibly bringing them back.
Needless to say, AT&T and its supporters think this is both unfair and bad policy. Others, such as the folks at T-Mobile (now no longer being absorbed into the Bell Borg) have responded to the fairness argument. For myself, I am always deeply suspicious whenever incumbents start arguing about “fairness,” as it usually means “please consider this particular detail in a total vacuum without ever thinking about all the unfair advantages I have, and use my framing because I appeal to basic values and use sports metaphors like ‘level playing field.’” But lets set that aside and do the cold-hearted policy wonk think. As Paul Krugman occasionally likes to say “economics is not a morality tale.” And in any event, even if we decided this on “fairness,” we’d still want to know the right answers and outcomes, right?
Two usual policy arguments are advanced for no eligibility restrictions. The first is that “auctions put spectrum in the hands of those who will use it most efficiently.” The second is that auctions with open participation increase total revenue. Lets pretend for a moment the first statement is true. Based on this, I shall prove below that not only does open participation decrease revenue, but it creates a serious conflict with competition policy. If we maximize auction efficiency, it is inevitable that the largest players will win the majority of the licenses and that this problem will grow worse over time.
So meet below the line for a video blog explaining this and some serious policy trade off discussions . . . .
Read More »