Though not a new topic, how artists and labels are compensated for their works continues to gain momentum as countries pass (or consider to pass) anti-piracy laws, and everybody from musicians to label executives to music publishers ponder how to monetize recorded music in the digital economy.

Piracy is still rampant. Cheap digital alternatives allow consumers to bypass CDs and albums. The economics of ad-supported music are terribly disappointing to generations used to a better return on their investment. And artists look at the valuations and acquisition prices of online music services and - rightly or wrongly - feel slighted when companies that depend on their music do not share in their spoils.

Bono's early-January op-ed for the New York Times kicked off a round of discussion about the need to take technical steps to ensure artists are compensated for their work.


A decade's worth of music file-sharing and swiping has made clear that the people it hurts are the creators - in this case, the young, fledgling songwriters who can't live off ticket and T-shirt sales like the least sympathetic among us - and the people this reverse Robin Hooding benefits are rich service providers, whose swollen profits perfectly mirror the lost receipts of the music business.



Bono's missive got a dissenting response from the Electronic Frontier Foundation.


As one of the world's foremost champions in fighting global poverty, Bono has testified to Congress about the impact of excessive pharmaceutical patent enforcement on the availability of life-saving drugs. Given his understanding of the benefits of flexible IP reform, Bono's new call to seize control of the Internet by embedding content tracking in the name of ensuring full payment for the movies, music, and media that are overwhelmingly produced by rich countries sounds especially off key. After all, the net transfer of wealth due to an excessive emphasis on copyright enforcement is overwhelmingly from the world's poorest countries to the world's richest. The flourishing of local art and the fair trade of native culture from developing countries needs the flexibility of the global copyright regime, not a war on piracy.



In a reaction to Bono's op-ed, former Nirvanan bassist Krist Novoselic penned an article for the Seattle Weekly's Reverb blog. Novoselic agrees with Bono's controversial statements on file sharing and raised a warning about protecting the quality of music.


Content needs to be worth something if anybody is going to care about it. Free content will ultimately resemble, well, free content. Look at it from a venture capitalist's perspective: Somebody bet big bucks on a film like Avatar. They invested many millions to develop cutting-edge motion-picture technology that would dazzle enough people to make their money back and then some. Now imagine Avatar in context of the YouTube model--a shaky camcorder with hand-held G.I. Joe and Barbie dolls. Which would you pay for?



In an unrelated but similar post this week, DJ Shadow ranted about today's music industry and warned that lower payoffs are removing some artists from the marketplace and preventing labels from taking risks.


Conventional wisdom amongst my peers has been remarkably short-sided over the last decade: "Yeah, CD sales are down, but all the money is in licensing." Not anymore. "Yeah, licensing money is down, but the video game industry is killing it." Less so these days, according to recent data. "Well, the real money is in touring." Really? When was the last time you saw a 'new,' post-record company artist headline a major music festival? At this rate, we'll be stuck with Coldplay for decades (no offense intended).

As distasteful as it may sound, the fact is that so many of our heroes: Jimi Hendrix, John Coltrane, The Beatles, whoever you care to name; generated much of their best art in return for financial compensation. If you take away the compensation, guess what...the art stops. For example, how many young rap artists are grinding away these days in New York, trying to get a deal? Not too many, certainly compared to the '80s and '90s. There's no allure, no pot at the end of the rainbow. People have been asking for years now, "Where's the next Nas, the next Jay-Z?" Be prepared to keep waiting...and for music, overall, to keep sucking. Why? Because only bottom-of-the-barrel, embarrassing pop tripe generates enough income to feed the machine. Anything unproven or risky? Nobody's going to bankroll that kind of 'experiment.'


Pricing

Shadow touched upon another hot topic in the debate about artist compensation: pricing. He reserves the right to set the price for his music. He feels his music has value, he wrote, even though people may disagree. "If you're holding your breath, waiting for me to boost my cool-quotient by giving my music away for free," he wrote, "it's not going to happen."

In years past, artists and labels had more freedom to name their price. For example, CDs could range from $10.98 to $19.98. Nowadays, CD prices have less variation, two or three digital price points dominate and singles tend to cost $0.99 or $1.29. For many independent artists, the biggest pricing decision is whether or not to charge a price. Free music - both promotional and pirated - abounds on the Internet.

But as the posts by Novoselic and Shadow show, some people tend to believe music needs a certain price tag. Creating music has a cost, they say, and it carries a perceived value (in the artist's mind). Both are true. With music comes a cost, whether it is studio time, equipment, studio musicians or opportunity cost (because time spent making music is time that could have been spent doing something else). But in setting prices, the cost of music does not matter. As with other goods, music should be priced based on what consumers are willing to pay.

Because music's immediate digital future is dimes, not dollars, artists should be flexible in the value they assign to their music. That's not to say they should drop their prices en masse. But they need to understand what the market will bear. At the very least, they need to accept the fact that the price they desire may not be realistic. Labels have seen this valuation problem take shape in the licensing their catalogs to digital services. The current ability to monetize music on many new services does not jibe with the minimums being established by labels. Imeem, for example, would have been more successful if they could have paid a fraction of the royalties called for in their licensing agreements. But labels demand rates in line with the value they see in their catalog. In the end, neither side won.

The price of music is a complicated subject that is echoed in the struggles of the newspaper industry to find profitable digital business models. The newspaper industry was built for print editions. The cost structure for digital is vastly different. The same goes for music. The large fixed and variable costs involved in finding, promoting and distributing music work better in the analog world than in the digital world. It's irrational to impose a certain price for digital goods based on a cost structure for physical goods. Consumers don't care what it cost to create the music. They only know what they are willing to pay.

But Shadow is right about one thing: artists and labels have the right to charge what they want to charge. The market will react accordingly.