Law and Ethics - Which Rules?

You may or may not remember from my class presentation that I talked about how society's expectations govern the ethical guidelines under which corporations operate. If you don't remember here's the quote I used:

 “Society is predicated upon behaviour that it expects will advance itself. It is not interested in behaviour that will force the society to regress. Business is established and allowed to exist because in capitalist societies it is deemed to have a central and pivotal role in the betterment of society.”

- Svensson and Wood, 2008

I found that society's expectations do not only affect ethical behavior, but that they also affect the laws under which corporations and the rest of society operate. Why is this? Because the laws under which corporations operate are naturally affected by ethical principles. This idea is so incredibly intriguing, and I'm not going to go into all of the details here because there's so much to write about and not all of it will be relevant to this paper, but I think it's worth bringing up. I actually think I could write an entire research paper about the way the law and ethics are intertwined, but I'll save that for another day. Anyway, I found this wonderful article by Jose Antonio Marina called "Genealogy of Morality and Law" that does a great job simplifying this topic. 

Here's the progression of his argument for why law and ethics are intertwined:

1. Law aims to search for acceptable ways to solve conflict.
2. A conflict may only be considered as solved when protection of some value considered as fundamental for coexistence is achieved.
3. One feature of law is to search for a system of solution to social conflicts that keep society's fundamental values safe.
4. The selection and justification of those fundamental values is not legal but moral.
5. Therefore: The fundamental criteria to legally solve problems is extralegal.

In lamens terms, ethics help to shape laws, but together laws and ethics govern business. How and why is this important to the recording industry?

The recording industry has copyright law to govern its actions as well of the actions of music consumers. The recording industry legally has the right to sue its consumers. But does that mean that it is ethically sound for the recording industry to sue one music pirate but not another to prove a point? Based on the animosity that has been bred between the recording industry (aka business) and its consumers (aka society) it seems like society is against big business suing individual consumers. If ethical principles are governed by society, and a majority of those in society think that it is not ok for the recording industry to sue individual music pirates, then perhaps it is not ethically sound for the recording industry to sue individual music pirates.

But then you must ask: If society governs what is ethically sound, and ethics shape the meaning of laws, should copyright law be abolished? That's not an easy question to answer and I don't intend to answer it here. Copyright law has its own ethical implications and reasoning behind it. It is meant to protect the rights of the creators of each work, but in the growing technological age it may just act as a barrier to innovation. It protects the creative works of society, which is why it was implemented in the first place, but at the same time it's stifling the sharing of music throughout society, which is something that consumers dislike. It is a complicated subject. Perhaps I should continue to look into it.

When Economics Become An Ethical Issue

Hello, hello dear reader. I'm back again to talk to you about some ethical issues that might just make an appearance in my research paper. Today I'd like to talk to you about the economics of the music biz and how ethics and economics sometimes just don't match up.

You've probably read a lot of reports about how the recording industry is going under financially and how record companies are becoming closer and closer to being a failing enterprise. Curious about whether this was true or not, I decided to check up on the latest Nielsen Soundscan forecast to see how well the recording industry was doing in comparison to previous years. Here are the facts from their 2011 report:

• Total music purchases reached the 1.6 billion mark for the first time
• Overall album sales are up by 3.2% from 2010
• Total album sales are up for the first time since 2004 with total sales equaling 330.6 million
• More vinyl albums were purchased in 2011 than in any other year since Soundscan's inception - interestingly enough they accounted for 1.2% of album sales (WOAH!)
• Digital music sales account for 50.3% and for the first time digital sales are larger than physical album sales
• Physical album sales declined by 5%

What Nielsen's forecast shows us is that overall the music business is doing extremely well for itself, but consumers are still under the impression that it's in this state of failure. Why is this so?

What consumers don't know is that the "Big Four" record companies control 80% of the music market, aka the number of albums that come out in any given year. These four record companies have the ability to influence media coverage and consumer beliefs about the music business and about music piracy. So if the Big Four tell the media that they're in a state of failure because they're not recouping enough money from album sales this makes it seem like the entire industry is in a state of failure. Is this an ethical move by the Big Four? My initial response is a big N-O. Why? Because as a music consumer myself I feel like I have been deceived into believing that an entire industry is failing when it's really just a couple of companies who aren't making as much of a profit and want me to believe an entire industry is failing so they can recoup their losses. It just puts a bad taste in my mouth. But then I had to ask myself: Even thought overall music sales are up, does that mean profit is up within the industry overall? To be honest I can't really say, but let's delve into this a little further to see if we can figure it out.

Let's say that putting out an album costs $500,00 to create and distribute. This money comes out of the record company's pocket in the form of an "advance" to the artist and then the artist is expected to recoup a large percentage (if not 100%) of this cost through album and merchandise sales before the record company or the artist ever gets paid.*

Now putting together a physical album package (CD and jewel case) probably costs around $0.90 to make and is then sold in a retail store for about $15. This means for every album sold the artist is getting back $14.10 that they can use to pay off that $500,000 advance so that both artist and record company make money faster. But with a digital album sale there is no physical album to distribute so when the artist sells a single song on let's say iTunes, they get $0.99 from each single song and $9.99 for each album sold that they can use to pay back that $500,000. Furthermore, many online music shoppers don't purchase full albums anymore because they're only interested in purchasing their favorite individual songs on iTunes. This is very different from purchasing a physical album for obvious reasons: with a physical album you're paying for all of the songs on that album and don't have the option to purchase individual songs. So artists are likely not recouping money as quickly, which means both record company and artist suffers.*

So is the industry failing? I think it's probably just moving into a new plain of existence. Time will tell.

NOTE: I'm sure some of the numbers and projections in these paragraphs aren't 100% correct so forgive me for that. I just wanted to give a general view of how the system works more than anything.

The Musician's Business Model: Lessons From Mike Masnick and Trent Reznor

Obviously it's been a while since I've posted here and for that I apologize, but I do have some updates for you that I hope you'll find interesting and exciting.

Throughout my research I've read a plethora of Tech Dirt articles by Mike Masnick, who debunks a lot of myths and rumors about the ethics and economics of the music business. I will admit, I don't know much about Masnick's background, but he seems as informed, if not more informed, than any record label executive I have ever met. Anyway, as I was browsing through Nielsen Soundscan numbers (for those of you who don't know, Nielsen Soundscan tracks all music sales) I ran across a video lecture from Masnick in which he talks about Trent Reznor's (lead singer of Nine Inch Nails) business model for selling music. It's actually really simple and looks like this:

CwF (connect with fans) + RtB (reason to buy) = Business Model ($$$)

Let's run through these elements one by one using one of the Trent Reznor business models Masnick displays in his video lecture. The album we're going to examine is called Year Zero. As a brief introduction Year Zero was written in 2007 as a concept album. The album's goal was to criticize the current state of the United States government through presenting a dystopian view of the world in 2022 and featured the song "Capital G" that seemed to directly criticize President George W. Bush. At this point in time Reznor and Nine Inch Nails were signed to a major record label and Year Zero was to be released on this major record label.

Step 1: Connect With Fans (CwF)

Reznor connected with fans in two ways: 

1. He hosted an internet scavenger hunt that helped to enhance the fan experience beyond the music Nine Inch Nails was putting out. This scavenger hunt helped to engage and excite fans for the release of the new album and gave them something to do in anticipation for Nine Inch Nails's upcoming tour.

2. For every tour date Nine Inch Nails went out on Reznor had USBs with new music on them hidden in bathrooms all across the world. Fans found these USBs and were encouraged to share the new tracks online with others. This drew fans out to the tour in droves and further unified the fan community by strengthening their relationship to one another and to Nine Inch Nails as a band.

Step 2: Reason to Buy (RtB)

Reznor had the attention of his fans, but now he needed to find a way to profit from that fan connection: he needed to give Nine Inch Nails fans a reason to purchase a physical album. He did this through creating a CD that changed colors as it warmed up. As Masnick points out, this color change is something you cannot duplicate in an MP3 format. And although this color change doesn't seem like a big deal, the album sold over 187,000 albums in its first week out and reached number two on the Billboard top 200 charts. That sounds like a win to me.

Step 3: Profit

Needless to say, this fan connection combined with a reason to buy a physical copy of Year Zero led to some nice profits for Reznor and Nine Inch Nails.

Masnick seems to think that Reznor's strategy was brilliant, and I cannot help but agree with him. Unfortunately Reznor's record label and the RIAA did not find this approach amusing. The RIAA began hunting down fans who were sharing these new music files online which became problematic for several reasons. First and foremost, the RIAA seemed to forget that it was Reznor's choice to hand out his music for free, but instead of punishing Reznor or the band for their actions, the RIAA punished Nine Inch Nails' fans for sharing music that was already given to them for free. Second, instead of embracing the free marketing campaign Reznor had presented them with, the "big four" record labels did what they always do: they fought against a technology that could help them move forward into a new business model. Furthermore, when the RIAA started treating NIN fans like criminals instead of like regular people, they created an animosity between the recording industry and those who purchase NIN's music. Fans started seeing record labels as a nefarious entity instead of as a business. This led to a state of distrust that major labels are yet to bounce back from.

But the damage was already done and Reznor was ready to test his business model again. Nine Inch Nails separated themselves from their record label and continues to operate under this business model successfully today.

If you want to learn more about Masnick's point of view and Reznor's strategies, I recommend that you read Masnick's article here and view the entire video lecture below.