Thinking about the Zappa quote from Leonard and the yesterday’s brilliant perspective-shift post at the iPAC blog brought me to a conclusion this morning, and I think it’s an important one. Just as printer manufacturers are actually in the business of selling toner cartridges, and just as FM radio and broadcast TV are in the business of selling your attention to advertisers, the record industry (like its tagalong, the movie industry) is not in the business of selling records. Their business has nothing to do with sales.

Think of the constituents of the RIAA as a group of investment brokers. Their customers are musicians, from whom they obtain capital in three forms: new music, the rights to that music, and promissory notes on the advances that constitute most of any musician’s pay.

You and I are the stocks in which they invest that capital, by means of advertising, radio and television play, and physical or electronic distribution. Even for the least successful major-label musicians, that investment typically yields a profit in the multi-hundred percentage range. For the most successful, it’s orders of magnitude greater–all the millions of $17.95s people pay for the big names.

Of that profit, the record company takes an eighty-nine percent commission.

Then it gives the remaining two bucks back to its investor, the artist–if it gives anything at all. Most of the time, the artist never even sees that two bucks, because it goes toward paying for the advance they got from the record company (more capital). You’re probably already familiar with this part of the story: it’s often years before the artist begins to see the royalty checks start to trickle in. Meanwhile, he or she is living off the advances with very little actual money to his or her name, and the record company is applying pressure to spend that money to create another, more lavish album (yet more capital).

This model actually helps me better understand the RIAA’s position on their thousands of lawsuits. They know that suing their customers is bad business, but they don’t believe they’re doing that: they’re suing us, the entities from whom they buy money with music, because it seems like we’re taking their capital and giving no return on investment.

Remember, when you “buy” a CD, you aren’t actually purchasing anything. You’re leasing from the record company the right to listen to a certain selection of music in a strictly specified manner of their choosing. The actual piece of plastic itself is basically a perk, with which you are not allowed to do as you please–you can make exactly one copy of it, which you can’t give to anyone else, and they’d rather you not be allowed to make that copy at all. They still want the rights of the lease to be attached to that piece of plastic, though. If you break it, they’re not going to send you a replacement, and you’re not allowed to download another copy of it from someone else (even though you still ought to have those listening rights).

In essence, they want contractual control over their capital after they’ve invested it, just as shareholders have to some degree. When they file lawsuits, they see themselves taking class action against negligent publicly-held corporations who spent their share prices in Bimini instead of running profitable businesses. They feel wronged, and justified for it.

I hope this makes clear how completely insane and backwards the music business model is. Forgive me, but I want to go over the big points again:

  • The RIAA is a group of brokers with their pick of clients, most of whom are willing to do anything to be allowed to invest with them.
  • They take capital from the investors whom they deem worthy, invest it, and reap huge profits.
  • From those profits, they exact a commission of eighty-nine to a hundred percent.
  • They’re well aware that their business model is incredibly shaky, and that they suddenly have a deadly competitor–the Internet–who is providing all their services, better than they can do so, for free.
  • Just as monopolies have done again and again over the course of American history, they are trying to legislate and sue it out of existence.

This is why they have no qualms about suing grandmothers and Girl Scouts. This is why they are scared to death of Downhill Battle and everything it represents. They’ve already been pushed off the ledge, and bad law is the strawberry plant to which they’re clinging.

You probably already know that when you’re hanging from a strawberry plant with tigers above and tigers below, there’s only one thing to do: eat the strawberries. If the members of the RIAA were smart, they’d do so, by embracing and promoting voluntary collective licensing. But they’re scared, and fear makes people stupid.

It’s silly to assign agency to “the market,” to speak as if it were an active governor of what works and what doesn’t. But it’s useful, nonetheless, to think of it as a force that will eventually flatten any bad business model and replace it with a better one. This is what is happening with the record industry right now. This is why they’re going to fall, and we’re going to win.