The current SOPA/Protect IP debate has many antecedents and will probably have many sequels.  The underlying positions haven’t changed much, and probably won’t in the future.  To illustrate, let’s play a game with this mystery quote:

Several of these analyses of alleged harm to the recording industry… were presented and debated during hearings on copyright…  At each hearing, X  presented the results of the most recent analysis done for the recording industry by his firm… [As] in his earlier testimonies, he stated that continued [copying] had grave implications for the viability of the recording industry. Noting that recording-industry releases were down by almost half since ****, and that industry employment had declined…  X stated that further growth in [copying] would cause further decline in these industry indicators.

So who is X and what is the timeframe?

[pause, for those coming via permalink]

Did you guess: Alan Greenspan in the early 1980s?  Bravo.

Here’s a longer excerpt recounting the home taping battles from Chapter 7 of Copyright and Home Copying: Technology Challenges and the Law — a great 1989 report from the Office of Technology Assessment.  The OTA was the go-to source for science and technology policy analysis until its $22 million budget was eliminated in 1995 as part of Newt Gingrich’s Contract with America.

By 1986, industry stakeholders…had sponsored almost a dozen surveys and studies, usually to support or oppose passage of home-copying legislation. … OTA noted:

… [A] consideration of the beneficial effects of new technological uses to either new or existing markets for intellectual property is often absent from such estimates.  Although the videocassette recorder [for example] may give rise to copying, it also permits the exploitation of markets that would not exist.  Both factors must be taken into account in considering harm…

Several of these analyses of alleged harm to the recording industry due to home taping were presented and debated during hearings on copyright and home taping in the 97th, 98th, and 99th Congresses.  At each hearing, Alan Greenspan  presented the results of the most recent analysis done for the recording industry by his firm, Townsend & Greenspan.  In the 1985 analysis, sponsored by the RIAA, Greenspan estimated that in 1984, each instance of home taping cost the taper $1.67 per album equivalent, compared with an average retail price of $6.80.  On the basis of an earlier report on home taping by the firm Audits & Surveys, Townsend & Greenspan estimated that 42 percent of all home tapings from prerecorded material and 40% of off-the-air (broadcast) tapings would have generated sales, if taping had not been possible.  Then, assuming that 40 percent of home taping in 1984 was in lieu of purchases of records or recorded cassettes, the firm estimated 1984 retail losses of some $1.5 billion.  This figure included $200 in losses due to record prices being depressed 5 percent below what they would have been, absent taping.  Greenspan estimated that about 40 percent of these retail losses (about $600 million) represented compensable losses to copyright owners and creators; this proportion was based on estimate lost revenues (net of manufacture and distribution costs) using a hypothetical industry income statement.  Moreover, as in his earlier testimonies, he stated that continued home taping had grave implications for the viability of the recording industry.  Noting that recording-industry releases were down by almost half since 1979, and that industry employment had declined from 29,000 in the late 1970s to less than 19,000 in 1984, Greenspan stated that further growth in home taping would cause further decline in these industry indicators.  He concluded that the industry itself could not successfully respond to home taping with a pricing strategy.  Raising prices to recoup losses would reduce sales and might increase home taping, and lowering prices to make taping less attractive would cut profits further and decrease the industry’s capabilities to take the risks required by the nature of the business.

Greenspan’s two earlier studies had estimated losses…amounting to $1.05 billion for 1981 and $1.4 billion in 1982.  The Consumer Electronics Group of the Electronics Industries Association (EIA), the Audio Recording Rights Coalition, and the Home Recording Rights Coalition (HRRC) submitted dissenting comments and testimony disputing these estimates.  … EIA claimed that the analysis for RIAA had ignored the stimulative effects of home taping on sales of recordings, and that some home tapes (e.g. selection tapes made for portable or car tape players) are not substitutes for prerecorded products….

A pattern emerges in these debates.  The published recording industry arguments and economic analyses deal only with estimates of alleged harms…  These…include lost sales, depressed prices, lower profit margins, and, ultimately, a decline in the number and diversity of new recordings being released…. Representatives of the hardware and blank-tape industries then dispute the results on methodological grounds.

It seems beside the point to pick this apart now (the OTA report does some of that if you want). But for me, at least, it’s amusing to see Greenspan engaged in this level of economic hackery–such as not bothering to present the benefit side of a cost/benefit analysis (which OTA calls him out on).  I suspect there was a big RIAA check attached to this work.  Big, at least, for his pre-titan-of-finance days.

But stepping back from the details, it’s worth noting that Greenspan spent several years trying to pass stronger enforcement laws  based on a scare story about a temporary dip in the market, as the cassette displaced the 8-Track and vinyl went into decline (and the US suffered a major recession).    Stronger enforcement was a solution to maintaining the revenue levels associated with the LP and 8-Track.  And he made this case at the beginning of the  greatest boom period in the recorded music industry: the CD era.  Now that the CD is dying, our present-day Greenspans are doing the same.

(source: Michael DeGusta)

The picture for present-day recorded music does look gloomy,  but the recorded music numbers only tells part of the story.  Live revenues are way up in the digital era–and they go mostly to musicians, not record companies.  I don’t have a US chart, but here’s what the Canadian market looks like with more revenue streams represented:










Obviously, the recorded music business  in the 2010s has problems it didn’t have in the Greenspan era.  Here’s one that doesn’t get mentioned often:  the guys who built the business got used to making tens of millions of dollars to run it.  I’ll outsource to a Bob Lefsetz post called Income Inequality Killed the Music Business:

Used to be running a label paid well, but it was mostly about the music, the lifestyle. Then, with the advent of MTV and the CD, suddenly Tommy Mottola was far richer than the acts. And Tommy and his ilk started hanging with other rich people in the Hamptons, they felt entitled to their wealth. Such that when Napster blew a hole in the paradigm, everybody was sacrificed but the top guy. The people running the labels are still as well paid as they were before Napster, before the recession. They’re keeping up with the joneses, they’re in charge, everybody’s expendable but them. As for those people still working at the label…they’re thrilled to have a job. Glad to be slaves on the plantation.

As the MP3 replaced the CD, the major labels cut their distribution costs, struggled to keep digital prices at rough parity with the CD, and pocketed the difference.  An artist signed with a major label still makes 15-20% on wholesale–no more than for a good deal in the CD era.  Many of the indie labels and digital aggregator services, in contrast, return 50-90% of the wholesale price to the artist.  It is glaringly obvious that the major labels’ 80% wholesale cut isn’t sustainable–nor, I will predict, is Apple’s 30% retail cut.  Piracy was the messenger, not the message.


An addendum: if you’re wondering how much people get paid to think otherwise, here are RIAA exec salaries from the early-mid 2000s.

And here’s some documentation of the $20+ million 2005 paycheck for former Chiffon’s songwriter, former UMG CEO, and current septuagenarian Sony Music CEO Doug Morris–earned while suing kids for piracy.

Update…  Not the only time Greenspan engaged in hack work it seems…