Thomas Jefferson, Needles and Haystacks

With the introduction of digital compact discs (CD), the audio industry experienced the benefits of the profitable boom of the silicon chip and digital signal processing. Similar to the benefits afforded to the computer industry as a whole but with far less competition in distribution channels, the present reversal of fortune regards the ability to better define and capture rent from copyrighted audio recordings. Labels consolidated to take advantage of the fabulous drops in manufacturing and distribution costs: retail pricing stayed fairly uniform. Digital signal processing also allowed for the quick introduction of a huge number of new acts and music genres. Again, not all the flowers that bloom are roses, but the cheapness of pressing and distributing a CD afforded the artist a much larger potential audience than even the best tour of sidewalks. Yet no major media company is ever able to predict the hits. Music is an acquired taste.

Vanity, fashion, trend, culture are concepts with frequent changes and more frequent mistakes. Risk defies permanent success. Without open access, experimentation is impossible.

Artist and consumer: who made whom? The biology of psychoacoustics (roughly how a human processes audio information) can enable comparisons between different schemes for storage and replication of audio signals, but can never substitute for the human ability to critique. A label is simply a venture capitalist of music: one hit must pay for (at least) nine duds. That we face an increasing number of calls to limit or restrict access to music is simply wrongheaded.

Similarly, the adoption of the Digital Millennium Copyright Act of 1998 (DMCA) is a bold attempt to deny consumers fair use and first sale doctrine rights, which are, essentially, the rights of the consumer, once a purchase has been made, to manipulate a signal or decide what to do with the audio-based intellectual property that has been transferred. The legality of the Act will become a greater question since a number of suits have been filed from all manner of interests in the music business. Broadcasters, software providers and music industry lobbyists have all complimentary and competing interests which are not yet clear without a success model for conducting business in this brave new world.

Wherever value resides, a business model can emerge.

Because it is difficult at best to clearly define how value will reside in a world of instant access to music recordings, title must first exist for the music itself. What is singular is the invaluable importance of establishing responsibility over individual instances of a song, as is the case with any property in a market economy.

The technology of the Internet is the same technology which has enabled the major record labels to become extremely rich in the face of market demands for changes in formats (more singles), price competition (cassettes should be more expensive than CDs based on manufacturing costs) and transparency in the promotion of music (a distribution channel issue).

The other proverbial shoe has dropped anyway. Consumers have found alternative means for enabling their demands to be met.

The file format MP3, the portable devices supporting the format, and network technology which represents a large bazaar for the exchange of any song with geographically dispersed participants. Music is a good whose value is bound in the ease with which it can be shared and exchanged. Unlike computers, which offer increasing performance in information processing, the typically analog device we know as consumers can only process information, such as music, at relatively the same quality level as at the dawn of history. There are problems with the overly simple analysis that music is simply "intellectual property".

Capturing rent is the basis of any market for which property is defined. Recognition of value and the cost of value exchange are the basis of commerce.

The relative importance of distribution strength for packaged goods will continue to drop in the face of heated competition for the attention of consumers. Instead of location, location, location, a better mantra for the Internet Age would go something like: recognition, recognition, recognition. Recognition, and the ability to encourage it through advertising and word-of-mouth, goes hand in hand with responsibility, which makes necessary the technology of digital watermarks.