SOPA would be sour note for music industry

The controversial Stop Online Piracy Act (SOPA) is merely an attempt to shore up a dying and inefficient business model, grafted onto an attempt to control the Internet, says an expert on the business of entertainment at Washington University in St. Louis.

“It really should be called ‘POBM, for Protect the Outmoded Business Model,’” says Glenn MacDonald, PhD, the John M. Olin Professor of Economics and Strategy at Olin Business School.

MacDonald teaches the popular “Economics of Entertainment” course, which covers the institutions, data, economics and management challenges of the entertainment industry, with emphasis on the music and movie industries.

If passed, SOPA would expand the ability of U.S. law enforcement and copyright holders to fight online trafficking in copyrighted intellectual property and counterfeit goods.

Sites could be punished for hosting pirated content — and Internet companies are worried they could be held liable for users’ actions.

“We have copyright laws that allow inventors to charge prices above the costs of reproduction so as to induce them to invent in the first place,” MacDonald says. “We put up with a misallocation of resources — those who value the good above its cost of reproduction but less than the above-cost price do not consume it — in order to get the good invented in the first place.

“Copyright is not a good thing per se, just an imperfect fix for the problem of how to compensate inventors for the up-front cost of inventing goods whose cost of reproduction are close to zero,” MacDonald says.

The Internet, he says, has wrecked the traditional music industry model of producing records and compact discs, since it has made controlling copyright next to impossible.

“This process is what SOPA seeks to reverse,” MacDonald says. “It does not seek to protect intellectual property. It seeks to protect the old business model that sacrifices efficient allocation of resources to pay for up front investments and some other activities that have become redundant.”

He says the proposed bill is an awful idea for several reasons.

“SOPA, as presently conceived, will do nothing more than impose costs on Internet service providers and others as they become responsible for dealing with those who share music and continue an inefficient allocation of music, with too few new songs going to too few consumers,” MacDonald says.

“And it will open the door for harming one of the Internet’s most valuable features — its open access and its fast paced, innovation-fostering freedom from government control. If the FCC were running the Internet, would we even have email?”

The natural question, MacDonald says, is how are the music companies going to get paid without the traditional model?

“The answer is that artists will pay them for their valuable developmental services and any other useful things they do,” he says. “They won’t pay them for distributing CDs or distributing music on the Internet.

“Music companies can, and increasingly are, compensated by the artists, who give up some of their future concert, merchandise and endorsement revenue to acquire the considerable development expertise of the music companies. Music companies would be better served by increasing their focus on how to make artists’ music, and especially their concerts, even better.”