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Wilfred Dolfsma is assistant professor of Innovation Management at the Rotterdam School of Management in The Netherlands. In his paper “How will the Music Industry Weather the Globalization Storm” (2000), Dolfsma examines the institution of copyright and how information and communication technology will impact its structure in the years following 2000.

In this “institutional economic analysis”, he explains the structure of the music industry, especially the functions of major record labels and music publishing companies, and their dependence on the current system of copyrights. He shows how the industry is directly related to both the national and international system of copyrights and that this system is based upon its historical capacity to influence governing bodies to change intellectual property law in its favour.

Dolfsma concludes that new communications technologies have made current copyright law obsolete and therefore should be “removed or appropriately changed, if and when possible”. The reliability of this conclusion is questionable because of the author’s subjective tone and self-contradiction with respect to financial gains for companies and artists. Although the conclusion is ineffective in illustrating the advantages of Internet transactions’ exception from copyright, it does succeed in proposing a plausible scenario for the future of intermediaries.

Dolfsma believes that “transactions involving music…on the Internet are best exempted from copyright”. He suggests that the main benefit of this model is eliminating the ability of major intermediaries “to maintain excludability and rivalry in the consumption of music products.” His opinion that this would “not be in itself a deplorable development” is obviously subjective since “illegal CD copying and music downloading could put the jobs of 600,000 people in the music industry at risk”, according to Jay Berman, head of the International Federation of the Phonographic Industry (IFPI) (BBC News, 2003). The author assumes that there will always be a market for major label produced and distributed music, and therefore the law should be changed to create a more even playing field on the international music business stage. Even if the Internet was no longer under the jurisdiction of intellectual property law, the author fails to provide evidence that this development would benefit artists, the economy or the
culture of society.

Dolfsma argues that an “Internet free port” would hurt major players that currently benefit from copyright, but does little to show how it would help anyone. One of the main points of the article is that “the institution of copyright in the music industry is a largely ceremonial one” and that it has created an insurmountable barrier to entry for new artists. Record companies and publishers generate a tremendous amount of money through retail sales of CDs and royalty collection that is spent on massive marketing campaigns, radio promotion, prime retail placement, million-dollar productions and international distribution.

Although this copyright-free model could have a negative effect on these companies’ revenues, it does not appear to particularly benefit artists. In fact, he acknowledges that “whether or not less well-known authors will be discouraged from creative activities if the Internet is exempted from copyright, is an open question.” Most of the changes in the future that he predicts don’t seem to be related to copyright. New forms of music will emerge quickly online and the roles of intermediaries will change with or without copyright protection. Even if only a small number of independent musicians benefit financially from copyright, how can denying them that revenue help them?

At the time the article was published, Napster was at its peak and stimulated much social discourse regarding music, art and copyright law. In that the author includes the notion of “arbitrage” and an “Internet free port” but fails to mention Napster or file sharing puts into question the author’s reliability with regard to the topic of digital music.

Dolfsma’s article does propose some unique and thought-provoking ideas regarding the continuing importance of intermediaries in the future. He discusses the potential for online communities to effect volatility in the music marketplace and to promote cultural diversity. His observations regarding steps that must be taken by record companies to “maintain their hold on the market” such as stifling the emergence of new intermediaries is still a major issue today.

More recently, we have seen the labels (now the big four, soon to be the big one?) take some tepid steps into the world of legal digital distribution. Although digital sales of music have slowed the bleeding, the dinosaurs are pulling out all the stops to avoid being left behind on the Titanic. There was a time when the distributors of plastic discs trembled at the sound of the word “disintermediation”. That term originally suggested getting rid of the labels to allow musicians, artists, singers, dancers and all other residents of Camelot to sell directly to their dedicated fans. The musicians quickly learned that their dedicated fans were quite happy to steal from them. Now, it seems, the savvy chaps with a keen eye for talent and tour support budgets are trimming the real fat: warehouses, tracker-trailers and those pesky retailers. No more unsold inventory, no more returns, no more breakage and no more greedy store owners eating into the top line. Could you imagine how much is would cost to ship all those CDs to China?

Tags: copyright, Digital Music, disintermediation, ecommerce, file sharing, retail, royalties