EXPERT WITNESS: The economics of music for attorneys and others: a redux

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By John F. Sase
with
Gerard J. Senick,
general editor
Julie G. Sase,
copy editor

“One of the major contributions of economic analysis to Law has been simplification, enabling enhanced understanding. Economics is complex and difficult but it is less complicated than legal doctrine and it can serve to unify different areas of the law.”

—William M. Landes and Richard A. Posner, Economic Structure of Intellectual Property Law (Belknap Press of Harvard University, 2003)

The Sound of Money

Beginning in 2010, we started to submit occasional articles on the subject of the Economics of Music for Attorneys and Others to the Legal News. Since this subject continues to be relevant, we have written the latest installment on it as this month’s article. We hope that our audience will find this treatment to be both edifying and entertaining.

Along with some attorneys whom I (Dr. Sase) know, I worked as a musician throughout my years of extended education. Some of us played solely for our enjoyment and for that of our friends. Others of us made music to help to put ourselves through college through gigs at afternoon and evening TGIF fraternity and sorority parties, at dorm mixers, and in the numerous insidious dives that surround college campuses.

What we learned from playing in musical groups taught us many hard lessons about operating a small business/professional practice to us. Some of us experienced the joys and frustrations of producing and recording vinyl 45s and albums of our compositions. In doing so, we learned the value of a buck and the fickleness of the market. Personally, these experiences led me to study Economics and Accounting. The root of my motivation was my need for self-preservation and for the gathering of tools for an intelligent defense against some ruthless and unscrupulous booking agents, bar owners, and other depraved mountebanks of the music industry. However, I found that most people involved with the Music Business at that level are decent and honest and needed help. In response, I created and taught a college and extension course on the Basics of Business for Musicians.

As we aged, we relied less on our music for financial support and more on other professions, such as Law or Economics. However, once the music gets into one’s bones, it remains there. Therefore, many of us continue to jam, to do occasional performances, and to write and record music, in light of family responsibilities, professional practices, and other important time/energy constraints.

Since many attorneys are or were musicians, we hope that the following information on the creation of music and its communication may be useful, especially for those who litigate cases involving issues of copyright, contracts, and professional performance issues for client musicians. I make no presumptions in explaining the Economics of Music to attorneys. Instead, I draw on my study of Economics, Accounting, Finance, and Marketing along with a bit of Entertainment and Copyright Law. Fundamentally, I rely on personal knowledge and experiences in the following discussion.

The Economic Factors in the Creation of Music

Let us begin with the factor of production known as “Labor.” A musician provides the labor for creation. S/he may perform as an entrepreneur or as an employee. Across the millennia, Music has remained one of the most labor-intensive entrepreneurial art forms. This labor entails not only the actual performance of the music but also the moving of equipment, such as a Hammond B-3 organ up and down steep flights of stairs.

Next, let us turn to “Capital and Technology.” These factors include the instruments that the musician plays, be it a $3.5 million Stradivarius (stradivariusviolins.org), a $3,500.00 Gibson ES335 guitar (gibson.com: see picture below), or a $5.00 hand-me-down tambourine with half of the bells fallen off. Of course, vocalists may need nothing more than their voices and perhaps high-quality microphones. However, the maintenance of a good set of vocal chords can be expensive. The separation of such essential pieces of productive capital from the range of technologies that musicians use may be arbitrary. For a solo street-performer, the technology extending beyond his/her actual instrument may constitute nothing more than a legendary five-watt battery-driven Pignose amplifier.


“Come Hear Uncle John’s Band”
(Sung by the Grateful Dead and, with Their Sound System, You Really Could Hear It!)

At the other extreme of gigging, a musician might rely upon stacks of high-powered Marshall amplifiers and a virtual “Wall-of-Sound” public-address system. In the case of the Grateful Dead, the group stacked speaker cabinets into towers that stood fifty-feet high and fifty-feet wide. In all, the Dead’s sound system put forth 26,400 watts of continuous power via ninety-two amplifiers through 586 five-, twelve-, and fifteen-inch JBL loudspeakers and fifty-four ElectroVoice tweeters, all of which weighed approximately seventy-five tons. On-the-road damage to such a system could produce a matter of significant losses accruing to the injured party.

In respect to broadcasting, a musician may rely upon anything from a personal laptop computer running a program such as Podcast Station (or see https://www.lifewire.com/how-to-create-your-own-podcast-2843321) to a fully equipped multi-million-dollar broadcast house. However, both set-ups are capable of beaming a signal across town, across the world, or beyond. Be it a hundred-dollar workhorse Shure SM57 or a $16,000 Neumann Digital, a good microphone forms the first link in the chain to the listener. We will return to the technology in a moment because it remains inseparable from our next factor of production—“Land.”

Space Is the Place

Land is the space in which one rehearses and performs. Speaking in the language of Economese, Land is the surface of the Earth and any structure or fixture attached to it. If you cannot move it, it must be real estate. If you can move it, it is personable estate. The size and the cost of a performance venue may range from the smallest basement clubs in Greenwich Village to the sprawling fields of Max Yasgur’s farm near Bethel, New York (the site of the Woodstock Festival in 1969). The quality may range from a passable high-school gymnasium to the acoustically superb Orchestra Hall in Detroit. Nevertheless, all of these locations have been open to legal issues that arise when either the venue or the performer fails to live up to the terms of relevant contracts.

Let us move to “Intellectual Property,” the music and lyrics that a musician performs along with logos, artwork, and design elements. The performing artist or other author/composer may have written the works previously. Alternately, they may spill forth from musicians in solo improvisation or in a jam session with other musicians. Essentially, Intellectual Property remains unique among all inputs. It is the creation of a person’s mind, and that person may put it into a form usable by others. Even the former Soviet Union recognized Intellectual Property as private property.

Air (Not Necessarily on G)

In Music, Intellectual Property functions in conjunction with another basic input—“Air.” Quite simply, the raw material in the creation of music is air. Musicians move air, either acoustically or with the help of electronics. Even if most of the transmission of sound is through electronic circuitry, that final impulse of vibration that touches the human body, in the ear or elsewhere, remains Air, with rare exceptions.

Air is not “used up” in the process of creating sound. Therefore, it shares more in common with Intellectual Property than with other inputs. In evaluating the commonalities, we also must consider the differences between Air and Intellectual Property. The economic concepts of “Excludability” and “Rivalry in Consumption” reflect these differences.

Excludability refers to that property of a good whereby one person can prevent another person from using it. In the case of music, a venue may exclude a listener unless s/he pays an admission fee or otherwise merits access in order to pass through a brick-and-mortar or electronic barrier.

Rivalry in Consumption refers to that property of a good whereby one person’s use diminishes the use by other people. Music passing through the air acoustically may cause a rivalry among listeners due to the proximity of the source. However, transmission by electronic signal to an iPhone generally will not result in a rivalry in most locations.

“The Marching Band Refused to Yield”
(Don McLean, “American Pie,” United Artists, 1971)

In respect to Air, we have an example of Rivalry in Consumption in the story of the American Composer and Insurance-Company Executive Charles Ives (1874-1954). During the close of the Nineteenth and opening of the Twentieth Centuries, Ives was inspired to compose some of his experimental music as he listened to two marching bands from his window; these bands first approached and then passed one another along the street. The opposing bands presented a Rivalry of Consumption to Ives and other listeners as well as Competition in Production. Today, music lovers throughout the world know Ives’s music, which includes polytonality, polyrhythm, and tone clusters.


We can find another example in our experiences at picnic grounds or at carnivals where multiple high-volume audio sources transmit a cacophony of myriad sounds. Do such experiences not give credence to the reason why local autobus companies prohibit the playing of loud audio devices because of the negative ramifications emanating from the simultaneous use of air molecules in an enclosed space?

Excludability for the use of Air results largely from acoustic barriers that prevent persons in another room or outside of a building, such as a club or a concert hall, from enjoying the sounds. In our high-tech world, a listener may not be able to enjoy music or movies on an airplane without obtaining a pair of proprietary headphones from the airline.

“Rocket Number Nine Take Off for the Planet ... Venus”
(Sun Ra, “Rocket Number Nine,” Space Is the Place, Evidence Records, 1974)

As a factor in the production of music, “Intellectual Property” differs substantially from Air in respect to the concept of Rivalry in Consumption. One of the economic characteristics of the Intellectual Property of music and lyrics is concept of Non-Rivalry in Consumption. As affirmed by the Twentieth-Century Experimental-Jazz artist Sun Ra (n. Herman Poole Blount [1914-1993]) who claimed that he came from the planet Saturn in order to perform with the Solar Myth Arkestra, there are no limitations to the simultaneous use of Air throughout this planet and beyond.

However, in respect to excludability, Intellectual Property shares the stage with Air because International Agreements protect music and lyrics by making them excludable. These Agreements have emerged from the Berne Convention of 1886, the Universal Copyright Convention of 1952, the United States Copyright Act of 1976, the Berne Convention Implementation Act of 1988, the World Trade Organization-administered Agreement on Trade-Related Aspects of Intellectual Property Rights of 1994, and more recent extensions and updates.

Intellectual Property

To a musician, Intellectual Property represents the creation of one’s mind, whether it makes it to paper or passes directly from the depths of the creative soul via the instrument of improvisation. If recorded, Intellectual Property can pass through the Air, free of space/time constraints by way of electronic technology. Music left unrecorded passes only through the Air to become one with infinite sound. This second process poses its own unique set of problems for defining and enforcing Intellectual Property rights.

In their book “Intellectual Property in the New Technological Age” (Aspen Publishers, 4th ed. 2007), Robert P. Menges, Peter S. Menell, and Mark A. Lemley explain that a different philosophical approach to Intellectual Property Law is taking root. This approach builds upon the German Philosopher Georg Wilhelm Friedrich Hegel’s emphasis that the possession of property is the mark of a free man. In response, some jurists argue that Intellectual Property should be an inalienable right in the same accord that freedom is inalienable. One major step toward this goal is the doctrine of droit de suite, the “right to follow” granted to artists or their heirs in some jurisdictions. This right allows artists to receive a fee from the resale of their works. It also gives the author or composer an indefeasible right to royalties even if s/he assigns his/her copyright to another.

In their book “Economic Structure of Intellectual Property Law” (Belknap Press, 2003), William M. Landes and Richard A. Posner, the authors of our opening quote, develop a model for copyrights. In addition to the technological, cultural, and legal factors, the writers note that economic factors determine the quantity and characteristics of “expressive” works created. In our example of their model, we focus on music and lyrics as well as the composers and authors of such works. These expressive works constitute the candidate material for copyright protection in our culture.

A number of well-known examples involving Intellectual Property Rights come to mind. In recent history that stands out involves George Harrison of the Beatles. He wrote, recorded, and realized a “hit” from his song “My Sweet Lord” in 1971. Unfortunately for Harrison, the Bright Tunes Music Corp label took him to court. The company alleged that the music recorded by Harrison was originally recorded by the American female quarter The Chiffons as the song “He’s So Fine” in 1962. The judge found that though he did not believe that Harrison purposefully plagiarized the song he did find the Beatle guilty of subconscious plagiarism. A judgement for $587,000 was filed against and paid by Harrison (https://en.wikipedia.org/wiki/My_Sweet_Lord).

The Cost of Production

The costs of producing music and lyrics have two components. As many musicians act simultaneously as author, composer, publisher, producer, and engineer of their works, we will refer to this person as the “creator.” In doing so, we will elide some economic links and questions in the creation’s chain of distribution for the sake of simplicity. Specifically, we recognize that most of the rights of assignment and their reclamation, built upon the inalienable droit de suite, remain with the creator of the work. As a result, we explore our model through the unification of the multiple personalities at play in the mind of such a creator. If any of our readers have clients in the field of music, s/he may want to consider this model of the Creator of Music.

The two components of our model are the concepts of the Cost of Expression and the Cost of Production. The Cost of Expression remains fixed. Likewise, the cost of editing, engineering, and otherwise preparing the work for conveyance to the public are mostly fixed costs. Furthermore, the fixed costs constitute sunk-costs. These items remain unrecoverable if the creator fails to make a performance, a copy, or a sale of the rights. The costs remaining for the production of events or for the making of copies generally constitute the variable costs of delivering the music and lyrics to the audience. These costs include the expense of producing a concert or media broadcast as well as the costs of printing sheet music, replicating recorded masters, and distributing both kinds of expression.

The Cost of Expression

Now we consider The Cost of Expression. In respect to reclamation of assignment and droit de suite, Landes and Posner state that these laws, though contrary to intuition, reduce the incentive to create because they prevent the creator from shifting the risk involved in the creative process. The risk-component of expected remuneration may well increase in respect to one or more components of copyright laws. If the creator needs to share any speculative future gain with others in the production/distribution chain, a risk-averse creator will end up worse off. In this respect, the economic denotation of the term “risk” implies uncertainty and variability in the income-stream of the creator.

Furthermore, the timing and conditions of droit de suite impact the incentive for the risk-averse creator to produce new works. If applied to works created before the law passed, the droit de suite would favor established creators at the expense of new ones because the new protection would increase the value of existing works in contrast to newly created ones. For the risk-averse creator, the legal construct imposes negative externalities upon the creator. The incentive to create new works rather than the rearrangements and derivatives of existing works diminishes.

However, a schism arises within the creator with respect to risk. The author/composer side remains risk-averse while the publisher side of the creator emerges as risk-neutral. Landes and Posner ask why an author/composer is “usually compensated by royalties [a percentage of sales] rather than paid a lump sum [an upfront guarantee].” Economists agree with Landes and Posner in the assertion that tying the author/composer’s compensation to the realized, rather than to the anticipated, success of the work, increases the incentive for the creator to achieve commercial success. However, if an author/composer receives a nonrefundable advance against royalties from a second-party publisher, the overall level of risk imposed upon the creator diminishes. This condition increases the incentive to create new works. As a result, musicians who also compose collateralize the risk (the variability and the uncertainty of income) against steadier gigs that include live performances, studio session-work, and practicing Law and Economics.

Next month, we will consider the cost of producing performances and copies via concerts, recordings, sheet music, and other formats. We will examine the motivation of both the creator (the supplier) and the audience (the demander) sides of this relationship. As the English band Pink Floyd state in a song of the same name on their album “Dark Side of the Moon” (Abbey Road Studios, 1973), “Money, it’s a gas!”
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Dr. John F. Sase teaches Economics at Wayne State University and has practiced Forensic and Investigative Economics for twenty years. He earned a combined M.A. in Economics and an MBA at the University of Detroit, followed by a Ph.D. in Economics from Wayne State University. He is a graduate of the University of Detroit Jesuit High School (www.saseassociates.com).

Gerard J. Senick
is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a Supervisory Editor at Gale Research Company (now Cengage) for over twenty years. Currently, he edits books for publication (www.senick-editing.com).

Julie G. Sase
is a copyeditor, parent coach, and empath. She earned her degree in English at Marygrove College and her graduate certificate in Parent Coaching from Seattle Pacific University. Ms. Sase coaches clients, writes articles, and edits copy (royaloakparentcoaching.com).