Album and song sales have a remarkably short period of economic viability. Sales of whole albums approach zero by the end of their first year of release; individual tracks maintain meaningful sales volumes for longer

Copyright and Economic Viability: Evidence from the Music Industry. Kristelia García  James Hicks  Justin McCrary. Journal of Empirical Legal Studies, November 5 2020. https://doi.org/10.1111/jels.12267

Rolf Degen's take: https://twitter.com/DegenRolf/status/1324316696157417473

Abstract: Copyright provides a long term of legal excludability, ostensibly to encourage the production of new creative works. How long this term should last, and the extent to which current law aligns with the economic incentives of copyright owners, has been the subject of vigorous theoretical debate. We investigate the economic viability of content in a major content industry—commercial music—using a novel longitudinal dataset of weekly sales and streaming counts. We find that the typical sound recording has an extremely short commercial half‐life—on the order of months, rather than years or decades—but also see evidence that subscription streaming services are extending this period of economic viability. Strikingly, though, we find that decay rates are sharp even for blockbuster songs, and that the patterns persist when we approximate weekly revenue. Although our results do not provide an estimate of the causal effect of copyright on incentives, they do put bounds on the problem, suggesting a misalignment between the economic realities of the music industry and the current life‐plus‐70 copyright term.

Discussion

Our top‐line results show that album and song sales have a remarkably short period of economic viability. Sales of whole albums (both traditional CDs and digital) approach zero by the end of their first year of release. Individual tracks maintain meaningful sales volumes for longer—perhaps up to several years—but average track sales are negligible in the medium term, and almost zero by the end of our 10‐year study period.

We also find indicative evidence that streaming services prolong the life of sound recordings. Our data suggest that the economic value of the average track declines more slowly through this medium. (From a revenue perspective, the incentive implications of this remain unclear, since streaming volume far exceeds sales volume, while per‐sale earnings far exceed per‐stream royalties.) Unfortunately, our conclusions about streaming are quite tentative. As a result of the small sample size and limited window of observation, we simply cannot make confident inferences. This is a clear avenue for further research as the music industry continues to evolve and further data on consumer behavior becomes available.

There are obvious limitations to our analysis. First, the findings are purely descriptive: nothing in our data allows us to directly assess the causal effect of copyright on sales, let alone on creators’ or labels’ incentives. The data provide a portrait of the economic environment faced by the industry, but we cannot directly observe the choices of artists and record labels.

Second, this is just a piece of the puzzle. Although music is a copyright‐intensive industry, consumer sales and streams are only one component of revenues for commercial music. Statutory royalties paid to the owners of musical compositions and sound recordings are not accounted for in our data. Nor are the various contractual income sources—including sync licensing, touring, and endorsements—that can constitute a significant portion of an artist's revenues. In many cases, these contractual revenue streams are influenced by the copyright‐related revenue streams. This impact varies, however, from artist to artist, and over the course of a career. Unfortunately, our results cannot reveal much quantitatively about these ancillary revenue sources because this information is not generally public.31 Nevertheless, we think these data provide a reasonably good proxy for the overall popularity and revenue performance of the bulk of commercially recorded music.

Our analysis shows that the average work has exhausted its commercial potential long before the term of copyright protection expires. This might suggest—as we conclude—an inefficiency owing to overprotection, such that a more carefully calibrated term would strike a better balance between incentivizing creation and ensuring a robust public domain. An alternate interpretation might suggest that a work's lack of commercial value mitigates concerns stemming from overprotection. In other words, if a work is commercially worthless, what harm is there in that work remaining under copyright protection? In a word: access. In the absence of a use requirement, copyright protection prevents a work from falling into the public domain regardless of whether the rightsholder is actively exploiting it or making it available. The literature has identified several categories of post‐commercial works for which an extended period of copyright protection has an adverse impact on access. These include orphan works (works whose authors are either unknown or unidentifiable); mismanaged works (where a work's author is known but deceased, and the stewards are either delinquent or difficult to trace); and works by disadvantaged or marginalized authors. Works in the latter category, for example, often do not experience commercial success in their day, but may later prove to be valuable historical accounts of oppression (Reese 2012: 291).

Overall, we find the sharpness of the results quite striking. Our analysis provides a baseline for the commercial relevance of the typical sound recording and offers a rare window into the on‐the‐ground economics of a major content industry. As political debates about the appropriate term of copyright continue to roil in the international arena, empirical evidence provides an important, but inexplicably rare, check: Our findings suggest that current copyright terms are at odds with the economic reality of the majority of commercially recorded music.