File-Sharing is Risk-Sharing
A very compelling essay from Bubblepurposegeneration that I was led to by A VC blog in which there is an exploration of the trials and tribulations of the music industry in the face of file-sharing. It is a somewhat long read but here is a highlight:
“ Economists have a name for problems like this: moral hazard. Moral hazard happens when the actions of an agent can be hidden from a principal, creating agency costs – because the agent is able to shirk, take additional risks, and generally not deliver on his end of the bargain. In this case, the moral hazard is that the record industry, because listeners can’t monitor or influence it, can effectively shirk, and choose artists not based on listeners’ preferences, but based on business efficiencies. This is effectively what the record industry has been doing – adding massive agency costs that replace the search value it is supposed to provide. It’s compounded by the fact that music is an experience good, whose value is not directly knowable to buyers – another fact the music industry has been exploiting… In fact, we could go even further – saying that file-sharing is a way for principals to punish agents operating under extreme moral hazard, with the hope of bringing the agents incentives into line. ”
If that struck you as interesting, definitely check out the whole post.
Tags: file-sharing, industry, music
Uncategorized | admin | 
February 14, 2008 5:03 pm
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