Thursday, July 28, 2005

Music Scandals

Apparently Song BMG has admitted to bribing radio stations to play their artists' songs and has agreed to pay $10 million in fees. Here is the full article. Let's take a look at the economics at play here. The payola that the radio stations receive in return for playing Sony's artists is a cost. A cost that the small record labels can't afford to pay, thus their artists lose exposure.

This cost is just like a slotting fee. No, don't worry gamblers, a slotting fee is not a price discrimination tool used by the casino industry to capture our meager consumer surplus. It is a mandatory fee grocery stores charge food manufacturers to store their products on the shelves. I wrote a nice article on slotting fees in the spring for the University of Oregon's Department of Economics student run newsletter, the Utility Times. You can read the article it here, but I'll summarize it briefly.

Slotting fees typically induce anti-competitive settings and hurt small manufacturers. They raise prices and consumers end up spending over $100 on average more per year. The FTC has said that in some settings they can be counter-productive, but in others they can spur competition (I am still wondering how).

So you can (hopefully) see how slotting fees and Sony's payola are alike. You might say it is just the survival of the fittest, but it is against the law. Thus, I think Sony deserved paying the fine, but this will not stop the problem. The record industry's big players are a bunch of bullies and they pretty much dictate what gets played and who you listen to.

Nowadays, music is being spread via the internet, which I think is a great way for small labels and artists to get recognized. Check out my music here!


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