The High Price of Free Music: How Illegal Downloads Are Silencing Artists

When we want new music, there's a strong temptation to get it for free through file sharing, ripping it from our friends, or downloading it illegally. So perhaps it shouldn't surprise us that four out of five digital music downloads are illegal, according to the Recording Industry Association of America. In today's struggling economy, it's tempting to cut costs where we can, and easy to think the practice doesn't have any negative consequences.

The problem is, when you steal music, you aren't just hurting music executives, who are often stereotyped as greedy, rich businessmen exploiting the creativity of the musicians you love. You're also hurting the musicians -- and maybe yourself, too. The wide prevalence of music theft is changing the musical marketplace for the worse, reducing the incentive for musicians and labels to develop and finance new projects.

A Hostile Market for Musicians

Emily White, an intern at NPR's All Songs Considered blog, recently revealed that she has some 11,000 songs in her music library, though she's paid for just 15 CDs' worth. She says, "I honestly don't think my peers and I will ever pay for albums. I do think we will pay for convenience."

But as musician and University of Georgia instructor David Lowery points out in his open letter to Emily, this behavior hurts musicians, who earn an average of about $35,000 per year and get no benefits.

As Lowery notes, most record contracts include provisions for both royalties and advances to artists. Advances are paid before the release of a recording. If the album or songs bring in enough sales, the record companies recoup the money paid out in the advance. If not, they write off the loss. As music sales decrease, record companies will offer fewer (and lower) advances to minimize their risk of financial losses. Royalties are paid to artists for each song purchase. When we steal an artist's work, neither the record company nor the artist receives compensation.

Lowery asks us to imagine a neighborhood that is loaded with record stores but lacks a police force. Many people steal from these record stores, because they know they will rarely be punished for their crimes. Record stores allow this behavior, because they can gain a profit from selling ad space on their walls, and can eliminate expenses associated with paying musicians for their work.

The record stores in this fable, says Lowery, correspond to illegal downloading sites like The Pirate Bay and Kim Dotcom's Megaupload, which make money from selling ad space through companies like Google (GOOG), which also makes a profit from this shady behavior.

Everybody gets paid -- except those who created the music.

But the negative effects don't end there, says Lowery. Consumer behavior in this unpoliced neighborhood shapes the decision-making processes of legitimate businesses such as Spotify that follow the law. Spotify has faced endless complaints about how little it pays artists.

So how do illegal downloads alter the behavior of businesses like Spotify? First, the prevalence of illegal downloading and other music theft reduces the pricing power held by Spotify and its peers, encouraging them to generate profits by cutting costs in the form of artist compensation. Second, the ready availability of free music gives musicians less pricing power. Since their music is available for free elsewhere, they are forced to take what they can get for their work.


The Sound of Silence

This theft not only harms the musicians you love, it also harms music lovers by reducing the incentive for labels to develop and produce new music. In other words, it's likely to reduce our access to good music in the future.



It stands to reason that musicians in need of money will turn to other alternatives for making a living. Love for one's occupation only goes so far, as suggested by Lowery's claim that "the number of professional musicians has fallen 25% since 2000."

Without stricter regulations or changes in consumer behavior, we risk silencing the musicians who inspire us.

Motley Fool contributor M. Joy Hayes, Ph.D., is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google.