Pater Familias

ASCAP AND THE CELESTIAL JUKEBOX. The concept that the copyright owner should receive a royalty every time that a song is played seems startling. However, the copyright owner (think songwriter) receives royalties today which are based on the number of times her song is performed publicly. ASCAP and BMI generally sell broad licenses to use large groups of songs rather than try to collect each time a song is performed. They use broad licenses because at the moment it is not technically feasible to collect the royalty for each performance. But ASCAP does make an effort to distribute its revenues in proportion to the number of times a song is played. Years ago my cousin Walt Schaefer worked for ASCAP and he showed me a very large room filled with people listening on earphones to recordings of radio stations and keeping track of each time a song was played. Every so often one would raise his hand for help in identifying a song. There was what looked like a card catalogue, only the cards contained notes of melodies to help in identifications. As I recall, “I’m Popeye the Sailor Man” was supposed to be one of the leading generators of royalties. Now people are envisioning a technology which will do all that the people in that room did and more.

PRICE DISCRIMINATION AND THE CELESTIAL JUKEBOX (COMMENT). I am not surprised that Annalisa and Lee are indignant at the idea of paying a royalty each time they listen to a song on an iPOD (and, yes, Annalisa, as I understand the theory of the Celestial Jukebox, you would have to pay a royalty each time you watched a favorite movie on a DVD). If the Celestial Jukebox technology is achieved, it would allow the copyright holder to do something sellers try to do whenever they can—to charge a higher price to consumers who value the product more. Economists will call this price discrimination. (Economics has a number of misleading names for things. “Price discrimination” is one of the most misleading because “discrimination” now suggests unfair harm.) Price discrimination consists of charging different prices to different customers. Examples of price discrimination that economists will give include lower prices for seniors, higher prices for hardbound books before they come out in paperback or higher prices for first run movies.

THE CELESTIAL JUKEBOX. Jim Capo introduced me to the concept of the “Celestial Jukebox” the other night (the term was coined by a law professor, Paul Goldstein). The idea is that technology will soon permit a person to hear any music ever written, at any time and at any place. There are a variety of economic and legal regimes proposed for this new world. I was taken aback when Jim said that one of the proposed regimes is that technology will permit the copyright holder (the song writer) to charge for each use of his material. Many think that the copyright holder should be able to do this. Kids, think of paying a royalty fee each time you play a favorite song on your iPOD. Jim pointed out that there is going to be a huge legislative struggle about these issues. Jim also sent me this link and this link about the issues.

DOING WELL BY DOING GOOD. The caption comes from Tom Lehrer’s song THE OLD DOPE PEDDLER. Professor Robert Barro had an article in the Wall Street Journal for June 19, 2007 arguing that Bill Gates has done more through his for-profit activities at Microsoft than he can possibly do through his extraordinary charitable activities. This is a variant of the argument, which I associate with Thomas Sowell, that a person does the most good for society by choosing the highest paying job. If you can make the most money being a dry cleaner, that is what society values the most. You might prefer a more interesting job or you might decide that it is worth more to you to do work which you consider more valuable to society, but society has expressed its preference by offering you a greater return as a dry cleaner. Of course, the caveat should be repeated: all other things being equal.

NOBODY KNOWS ANYTHING—FOREIGN EXCHANGE RATES. The phrase “Nobody knows anything” was famously used as a refrain by William Goldman in ADVENTURES IN THE SCREEN TRADE. Goldman used the phrase to emphasize that movie professionals can’t predict whether a movie will be a success. This article in The Economist (in the always excellent Economics Focus section) describes how difficult it is to explain or predict foreign exchange rates. Kids, you should bear this in mind whenever you see confident predictions of exchange rate movements (for example, predictions that the dollar must decline because the United States has a large current account deficit.). Morgan Stanley uses thirteen different models to value currencies based on variables which have correlated best with exchange rate movements in the past. Having thirteen models is tantamount to saying “nobody knows anything.”. Interestingly, the median result of the thirteen models says that the dollar is undervalued against the Euro by about 15%; that is, a Euro should be worth about $1.15 rather than the actual value today of $1.34. People who give great weight to the large American trade deficit argue that the Euro should be worth a lot more than $1.34. Nobody knows.