SPAT: How to Save the Music Industry
<p>I think I know how to save the music business.  There&#8217;s a dead-simple business model that will funnel money to talent, work <em>with</em> the Internet&#8217;s capability for zero-cost distribution rather than fighting it, and allow the record companies a role without &#8220;intellectual property&#8221; protection or DRM.</p>
<p>I call it SPAT for short. This can have either of two expansions: &#8220;Strike Price And Timeout&#8221; or &#8220;Street Performer And Teaser&#8221;.</p>
<p>Here&#8217;s how it should work:</p>
<p>1: You front the money to produce a song.  Or an album.  Or whatever marketable unit of music you think you can sell.  (It&#8217;s the 21st century.  Production equipment is cheap.  You can do better sound engineering in a basement today than a million-dollar production outfit could have during most of the 20th century.)</p>
<p>2: You make a teaser clip.  If you&#8217;re selling a single, maybe it&#8217;s 15 seconds out of 3:05.  If you&#8217;re selling an album, maybe it&#8217;s a 3-minute audio montage sampled from the album tracks.  Maybe it&#8217;s a video.  Maybe it has voiceovers by the performers on it.</p>
<p>3: Throw the teaser on the Internet.  Within months after this model is generally understood, there will be aggregation sites that do nothing but host teasers.  Some will make money by selling advertising to people who want to reach music consumers. Others will be fan/hobbyist suites with a mission.  Still others will be run by record companies &#8212; see below for discussion.</p>
<p>4: The teaser clip has a pitch at the end.  &#8220;Free this music!  When we get X dollars in the tip jar at the specified URL on our fulfillment site URL, we&#8217;ll throw the music on the Internet as a free download. Offer expires at time T.&#8221;</p>
<p>5: On the fulfillment site, the pledge jar shows how full it is when you look at it.  You can add a pledge to the jar there.</p>
<p>6: The payment system on the fulfilment site has to deal gracefully with three cases:</p>
<p>6(a): The timeout expires before the pledge jar is full (&#8220;It busted!&#8221;).  All pledges are returned.  All parties lose.</p>
<p>6(b): The timeout expires after the pledge jar is full (&#8220;It boomed!&#8221;). The pledge jar is emptied and a free download link to the work appears beside it.  Subsequently, anybody can do what they like with it &mdash; throwing it on a bunch of BitTorrent trackers will probably be a popular option.</p>
<p>6(c): The payment system must fail safely &#8212; that is, if the pledge jar fills, but the work does not ship, consumers don&#8217;t lose money.</p>
<p>All three cases are important!  A large part of the point of this model is to eliminate from consumers&#8217; thinking any perceived risk that they might throw money down a hole.</p>
<p>8. Assuming 6(b), use your profits to produce the next work.  Now you can afford more studio time, better equipment, side players, and maybe some extra marketing.  You can probably also set a higher pledge threshold, and/or a longer timeout.</p>
<p>For an artist, the single key business decision is what strike price to set for a given work &#8212; career-building will consist of earning a reputation that allows you to set a higher strike price than your previous ones.  Because consumers are probably less sensitive to the timeout length tan to price , I&#8217;m expecting there will be convergence on a fairly small set of standard timeout periods.</p>
<p>Various interesting reputation games could be attached to SPAT to make the pledge jar fill faster.  For example, large pledges might earn buyers perks like their name in lights near the download point for the work, or even a mention in some credits.</p>
<p>Record companies still have a role, if only because somebody has to be trusted to refund the pledges if the jar doesn&#8217;t fill and to actually ship the album if it does.  Of course, they can continue doing conventional record-company stuff; branding, marketing, A&amp;R, running studios.  But there will be three big differences.  One is bad: the<br />
upside is bounded (you don&#8217;t collect &#8216;extra&#8217; revenue from an unexpectedly successful work). </p>
<p>On the other hand, the other consequences are good. Distribution expenses go as near zero as makes no difference. There is no requirement in the model for DRM or IP protection of any sort; the record companies get to stop spending lots of money on lawyers and lobbyists and (more importantly) get to stop being hated by the people they most want as customers.</p>
<p>There&#8217;s no intrinsic reason SPAT couldn&#8217;t work for movies and other content as well as music, but it&#8217;s better adapted to media where the money you need to front to produce as saleable work is relatively low.</p>
<p>SPAT is, of course, a variant of the well-known Street Performer protocol (SPP).  The key difference is that the teaser operates as both marketing and as a plausible promise that the artist already has a deliverable work, changing consumers&#8217; risk assessments and making them more likely to buy.  This addresses the most serious weakness of other forms of SPP, which is that the large information asymmetry between buyer and seller acts as a disincentive to buyers.</p>
<p>SPAT could be substantially improved with one piece of technical infrastructure.  That is a pledge instrument which would give the receiver the right to a given chunk of the payer&#8217;s money, but only if called after a specified future date.  Such an instrument would further reduce buyer risk.</p>
