Thought of the day - music industry

but what is my incentive to buy from the record company instead of from a peer for a fraction of the cost? The recording industry's problem isn't that they can't name a price people will pay (they can), their problem is they refuse to sell for that price.

There's no need for incentive to buy from the record company. You are encouraged to buy from peers. The record company makes money regardless, because the e-coins you use to buy with have to be bought from the record company with real money.

but their entire shtick is about controlling supply, and controlling the price of the supply. how can they control the price when I can resell it for any price I choose? they will make way less money than they do now, even if you assume all the pirated copies become legit.

You can't resell it for any price you choose. There's a minimum you can't go below, because of the value of the e-coin. Say you can buy e-coins for a dollar from the RIAA-Bank, and you when you sell e-coins back to the bank you get 50 cents. Then, if you sell a song for "5 e-coins", you can get at most $2.50 back from the bank. You could, say, sell a lower-quality version of the song for 1 e-coin if you wanted but then you'd get 50 cents back. The point is the RIAA always makes money as long as you make money, and vice-versa. Therefore it's in your interest to have the RIAA make money and to stay in business pumping out more songs. Once your profit incentive is aligned with the RIAA's, then you're on the same page and a large chunk of the problem goes away.

I don't see how this e-coin is different from just a new currency. Whatever the conversion rate at the bank is, how can the bank dictate what I sell it for, unless the bank is privy to every transaction. And I don't see how you make money when RIAA makes money, when you could easily be making money when RIAA is not. Buy a song from RIAA, sell it 10 times, how much money does RIAA get?

Buy a song from RIAA, sell it 10 times. You now have 10 e-coins. You can't buy groceries with these e-coins. They're worthless unless you go to the RIAA and say, here, gimme some money in exchange for these e-coins. The RIAA takes their cut and gives you yours.

But can you use those 10 e-coins to buy songs from other sellers? If so, the RIAA isn't getting a cut of those sales. They only make money from the bid/ask spread of buying/selling e-coins.

I think your scheme would only work if sellers are forced to immediately exchange their e-coins for real money when a sale occurs. And consequently they'd be forced to buy e-coins when they want to buy music.

But then the scheme is really just equivalent to one based on real money where the RIAA takes a cut of every sale. I'm not sure having an e-coin currency really adds anything in that case.

Hmm. I think the e-coins ensure that the RIAA *can* take a cut of every sale, which isn't possible with real money.

I think Dave and I are both missing something fundamental in this e-coin design, because I read it as Dave explained it in which the e-coins are either tokens that can only be used to buy songs from riaa (like microsoft points on xbox live) or
they're just a substitute for money and then I don't see how riaa can take a cut from secondary sales, just like a $1 is not reduced every time it changes hands (except in a very round-about way through economy growing and prices rising)
either way I don't see what they improve.

The way I was thinking about it, you wouldn't be able to re-spend the coins. You're right that if you can re-spend the coins to buy other songs then the RIAA can't take a cut. So when you get an e-coin you basically have to cash it in or throw it out.

> I think your scheme would only work if sellers are forced to immediately
> exchange their e-coins for real money when a sale occurs. And consequently
> they'd be forced to buy e-coins when they want to buy music.

Yes. Why is this bad?

And just to clarify, my previous comment was in reply to Dave's "I'm not sure having an e-coin currency really adds anything in that case."

> e-coins are either tokens that can only be used to buy songs from riaa
> or [...] either way I don't see what they improve.

they are tokens to buy songs from other people, not from the RIAA.

To reiterate:
1. person A pays $1 to the RIAA to buy an e-coin
2. person A pays e-coin to person B on p2p network in exchange for song.mp3
3. person B cashes in e-coin and gets $.5 from the RIAA

This would replace the current scenario, where:
1. person A gets song.mp3 from person B on p2p network for free

compared to the current scenario, the new scenario profits the RIAA and person B because they each get $.5 from the sale. person A loses $1 compared to the current scenario. good so far?

now person A has song.mp3, and can in turn start selling it to persons C, D and E the same way person B sold it to person A. once A sells it to C, D, and E, A has recovered the original $1 and made an extra $.5 of net profit. The RIAA makes an additional $1.5 from these sales. C, D, and E each lose $1... until they start selling it to the rest of the alphabet.

The only people who lose money are the ones at the end of the alphabet, who don't have anybody else to sell to. this is why i compared it to a pyramid scheme. everybody has a monetary incentive to buy the song and sell copies of it as fast as possible.

> Yes. Why is this bad?

It's not bad, I'm just saying that if that's the case, then I'm not seeing the value-add that the e-coin scheme provides.

Why wouldn't the RIAA just go straight to an arrangement where they pay a commission to the seller every time song.mp3 is sold on the p2p network?

i.e.

1. Person A opens a bank account with the RIAA and deposits $1.
2. Person A buys song.mp3 from Person B on p2p network using the $1 in his account.
3. From that sale, the RIAA deposits $0.50 commission into Person B's RIAA bank account, and takes the remaining $0.50 as sweet-sweet profit.

Is that equivalent to the e-coin scheme with an immediate cash-out restriction?

Ah, I see. Yeah, that's basically equivalent. The only differences I can see could be considered "implementation details" - specifically that in step 2 of your system, you need the RIAA's bank to be online to complete the transaction, which makes this P2P system not really "peer-to-peer" anymore.

I see now. I agree with Dave's comment. Making it commission based might be simpler. Also how do you track that an e-coin was exchanged between person A and B? how can you prove the songs were paid for?

But I think this is why it won't work: This is basically a compromise where RIAA makes some money instead of zero money, and people don't get sued by RIAA, right?
But in the world that RIAA lives in they're giving up 50 cents of profit on every song, never mind that they are currently getting 0 cents on thousands of songs. And for the people who use p2p, they don't care that RIAA is suing some small fraction of them. Switching from free songs to .50/song unless you can sucker someone else into buying from you is still a net lose.
So I think both sides will be unhappy with this scheme.
And from the pov of someone who already pays for music, I'm not sure I want to be involved in this pyramid scheme. There's always the danger you'll be Z.

I think the RIAA could be appeased by adjusting the 50-50 ratio to 70-30 or something more favorable to them. But yeah, I agree that people probably wouldn't want to sign up for this scheme given how easy it is to get songs for free now. Ah well.

I did think of that later when trying to enumerate the advantages of the e-coin system. You're right that e-coins could be implemented P2P and the commission system would need a central server.

But I think P2P e-coins would eventually devolve into the current free-for-all for at least the following two reasons:

1. If Person A and Person B both have songs that each other want, it's to their economic advantage to just "barter" and swap the MP3s rather than pay each other e-coins.

2. Once a seller has sold an MP3 enough times to make back his original cost, any incremental sales are pure profit (ignoring the cost of bandwidth, electricity, HD space, etc.). So it's to his economic advantage to undercut other sellers and engage in a price war, which would likely eventually cause the price of an MP3 to asymptotically approach 0 e-coins.

I think you'd need a central server to deal with these sorts of problems...

I think these sorts of problems are what an economy is for and what RIAA is trying to do is price fixing.