Day: September 4, 2003

Record stores around the country have been closing; our local Harvard Square HMV closed a few months ago.  Universal is cutting CD prices by 30 percent (but not for classical).  The really interesting question is how did the industry survive for so long?

The record companies don’t make artists happy (see Courtney Love’s speech from May 16, 2000).

The record companies don’t make government regulators happy, having been prosecuted for price fixing and other antitrust law violations.  (see this Federal Trade Commission consent order)

The record companies don’t make convenience seekers happy.  A CD is absurdly huge compared to the number of bytes that it holds.  Why would you want to devote a whole bookshelf to storing a collection of 500 CDs when the same music would fit onto a pocket-sized MP3 jukebox?  Why would you want to lug your music from house to office or house to car when the MP3 files could be easily copied onto a separate device?

The record companies don’t make environmentalists happy.  A digital file that could be transferred electronically is instead encased in a plastic anti-theft package, a plastic shrink wrap, a plastic anti-piracy sticker, a plastic jewelbox, and a plastic disk.  Why pump all that oil out the ground and make all those environmentally unfriendly wastes when we have multiple magnificent electronic infrastructures that can carry a song?

The record companies don’t make audiophiles or technophiles happy.  The encoding system is so badly designed that 80 percent of the bits in the disk’s data stream carry no information, which is one reason that MP3 compression is so successful.  They forgot to allocate a few bytes for the name of the album or the titles of the tracks on the disk so you have a medium that stores 700 megabytes but not the critical text information that you’d want to see (if, for example, you loaded your CDs into a jukebox).

CDs are so badly engineered that they actually have more distortion than the LP records that they supplanted, especially for classical music (the CD is at its least accurate for very quiet sounds but works great for Heavy Metal).  Most serious audiophiles listen to analog LPs or the new DVD-Audio and Super Audio CD (SACD) formats.  The record companies have done their best to alienate their least price-sensitive customers by charging insane $25/disk prices for SACDs and releasing only a handful of titles in the new formats.

How does an industry like this survive for so long?  Faced with high monopoly prices, why wouldn’t consumers simply turn on the radio or TV, watch DVDs instead of listening to music CDs, or … (gasp) read books?   Actually that may be what is happening.  The record industry likes to blame the peer-to-peer file sharing services but these are awfully painful to use.  Someone with money to spare could presumably find something more entertaining to do than wait for half-broken files to download.  More likely Joe Average looked at a nice collection of 500 CDs being offered for sale at the old prices and said “Thanks, but I’d rather have a brand new car instead.. and it comes 20 channels of free music on the radio.”

Copyright is created by the government in order to encourage artists.  Due to a combination of technology stagnation, lack of imagination by the music industry, and price fixing by record companies, the artists haven’t been getting too much encouragement, at least not as a percentage of the $12-15 billion in annual revenue (source).

In the long run it is tough to see how the average consumer would be willing to pay more for music than the $10-12/month that Sirius and XM satellite radio charge for a subscription [I’ve tried both XM and Sirius by the way; XM has a lot of tremendously annoying commercials and “house ads”, even on the ostensibly commercial-free classical station; Sirius is much superior.].  It probably makes a lot more sense to treat the Internet as another form of subscription radio.  Individuals pay 25 cents per hour to listen to music, up to a maximum of $10 per month, and the revenue is divided up among the artists according to how much airplay there was.  To make it work would probably require “trusted systems” such as the new Microsoft Palladium environment but at least this fits with how consumers actually like to buy stuff.  Most people don’t want to make a lot of 25 cent or 99 cent purchase decisions every day.  They’d rather pay a fixed known subscription and have the freedom to “flip channels” to their heart’s content.

Actual sales figures seem to bear out this idea.  While the CD industry has seen unit sales drop by 10 percent and has resorted to suing 20-year-olds, Sirius had signed up more than 100,000 subscribers by June 2003, less than a year after beginning operations.  XM, a slightly older, cheaper, and (in my opinion) crummier service has nearly 1 million subscribers.

People will pay for music but they won’t pay $18 for one song that they really want to hear that otherwise could be nicely stored in less than 1 cent of hard drive space.

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The news lately carries reports that George W. Bush is going to ask the U.S. Congress for an extra $65 billion to rebuild Iraq.  Presumably this pushes the cost of the Iraq operation well over $100 billion.  Is it worth it?  It depends on whether or not you have faith in technology.

Karl Taylor Compton, one-time president of MIT, was a believer in technology.  Here are his words from 1938: “In recent times, modern science has developed to give mankind, for the first time, in the history of the human race, a way of securing a more abundant life which does not simply consist in taking away from someone else.”

The Arab world does not share this perspective.  In a region where illiteracy is common and people lack the ability to manufacture the most simple items the best way to get richer is in fact to steal from neighbors (viz. Iraq’s takeover of Kuwait in 1990).

George W. Bush has some things in common with Arab rulers.  For example, he is uninterested in technology and owes his wealth to family connections and special deals.  For this kind of person it makes perfect sense to invade an oil-rich country and pump out the underground wealth.

What would an engineer do with $100 billion?  Perhaps start by asking whether if the money were spent on building nuclear power plants we wouldn’t need Iraq’s oil.  Let’s look at the numbers.

A nuclear power plant, using crummy old technology, costs less than $2000 per kilowatt-hour to construct (source) so $100 billion would suffice to build 50 million kilowatt-hours or 50 gigawatts of capacity.  Total U.S. 2001 electricity demand was 670 gigawatts (source).

You get about 641 kwh per barrel of oil (computing backwards from this source).  So those 50 million kwh save 78,000 barrels of oil per hour, which in a 24-hour day is 1.8 million barrels per day.  Compare this to the U.S. total imports of about 10 million barrels per day (source) and total Kuwaiti production of 2 million barrels per day or 2.5 million barrels per day for pre-war Iraq.

Roughly speaking, then, the amount of money the American taxpayer is spending to improve life in Iraq would be sufficient to generate as much power as all of the oil being pumped out of Iraq under the most optimistic scenarios.  This is assuming no technical innovation in the design or construction of nuclear power plants (there are actually a bunch of slick new nuke designs that could be cheaper and safer, e.g., pebble bed, at $1000/kwh).

Nuclear power is, of course, very unpopular, and it would probably be possible to generate quite of a bit of electricity with $100 billion of wind and solar power.  But let’s stick with nukes for the moment.  Under the worst case scenarios it is very hard to see that nuclear accidents or waste could kill as many people as are being killed by oil.  Burning oil fills the atmosphere with CO2 (10,000 deaths in France last summer, perhaps as a consequence of global warming).  Burning oil fills the atmosphere with filth (many thousands of extra deaths from lung cancer every year).  Buying oil from people who hate Americans causes deaths.  Without Saudi wealth, all of which is derived from oil sales, Sept. 11th would not have been possible nor would various embassy bombings and other mass killings of Westerners (at least 5000 people in the last couple of years).

The Earth is abundantly supplied with energy.  Why are we mud-wrestling with Iraqis when we could be working around the source of their power?

[Minor caveat:  oil isn’t actually used for much electricity generation in the U.S.; most of it is coal, natural gas, or nuclear already.  To replace all of the U.S.’s imported oil with electricity we’d have to get people to drive to the 7-11 in Toyota Priuses instead of Hummers, put much more advanced electronic engine controls on most engines, and probably put some of that $100 bil into fuel cell and electric car research.]

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