Kieran Healy

Wilco and Coase

I just came across a short piece on Slate by James Surowiecki that Brink Lindsey should read. Surowiecki is talking about I Am Trying to Break Your Heart, the widely-praised documentary about the band Wilco and the problems they had getting their allbum released:

Wilco hands Yankee Hotel Foxtrot to Reprise Records, its longtime label; Reprise demands changes to make the album more marketable; Jeff Tweedy, Wilco’s singer-songwriter, refuses. They eventually part ways, and Wilco sells the record to Nonesuch, which releases it to considerable success on the charts. The point of the story seems clear enough: In today’s world, it’s all about marketing, not music.

Surowiecki points out that the problem with this story—- evil corporations care not for art, etc—- is that Reprise and Nonesuch are part of AOL Time Warner. Wilco were dropped by one bit of the company and re-signed by another.

Now, in the context of the make/buy argument Lindsey makes (see my previous entry for details), what’s the moral here? I think it’s complicated. First, a standard story about the greedy corporations who know nothing about music doesn’t work, at least in this case. Second, it shows that the internal administration of AOL-Time Warner is a world away from the idealised “islands of central planning” which Lindsey contrasts with an equally idealised market mechanism. Wilco’s resigning was a market process: they weren’t reassigned to another part of the company by an administrator. Now, Lindsey might cheer at this point—- if there was a market inside the company, so much the better for markets, and for him. But wait. There’s a third element. Surowiecki emphasizes that the record labels inside AOL-TW really didn’t know what they were doing:

[This story] fits well with the current state of the music business, as floundering labels try to deal with falling sales, shrinking profits, and record buyers who now have their choice of 30,000 new releases every year. In the end, I Am Trying to Break Your Heart doesn’t really show us that record labels are more mercenary than they once were. It shows us instead that they’re just much more confused.

No sign, in other words, of the ideal ability of markets to shuttle good information around in a disaggregated way. In fact, no-one has any idea what’s going to sell, and decisions about who gets signed are made for political and personal reasons rather than from market signals or bureaucratic diktat. The point here is that, empirically, the social organization of these exchanges is more complex than Lindsey’s bureaucracy/market dichotomy can explain.

Isn’t the relevant point here that at this point no one—not music critics, not record executives, not record store owners—has any idea what will sell? This isn’t a failure of the market to shuttle good information around; the good information doesn’t exist. Maybe the public’s taste is changing in a way that makes predicting blockbusters much more difficult, if not impossible. The record companies used to have a monopoly on the channels for recording, distributing and promoting music. Digital technology has leveled the field, and I’d bet this has something to do with why it’s so much harder to predict buyers’ behavior.

Of couse, if I’m right, and Lindsey is also right, the mega-sized record companies should eventually die out. We’ll see.

This isn’t a failure of the market to shuttle good information around; the good information doesn’t exist.

I’m not sure. You’re right to say that there’s no one place where that information exists, and so executives, record owners and critics don’t know for sure (or at all) what will sell. But Hayek (and economists in general) would say that the information does exist: it’s in people’s heads, distributed across everyone’s preferences. The market mechanism is supposed to aggregate that information efficiently. That’s supposed to be the magic of it, the reason why it beats bureaucracy. A corporation could never gather all the needed information, or analyse it fast enough. But the distributed nature of the market mechanism is supposed to be able to do that job.

Thus, one puzzle for people like Lindsey is, if the market can do this better than firms, then why is the music industry organized in giant conglomerates that try to control every aspect of music production, consumption and distribution? Where do they come from? Why do they persist? We might be tempted to argue that they come from people preventing the market mechanism from operating. But another possibility is that they arise out of the market and its workings. Lindsey, I think, would not like this idea.

Beyond that, the general point I wanted to make is that the market vs hierarchy dichotomy does not map well onto the way firms and markets are actually organized.