There has been increasing talk about voluntary collective licensing of media on the internet and it seems that at least some music labels are open to embracing it, albeit in limited ways. There is some opposition too.

The voluntary collective licensing solution, whereby a body collects a levy from all interested parties (in this case university students) and redistributes that money to record labels and artists, is a welcome step forward from the current (failing) strategy of litigation against those accused of copyright violation on the internet. The basic premise of the approach is what organization such as EFF have been advocating for some time, which is the legalization of distribution of copyrighted content on the internet (i.e. filesharing).

From an economic perspective, the creation of such content needs to be encouraged, so the content needs to be somehow protected…or does it? The only thing that has to be ensured is that those that create the content are fairly rewarded for it in accordance with the principles of perfectly competitive markets (most notably, no extra-normal profits). Schemes such as volutary licensing should ensure that content flows while people who create that content get fairly compensated.

If copyright holders still wish to generate extra-normal profits, they must take steps to create and market scarcities. In the past, this scarcity came in the form of on-demand performances (recordings of artists that can be viewed or heard on demand by the user). Now that these recordings may be freely distributed and copied, they are no longer scarce.

So what is scarce? Items and experiences demanded by fans and followers of given content (e.g. fans of musicians, movies, directors, actors, etc.). Merchandise (t-shirts with band logos for example), special interviews with directors, concerts, backstage access at concerts, special authentic album inserts, autographs, and other such opportunities are in great demand, cannot be copied and are entirely controlled by content owners and copyright holders.

If copyright holders were to make the bulk of their money off resources that are scarce, they may even find it profitable to give abundant content which is easily copied away for free and drum up demand for scarcities that they control. In this case, issues like voluntary licensing (and litigation) won’t even come up.