The Day the Music Died (in California): an Analysis of California Assembly Bill AB-1385

Over the past two decades, digital piracy has wreaked havoc on the music industry, with industry revenues falling over 60% between 1999 and 2009. Despite rising income from streaming services, total revenues (in real dollars) today remain well-below their historic peaks. Adding misery to an already challenging situation, the Covid pandemic has decimated musicians’ ability to earn income from live performances. In California, legislation has been proposed which supporters claim will help these struggling recording artists by strengthening their position in negotiations with record labels. Economic analysis suggests otherwise. California Assembly Bill AB-1385 makes contracts between labels and recording artists nearly unenforceable, reducing the incentive for record labels to invest in recording artists—especially for new recording artists and recording artists serving less-popular genres—thus reducing recording artists’ income. Statutory limits on the exercise of options likewise reduce recording artists’ income. We expect AB-1385, if passed, to lead to a sizable contraction in the music business in California, as both record labels and recording artists are incented move to states where meaningful, voluntary contracts may be crafted and enforced.