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Valparaiso Univ. Law School

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Wednesday, November 9, 2011

Relational contracts and new business models

A few posts back, I referred to Apple's business model as incorporating relational contracting on a mass consumer scale which made me wonder whether relational contract theory is due for a revival (not that it ever  went away). I didn’t attend the conference at Wisconsin honoring Stewart Macaulay although I wish I had. Relational contracting should be the subject of renewed interest given the new business models that incorporate goods, services, and information. On the radio yesterday morning, I heard someone talk about Google's business as being more than a series of searches - it was about services and relationships with its customers. (Okay, maybe those weren't the exact words, but they're close enough). A few weeks ago, a NYT article  discussed new technology companies that are assisting musicians in managing their relationships with their fans. In order to survive, many businesses (especially those in the creative industries) will have to reboot for the evolving marketplace. Not all businesses (and by “businesses," I mean musicians, writers and artists who want to get paid and are not backed by large corporate conglomerates) are equipped to do this. Well, make way for companies like Topspin, Bandcamp, FanBridge and ReverbNation, to assist them. These companies help musicians run a band's online business which means they sell music, manage fan clubs and calculate royalty payments. They have found a way to bundle physical and digital goods. How much you want to bet that those digital goods are protected by contracts?

Which brings me to relational contract law. The purpose of these companies is to enable the musician to survive (and even thrive) without being backed by a record company. Now, the musician can directly manage the relationship with the fan. In the past, a fan joined a fan club, bought a ticket to a concert from one vendor, a record from a retailer, a tee shirt from another retailer - you get the picture. With the exception of the rules on the back of the concert ticket and the fan club membership rules, the other transactions were not governed by contract. The fan can now buy everything she or he wants that's band-related from that band's website, subject to the terms and conditions of the website and the licenses that accompany the digital products. Shouldn't the terms of those contracts be considered in light of the existing relationship between the musician and the fan? Wouldn't a relational contracts approach be helpful in analyzing the terms and how they should be interpreted and enforced?

Apple is relevant in this discussion for another reason. If it weren't for iTunes, it's likely that
none of these businesses would exist. (Fun note - the NYT article mentions that the chief executive of Topskin has a tattoo of the logo for NeXT Computer, which was Steve Job's old company).

[Nancy Kim]

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