Talking tech since 2003

The music downloading phenomenon has spread throughout the world. The Recording Industry Association of America (RIAA) is extremely concerned about illegal downloading from the internet. The RIAA believes that decreasing CD sales are caused directly by illegal downloading. As a result, the RIAA began using controversial methods to attempt to combat the problem – it has been pursuing lawsuits against average citizens who it believes have obtained music through illegal downloading. The RIAA blames these music “pirates” for the losses incurred by the RIAA and its members. However, a look at the facts tells a very different story and indicates that the methods used by the RIAA to combat illegal downloading are not solving their problem

In order to understand how we got to this point, we must look back to the beginning of the music downloading phenomenon – Napster. Napster was an online music sharing service started in June of 1999 by Shawn Fanning. It was the first commonly used music sharing system on the Internet. While it was not a true peer-to-peer network as the content (a list of files provided by each user) was stored on a central network of servers, the actual transfer/sharing of files occurred directly between individual user’s machines. Why did people use Napster to download music for free? Users of the Napster service said that the music industry had let them down, only publishing a few hit songs per CD and leaving the rest of the album with “filler”. Napster users that had purchased CD’s have made them available to other Napster users through the file sharing service. Then, a Napster user could selectively download specific songs that they liked from artists they enjoyed listening to without having to commit to buying an entire CD. In essence, the Napster users were “sharing” their music. This, however, constitutes blatant copyright infringement. Infringement occurs when someone reproduces a work that is subject to copyright protection without authorization. The individuals that were the recipients of the “shared” music were violating the copyright protection of the artists and the record companies – getting copyright protected material without paying for it. The music industry spearheaded a copyright infringement suit against Napster in 2001. Napster was found liable for copyright infringement because it facilitated the downloading of music and was shut down.

Interestingly, an examination of the RIAA’s marketing and sales charts shows that the real decrease in CD sales actually began in earnest after Napster ceased operating. In fact, during the 2 1/2 years that Napster was operating, CD sales increased by over $500 million dollars from what they were in 1998. Since 2001, CD sales have continued to decrease steadily.

In an effort to cut expenses and increase profits, since 2001 the music industry has continually reduced the amount of music released each year. However, they have continued to increase their legal expenses – the practice of filing lawsuits against average citizens continues unabated. Perhaps the music industry should spend more money developing talent and less on suing the consumers whose business it covets. These lawsuits are not a successful business model for increasing their lagging profits. In fact they are very cost intensive and bring very little return. According to Jonathan Lamy, RIAA’s senior vice president of communications, they identify the individual consumers that they sue as follows: “We can identify the IP addresses associated with the user engaging in the illegal activity,” he says. The Internet service provider “is able to match a specific IP address with the account holder.” This is a flawed method of targeting “violators”. An IP address is very similar to your home address. It is a number of digits that are assigned to you by your Internet Service Provider when you sign up for internet services. However, most IP addresses assigned by your ISP are dynamic – meaning they change. A certain IP address may be assigned to your account one day and a few days or weeks later a completely different one is assigned.

These lawsuits are generally not very profitable. Many, if not most, of the individuals the RIAA has pursued are not only unable to afford an attorney to defend themselves, but are unable to pay any money judgment awarded against them. As result, in most instances these cases do not go to court. Instead, they are settled for a few hundred dollars – most likely less than the cost of bringing the lawsuit.

Another way the music industry has attempted to combat the illegal downloading of music, is by making digital downloads available through numerous online services. One of the most successful is Apple, Inc.’s iTunes music store, which to date has sold over 1,000,000,000 songs worldwide at 99 cents per song. However, the RIAA’s inability to grasp the idea that it should not treat its customers as thieves, but rather as paying customers has left the iTunes music store with several major flaws. For example, the issue of Digital Rights Management (DRM) is one of the major points of concern for many people. DRM restricts a consumer’s ability to play the music he/she purchases through the iTunes music store on anything other than an iPod or iPhone. While this is certainly beneficial to Apple, it is frustrating to consumers because they can only play music they purchase on a limited number of computers and devices. Apple does not make much of a profit from its music store. In fact, its profits arise from sales of iPod’s and iPhone’s. While Apple has indicated its willingness to provide free downloads to its users by charging a premium for the iPod and iPhone when purchased (a portion of which would be paid to directly to record companies as a royalty), the music industry currently opposes any business model that would provide such free downloads. It remains to be seen if the music industry will see the light and embrace this model in the future.

The problem of illegal downloading faced by the RIAA is definitely a legitimate concern. However, most of the RIAA’s problems and frustrations arose from poor business decisions on the part of the music industry and not from the loss of revenue due to illegal downloads. Lost sales resulting from illegal downloads is not as great as the RIAA would have the public believe. The music industry is making money. While its profits might not be a large as they would like, the problem is not so much that illegal downloading is causing a decrease in sales but rather the fact that the number of new releases greatly exceeds the number of releases that are played on the radio. In other words, only an extremely small percentage of music gets airplay today. People are simply not being exposed to the same amount of new music they were years ago when music directors and DJs created the playlists and gave more new artists airplay. Today, radio station playlists are formatted by the marketing and advertising departments of large corporations. The majority of music played on today’s airwaves is the same generic sound that has been recycled time after time. Additionally, CD prices are at extreme highs, in some cases $15 or more, while iTunes sells the exact same content for $9.99. It is a fundamental principal of economics that when the same product is available from two different sources at differing prices, the place selling it for less will have greater sales. Certainly the cost of producing a CD is not that much more than the cost of providing the content electronically. According to Emiko Terazono of the Financial Times Information Company, “Legitimate music sales on the web continued to grow last year. In the UK, downloads grew fourfold to 26m single tracks, with Apple’s iTunes accounting for about 70 per cent of the traffic.” It is also to note that, the IFPI also said that despite a 26 per cent rise in broadband take-up, illegal file sharing had remained flat over the past year.

The music industry can only keep up this flawed strategy for so long before it leads to its demise. The very people who make them money, the artists, will move to another platform to provide their music to their fans. In this day and age, you do not need a record label to spread your music. While a record label is definitely a helpful tool for artists, if the RIAA continues on its current course, more well-known artists will sever their ties with the record companies. In fact, artists like Madonna and Jay-Z have recently signed multi-million dollar deals with concert-giant Live Nation which deals cover recording, touring, merchandising and other production rights. Such deals are likely to become more commonplace in the future. When this happens it will have significant repercussions for the music industry in that it will lose its consumer base and artist support as well as its creative influence, thereby transforming the artists into the people with the power and control.


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