Even though iTunes upped the price for a single song, making the biggest hits $1.29 instead of 99 cents, that 30 cent raise is a deal compared to what one Boston University student had to pay. Joel Tenenbaum, a postdoctoral student at BU, had to pay a whopping $22,500 a song after being found guilty of illegally downloading and distributing 24 copyrighted songs. In retrospect, I'm sure Tenenbaum would gladly have forked over $30 for those same songs instead of becoming the target of a record industry lawsuit.

The Recording Industry Association of America, or RIAA, is on a mission to stamp out online music piracy. As album sales continue to tumble and the record industry faces a massive loss in revenue year after year, suing illegal downloaders and petitioning Congress for protective legislation is their game plan. It seems to make sense; illegal downloading has coincided with dwindling album sales, so get rid of the downloaders and start making money again.

It all began in 1999 when Shawn Fanning, a Northeastern University student created a peer-to-peer file sharing network called Napster that allowed Internet users to download and distribute music and other media files easier than ever before, and for free. Trouble emerged in 2000 as acts such as Metallica, Dr. Dre, and Madonna filed lawsuits after their music leaked online. It did little to slow Napster's massive popularity and growth. In 2000, there were an estimated 38 million users of the service.
In July 2001, Napster was shut down. In its place, other illegal downloading sites sprung up across the web. For the record industry, it was all downhill from there. 1999 was the highest earning year for the industry, with $14.6 billion made. By 2009, those figures were down to $6.3 billion with no signs of getting any better.  In fact, the week ending May 30, 2010, the recording industry faced its worst week ever when less than 5 million albums were sold across the country, a far cry from the 45.4 million albums sold one week in December 2000.

"All the more reason why everyone in the industry should be focused on getting the U.S. Congress to introduce legislation that makes the Internet service providers our allies in fighting piracy," said Universal Music Group Distribution president Jim Urie after the record low week. "Piracy is getting worse and worse and the government needs to focus on that."

The record industry is convinced that illegal downloading is the reason for its decline, and it's convinced that the current course of action involving legislation and lawsuits will be able to correct it.  They are wrong on both counts.

"The record companies have created this situation themselves," said Simon Wright, CEO of Virgin Entertainment Group.  "[A] series of botched opportunities...among the biggest...was the labels' failure to address online piracy at the beginning by making peace with the first file-sharing service, Napster."

Millions of people were actively using the site, and in 2000, Napster offered to let record labels make money from their service.  The 38 million users would be able to continue to download songs, but they had to pay a monthly fee of $10 which would be split among the labels.  A deal was never reached however because the labels were afraid to lose revenue.  So instead of capitalizing on the situation, they sued, and Napster's millions of users left and found other places to get their illegal music.  Since then, the RIAA has sued over 20,000 people for illegal downloading.  Still, record sales continue to drop dramatically every year.

Although illegal downloading does cut into record sales, it’s just one of several reasons.  As sales of albums have slid, sales of other forms of media have actually increased.  It's interesting that these other forms of media like video games and DVDs are also subject to online piracy, yet they remain highly profitable.  Movies, software, and video games cut into record sales because consumers are spending more time with them and less time with music.  Even the rise of mobile phone use has contributed to less music being consumed.  People who spend their free time talking on the phone, especially in the car, are spending less time listening to music.

Those in the record industry also fail to take into account the failing economy which has hurt not only them, but most other industries.  Comparing sales from the 2000s to the 1990s isn't accurate because the economy was strong in the 1990s, which hasn't always been the case the past ten years.  Record sales in that decade were also inflated because many consumers replaced their vinyl and cassette collection with the then new compact disc.  Consumers have no need to re-purchase music in the new digital format now, because old CDs convert to digital music easily.  

It seems like the record industry operates under the assumption that the demand for CDs would continue increase without taking into account unforeseen social, economic, and technological developments.  That is part of their problem.  A drop in record sales has actually occurred before, in the late 1970s and early 1980s.

Although illegal downloading is still huge, it is getting smaller thanks to legal downloading sites such as iTunes and Amazon's MP3 store.  In 2004, the number of users on legal sites outnumbered those on illegal ones for the first time.  Consumers have flocked to these sites because it’s cheaper to download a digital song than to purchase a physical album, and they don't have to pay for songs they don't want when they can pick and choose tracks online a la carte. 

Some studies show that although piracy hurts sales of more popular artists, it actually stimulates sales for the lesser known ones.  British alternative band Radiohead demonstrated this in late 2000 when they released their first No. 1 album, Kid A. Kid A wasn't a particularly commercial album, in fact, no music videos were made for it, and no singles were released from it. The band credited their album's success to the buzz it received after leaking online three months before its release.

One commentator, Don Bricklin, suggested that a disproportionate number of people who participate in illegal downloading are also among the disproportionate number of people who purchase large amounts of music.  Because music is their passion, they don't shy away from obtaining music illegally, but they also buy or legally download many songs and albums as well as actively spend money on artists through merchandise and concerts.

"Most of us really are criminals. Almost everybody owns a little stolen music," said Lev Grossman in a Time magazine article. "But a little piracy can be a good thing. Sure, O.K., I ripped the audio of the Shins' Phantom Limb off a YouTube video. But on the strength of that minor copyright atrocity, I legally bought two complete Shins albums and shelled out for a Shins concert. The legit market feeds off the black market. Music execs just need to figure out how to live with that."

Peer-to-peer networks and illegal downloading sites are a disruptive technology.  Whenever disruptive technologies emerge, it worries those involved in whatever industry is affected.  More often than not however, the industry finds that this new technology isn't as much of a threat as they initially perceived and they find a new business model.  Just as the television didn't kill the movies, and VCRs didn't kill video rentals, illegal downloads won't kill albums.

The record industry has a point - illegal downloading is illegal - there is no way around that. Stubbornly suing pirates however, doesn't solve the problem though because illegal downloading isn’t going away anytime soon.

If a song can’t be found on a blog, it’s in a forum. If it’s not in a forum, it’s on a torrent. If it’s not on a torrent, it’s being sent directly from person to person. The cycle can never and will never be stopped when a song is leaked,” said music blogger Bradley Stern.

Rather than attempting to irradiate illegal downloading, they need to find a new business model that works in the Internet age.  The whole reason they are in the situation they're in now is because of their stubborn refusal to find a new business model.

One company that is trying a new path is Live Nation.  Live Nation isn't a traditional record company, it is actually a concert company, but it’s begun signing artists to what’s called 360 deals.  These deals include concerts, promotion, merchandise, as well as music.  Big name artists have signed on already, including Jay-Z, Madonna, Nickleback, and Shakira.  The benefit of such a system is that selling albums become just one facet of an all-encompassing deal that is linked to concerts and merchandise, things that can't be illegally reproduced and are still massive money makers.  Madonna for example, failed to sell very many copies of her 2008 album Hard Candy.  Although it was only the 50th bestselling album in the United States, that year she was the top earning artist after her Sticky and Sweet Tour became the highest grossing tour for a solo artist ever.

Perhaps the answer is allowing people to continue to get music for free, but support it through advertising.  Streaming radio sites such as Pandora show that this could be possible.

The future of music might not even lie with companies.  Radiohead proved this with their most recent album In Rainbows.  The band had fulfilled their contract with EMI and decided that they would release their new record online themselves.

"Every record for the last four - including my solo record - has leaked.  So the idea was like, we'll leak it then," said lead singer Thom Yorke.

The band made the album available on their website and let downloaders chose the price.  You could get it for nothing, or you could get it for $100.  Although the band has never released figures for how the name-your-own-price album sold, there were undoubtedly thousands who got it for little or nothing.  On the other hand, there were probably plenty of people who thought the album was worth five or ten dollars and paid accordingly.  That money went straight to the band instead of being filtered through a record company.  Radiohead's model could inspire future artists who see a record company as obsolete and want to be rewarded directly for the music they create.

Just days ago, Yorke was quoted saying that the record industry would collapse in a matter of months, not years, and that it would be of "no great loss to the world." He told new artists to not sign with labels because it's like tying yourself to a "sinking ship."

The record industry is a sinking ship because it’s falling apart and bleeding money, but not willing to change to save itself.  Music isn’t going away though so whether or not there is a record industry supporting it is a decision the industry itself has to make.  The answer is to stop the focus on ending piracy, and instead being innovative.


Post a Comment