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Digital Age: is it a hazard for the music industry?

   Recording Industry Association of America (RIAA) and major record labels are continuously trying to stop the online music sharing, enforcing the copyright laws and shutting down entities like Napster and Audio Galaxy. The premise of all this fuss is that record companies and its musicians are allegedly financially affected by free downloading due to MP3 sharing on the Internet[mjf4].

   The recording industry is dominated by the so called Big Five - BMG, EMI, Universal, Warner and Sony[mjf5]. Sony Music is one of the top five distributors of music albums worldwide, featuring four very successful label groups: Epic Records Group, Columbia Records Group, Relativity Entertainment Group, and Sony Classical (Sony Music, 2002). Even though CDs sales have dropped last year[mjf6], major labels do not suffer such a big loss due to MP3 distribution as they claim. The following graph comes from Sony Corporation annual report 2002 (Sony Corporation, 2002), showing their business performance in music sales.

   To illustrate, sales were quite high in year 2000 when compared to nowadays’. It is worth remembering that Napster was at its peak in year 2000. However, both sales and operating income (in Japanese Yens) dropped a lot after Napster was shut down in 2001, with a slight increase in sales by 5% from 2001 to 2002. The operating income has gradually decreased by 2% from 2001 to 2002, and Sony claims that the factors responsible are costs incurred for ongoing restructuring activities, i.e. trying to develop technology to stop digital copying of CDs[mjf7].

   Therefore, loss of audio CD sales has been encountered as of year 2000. In fact, RIAA statistics indicate that sales significantly improved by 10.8 % when Napster emerged in 1999, further increasing by 0.4 percent in 2000 and declining by 6.4 percent after Napster was abruptly closed down [mjf8](RIAA, 2001). So the question that arises is: Who or what is to blame for decline in sales? Studies have been done pointing out different arguments.
In fact, a number of surveys indicate those individuals using P2P file sharing services purchase more CDs than non-MP3 users [mjf9](InsightExpress, 2001). Rationally, this is not very surprising if one considers that P2P users are music enthusiasts who are more likely to buy CDs and increase their music spending in the future.

   On the other hand, IFPI is the recording industry association that fights piracy and conducts worldwide research on such matters. IFPI music piracy report 2002 says: “In May 2002 there were approximately three million users and 500 million files available for copying at any one time on all of the peer-to-peer services worldwide.” (IFPI, 2002) So, if X number of Internet users downloads Y number of songs, does it automatically equate to loss in sales? Someone could download a song, and then buy a CD. Or a person could download a song which he/she never had intention of buying anyway. How can either of these ever quantify as a lost sale[mjf10]?

   Additionally, artists can make more profit if they side with the Internet users and allow downloads of their music in MP3 format. For example, U2, one of the most famous rock bands of all time, is very supportive of MP3 sharing[mjf11]. Nonetheless their Elevation tour earned $109.7 million last year, making it the second best selling tour of all time, behind Rolling Stones 1994 Jaunt that ranked $121.2 million (U2 Home Page, 2002). Also, the Offspring's album Americana was made available online in MP3 format prior to commercially released, yet it is the band's best-selling album to date – it sold 12 million copies worldwide (VH1, 2000). This clearly disagrees with what record companies are claiming - artists are losing money[mjf12].

   For these reasons, to keep the sales up, RIAA and the music industry should not have sued Napster. Rather than enforcing a lawsuit against this novel musical service, they should have attempted to reach a compromise and come up with a more controllable form of music trading online[mjf13]. For instance, they could have done a few things, like providing regulations such as: to download a file you have to upload a file, or negotiate a small subscription fee that would have generated direct profit from millions of users[mjf14], at the same time making sure sales were up. This could have been a common solution that both sides would be happy about, and as a result, it would more likely make music fans want to buy original records from CD stores.

   Today, one of the biggest sources causing digital piracy are CD writers that are capable of copying audio CDs and creating them using MP3 files on personal computers (RIAA, 2002). Sony, being also one of the contemporary technological developers, is producing technology that enables high interconnectivity: i.e. computers, home stereos, mobile phones, game consoles and all kind of other devices interacting with each other. Thus, everything linked with everything and quite inevitably - everyone exchanging files with everyone. Furthermore, Sony also produces CD writers and MP3 players, providing the equipment capable of “digital piracy”, as they tend to refer to it. If P2P users do not feel any guilt in making a digital copy of their favourite songs, it is exactly because industry giants like Sony allowed consumers to buy this technology[mjf15]. It is accurately because these companies have been constantly marketing commercial products at the expense of musical works, with very little or no consideration for their artistic values. Yet record labels see the enormous danger posed by MP3 file-compression techniques and networking standards to their multibillion-dollar industry. But that may say more about the weakness of their dubious business models than it does about the threats of new technology[mjf16]. Blaming declining profits and commercial failures on piracy and at the same time encouraging the customers to accept the very technologies that make piracy possible is indeed a peculiar business practice.

   First, online music resources seem to be more successful and undoubtedly more popular between music fans than the traditional ways of acquiring music records[mjf17]. Secondly, it is free[mjf18]. It is also more flexible and often faster. Seeking control through copyright and attempting to manage copyrighted data every step of the track from artists’ tune to listener's ear is the biggest barricade to industry’s success for online music. To remove the incentives for digital piracy, i.e. reducing CD prices, rather than imposing technology that treats customers as would-be shoplifters could help boost record sales and in spite of everything generate profit. But reverse practices are being employed by the “Big Five”. Sony claims that its Key2Audio copy protection helps copyright owners fight the dramatic growth of unauthorized home copying and Internet file sharing (Key2Audio Home Page, 2002). For example, a latest release from Celine Dion (who is totally against MP3 downloading on the Internet) "A New Day Has Come", is one of the first copy- protected CDs produced using the Key2Audio technology (Campaign for Digital Rights Home Page, 2002). Such CDs would not play on PCs and Macs, hence disabling the Internet users to pirate them. PCs would just stand still and do nothing, whereas Mac computers experience, what is referred between Mac users as Celine Dion Bug: “Celine Dion album locks up the PowerMac G4 933 machine, requiring repair by Apple dealer, while iMac refuses to eject the CD and also refuses to boot! Dealers have found that they have to strip down the Mac and remove the disc to restore the machine to normal operation.” These are common side effects associated with Mac platforms (Campaign for Digital Rights Home Page, 2002). However, logging on to any file-sharing network such as Kazaa or WinMX, and doing a quick search on Dion will find hundreds of results. Hackers have obviously been able to digitally sample the tracks, with a very simple solution to beat the Key2Audio copy protection. As show below, using a marker to cover over a shiny band ј of the way in on the outside edge of a CD will make it play on a computer just like a normal CD (Ruben, 2002).

   That being said, it is clear that such techniques do not necessarily work and undoubtedly cost industry a lot of money. They also negatively affect consumers’ computers, requiring repairs and making consumers revengefully “rip off” latest CD releases. In other words, it is impossible to stop hackers from beating new anti-piracy technologies, as they always seem to find the ways to crack anything they want to.

   One of the best things [mjf19]about MP3 sharing is that it can be a very good way to promote music. Many well-appreciated artists are supportive of MP3 sharing and utilise Internet to promote an alternative way to reach to their fans. As mentioned earlier[mjf20], U2 and Offspring are two examples, in addition to top musicians like Madonna, Prince, B.B. King, Radiohead and Eurythmics (NapsterSupport, 2001). Downloading music from all over the world exposes music fans to many new songs and artists they would possibly never hear about, and had no intention of ever buying. If Kazaa and similar music services currently have millions of users worldwide, there is a whole community online where fans spread out the word about a particular artist that they like. It has the potential of helping an artist go gold or platinum. The record labels should really be rejoicing at this new technological advance! For example, this is what Collin Greenwood of Radiohead said two years ago when Napster was at its peak: "We have just finished a tour, we played in Barcelona, the next day the entire performance was up on Napster and three weeks later when we got to play in Israel. The audience knew the words to all the new songs and it was wonderful. Digital music is just one of many things that contribute to an artist getting their message across and of course, it is going to change record companies who are going to have to embrace it, change with it and find different ways of getting revenue, maybe using Napster as a business model for their own on-line thing." (NapsterSupport, 2001). On the other hand, Michael Jackson, the king of pop, has recently had a dispute with his label Sony Music as they failed to properly promote his latest album “Invincible” (Dotmusic Homepage, 2002). Ironically, it was to have been his comeback album, but ended up having extremely poor sales and not very much media attention. If Jackson had made his album freely available in MP3 format on the Internet, chances are it could have promoted much better irrespective of Sony’s lack of promotion[mjf21]. It could have had as big sales as Offspring’s Americana.

   It seems that the fundamental equations that govern the music industry are: music = profit, the artist = the one that makes money and music fans = consumers. Thus, the entire dispute about digital piracy and file sharing is, principally, an opportune way for industry giants to ward off attention from their devious business procedures[mjf22]. For instance, the Warner Music Group, being one of the “Big Five”, is greatly involved in RIAA’s fight against piracy, other than its own parent company, AOL Time Warner, is straightforwardly profiting from file sharing, as an Internet Service Provider to millions of Internet users worldwide. As AOL Time Warner shows its escalating number of members - 34 millions (AOL Time Warner Home Page, 2002) and the cosmic number of hours that they all spend online, is there any uncertainty that a fair part of this expansion entails the “illegal swapping” of MP3 files that are “harming” musicians[mjf23]? Hence the actual victims of this dispute are the musicians themselves, who will get no portion of AOL Time Warner’s profits, despite the fact that these profits are partially founded on the music that they make. With the industry threatening to employ technological limitations to its full extent, the ones that receive a benefit will not be the artists whose works will be supposedly “protected”. Nor will it be the music enthusiasts whose rights to music are already being constrained. It will merely be, yet again… the industry corporations, who will have a new generation of incompatible devices to sell under the guise of “hi-tech enhancement”. Therefore, the real victims are also the genuine music admirers that already suffer from controlled access to a full variety of music they want to explore, with a number of them likely to put up with technological limitations of CDs they have legally paid for.

   Overall, the music industry is not as affected by the P2P music trading as it argues. In fact, their own statistics (Sony and RIAA) indicate that CD sales boosted whilst P2P services were most successful. Yet repressive legislation and technological fixes are constantly being implemented to inhibit the distribution of MP3 files on WWW. Although the entertainment and technology industries are just too big for us to expect any dramatic changes, a solution could be reached where both the music industry and MP3 users are beneficiaries. If the music corporations change their business models, they could discover and utilise quite a lot of activities they bitterly condemn, rather than desperately attempting to come up with new anti-piracy techniques that cost money and get usually cracked as soon as they come out. This simply demonstrates the futility of such schemes in the long term. Instead the music industry will have to develop more sophisticated ways of doing business. For these reasons, MP3 sharing on WWW is definitely not a downfall of the music industry.

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