A recent NPD survey cited by the New York Times' Bits blog confirms what I've suspected for a long time: the record industry's campaign against file-sharing sites is not only ineffective, but misguided. According to the survey, 19 percent of the music in consumers' collections comes from file-sharing networks. That's up 5 percent from last year--in other words, lawsuits and education campaigns have so far been ineffective.
But 38 percent of music listeners' collections come from CDs that they borrowed, then ripped to their hard drive or burned to a CD-R. (I'm not sure why NPD made the distinction between ripped and burned. I suppose it's academically interesting--ripped CDs are presumably listened to on MP3 players or computers, while burned CDs can be listened to in CD players.) In other words, file-sharing networks aren't the primary cause of declining CD sales--copied CDs are. That behavior's impossible to stamp out, and adding copy-protection software to CDs is not a viable solution--it's either ineffective or exercises too much control over the user's computer, leading to potential PR nightmares and even legal liability.
85% of the music on my Zune was recorded from a CD or LP that I legitimately own. Most of the rest comes from CDs I borrowed and ripped.
Just to satisfy my own curiosity, I took a quick look through my Zune 30, which is my primary personal MP3 player (the iPod has more family stuff on it), and catalogued my own digital music collection by origin. Here's how it stacked up:
• 2,714 songs (85 percent) from a CD or LP purchased by me or given to me as a gift.
• 439 songs (14 percent) acquired from somebody else without payment--a CD I borrowed and ripped, or that was burned for me by a friend, or given to me as digital files on a flash drive.
• 47 songs (1 percent) downloaded from an approved Internet source, such as the Zune Marketplace.
• 10 songs (<1 percent) downloaded for free from non-industry-approved Internet sources.
Obviously, I'm not a normal music consumer. I'm almost 40 years old, so much of my collection stems from the pre-Internet days, when the only real way to get music was to buy it. The question is, how does the industry make the average user look more like me? I don't know the answer, although lowering prices on CDs or promoting vinyl (which is harder to rip) with codes for one-time digital downloads might help. One area where I don't look like the ideal consumer is with digital downloads: I'm at far less than the average 10 percent. I might buy more music online if (a.) it were in a format that could be used on both my iPod and my Zune (b.) online catalogs were deeper, with more obscurities, no black-outs for long songs, and so on.
In a speech at the Midem music trade show, U2 manager Paul McGuinness claims that Internet service providers bear a portion of responsibility for the sales decline in recorded music. It's so laughable on so many levels that I can't let it pass without comment:
1. File trading's not the sole cause of lower sales. McGuinness, like the RIAA and IFPI and other recording industry bodies, assumes that piracy on P2P networks is the main driver of the decline in music sales. This ignores several studies that have shown that heavy P2P users are also the heaviest music buyers (although those studies themselves are controversial). More to the point, this argument ignores other ways users are getting music for free. I'd guess that friends ripping CDs and swapping music on flash drives account for a fairly large proportion of purchase-replacements--I'm not going to buy a whole record for a song that I heard once on the radio if my friend's already got it and I can just rip it from him. And that's the other big problem: radio. It used to play new music and break new acts. But consolidation has led to exceptionally narrow, lowest-common-denominator playlists, and radio's become irrelevant to hard-core music fans, who drive popularity of new acts.
2. Net neutrality and safe harbor. As Mathew Ingram of The Globe and Mail argued very eloquently, it's absurd and unreasonable to expect ISPs to monitor all traffic traveling their networks for pirated content. Safe-harbor laws ensure that an ISP's not held responsible every time somebody uses their pipe for something illegal--imagine if victims of traffic accidents caused by drunk drivers could sue the state for building roads, or if victims of telephone scams could sue the phone companies. And monitoring is uncomfortably close to giving preferential treatment to content providers in exchange for an extra fee.
An aside: he shows his misunderstanding of the entire situation when he says: "There are many other examples that prove the ability of ISPs to switch off selectively activity they have a problem with: Google excluded BMW from their search engine when BMW started to play games." How is Google an ISP?
3. Broadband demand isn't driven by P2P. McGuinness' assumption that the main driver of ISP fees is P2P music shows the music industry's myopia. As he puts it, "Kids don't pay $25 a month for broadband just to share their photos, do their homework, and e-mail their pals." True, kids don't. Their parents pay the bill--and have been paying since long before P2P music networks became mainstream. People do a lot of things on the Intertubes--read, shop (eBay? Amazon?), blog, send IMs--and all of those things are much faster and more convenient with a broadband account.
4. The hippies cashed out long ago. The funniest and weirdest part of the speech is when he blames counterculture values coming from the West Coast of America for the tacit assumption that music should be free. He may be right that a lot of early techies came out of that community--Steve Jobs attended Reed College, and we all know that Stewart Brand deserves some credit for early online community The WELL--but Silicon Valley's been driven by the profit motive almost since its inception. And it's not like the Grateful Dead was ever a charity organization.
The thing is, I actually agree with his overall thesis: the best future business model for the recorded music industry I can think of is adding a few bucks to ISP fees, watermarking content, then splitting that revenue among rights holders based on how often a particular piece of content is played. The problem is that mandatory fees are unfair to those who couldn't care less about music and might not be legal, while voluntary fees work only if you have some sort of policing mechanism. But these interesting ideas deserve a spokesperson who's a little more familiar with the underlying technology.
(One last dose of vinegar: I can't dispute that U2 has had a lucrative career as a live band, but I saw them on the Zoo Station tour in 1992 and say with confidence that their live show is the weakest part of their act. Great props, great singer, but little variation. Even the ancient Stones swap songs frequently and occasionally stretch out a jam. Flame away.)
The RIAA's justification for its strong-arm tactics against alleged file sharers is simple: file sharing acts as a substitute for music purchases and is directly and primarily responsible for plummetting CD sales (which are down 14 percent from last year). I've argued in the past that the entire drop can't be blamed on piracy, and one Harvard study suggested that piracy is having no effect at all.
This week, Billboard published an article about a study commissioned by the Canadian government that investigated the connection between file sharing and CD sales. The surprising conclusion: the most active file traders on P2P networks actually buy more CDs than their less active counterparts. This seems to suggest that the recording industry should abandon its crackdown and embrace P2P networks.
But wait: economist Stanley Leibowitz at the University of Texas, Dallas, has posted a well-reasoned critique of the Canadians' methodology. Essentially, the more active file sharers are the same people who are most interested in music, and therefore the most likely to be buying large volumes of CDs. So, of course you'll see an increase in both measurements--CD purchases and file-trading activity--simultaneously among the same users. To correct for this "simultaneity effect," you have to measure the overall volume of file sharing over time across all types of users--casual to extreme music fans--and compare it with CD sales over the same period. If you do that, Leibowitz claims, you'll see a direct correlation between file sharing and reduced CD sales.
Another problem that seems obvious to me: by focusing on P2P networks, these studies (and the RIAA) ignore other types of file sharing that I think are much more prevalent, such as burned CDs and flash drives. Ten years ago, very few CD collections included music recorded on CD-Rs. Today, almost every collection does.
Also, these studies strike me a bit like investigating why the horse escaped and arguing whether it's because somebody left the barn door open by accident or on purpose. The industry knows its predicament--it's very easy for customers to get recorded music for free. The interesting question is how (and whether) they can adjust their business models to stay viable and relevant under these new conditions.
The recording industry has won its first victory against a user of a file-sharing network. Late yesterday, a jury in Minnesota determined that Jammie Thomas had in fact used Kazaa to share music files. Finding her guilty of "willful" copyright infringement, he jury ordered her to pay the copyright owners (six labels) $9,250 for each of the 24 songs that were at issue, for a total of $220,000.
Reading the coverage of the closing arguments on Ars Technica and Wired, I can see why the jury reached its decision. Somebody using the screen name "Tereastarr" posted certain music files to Kazaa. Thomas uses that screen name in many different places, including e-mail and her PC log-on. The same songs were found on her hard drive. Her PC is password-protected, so it's hard to argue that somebody else snuck on and did the dastardly deeds. Some of the alternate theories from the defense sound like they're ripped from the headlines of every scary security story you've read in the last five years. (Her computer was pwned by zombies!)
Even so--and I'm not a lawyer by any stretch of the imagination--a lot of the evidence seems indirect. That is, despite all the fingers pointing in her direction, I don't think it's possible to prove beyond a shadow of a doubt that the individual Jammie Thomas uploaded these songs to Kazaa. I'm not sure if there's enough for an appeal, but jury verdicts are notorious for being overturned. (Old adage: if you're innocent, ask for a judge; if you're guilty, ask for a jury trial.) Also, the judge found that the RIAA didn't have to prove that anybody actually downloaded the songs that Thomas posted, only that she posted them in an attempt to violate copyright. According to the site The Recording Industry vs. the People, which is run by a pair of lawyers who've represented some plaintiffs against the RIAA, the decision establishing that precedent was actually vacated the week before the trial.
If the RIAA pursues--and wins--other trials, it could cut down on illegal file-trading. But I tend to think that file-trading software or networks will continue to evolve to make it harder to track who's doing what. I imagine there could be a way of masking IP or MAC addresses, or a way to encrypt the sharing folders on the user's PC so that they're invisible to everybody but the user (who'd need a password even to see them).
Not that it's any justification for copyright violation, but I can see why Ms. Thomas didn't want to pay for the tracks at issue. Richard Marx? Vanessa Williams? Then again, maybe I'm just pretentious and out of touch.
In 2004, the Recording Industry Association of America (RIAA) filed suit against Deborah Foster, an Oklahoma resident, alleging that her computer and her ISP account had been used to download and trade copyrighted recordings illegally. As usual in these suits, the RIAA offered to settle the case for a few thousand dollars.
Except that Deborah Foster knew she hadn't done anything wrong, and refused to pay up. After some initial discovery, the RIAA began to suspect that Deborah's adult daughter, Amanda, was responsible for the alleged downloads, and it added Amanda's name to the suit. But Deborah continued to press the RIAA, asking them to provide details of what was downloaded when. Seeing that this wouldn't be an easy case, the RIAA dropped the suit.
Deborah then sued the RIAA for attorneys' fees and won. After about a year of back and forth over the precise amount, today the judge ordered the RIAA to pay her $68,685.23. (A PDF of the order is available here.)
This judgment changes the calculations involved in the RIAA's strategy of suing alleged file-traders. It doesn't cost much to send an accusatory letter demanding a few thousand dollars. But if the defendant actually puts up a fight, the legal costs for the RIAA quickly mount. In that situation, the RIAA has to believe that it has enough evidence to win, and that the defendant will be able to pay a fine that's large enough to cover the RIAA's costs.
All this means the RIAA has to be extra careful about who it sues--as this case demonstrated, it may not be enough to trace file-trading back to a particular IP address, and work with (or sue) the ISP to figure out who's paying for Internet access at that adress. And taking extra care might raise the RIAA's initial costs enough to make this whole strategy too expensive to continue with.
That would actually be a good thing for the recording industry: the strategy of suing file-traders is error-prone, ineffective, and has created a blizzard of bad p.r. A better option would be to create and promote legal alternatives that still compensate copyright owners, such as ad-funded music-sharing services. Another possibility would be to press legislation forcing ISPs, PC hardware makers, and/or music software makers to chip a few cents per sale into a kitty to compensate content owners for the loss of revenue from file-sharing--something that's already done with the sale of certain blank media in the U.S. and elsewhere.
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