Source: By Paul Cox, http://www.mathmistakes.com/
Piracy is NOT to Blame for the CD Slump!
For the past year, the music industry has been imploding in on itself. The music industry blames computer piracy, but they can not statistically prove it. In fact, the incomplete statistics that are available point to the exact opposite conclusion.
Over the last year, the music industry saw a 6.4% decline in CD sales and nearly a 30% decline in concert attendance. Interest in music videos has dropped so much that MTV, VH1, and CMT have dumped them during peak viewing hours. The Recording Industry Association of America (RIAA) blames piracy for the decline.
The only evidence RIAA use in their favor is a survey that they conducted themselves, but other surveys like this one from the Digital Media Association come to the exact opposite conclusion. Which should we believe? It depends on what questions were actually asked and who they were asked to. Since I have not seen a whole breakdown, I cannot really say.
There are two kinds of "Piracy" out there. When you purchase a CD, you have a right to listen to it wherever you want. Surprisingly, it is also legal for you to copy it or transfer it to different media (copy it it cassette for example or transfer to an MP3 player) so you can listen to it wherever you want. You do not have a right to play it publicly for profit, whether it be on the radio, at a club, or bar, or dance without paying royalties. You also do not have a right to make copies to sell -- this is the really bad form of piracy that could get you into jail.
Nor do you have the right to make copies and give them away -- this is also considered "piracy", but practically everybody has done it. Have you ever made a mixed tape and given it to your friends or your significant other? That makes you guilty of piracy according to the letter of the law, but as far as I know, no one has ever been prosecuted for it. It ranks up there with jaywalking in criminal behavior.
Unfortunately, thanks to peer to peer file sharing programs like Napster, people can now make copies of their music and give them away to perfect strangers over the Internet. What is worse is that these perfect strangers can search for the songs they want and find someone willing to give it to them. This means that practically every song ever recorded is available for free. That is what has RIAA so upset, and their feelings are perfectly understandable, but is this really hurting their business as bad as RIAA thinks?
The Inconclusive Evidence
File sharing ethics aside, Napster was a great promotional tool. I myself bought at least 3 CD's I would not have had I not discovered the bands on Napster. CDs are noticeably better than MP3s, and downloading a "copy" is never preferable to buying the real thing. As for the music pirates, they do not buy CD's anyways, and Napster just kept them from having to tape songs off the radio.
It is impossible to chart an accurate trend with only two data points, but CD sales were up about 4% when Napster was running, sales went down 5% after Napster was shut down. While there is not enough data to claim that piracy increases sales, we must conclude at least that there is no evidence that piracy decreases sales either. These changes are really not that dramatic, and are perfectly in line with normal fluctuations in any market.
To be fair, the Napster shut down was not the end of online music swapping. Programs like Gnutella and Kazaa exist, and their unique architecture (no central index server) skirts the legal entanglements that got Napster in trouble. Neither have as broad a user base as Napster did in it's heyday.
If piracy was the primary cause of CD sales declines, then how do you explain the decline in concert ticket sales? It is impossible to pirate a live show. It also does not explain the rapid demise of music video. Also, the US is not the only country where peer to peer sharing is rampant, it is popular in the United Kingdom as well, but the UK showed a five percent rise in CD sales last year.
One cannot also blame the economy either. CD and ticket sales were dropping months before 9/11 and are still dropping despite claims of a recovery. Entertainment has historically been recession proof. Movie ticket sales are higher than ever despite price increases. TV audiences are up, so are video and DVD sales and rentals. Why is Music not following the same trend?
Lets also take a look at the figures RIAA is releasing. Their figures count the physical number of CD's shipped, not the price charged for them. As most music fans know, retail prices for CD's continue to climb despite the lack of inflation in the general economy. The current average retail price of a music CD is $19. While I do not have the data to back it up, a year ago the average retail price was around $18. So while the physical number of CD's being sold has gone down around 5%, prices have increased about 5%, and the total sales in dollars has remained about the same. Profits are therefore keeping up with the 0% inflation rate.
The Homogenization of Pop Music
In my opinion, the real cause of the decline in music sales is the music industry itself. For the past decade, as studio and promotional costs have risen, record labels have become less likely to keep around artists that are not selling as well as they used to. As a result, loyal followings of artists have become harder to come by.
Had this been the policy in the 1960's, The Rolling Stones would have been dropped when their second album failed to go platinum. The Beatles probably would not have lasted past the failure of "Love Me Do".
This puts enormous pressure on Artists to make their music as marketable as possible. Thus producers must appeal to a wider audience. The result: Every artist sounds the same these days. Artists as diverse as Moby and Shania Twain have more commonalities than differences when one considers the broader musical spectrum.
As a result, popular music has completely lost its diversity. The music industry has turned into the fashion industry: a bunch of self proclaimed know it all music producers and promoters determine what is "in" this season, send out press kits to promote their products, and pay radio stations to play their artists (remember when "payola" was considered unethical? It is now standard operating procedure.)
I will not even get into how companies like Clear Channel and Ticketmaster make it impossible for independent labels to break into the business and promote alternative artists.
The music industries protectionist policies and dogmatic pursuit of the "bottom line" has come at the expense of its most precious asset: Their audience.
Where do all the cool new music trends come from? The fringe. Consider this: every music style which became popular during the last century, originated in poor neighborhoods: ragtime, gospel, jazz, western, blues, swing, country, folk, rock and roll, R&B, heavy metal, disco, punk, reggae, new wave, rap, ska, alternative, techno and hip-hop all originated in poor neighborhoods (whether they be urban or rural, black or white). The middle class and rich merely copied and enhanced the music of the poor class.
It has always been difficult for new trends to break through to the masses, but under the current power structure (which has only been around since the deregulation of radio ownership in the late 90's) it is now virtually impossible. As people get tired of today's music (which really has not changed much since the early 90's) there is nowhere for them to go within the mainstream sources. I do not believe it is a coincidence that the most critically acclaimed and one of the best selling CD's of last year got virtually no radio airplay -- the soundtrack to O Brother, Where Art Thou?.
Hence the need for non-mainstream sources like what the Internet has become. But RIAA is fighting the Internet, and using "piracy protection" as it's excuse.
The Anti-Internet Counter Revolution
For every revolution, there is a counter revolution. Just as the Internet was a revolution of information, there is a counter revolution going on. This one is getting little mainstream media coverage, because it is the mainstream media that is leading the revolution.
Record companies, music publishers, and movie studios (MPAA) have been spending millions trying to pass laws to protect their interests. These interests are counter to the interests of the tech sector as a whole. Congress seems ignorant to what is really going on, and seem happy to take money from the entertainment sector in exchange for constitutionally questionable legislation with long lasting effects on the still seriously depressed tech sector.
It would require an essay the size of a book to explain all this, but luckily someone already has. I highly recommend "The Future of Ideas: The Fate of the Commons in a Connected World" by Lawrence Lessig.
Let me give you the gist of the problem. The entertainment industry sees the Internet as a serious threat. Since it cannot shut down the Internet, it is attempting to use the tried and true approach of legislative creep. Pass a piece of legislation that no one complains about, then pass another, then another. Sneak in language that no one will catch that can be exploited in the courts, thus making the seemingly harmless legislation have real teeth. This is an approach being used by anti-smoking advocates, anti-abortion advocates, environmentalists, etc.
So far the entertainment industry has successfully passed two pieces of supposedly "harmless" legislation, and are poised to pass a third. All are constitutionally questionable, but so far lawyers have managed to keep test cases away from the Supreme Court.
The first was passed in 1998, called the Sonny Bono Copyright Term Extension Act. The purpose of this legislation was to extend copyrights an additional 20 years, thus keeping any new material from entering the public domain until 2018. The biggest supporters of the legislation was the family of the late George Gershwin, who are living off the royalties of their now long dead ancestor. Disney also were big supporters, fearful that the early Mickey Mouse silent films could enter public domain. What makes this act particularly sinister is the fact that Congress had already extended copyrights back in 1978 to extend them an additional 20 years. The 1998 act was the eleventh copyright extension in 40 years.
Most people not familiar with the situation may wonder why copyright extension is so bad. Basically what Congress is trying to do is to circumvent the Constitution (which guarantees that copyrights will be limited) by passing extensions ad infinitum. A test case has finally reached the Supreme Court. Details can be found here.
The second RIAA sponsored legislation was the Digital Millennium Copyright Act, or DMCA, also passed in 1998. The purpose of this legislation was to "implement the treaties signed in December 1996 at the World Intellectual Property Organization (WIPO) Geneva conference*", but what it really does is make it a crime to circumvent copy protection schemes, even if those protection schemes prevent consumers from legal "free use" of their purchased media. In fact it is now a crime even to discuss possible ways of circumventing copyright protection, a clear violation of free speech.
That was not all, the DMCA also required broadcasters of streaming audio to pay royalties for songs they broadcast. The Copyright Arbitration Royalty Panel (CARP) set rates so high that the fledgling internet radio industry could never make a profit, thus threatening to crush the whole industry's very existence (which is apparently what RIAA wants). As it stands now, the CARP recommendations were rejected, but alternative royalty plans, if set too high, could still render internet radio non-existent.
Recall that the future of the tech industry is dependent on a higher demand for bandwidth. High quality Internet radio is a major perk/selling point of high bandwidth internet access. The elimination of any use of high bandwidth is ultimately harmful to the tech sector as a whole.
The third piece of currently pending legislation is the falsely titled "Consumer Broadband and Digital Television Promotion Act" which is now making its way through Congress. Details of everything wrong with this legislation can be found at http://digitalconsumer.org/,
but here is the summary:
Could prevent you from digital copying any audio CD you own, even if you only intend to listen to it at the gym.
Could potentially infringe on consumers' ability to record or time-shift television shows.
Could prevent you from making backup or archival copies of any digital content that you legally paid for.
All future PC's, MP3 players, and digital video recorders would have to employ government-regulated copy-protection.
Is overly broad in it's definition of a "digital media device"
Would stifle technology in general.
Open source software, such as Linux, could become undistributable.
Panders to Hollywood and RIAA at the consumers expense.
It is simply the wrong approach to copy protection.
Basically, this act seeks to take away the rights of the public to use their legally purchased media as they see fit. If this legislation passes, the only sure bet result will be the creation of an underground industry of copy protection circumvention software and hardware. Bad news for the legitimate consumer electronics market, and once again bad for the technology sector as a whole.
More Bad Things to blame on RIAA
One of the latest schemes cooked up by the record industry was to create CD's that would not play on PC's, only on standard audio CD players. This would prevent some from ripping songs from their CD's.
Of course, one easy way to circumvent such a scheme is to use a CD or DVD player with digital bit stream out and connect it to a sound card with digital bit stream input, capture the audio as a WAV, then convert to MP3. (Is it even legal to discuss such workarounds under DMCA?)
But, all of this did not seem necessary to discuss because the owners of the CD format (Sony and Philips) threatened to take away the record company's right to call such a disk a "CD" since it violated specifications. It also may be illegal under federal law for RIAA to do such a thing.
That was until Sony itself released just such a copy prevention beast to market called key2audioT, details can be found here. The German version of Celine Dion's A New Day Has Come incorporated this scheme, and caused PC's to crash to the infamous "blue screen of death".
Two other copy protection schemes are being used here in the US, one is SunnComm's MediaCloQ used on a recent Charley Pride release and Midbar's Cactus 200 used on More Fast and Furious soundtrack CD.** The latter scheme will not even allow legitimate play on a Macintosh.
Your PC's CD playing feature could become useless if this technology becomes widespread. No doubt this scheme will make its way to the rest of the world, just setting up consumers to hate the music industry even more.
Like many people, I do not even have a CD player in my office, since I can use the computer CD player. If copy protection of this sort becomes widespread, the CD player will be useless.
In summary, the recording industry is in trouble, and it only has itself to blame. RIAA completely misunderstands the intentions of their own consumers and blames technology for its own internal problems. The legislation it is pushing through Congress will not make the industry better and may ultimately prove the downfall of the technology sector which is far more important to the economy as a whole.
I have no problem with the entertainment industry going after the big pirates who sell illegal copies of CDs, DVDs, and videos in swap meets and on street corners, this practice is bad for everyone. I do have a problem when the entertainment industry decides that the only way to fight these pirates is to make their media impossible to copy or used in other perfectly legal ways. It is only bad for consumers.
Update (August 2002): The latest insane scheme
Two more RIAA and MPAA anti-piracy bills were proposed this past month. The first sponsored by Reps. Howard Berman, D-Calif., and Howard Coble, R-N.C., would permit copyright holders to perform nearly unchecked electronic hacking if they have a "reasonable basis" to believe that piracy is taking place.
Back when I wrote about Game Theory and Terrorism, a reporter asked if I thought game theory is really appropriate if one side is "irrational". I did not have an answer, but it is safe to say that you cannot fight irrational behavior by being irrational yourself. Fighting terrorism with terrorism is a lose-lose scenario that will never end. Same goes for fighting computer hacking with computer hacking. So why does RIAA and MPAA want the right to hack the computers of pirates? Are they stupid or something?
If they thought the denial of service attack on their web sites over the July 27th weekend was bad, that was nothing if they go ahead with this plan. The hive mind of the hacker/cracker community is far more powerful than any group of computer consultants hired by the entertainment industry to stop illegal trading. The last thing the entertainment industry wants is to become "Public Enemy Number 1" to a group of smart and ruthless hackers out there.
As this article at salon.com points out, the bill is probably dead on arrival. It sounds like a couple of congressman are just appeasing some big campaign contributors, or their is some political brinkmanship going on. Either way, it is further proof that this issue is becoming a joke.
The second dumb anti-piracy bill this month, from Sen. Joseph Biden (which is no surprise to anyone except for the voters in Delaware who keep voting for him), is a bit more subtle. This article points outs some potential dire consequences while this one wonders what the big deal is. I hope this is not a bill that gets rushed through before August recess, since it obviously needs more study.
*The WIPO treaty that created the DMCA is so badly written that it has been rejected by practically every major country in the world except the United States and Japan. Among the non-signees: Russia, India, Canada, Australia, China and the entire European Union. See the list here.
** Hackers have already found a way around all of these schemes using a permanent magic marker to draw over the CD's data track on the outer edge of the CD. The data track is what the computer reads first, it is how enhanced CD's are possible. Audio players start on the inside track. If a computer CD player finds nothing on the data track, and that is what will happen if you magic marker over it, it will treat it as a standard audio CD. (Again I ask, is it even legal to discuss such workarounds under DMCA?)
If you do not believe that the entertainment industry wants to kill the Internet, read the MPAA's report to congress about their efforts to stop piracy. The authors of this document demonstrate a grotesque ignorance of technology, and apparently assumes that Congress is just as ignorant. Read this opinion on the negative consequences of MPAA's recommendations.
A web site that is following these issues closely is http://www.politechbot.com/