Magazine article Risk Management

The Music Industry's War on Piracy

Magazine article Risk Management

The Music Industry's War on Piracy

Article excerpt

Much like the World Wide Web once was, Internet music and MP3s used to be reserved for the computer gurus of the world. Only those keen on advanced searching techniques could find digital music on the Web, which mostly consisted of obscure or cult singles.

Then in 1999, Shawn Fanning, a 19-year-old college dropout from Boston, created software with the ability to locate MP3s on any computer connected to his Napster network. By downloading this free program, users could take and send files from any computer in the network. Within months, the majority of college students in the United States knew that the music they once paid nearly $20 to listen to could now be "shared" for free online.

Since the notorious lawsuit that finally shut Napster down in 2001, a slew of similar peer-to-peer (p2p) file sharing programs have appeared. Depending on the year, the most popular p2p reincarnations have been KaZaa, Morpheus and Grokster, among others, but just as one begins to face litigation and fade out, another gains popularity and snowballs into the new standard.

For the past five years, it has seemed that file sharing and music piracy were unstoppable forces. To many of those actively sharing music, this has been the next great thing in music. But according to those in the music industry, its lawyers and the courts, file sharing is a simple case of copyright infringement and theft.

In either case, the music industry as we know it is drastically changing, and the five major labels-Universal, Warner Brothers, BMG, Sony and EMI-are anxiously hoping that their market shares do not disappear.

Measuring the Impact

Since 2000, unit shipments of recorded music have fallen 31 percent and revenues are down by 22 percent from $6.2 billion in 2000 to $4.8 billion in 2003, according to the Recording Industry Association of America (RIAA), the trade group representing the U.S. recording industry. In 2000, the 10 top-selling albums sold 60 million units, and in 2002 the top 10 shipped only 34 million. Single sales have nearly come to a halt, and there are few artists that still have the fanbase to attain platinum-level sales (one million units or more).

Obviously, many factors can contribute to a downturn in sales, but none have done so as much as online music piracy. Although Napster started it all, the new standard, KaZaa, has far eclipsed its predecessor. In July 2002, the hundred millionth user downloaded the program to its computer, and less than a year later in May 2003, KaZaa became the world record holder for downloads with 230,309,616.

The RIAA estimates that 2.6 billion copyrighted files (predominately music) are illegally downloaded each month, and that at any given time there are over 5 million users online sharing an estimated one billion files. In addition, the International Recording Media Association reports that the sale of CD-Rs, the discs used for burning (copying) CDs, in North America rose by 30 percent in 2002. This means the sale of blank CD-Rs was more than double that of pre-recorded albums.

The National Record Buyers Study 3, conducted by New Jersey-based Edison Media Research, recently surveyed over a thousand 12- to 44-year-olds about their listening habits. Of those considered the "heaviest downloaders" (people with over 100 illegal MP3s), 48 percent reported that "they no longer have to buy CDs because they could download music for free" and 71 percent said that they have burned someone else's CD instead of buying it themselves. "Today's heavy downloader tends to be the same person the record industry has relied on in the past to be the heavy purchaser," says Jayne Charneski, vice president of Edison Media Research. "These days, many in this group are increasingly downloading from file-sharing sites and burning music instead of buying music."

The Industry Strikes Back

As sales and profit margins slide more and more each year, the music industry is no longer taking this hit lying down. …

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