In 2003, “60 million Americans, more than the number of Bush voters in 2000, (were) using file-sharing networks on the Internet” (Taylor, “Downloader Dragnet”). Since then, their numbers have ebbed and flowed, as the Recording Industry Association of America or RIAA has issued thousands of lawsuits against home users for using file-sharing systems. These defendants are sued for penalties of up to 150 thousand dollars per song, and then encouraged to settle the entire case for two to five thousand, which most do (Viega, “Recording Industry…”).
There have been compelling arguments made by the RIAA, which decry file sharing and downloaders as responsible for their recent financial woes. This organization, which represents the 5 recording companies who make up 85% of the CD market (Boycott-RIAA), compares downloading a song to shoplifting from a store. They call it “piracy” (RIAA.com).
Today, as these issues are being debated before Congress and in civil courts, the RIAA is working tirelessly to convince the public and lawmakers that downloading music deserves to be punishable by law. This issue circulates around two main issues. The first is whether it is fair to expect the consumer to pay the prices for retail CDs or paid downloads. Careful research will reveal that it is not. That being the case, the second issue is whether or not a compelling moral argument exists to justify legal action against people who file-share on peer to peer networks. Looking at the effects on the artist, consumer, retailer, and recording companies, the answer is once again revealed as “no”. These facts being true, it is time the public and the lawmakers realize that the current status quo of lawsuits against peer-to-peer file traders have no merit, and cannot be allowed to continue.
In order to more accurately define the issue, one must understand the nature of file sharing. There are sites in cyberspace that have been legitimately shut down for allowing users to upload songs directly from the site. Covert "warez" groups that distribute computer games and other works “(Reuters) sell advertising space on sites where they illegally distribute digital media It is understandable that the music industry would not want unauthorized persons making financial profit from their product. File sharing is somewhat different because of its structure. On a program such as Kazaa, users are given a searchable index of songs and other material that is stored in other individual users’ hard drives. Music fans may download from other music fans on a one-to-one basis with music, but no money, changing hands. There is not central distribution, but rather just a huge collection of end users, sharing with one another.
The majority of downloads are of music, and the bulk of files include random samplings of popular songs that could be heard at almost any time on the radio. An oft-heard argument of file-sharers contends that this practice is an alternative to paying for an overpriced CD with only one or two songs the end-user wants to hear.
The music industry would purport that costs for creating a CD have endured “a 41% price increase in 5 years” (Boycott-RIAA). The fact is the music companies pay approximately $7.50 to create a CD, including money paid to bands, producers, distributors, and songwriters. They then sell the CD to a retailer for a 30% profit, and the retailer sells it for an additional 30% profit. The record company uses their 30% profit to supposedly pay for “all the record company's operations including, staff, severance packages, expensive building leases/rent, computers, cars, sushi lunches, flights, conferences in Hawaii, cell phones, etc.” (Taylor, “Where the money goes”)
Not so long ago, CD prices were more reasonable. There was a time, leading up to 1996, when competition between music retailers forced CDs to sell for as low as $9.99, delivering a smaller kickback to the music companies. At that point, the RIAA “modified their existing cooperative advertising programs to induce retailers into charging consumers higher prices for CDs, allowing the distributors to raise their own prices” (FTC.org). In 2002, the Federal Trade Commission found the RIAA guilty on monopoly charges, citing that their price fixing over three years caused “U.S. consumers (to pay) as much as $480 million more than they should have for CDs and other music” (FTC.org). Since 1996, when CDs were first price fixed above $9.99, the market for new CDs has never again dipped below the ten-dollar mark. Some in the industry claim this is a result of inflation. However, it is interesting to note that DVDs, VHS cassettes, CD-Rs, CD Recorders, and CD players have all dropped significantly in price since 1996. The CD is the exception, with average new release prices ranging from $13.99 to $19.99. Not long after the prices first jumped, music downloading started to become commonplace, and it must have seemed to some like a dream come true.
When Napster first arrived on the scene offering downloadable music for free over the Internet, many consumers claimed to download because they didn’t want to have to buy entire albums for one or two songs they liked. The recording industry cites the new pay-per-download version of Napster, which charges 99 cents per song as the “valid” solution. Unfortunately it is simply another overpriced problem. “(Users) will find that top-selling acts Madonna and Red Hot Chili Peppers sell their songs by the album, but not as singles. They will find some musicians on one service, but not on others”, and they will not find The Beatles anywhere. Where they will find all of these things, and for free, is on a peer-to-peer network. (Ahrens)
This isn’t the only problem with the so-called legitimate downloading services. The most popular of these services, iTunes, has songs that only play on the Apple iPod, which is restrictive for users. Some albums sell for more online than they do in retail stores, and there are various restriction on which songs can be purchased one at a time and which ones still need to be purchased in album format. (Pegaroaro). Finally, it is important to note that the record companies currently claim 70% of the profits from paid download services, with artists getting only 10-15%. Production costs are cut for the companies as the end users use bandwidth, time, and their own materials (CD-Rs for instance) in an attempt to get a better deal on music, which, in the final analysis, they never find.
Given the facts, it should be expected that many music fans would search for alternative methods for sampling music on a song-by-song basis. Fifteen years ago, taping records, taping songs off the radio, and swapping tapes with friends would accomplish this. Today, listeners use peer-to-peer networks. At the time of this writing, lawmakers are deciding whether or not to enact legislation to prevent this practice through punitive measures for the end users, comprising mostly teenagers. Record producer Ken Waagner calls it “penalizing a kid's curiosity about music”(Ryan).
The RIAA wants to call file sharing “piracy”, claiming it is the equivalent of stealing. As an alternative to calling file-sharing piracy, one might illustrate it in this way: When someone wants to read a book, but doesn’t want to buy or sell it, that someone can go to a library, enjoy it as much as they want, and all for free. The book company sees no money from the personal use of that book, and this has been an accepted practice for years. That personal use is not “stealing” because the library never loses its copy of the book. It is only being enjoyed by a person who liked the book enough to read it, but not enough to buy it. If they want the pleasure of owning a pristine copy of their own, they can choose to buy one. “If (one) want(ed) to buy a book, give it to (someone), burn it -- nobody can tell (them) not to”(Ryan). The RIAA wants the public to believe that it becomes “piracy” if you change “book” to “song”.
The RIAA, of course, rejects that analysis of file sharing:
(Music downloading) is illegal, unethical, and all too frequent in today’s digital age. That is why RIAA continues to fight music piracy…Many do not understand the significant negative impact of piracy on the music industry…depriving not only the record company of profits, but also the artist, producer, songwriter, publisher, retailer, … and the list goes on. The consumer is the ultimate victim, as pirated product is generally poorly manufactured and does not include the superior sound quality, art work, and insert information included in legitimate product”.
The RIAA claims that file sharing is “unethical”, and is doing its best to make it criminal. The central reasons presented by the RIAA seem to be that music downloading hurts artists, consumers, and retailers. All of these are based on the idea that downloading is responsible for the decrease in dollars from CD sales since 2000. These four claims, if true, would provide moral ground for the legal prosecution of file sharers, and the enactment of legislation to penalize downloaders. Careful research, though, shows that these claims do not hold water.
The RIAA has called for the prohibition of file sharing partly on the assumption that it hurts the artists. However, opponents of the corporate recording giants claim that the artists need protection from the RIAA.
Boycott-RIAA had this to say about artists and file sharing:
We are very pro-artist. We are anti-exploitation of musicians, we are anti-loan shark business practices by the industry labels, but we are definitely ANTI-RIAA. The issue is not so much Copyright but control of distribution. The industry doesn't want more music available but less. (unless it's on their label)…. In fact a lot of independents selling 100,000 CDs per year make more money for themselves, than they could if they were selling a million for a label. In fact a artist selling 100,000 per year, would in all probability would be dropped from a major label, and have nothing to show for it, not even the right to play their own music. In addition, the independents own their copyrights, their masters, and all royalties go to them, not the label for imaginary expenses. Why would any artist want to sign with a major label, under those conditions?
Chris Taylor of Sanderson Taylor Entertainment Lawyers breaks down what the artist belonging to the Major labels gets paid per twenty-dollar CD as $1.31, or 6.6% of the sale. 33.4% more of the sale goes toward production costs, with a final 60% being split evenly between record companies and music retailers. The recording companies make $6.17 for every twenty dollars made, or over four times as much as the artist. Therefore, if one were to look at a moderately selling CD such as Barenaked Ladies’ “Everything to Everyone”, which debuted in the top 10, but only sold 300 thousand copies (Bell), and were to factor in the 20% loss in CD sales reported by the RIAA, that would mean that the band itself lost only $78,600 in CD sales. This is granting (for the moment) that downloading is to blame for 100% of music sales drops, and that the RIAA’s claims of loss are correct.
This loss of CD sales is small when compared to the money made by the artist in performance. Concert ticket sales (based on prices, not attendance) have jumped “8% over the previous year” (Tompkins). Additionally, “Once (artists) have that exposure (from millions of downloads, they) can sell lots of concert tickets. And all but the very biggest pop acts make most of their money off concerts, not CD sales” (Boehler). With 23 Million Americans downloading songs on average (Chmielewski), it is safe to say that bands are getting increased exposure. If this is the case, with average ticket prices of 52 dollars, (and Barenaked Ladies tickets selling at Ticketmaster for 25-50 dollars for massive stadium shows seating between 15 and 40 thousand fans), and keeping in mind the amount per ticket an artist gets to keep (as high as 20%), it would only take a slight percentage of swelling in concert sales to offset the loss of sales represented by downloading – even by the industry’s most pessimistic estimates. Simply put, more downloads means more listeners. More listeners mean higher ticket sales.
Graeme Philopson of the news service “The Age” echoes this sentiment saying “the argument about protecting artists' income streams is demonstrably false - less than 1 per cent of artists in any field receive more than a fraction of their income from royalties - they are paid for performance”. With the exception of the “music superstars”, who make more money off of album sales than concerts, and who represent less than 5% of professional recording artists, there is no strong evidence that peer-to-peer file sharing has harmed artists in any way. In fact, there are bands such as the independent group “Wilco”, who have seen album sales spike since songs were available on the band’s website (Ryan). Many independent artists claim that the peer-to-peer phenomenon is just a leveling of the playing field. Law professor Lawrence Lessig has said:
“Now the point is, (The RIAA’s) old business model wasn't better for the artists and it wasn't better for consumers, it was better for [big record companies]. When people talk about alternatives [to that model], serious people are not talking about alternatives that make artists worse off and they're not talking about alternatives that would make consumers worse off, they're talking about alternatives that might make five companies worse off.” (Ryan)
The RIAA warns that downloading music ultimately hurts the consumer by proliferating poor sounding recordings and by forcing CD prices up. Neither of these assertions is true. The RIAA would have you believe that downloaded music is substandard. It is not. It is almost indistinguishable to the untrained ear from regular CD tracks (both running at 160K bitrates, and 44,100hz). New encoding like WMA (the encoding for Windows Media) has further improved the sound quality by leaps and bounds.
It is in this accusation that the RIAA’s claims are the most egregious. The RIAA cites only two ways music downloading hurts consumers: Inferior sound quality, and driving up prices. On one page of their website regarding the subscription services for downloading music online, the RIAA says: “The possibilities are great for the music industry: fans, artists, and record companies alike.”. (http://www.riaa.com/issues/music/default.asp). On another page, the RIAA says, “The artists also depend on their reputations, which are damaged by the inferior quality of pirated copies” (http://www.riaa.com/issues/piracy/default.asp). These arguments seem to be at odds with one another, as the sound quality of the files in question (most in mp3 format with 128 to 160 bitrates) in both paid and peer-to-peer services is 99% of the time exactly the same. If the RIAA is to endorse paid downloading, then they cannot in good faith attack file sharing on the grounds of sound quality.
The RIAA website also states:” Consumers also lose because the shortcut savings enjoyed by pirates drive up the costs of legitimate product for everyone.” (http://www.riaa.com/issues/piracy/default.asp). This statement is also entirely untrue. Since CD price fixing ended in 2000, prices have crept downward. Although there has been a recent nominal upswing in prices, the recording industry’s most powerful member, Universal Music group “reduced its suggested retail price from $18.98 to $12.98 just three months (ago)… stimulating sales that had been down for three years” (Viega, “Universal…”). The increasing popularity of stores such as Wal-Mart has significantly lowered the retail prices of CDs in the years since the original Napster made downloading music possible. “The value of the units shipped to retailers has also dropped steadily, from $12.71 billion in 2000 to $12.39 billion in 2001, $11.54 billion in 2002 and $11.05 billion in 2003” (Crowley). Quite simply, the price inflation cited by the RIAA has not occurred. Although CD prices are still inflated, the market has steadily decreased their price since 2000 in an effort to get consumers to buy.
The RIAA has stated that music quality and increased CD prices are the two ways downloading hurts the consumer. If downloaded music quality is the same on CDs, paid services and through file sharing, and if the advent of file sharing has not caused prices to climb, then both of the RIAA’s arguments regarding damage done to the consumer are voided. In fact, there is a strong argument made by record producer Ken Waagner that “the opportunity to find music, and not at the expense of going and buying …records at $20 a pop to discover that you don't like 70 percent of them is probably a lot healthier for the industry as a whole”(Ryan).
The RIAA has purported that music downloading hurts retailers. If that were true, it would be interesting to note that the RIAA has endorsed paid downloading, which diverts actual consumer dollars from CD consumers, in an effort to combat file sharing, which does not. It is true that music retailers, in the form of the chain record store, are suffering consistent financial losses. This is a result of fair market economics far more than it is a result of downloading. The fact is, the traditional music outlet charges more than the larger multi faceted chains like Wal-Mart. (Compare the price of the aforementioned “Everything to Everyone” album at 15.99 at Tower Records, 15.49 at Wherehouse, and 13.42 at Wal-Mart). With chains like Wal-Mart showing 53 billion in profit (Moore), and online stores such as Amazon.com boasting booming sales (Flynn), the argument that record stores are losing money because of file sharing is shaky. Among most music buyers, it is common knowledge that Wal-Mart and Amazon are cheaper than “mall stores” and record chains. A cursory search of advertised prices and websites reveal a wide price gap for most CDs between retailers like Wal-Mart and traditional record stores. Consumers are spending their money where they can find the best deal, and those retailers are thriving.
The RIAA has claimed that consumers, artists and retailers are hurt by decreased record sales because of file sharing. All three arguments have been refuted with the assumption that downloading is indeed responsible for falling CD sales. Research into this argument reveals, however, that file sharing at worst is making only a nominal dent in sales, and at best, is actually boosting sales of popular CDs to those who would not have originally bought them.
The RIAA and similar groups such as “The International Federation of the Phonographic Industry (IFPI) blame unauthorized downloads from online networks like Kazaa and Morpheus for a 20% drop in CD sales over three years” (USA Today). Experts disagree. “Harvard and the University of North Carolina-Chapel Hill issued a joint report saying that unauthorized downloaders had a "limited effect" on CD sales” (USA Today). David McGuire of the Washington Post expounded on the seventeen week study, pointing out statistics that show a positive correlation between CDs with sales over six hundred thousand and increased frequency of downloading. The research shows one more copy of the album being sold for every 150 additional downloads.
“Extreme Tech” Journalist Dave Salvator expounded further on the study regarding sales of smaller selling albums:
"While downloads occur on a vast scale," the study's authors conclude, "most users are likely individuals who would not have bought the album even in the absence of file- sharing." The study goes on to say "...it would take 5,000 downloads to reduce the sales of an album by one copy.... After annualizing, this would imply a yearly sales loss of two million albums (out of over 600 million), which is virtually a rounding error." One could also reasonably infer that since most file sharers would not have bought the album they're downloading if file sharing didn't exist, it's quite plausible that those very users liked the album they downloaded well enough to actually buy a CD they would not have otherwise bought.
In 2002, “Jupiter Research analyst Aram Sinnreich found…that people who traded files for more than six months were 75 percent more likely than average online music fans to spend more money on music” (McGuire).
“Boycott-RIAA” noted that the case could be made “in cold, hard numbers that the RIAA's claim of digital piracy ravaging their sales must be taken with a rather large grain of salt.” (Moore). They point out that the RIAA is down 11.94% in a market in which “the Dow Jones Industrial Average (DJIA) has dropped over twenty percent in the last two-and-a-half years; the NASDAQ has lost over seventy percent of its value”. (Moore). Indeed, a Reuters article on cnn.com noted “poor economic conditions and competition from video games and DVDs” as further contributing factors to RIAA monetary woes. One must also keep in mind that the numbers used by the RIAA begin immediately after the price-fixing was stopped, and on the heels of the current “teen-pop” revolution, where now-passé artists such as N’Sync, The Backstreet Boys, Christina Aguilera, and Britney Spears sold debut albums in the millions.
It seems that the RIAA is using the furor over music downloading to blame-shift and offset the effects of a declining economy and a saturated entertainment marketplace. The RIAA receives 2% of the sales of CD-Rs, and 2 dollars for every CD recorder that is produced. The RIAA has received millions in lawsuits against the original “Napster” and sites such as “Mp3.com”. The RIAA is also prosecuting college students who download, then using the prosecutions as media induced leverage to push its new paid “Napster” service, which would net the RIAA a further 27 million dollars a year.
The evidence presented by the RIAA seems to suggest that the music industry is faltering along with the economy, and the RIAA places the blame for this squarely on the backs of music downloaders. This objection can be met with contrary evidence that shows a positive correlation between numbers of downloads and CD sales. A study conducted in January In 2004 shows “album sales were up 9.2 percent. Sales of CDs, which represent 96 percent of album sales, rose 10.6 percent…the numbers of 2003 were down about 10 percent to 12 percent from the year before” (Viega, “US Music sales Increase..”). What is interesting is a trend that shows that the number of people engaging in file sharing is “down 41 percent from its peak of 34 million in June (2003)… (but has) swelled (again) to 23 million, an increase of 28 percent since the last survey in December” (Chmielewski). If the RIAA had a 10 percent loss as downloads declined, and has reported a 10.6 percent gain this quarter, as downloads have increased 28 percent, it would seem to indicate that downloads are not hurting retail music sales. It is true that the RIAA has lost money in recent years, especially since the FTC forcibly stopped them from fixing prices, but no more so than the average business in today’s economy, and certainly no more so than the average entertainment company.
In summary, downloading music does not financially infringe on the rights of artists, consumers, retailers, or recording companies. It seems, in fact, that the RIAA is simply using the publicity surrounding what they call “Internet piracy” to forcibly create a new industry with 99 cent per download services like Apple’s iTunes or the new Napster. This helps to offset losses at the same time as impeding the growth of independent artists. This is not piracy. Consumers get more choices and lower prices. Artists get greater concert turnout. Record companies are able to offset declining profits by offering paid services, and there is evidence to suggest that downloading actually helps album sales.
Professor Lessig has stated: “if everyone's a criminal, maybe the law is wrong” (Ryan). There are 60 million people in the United States who have downloaded music from peer-to-peer networks, 27 million who download actively, and over three million people logged into Kazaa alone at the moment of this writing. These voters and future voters are intently watching the lawmakers to see if they represent the will of the people, or of the industry. They are asking why, under penalty of prosecution, the people should be forced to stop an activity with no victim. These people are asking if lawmakers should continue to allow the RIAA to prosecute old men like Bob Barnes and teenage boys like his grandson, for listening to music, when the RIAA then uses their successful settlements to help make sales of paid download services. The people are watching, and for as long as they can, they are listening too.
SOURCES:
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