The Explosion of Illegal Downloading
...loaded music, which at the time would have been for free (Oberholzer). Even more amazing than that 60 million fact is that only a fifth of those are aged 35-44 (Oberholzer). The obvious assumption is that file-sharing and downloading are youthful activities and perhaps the majority of users will grow out of the phase. The truth of the matter is that today’s youth is growing up in a society where they expect to get at least some music for free. All indications are that the number of downloaders will only increase with time. For example, the Pew Internet Project found that the number of downloaders at least 18 years old doubled since 2000. The polarity of the situation surrounding digital music and downloading is evident in the hundreds of law suits that the RIAA has filed against consumers and the vehement protests from consumers and even some artists. It’s certainly no secret that the music industry has experienced serious drops in sales. “The number of CD’s shipped in the U.S. fell from 940 million to 800 million, or 15%, between 2000 and 2002” (Oberholzer). A surprisingly statistic is that shipments continuted to rise during the first two years of popular file sharing, 1999 and 2000 (Oberholzer). This apparent contradiction may be explained simply by saying that the effects of downloading are long term and took a few years to really affect sales. The record industry has made it clear to everyone that they believe the decline in sales over the last four years is due to file sharing. The RIAA, created to promote and protect the record industry, has been taken action to attempt to curtail this downloading explosion. At the top of their list of targets are college students who have access to high speed networks capable of downloading songs in just a few minutes. “Since March of this year, 190 students at 61 universities have been included in a series of lawsuits directed at infringers of copyrighted material on peer-to-peer networks” (Sherman). The obvious aim of these lawsuits is to show younger Americans, the majority of the downloading population, that there are serious consequences for infringing on artists’ rights. Another technique that the record companies are utilizing is knowledge. They wish to educate Americans about the alleged harm that downloading songs for free and distributed them can cause to artists, record companies, the industry and even the economy in general. The RIAA has seen some encouraging signs apparently with Cary Sherman saying, “The combined effects of these initiatives (legitimate services, technology, education, and enforcement) have resulted in a positive change in the attitudes and response of administrations and students.” As with any issue, there are those who possess extreme viewpoints and are so unwillingly to compromise that they do little to ever resolve the conflict. The NARAS (home of the Grammys) “told [a journalist] that downloads were destroying sales, ruining the music industry, and costing [artists] money” (Janis Ian). Getting music for free and completely ignoring those who created the work is illegal and unacceptable, but the record labels are certainly not the angels of the music industry. All parties involved need to realize downloading could possibly serve a dual purpose and prove to be invaluable. The RIAA has released several statements that very nearly sum up their stance on downloading. They say that analysts report that just one of many peer-to-peer systems in operation is responsible for over 1.8 billion unauthorized downloads per month. Also, it is pointed out that sales of blank CD-R discs have grown nearly 2.5 times in the last two years and if only half of the CD-R discs sold in 2001 were used to copy music they would match the number of CDs sold at retail. They claim that U.S. music sales have decreased by more than 10% since 2001. Finally, the RIAA cites a recent survey that states that 23% of music consumers are not buying more music because they are downloading or copying their music for free. Janis Ian, a recording artist and music journalist, comments on each of these statements. First, she points out that there is no evidence that the people who download music for free would have bought CDs in retail stores even if there was no free alternative. She also states that the sales of blank CD-R discs have little to do with the decline in music sales. She accounts for 750 blank CDs in one year alone and none of them are used to copy and distribute music. They are, instead, used to back up her computer. Ian points out that the record industry, who is supposed being “destroyed” by downloading, sees about 100,000 new releases a year and that is a “conservative estimate”. Ian believes that the assumption that people don’t download music because they can get it for free has no real evidence to support it. It merely gives the user a chance to hear the music before he spends $15.99 to buy it. That is a great deal of money for a college student or a teenager without a job to experiment. The internet and downloading are clearly here to stay and many consumers and artists believe that the industry is fighting something they should be embracing. “Instead of pursuing a solution that meets the time-shifting and device-swapping needs of today’s consumers, the industry prefers to legislate rather than innovate” (Jambalaya Brands). One thing that free downloads provide to new and upcoming artists is free exposure. Not only free exposure, but there peer-to-peer services literally provide worldwide exposure for free. In today’s music industry, it costs as much if not more to distribute and promote a record as it does to create the actual product. One suggestion that has been made is that record labels offer only a few songs from each artist available for download for free. This would give the consumer a chance to hear the artist and make a decision as to whether they would like to hear more of that artist. More often than not, it would lead to an increase in sales. ANALYSIS The record companies may have the RIAA and a seemingly endless supply of money to pay for their hundreds of suits, but their arguments and complaints lack any real evidence. It’s extremely hard to simply take it for granted that downloading free music will naturally lead to those users buying fewer CDs. Common sense even tends to point in the other direction. The quality of MP3s is inherently worse than CDs. Also, it could easily take days for an individual to download an entire album from KaZaA, with dozens of filenames for the same song and very poor quality songs circulating on the network. It has become simpler and more convenient to simply join a legitimate digital music store and be guaranteed to find what you’re looking for. In regards to the record companies’ opinion, they show little evidence of any real correlation between free downloads and drops in sales. A study conducted by Felix Oberholzer and Koleman Strumpf in March 2004 claims to be “the first study that directly compares actual downloads of music files and store sales of CDs” (HBS News). Even more interesting is that there study found that “downloads have an effect on sales which is statistically indistinguishable from zero” (Oberholzer). In other words, the study revealed that downloads almost have no effect at all on the sales of CDs. The study justifies their statistical approach to the issue by stating that “file sharing…has an ambiguous theoretical effect on record sale” (Oberholzer). This means that file sharing does not by its nature translate into a certain effect on sales. The little evidence that the RIAA provides is usually in the form of surveys that claim a certain percentage of people now buy less music because they download it. This study actually found that 65% of users say downloading led them to not purchase an album while 80% claim they bought at least one album after sampling it on a file sharing network (Oberholzer). This would give a net positive result. These surveys are not as accurate, though, because it is a known effect that the participants in a survey want to please the surveyor. People have a tendency to lean one way or another depending on what the results the survey is looking to acquire. As a result, this method cannot be used to determine any real effects that downloading has on sales. The study came to some very important conclusions. First, the total effect of downloads on sales is indistinguishable from zero. Second, the economic effect of downloads is also quite small. Even with a pessimistic estimation, it would take 5,000 downloads to displace a single album sale. The study also showed that popular, high selling albums actually benefit from file sharing. The final conclusion the study makes is that “the sales decline over 2000-2002 was not primarily due to file sharing” (Oberholzer). OPINION Illegal downloading has obviously had a massive impact on the music industry over the last five years, but that impact has not been entirely negative. In the long-term file sharing should benefit the music industry by providing consumers with the ability to easily access new music. The best thing that the music industry has done to combat the damage it has suffered from illegal downloading is to provide consumers with the opportunity to legally purchase online. Without the creation of Napster, would record labels have realized the true potential of the Internet? Most likely yes, but a phenomenon such as Napster must have sped up the process. In order to protect their financial interests, the industry has been forced to innovate leading to such breakthroughs as the iTunes Music Store, which provides consumers with instant access to an incredible amount of music. According to Apple (creator of iTunes Music Store), there were over seventy-million downloads from April of 2003 to April of 2004 and the weekly download rate had increased to 3.3 million by May of 2004; all this in the iTunes store alone (Peppercoin). Pay-per-download services are apparently more successful than digital subscription services such as the new Napster because, as Steve Jobs, the Chief Executive officer of Apple Computers, says. “people want to own their music, not rent it” (Peppercoin). As Andrew House, Executive Vice President of Sony Computer Entertainment, says, "The subscription based model is inherently self-limiting. The preferable model, we think, is based on downloadable content and mini-transactions" (Peppercoin) An example of a so called “mini-transaction” would be the typical iTunes Music Store 99 cent-per-song download. The potential for future growth in online music sales is simply limitless. It should grow into a multi-billion dollar industry over the next several years. One way in which music sharing benefits the industry is by increasing the popularity of its artists. In many cases, people who hear an a...