Salon’s Analysis of the RIAA Lawsuit Strategy

Send lawyers, guns and money

Just as there is no direct evidence proving that file-sharing led to the industry’s sales decreases, there is also no proof that the lawsuits have spurred file-sharers to mend their piracy ways and head to the stores. There are a variety of factors that, taken together, could explain the rise in sales, including cheaper CDs, simultaneous release of superstar albums and the debut of Apple’s iTunes, which allows consumer to download singles legally, and may be driving fans into record stores to buy entire albums.

Still, the coincidental timing of the sales boom, immediately after the lawsuits were filed, is raising eyebrows in the industry, and is sure to offer support to those who want to continue to bring legal pressure to bear on individual music consumers.

[…] “It’s too early to say that lawsuits are responsible for the increased sales, but it’s probably a factor,” says Billboard’s Mayfield. Other factors include the recent surge in consumer confidence and spending. Also driving foot traffic at record stores was the announcement by the industry’s largest label, Universal Music, that it was slashing prices on its top releases across the board. The unprecedented move effectively cut the sticker price for new superstar CDs from $17 or $18 down to $14, and, at many discount outlets, as low as $9.99.

[…] The other key factor pushing sales is easier to explain: a bushel of hit records. Led by rappers (Outkast, Ludacris, DMX), rockers (Dave Matthews, John Mayer, A Perfect Circle) and crooners (Rod Stewart, Barbara Streisand, “American Idol’s” Clay Aiken), a parade of marquee names has posted impressive numbers. “I think the onslaught of bigger, better new releases has everything to do with” the mini-sales boom, says indie retailer Van Cleve.

But again, it’s not that simple. Since the industry does nearly twice as much business in the make-or-break fourth quarter as it does during any other, record company release schedules this time of year are always stacked with superstars. Last year was no different; Jay-Z, Shania Twain, and Eminem CDs all arrived on shelves early in the 2002 holiday shopping season. Yet as Mayfield at Billboard notes, year-to-date sales actually declined in last year’s final quarter. What’s different this year is the threat of legal action looming over file-swappers.

Time and Technology March On

And a graphic art form goes into a decline: album covers. Great Tunes, but Where’s the Cover? [pdf]

The question for Apple and other online music retailers is what a complete music experience will mean in a digital age.

“For many of us, music is a lot more than just the songs and the recordings,” the musician David Byrne said in an interview by e-mail. “The images, the postures, the hair, the artwork is an inseparable part of this whole. And vinyl and even tiny little CD booklets do that.”

“All that said, the cover need not be a piece of cardboard or a pathetic little booklet in a plastic box that always breaks,” he added. “It could be a downloadable slide show, a downloadable video, a series of links to stuff the artist thinks are relevant and cool.”

[…] Until the technology catches up, artists are experimenting with a variety of media to convey visual information with their music.

[…] The staying power of such artwork may seem doubtful. Musicians’ Web sites, in particular, are often redesigned with each release, which in Mr. Young’s case could mean that material about “Greendale” may someday be removed.

Still, “there’s no reason for anything to be lost forever,” said Paul Zullo, president and CEO of Muze, a supplier of music data and album cover art to online retailers and in-store kiosks. For the next version of his product, he is encouraging record companies to supply additional artwork that will enable consumers to look inside an album before a purchase, just as they can when purchasing books online.

More Record Company Consolidation

Sony and Bertelsmann Announce Plans for Merging Music Units [pdf] Apparently, a race to get on record before EMI and Time-Warner…

Fusing two troubled music giants will not solve their problems with piracy and the peer-to-peer sharing of files, which has devastated the industry in the last three years. But it would enable Sony and Bertelsmann to cut costs by combining sales and marketing offices in dozens of countries.

“We live in fragile, and for the record industry, very difficult times,” said Andrew Lack, the chairman of Sony Music. “A partnership like this allows us to manage our way through the difficulties.”

[…] The prospect of a rival merger may have prodded Sony and Bertelsmann to act quickly, according to executives at the companies. In an announcement notably vague on details, one point is crystal clear: the deal hinges on approval from antitrust regulators in the United States and Europe.

Many industry executives doubt the regulators would bless back-to-back mergers, which would shrink the number of major recording companies to three. By announcing their deal first, Bertelsmann and Sony could increase their chances of approval — or even scare off Time Warner and EMI.

PSU & Napster

The notices of the morning have borne fruit: Penn State, Napster Ink Pact (Reuters newswire [pdf] from the NYTimes) Note especially all the “whistling past the graveyard” — bets on how long it will take enterprising students to crack the DRM, over and over again? Or is this going to be like the blind eye Microsoft turns to campus software piracy, since it locks students into MS tools?

Starting next year, Penn State will provide students with Napster’s premium service, which includes unlimited streaming and tethered downloads, 40 radio stations and an online magazine and message boards.

If students want to own the digital music, they can download songs permanently for a buck each.

[…] Mike Bebel, president and COO of Napster said in a statement that the service will “meet the needs of students who have demonstrated a voracious appetite for online music.”

Bebel said Penn State “is paving the way for universities around the country to ensure that a legitimate marketplace for online music thrives.”

The pilot program will begin in January 2004 and will initially be available to the 18,000 students who live in dorms. However, Penn State plans to roll it out to 83,000 students on 24 campuses next fall. Faculty and staff will also have access to the service next year, and alumni will also be invited to participate in the future.

The View From the Economist

Upbeat: Is the threat of online piracy receding? [pdf]

But the fact that more people are willing to buy music online than seemed likely does not mean that the industry’s problems are anywhere near over. In the next five years, says Informa Media Group, a media information publisher, digital sales of à la carte downloads and subscription services will grow 20-fold. But they will account for only $1.8 billion, or under 6%, of the global music market. Peer-to-peer file sharing will deprive the industry of $4.7 billion of revenues in 2008.

[…] As for the risk of a lawsuit from the Recording Industry Association of America, the selling point for new versions of peer-to-peer networks in recent months is that they can guard the identity of users. The most popular now is Earth Station 5, based in, of all places, the Jenin refugee camp on the West Bank. After the RIAA said it would sue, its software was downloaded more than 16m times in 90 hours. So far, it seems to work.

[…] The success of iTunes has made clear to the music industry an uncomfortable truth: many people want to buy single tracks, not albums. Apple’s data show that its customers bought 12 singles for every one album at iTunes. That compares with 0.02 singles per album in American stores, according to research by Sanford Bernstein. The best artists may tempt people to buy a whole album. But the industry can no longer rely on getting the price of an album as a reward for backing a band.

In the end, says Moby, an influential musician, the record industry will have to throw out its current business model. It will no longer be able to make huge profit margins on CDs that cost next to nothing to manufacture. To compensate for lower prices, he says, the industry needs to cut its marketing for artists by as much as four-fifths. Once the record companies have less marketing clout, and with internet distribution, says Moby, artists will be in a powerful position. “Why”, he asks, “is a record company any more qualified to send an MP3 to iTunes than I am?”

One reason why people have placed a lower value on music in recent years is that record companies put so much of their energy into creating acts that are hugely, but only briefly, successful. That could change in future as the industry alters its business model. If companies cannot make money by selling online, one option will be to try to get a piece of a band’s other revenues. They would then have a strong incentive to nurture long-term quality.

Declan on the Broadcast Flag

Ernest Miller points to Declan’s summary of the broadcast flag fallout: Are PCs next in Hollywood piracy battle?

Will Rodger, director of public policy at the Computer and Communications Industry Association (CCIA), said the rule is troubling because it means the FCC is encroaching on a technological sector that has flourished in the absence of regulation. (CCIA’s members include America Online, Sun Microsystems, Nokia, Kodak and Fujitsu.)

“The immediate effect isn’t so huge,” Rodger said. “What it really affects is the tuner cards that go into your computer. But there’s a real slippery slope here. This is going to draw the FCC into the Internet, unless it makes a conscious decision not to go there…It’s difficult to see how the FCC and the government won’t get more directly involved in designing hardware, routers and other devices.”

[…] “This was designed to absolutely kill the computer,” said Cliff Watson, a senior engineer at Digital Connection, a small business in Huntington Beach, Calif., which sells an HDTV PCI card. “It will kill the computer because the actual implementation of the ruling is so bloody restrictive.”

According to the FCC’s 72-page order, every product sold in the United States that can receive either DTV broadcasts or DTV streams must be able to recognize an ATSC DTV “broadcast flag.” Broadcasters are not required to flag their content, and the FCC rejected suggestions that news shows and educational programming must be broadcast without the flag.

Watson, who says Digital Connection will stop selling its card after the FCC’s deadline, said the order “totally eliminates the ability to send that (HDTV) data over a PCI bus to a Firewire port or to a digital VHS recorder–except in analog format.” PC HDTV cards typically sell for between $150 and $350 each.

The First Taste Is Free

Today’s Boston Globe and NPR (so far) are announcing that Penn State is going to offer free access to digital music files to its students. The Globe suggests that Penn State has an arrangement with Napster 2.0, while NPR leaves the name of the provider anonymous but suggests that the students will not be able to copy/burn CDs without paying. The AP Wire reports also seem to confirm that dinero will be required to get the music files into portable form.

From The Globe article

Napster said to offer deal to Penn State

Napster, the song-swap pioneer turned online music store, is expected to disclose a deal with Pennsylvania State University to offer its newly relaunched music service for free to students, sources familiar with the matter said. Napster officials and university officials declined to comment. But Penn State issued a statement saying its president, Graham Spanier, and the president of a leading online music service would reveal a deal in Anaheim, Calif., today to provide digital music to one of the largest student bodies in the country, at no cost to students. People familiar with the matter said Napster was the partner. (Reuters)

The New York Times has Reuters [pdf] and AP [pdf] news reports. The Reuters piece is pretty clear about what’s going on:

“At every digital music conference, it seems that companies are pursuing the college market, whether paid, unpaid or in the form of a subsidy. Those are all ideas that have been bandied around,” said Mike McGuire, analyst with GartnerG2.

“This clearly is a significant opportunity for a service provider to get brand recognition and, assuming the students are happy, to retaining them as paying clients in the future,” he said.

McGuire said such a deal could also go a long way toward making college students aware of the legitimate online music services that still trail file-swapping sites in popularity.

“It would be really fabulous from a marketing perspective, because these companies are really a long way from making people aware of these services,” he said.