TechMiso

Embracing File-Sharing Is Essential For Industry Survival

• July 24th, 2006, by Scott, 8 Comments

Downloading media online has exploded throughout the years. Media downloading went from a niche hobby that few engaged in, to one of the largest uses of internet bandwidth. File-sharing started out complicated, but has evolved in to an easy way of obtaining media, even turning in to a completely legitimate business oriented concept. The phenomena dragged the entertainment industry unwillingly along, with the studios kicking and screaming about how media downloading is hurting their bottom line. However, online file-sharing of media files promotes CD and DVD sales, and should be embraced by the entertainment industry because it ultimately boosts revenue.
The explosion in media downloading is mainly attributed to the ability to fulfill a desire in a nominal amount of time. The upsurge of this behavior, at a magnitude never before seen, stunned the entertainment industry. They opted to initiate a war that continues through to this day, rather than adapt their business model to match the desires of online consumers.

Throughout their campaign, the entertainment industry has proclaimed that downloading media online is negatively impacting the artists that they represent. They claim that “pirated music and videos” is causing the studios to lose highly substantial sums of money, therefore hurting the artists themselves.

A constant throughout the entertainment industry’s rhetoric is that CD and DVD sales have considerably slipped worldwide. According to the industry, the decline in sales is a direct result of online piracy thanks to file-sharing. The studios are supposedly losing revenue at a pace never before seen, thanks to the massive amount of downloading taking place.

Is this truly the case, or is the recording industry fighting a propaganda battle in order to gain sympathy?
Studies conducted by groups outside the iron grip of the entertainment industry paint a completely different picture than the songs the studios love to sing. Most independent studies have shown that people who engage in file-sharing end up purchasing more physical products than those individuals who do not.

Earlier this year, one of the more telling studies was conducted by the recording industry themselves. The Canadian Recording Industry Association (CRIA) performed a study in order to ascertain the habits of people who purchase music. The results seem to contradict many of the familiar music industry claims, and explain why they might be fighting the wrong battle.

Some of the particularly noteworthy findings are the following:

1. “The main source of digital music was consumers ripping copies of their own CDs (36.4%), followed by P2P downloads (32.6%), paid downloads (20.1%), shared music from friends (8.8%), downloads from artist sites (5.6%), and other sources (2.9%)”.
2. Those people who download music from P2P services frequently buy that same music in CD form. “Only 25% of respondents stated they never bought music after listening to it after downloading it”.
3. Respondents cited a long list of reasons for purchasing less music. Most attributed their smaller number of purchases to reasons that have nothing to do with music downloading, “such as price (16%), nothing of interest (14%), lack of time (13%), collection is big enough (9%), don’t buy (7%), listen to radio (7%), change in tastes (6%), no CD player (3%), have an MP3 player (2%), lack of opportunity to buy (2%), watch more tv (2%), age (1%), only buy what I like (1%). Simply put, P2P simply is not a major factor behind decisions to buy less music (page 95)”.

The problems with the arguments spewed forth by the entertainment industry do not stop at the aforementioned. In order to make their point, the studios have been employing deception when commenting on the decline in CD and DVD sales.

They would have us believe that there is no other reason in the world for the drop in sales; that media downloading is as evil as Hitler, and needs to be eradicated immediately. However, what the entertainment industry fails to state is that the main reason for the decline in sales is due to a drop in CD and DVD production. Since fewer products are created, it is only natural that a smaller amount of revenue is generated.

Dan Bricklin, who has been enthusiastically studying every detail of the various recording industry reports, found that “units have dropped, but revenue has not dropped as much because of an unprecedented 7% rise in prices. With a poor economy, basic economics says that a rise in price of a discretionary item already priced above the optimum point may result in a drop in total receipts.”

Previous studies have shown similar results, although consumers would be hard-pressed to find this data. Since these reports are open to interpretation, the recording industry likes to broadcast its own spin in order to further their agenda to maintain control of all music distribution channels.

A 17-week study conducted by researchers at Harvard University and the University of North Carolina followed people downloading music in 2002. They correlated the performance of music purchases with that of the same song downloads, and concluded that “high levels of file-swapping seemed to translate into an effect on album sales that was statistically indistinguishable from zero.”

Is the war that the industry is waging honestly much ado about nothing? While the executives may proclaim to be fighting for a noble reason, consumers can only wonder why the recording industry ignores their own findings if this is the case.

RIAA spokeswoman Amy Weiss, in response to the research conducted by Harvard, says that “countless well-respected groups and analysts, including Edison Research, Forrester, and the University of Texas, among others, have all determined that illegal file-sharing has adversely impacted the sales of CDs. Our own surveys show that those who are downloading more are buying less.”

Ultimately, the reduction in CD sales is all about lack of unit production, not so-called “illegal file-sharing.” The recording industry will never communicate that in public, because doing so means admitting defeat in a war that they can never win.

Test-Driving Entertainment Merchandise

Most people who download media online view the act as sampling a product before making the ultimate decision to purchase the merchandise.

The ability to “sample” music and video prior to purchasing the product is equivalent to test-driving a car prior to acquisition. Not a soul on Earth would consider buying a vehicle without first looking under the hood followed by a short drive to see how well the automobile handles.

Why should entertainment merchandise be any different? Without file-sharing, consumers are forced to take an almost $20 gamble that an entire CD’s worth of music is as worthwhile as the one or two decent songs receiving loads of airplay on the radio.

Record Year for Digital Music Sales

Digital music sales in 2005 are hard to ignore. The data paints a picture that the industry is loath to repeat in public, though one company executives secretly enjoy. Revenue generated from the sales of digital music products outpaced their physical counterparts throughout the year. A record-breaking 20 million songs were downloaded during the week between Christmas 2005 and New Year’s Day 2006.

Legal digital music purchases still pale in comparison to the volume of music downloaded through file-sharing networks. P2P monitoring service BigChampagne estimates that at least 250 million tracks are downloaded worldwide each week, thank to the various file-sharing services available today. The average number of simultaneous P2P users topped 9.9 million worldwide in March 2006 versus 8.2 million users a year ago.

Despite the increase in file-sharing activity, the entertainment industry has yet to even attempt to capitalize on the file-sharing audience. Their failure to create a viable strategy that monetizes digital downloading is partially responsible for the huge disparity between legal purchases and music downloaded via file-sharing. If the industry would embrace file-sharing technology, rather than attack it, then consumers will follow.

History of Aversion to New Technology

The entertainment industry, as a whole, has a history of aversion to new technology. It finds acceptance to be quite difficult, and ultimately opts to try to have technology legislated out of existence. The Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) are huge lobbying groups that wield extensive power with Congress. Rather than attempt to adapt their business models around new technology, they waste taxpayer money on court battles to attempt to have the technology terminated instead.

When the Betamax VCR was introduced by Sony, the motion picture industry cried foul. Opting for a knee-jerk reaction, they sued Sony in order to have the product barred from being sold. The case, Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984), was fought all the way to the U.S. Supreme Court.

During testimony, MPAA CEO Jack Valenti, in a performance that was worthy of an Oscar, famously said the following:

“the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”

The U.S. Supreme Court ultimately ruled that a company was not liable for creating a technology that some customers may use for copyright infringing purposes, so long as the technology is capable of substantial non-infringing uses. In other words, when a particular technology has many uses, the public cannot be denied the lawful uses just because some may use the product to infringe copyrights.

After the decision was handed down, the motion picture industry ended up embracing the VCR. Rental video businesses skyrocketed, which increased industry revenue substantially. Had their plan succeeded, the entertainment industry would have lost billions of dollars in revenue that is generated from worldwide sales of movies.

Why did the industry not have the foresight to see the potential profit realized from this technology? Was it easier to use the legal system rather than be forced to adapt, like a rabbit backed in to a corner, surrounded by a pack of hungry wolves?

This was not the first time, or the last, that the entertainment industry has attempted to use the courts in order to eradicate a technology from existence. While the Betamax case has been the most important decision in years, and arguably the most widely known, there have been other cases that were just as significant. The industry has been short-sighted since its infancy.

In 1906, songwriters objected to the release of the player piano. John Philip Sousa, a famous American composer and conductor who was widely known for his various American military marches, had the following to say about the introduction of the player piano:

“I foresee a marked deterioration in American music and musical taste, an interruption in the musical development of the country, and a host of other injuries to music in its artistic manifestations, by virtue — or rather by vice — of the multiplication of the various music-reproducing machines.”

“[F]or the life of me I am puzzled to know why the powerful corporations controlling these playing and talking machines are so totally blind to the moral and ethical questions involved. Could anything be more blamable, as a matter of principle, than to take an artist’s composition, reproduce it a thousandfold on their machines, and deny him all participation in the large financial returns…?”

A bill was later introduced in Congress, which Sousa supported, that would have amended the Copyright Act to give copyright owners a monopoly over all machines capable of reproducing sound. Fortunately, Congress was not as short-sighted as the industry and ended up introducing a compulsory license which ensured that composers receive fair compensation for their work.

The recording industry objected to the release of the Digital Audio Tape (DAT) in 1990. Because of their reluctance to release music in this format, the technology died, even though it was arguably better than the compact disc (CD).

In yet another stunning example of short-sightedness, the recording industry sued Napster for copyright infringement in 1999. Prevailing in court, the recording industry succeeded in getting Napster to close down its service, leaving the technology to wither away and die.

Victorious in Court Does Not Guarantee Triumph

File-sharing, it would seem, has had the last laugh. Even with all the court battles that the entertainment industry has waged, they still have yet to eradicate the colossal amount of media downloading that takes place daily.

After Napster was shut down, Scour Exchange came along. Following the demise of Scour Exchange, Gnutella saw major growth. Kazaa was introduced shortly thereafter, with BitTorrent now being the current frontrunner for media downloading. As newer, and greater, file-sharing technologies are introduced, people merely migrate to these better services in order to fulfill their desires.

For every step that the recording industry has taken in order to destroy a file-sharing service, a new one is born every day. It is a never-ending game of whack-a-mole, the game played at arcades where a mole randomly pops up from one of 10 different holes in the ground with the goal of being whacked on the head. Hitting every mole is impossible.

Each time the entertainment industry sues a new company that produces a file-sharing product or service, the business sees a major increase in users, thanks to the “free advertising” from the news outlets. The Pirate Bay, a Swedish BitTorrent search engine just realized the fruits of such activity. The site saw their traffic almost triple, thanks to being in the crosshairs of the entertainment industry. Is this what the studios intended? Is the entertainment industry honestly this inept?

Even though the industry is using legal pressure as a means of thwarting digital music downloading, file-sharing usage continues on the upsurge. It has gotten to the point where the full assault on file-sharing is not deterring the activity whatsoever.

A total of over 20,000 music fans have been sued by the RIAA for file sharing, yet file sharing continues to rapidly increase both online and offline.

The time has come for the entertainment industry to reassess the effectiveness of their current sue now, ask questions later strategy.

Bad Business 101

It is not necessary to attend “Business 101” to determine that suing the very people who purchase the products a company relies upon for survival is a dangerous business decision. It should not come as a surprise to see a backlash against the industry when consumers are sued for what they believe to be fair-use, especially when their behavior ultimately leads to a legal purchase of the very product they sampled.

Is all the hoopla about music downloading, or is there a greater evil at play here? What has the industry truly frightened is loss of control. For years, the music and movie cartels have controlled the price and distribution of their products. In the digital age, the power has shifted, placing the industry in a newfound position that it does not entirely understand.

The internet, and file-sharing, offers a paradigm shift for media distribution. Artists are now afforded the untapped potential of reaching their fans directly, completely bypassing the entertainment studios. Through their own personal websites, artists are allowed to be more intimate than ever with their fan base. By offering downloads, and other digital paraphernalia, directly from their own websites, artists are finding that they are capable of severing the chains that they were previously shackled with. There is no longer any true need to rely upon a music studio for distribution or promotion.

This loss of the ability to maintain the status quo is what has industry executives terrified. The studios perceive that if they are no longer the middleman then their revenue stream will dry up. The lack of foresight and ability to adapt to the ever-changing world is what will lead to the demise of the industry as we now know it.

To Embrace File-Sharing Is To Embrace Life

The entertainment industry is obviously incapable, and uninterested, in exploring how digital downloading will lead to revenue greater than what they have witnessed thus far. Their lack of foresight, and unwillingness to adapt, is dragging them closer to the point of irrelevance. If the industry stopped to consider other possibilities, rather than relying on the status quo, then they would be able to see the potential that digital downloads have to offer.

In the previously mentioned studies, the studios themselves have agreed with the claim that digital downloading helps encourage sales of physical media products. With digital products offering extremely reduced production costs, it should come as no surprise that the profit potential is greater. Furthermore, the “try and buy” idea that consumers are interested in, and broadcasting to their peers, appears to be working.

If the entertainment studios would just embrace digital downloading, they would realize that they are embracing their own existence. All that is needed is the right leadership from someone in the industry, and then consumers will follow.

Whether the industry wants to believe it or not, digital downloading is here to stay. The studios must adapt to new and emerging technology, or they will soon find themselves extinct like the dinosaurs in Michael Crichton’s Jurassic Park. Except in the case of the entertainment industry there will be no resurrection. That just might be a good thing, and what consumers need in order to declare total victory against the conniving entertainment cartels.

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