On April 1, the Supreme Court began to hear arguments in an appeal from the Recording Industry Association of America over an August 2004 decision that denied the entertainment industry permission to force Internet service providers to turn over the names of users trading music file online. The decision has given ISPs a little breathing room. If the decision is reversed, however, record companies will be able to call different ISPs and demand the names and information of as many users as they want. This decision has not stopped the recording industry from filing some 8,000 lawsuits, with around 500 still in the trial stage.
The RIAA argues that peer-to-peer, or P2P, file sharing has been the source of significant declines in record sales and revenues. The International Federation of the Phonographic Industry, a recording industry body, has gone so far as to say that, “Illegal music [trading] is benefiting international organized crime.”
The recording industry expanded the scope of their complaint to developing technologies such as Apple’s iPod, which could be considered a compliment to illegal downloading, but the Supreme Court is hesitant and stated that “such action could discourage technological innovation.”
In 1984, the entertainment industry objected to the invention of Betamax, and VHS. The video recorder had been accused of infringing TV and movie studios’ copyrights. Sony, the inventor of Betamax, won the case because the machine had significant non-infringing uses, like recording a TV show for later viewing. In August 2004, the Supreme Court upheld its Betamax decision with the Grokster decision, claiming that P2P networks are not responsible for the copyright infringement of their users. A decision on the appeal is not expected until June 2005, but many believe that the Supreme Court will uphold their Betamax decision again and leave it to Congress to legislate the issue.
This never-ending struggle — people trying to protect intellectual property — is not new to history. It happened with Thomas Edison’s invention of the phonograph (record player) in 1877. Edison’s invention received heavy criticism from those in the entertainment industry, especially musicians. Many complained that this was the end of live music. In retrospect, it actually broadened the market for many different kinds of music, one of which being opera. At the time, only aristocrats could afford to go see an opera, but after Edison’s invention, many were able to enjoy opera on a record.
The entertainment industry cried again with the invention of the player piano, and again with the cassette-tape recorder, and they haven’t stopped crying since.
There is no doubt that piracy has affected the recording industry in a negative way. According to the RIAA, in the five-year span between 2000 and 2004, there has been a 13.4 percent decline in CD revenues, and an 18.6 percent decline in CD units shipped. CDs are the largest percentage share of sales for record companies, but this might soon change with the phenomena of legal digital downloading. When revenue from legal digital downloads are added to total revenues, the loss to record companies looks a lot less drastic.
At this moment, there is a person out there trying to find a way to transfer music that cannot be copied, in a practical and cost effective way, in hopes of becoming very rich. But by that time, it will already be too late. The cat’s been let out of the bag, and piracy will continue, whether the entertainment industry likes it or not.
But it’s finding a way to work with piracy that has stumped record executives. The recording industry will not be able to stop piracy, as even Bill Gates struggles to do it.
So how does this affect us? In essence, it’s made big record companies unwilling to provide music to the demographic group 16-30 because they will not see the return on their investment. Many young people complain of bad music on the radio, but rarely think that, “If we want record companies to provide good music, we must pay for that music.” Record companies are in business to make money, and seek the highest return on their investment.
What piracy has done is shift the investments of record companies into less riskier ones. These less risky investments come in the form of music that is marketed to the demographic groups of kids under 16 and adults over 30 — people who will actually pay for CDs. Finding new talent is now left in the hands of small independent labels, as big record companies are unwilling to invest in risky projects.
A technological innovation that brings about competition leads to lower prices. Five or six years ago, a CD cost $22 plus tax. I don’t think anyone is willing to pay that price anymore, and the prices have slowly come down. If record companies want to keep selling CDs, especially in third-world countries where piracy is most prevalent, the price must continue to drop. But as a writer for the Economist put it, “perhaps the decline in global sales is indicative of a far greater problem [facing] the music industry — consumers simply think that many of its products are just not worth paying for.”
Omar Said is a senior economics major.