Producers, Profit, Pirates & Peers MAC281 [email_address] @rob_jewitt
Context
2
<ul><li>Vivendi-Universal </li></ul><ul><li>$12.5 billion loss in the first 3 financial quarters of 2002  </li></ul><ul><l...
E.M.I. R.I.P? <ul><li>2002 </li></ul><ul><ul><li>EMI sack Mariah </li></ul></ul><ul><ul><li>Cost = $28 million </li></ul><...
E.M.I. R.I.P? <ul><li>2007 </li></ul><ul><ul><li>Terra Firma pay £4.2 billion for EMI </li></ul></ul><ul><ul><li>Citigroup...
EMI today? <ul><li>2009 </li></ul><ul><li>£412 million net loss </li></ul><ul><li>Global economic crisis </li></ul><ul><li...
EMI today? <ul><li>Recorded music </li></ul><ul><li>Back catalogue  </li></ul><ul><li>Music publishing </li></ul><ul><li>I...
EMI today? <ul><li>Nov 2011 - RIP </li></ul><ul><li>Business broken up </li></ul><ul><li>EMI + Universal = 38% of recorded...
Causes <ul><li>The Internet </li></ul><ul><li>Peer-2-Peer (P2P) transfer </li></ul><ul><li>Digitisation of music as files ...
Industry voices <ul><li>RIAA (Recording Industry Association of America) </li></ul><ul><ul><li>http://www.riaa.com/ </li><...
Singles market <ul><li>1970s until 1999: </li></ul><ul><ul><li>annual UK singles sales = 70 million </li></ul></ul><ul><ul...
Album market <ul><li>D own 3.2% in 2008 </li></ul><ul><li>Digital albums = 10 million sales </li></ul><ul><ul><li>65% incr...
UK music market 1997-2011 (millions) BPI
UK music market 1997-2011 (millions) BPI
Yet… BPI
Digital music to save the industry?
Digital music to save the industry? Source:  BPI
Digital music to save the industry? Source:  BPI
UK music industry growing! <ul><li>Revenues up by 4.7% </li></ul>
UK music industry levelling out? <ul><li>Revenues down by 4.8% </li></ul><ul><li>Global decline of 11% </li></ul>
The new marketplace? UK album sales (2008)
The Long Tail (Anderson 2004)
The Long Tail (Anderson 2004) <ul><li>Power law distribution curve (aka Pareto curve) </li></ul>20% head 80%  tail
The Long Tail (Anderson 2004) <ul><li>Selling more of the  ‘tail’ may be the future for t he  music industry business mode...
History
History <ul><li>1970s: home taping and organised crime </li></ul>
History <ul><li>Early IRCs 1990-94 </li></ul><ul><li>Evolved into the P2P networks </li></ul><ul><ul><li>Napster  </li></u...
Business model <ul><li>To  ‘ find, fund, record, promote and market music.  Record companies fund that process by retainin...
Scale of music industry <ul><li>‘ no more than 10 percent of records actually recoup the money the record industry invests...
What changed? <ul><li>‘ a set of broader cultural forces … have changed the role of music within society, and relegated it...
Attitude shifts <ul><li>Recent developments within the music industry </li></ul><ul><ul><li>C ontext (clubs; festivals; me...
The blame game? <ul><li>Industry business model has been in trouble  at least  since the 1980s.  </li></ul><ul><ul><li>Tem...
Responses <ul><li>‘ Instead of exploring P2P exchange as a business opportunity, they defined it as a piratical threat.  I...
Metallica vs Napster (April 2000) <ul><li>Name and shame users </li></ul><ul><li>Maximum fine of $150,000 per mp3 download...
One down, another appears <ul><li>May 2003 Kazaa: 230.3 million downloads </li></ul><ul><li>New user uptake of 13 million ...
BitTorrent protocol <ul><li>1 in 3 broadband users are pirates? </li></ul><ul><ul><li>Torrentfreak, 3 Feb 2009 </li></ul><...
The Pirate Bay on trial (Feb 2009)
Busted? <ul><li>RIAA PR own-goal: prosecution of 12 year old Brianna LaHara (BBC, 10/9/2003) </li></ul><ul><li>Illinois Se...
Sue your customers?
Digital Rights Management (DRM) <ul><li>Protected AAC audio format </li></ul><ul><li>Digital downloads = 15% of market (an...
Apple’s CEO <ul><li>“ DRM’s haven’t worked … to halt music piracy … In 2006, under 2 billion DRM-protected songs were sold...
Conclusion <ul><li>The traditional music industry business model is under threat and forcing the industry to react: </li><...
<ul><li>The industry has been partially responsible for its problems: </li></ul><ul><ul><li>it didn ’t adapt to change qui...
Selected sources <ul><li>BBC, 10/9/2003,  ‘ Music firms target 12 year old ’  at  http://news.bbc.co.uk/1/hi/entertainment...
Image sources <ul><li>P1,2, 5, Automania, 2005,  “Christmas Music”,  http://www.flickr.com/photos/automania/74037479/ </li...
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Mac281 Producers, Profit, Pirates & Peers

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Updated slides based on the problems the music industry faced in lieu of the Internet.
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Mac281 Producers, Profit, Pirates & Peers

  1. 1. Producers, Profit, Pirates & Peers MAC281 [email_address] @rob_jewitt
  2. 2. Context
  3. 3. 2
  4. 4.
  5. 5. <ul><li>Vivendi-Universal </li></ul><ul><li>$12.5 billion loss in the first 3 financial quarters of 2002 </li></ul><ul><li>( Economist , 16 Jan 2003) </li></ul><ul><li>EMI </li></ul><ul><li>£54.4 million loss in the first 2 quarter of 2001 (£138.4 million profit over same period in 2002) </li></ul><ul><li>( Economist , 18 Jan 2003) </li></ul>
  6. 6. E.M.I. R.I.P? <ul><li>2002 </li></ul><ul><ul><li>EMI sack Mariah </li></ul></ul><ul><ul><li>Cost = $28 million </li></ul></ul><ul><li>2004 </li></ul><ul><ul><li>EMI sack 1,500 staff </li></ul></ul><ul><li>2007 </li></ul><ul><ul><li>Axe boss, Alain Levy </li></ul></ul><ul><ul><li>Profits -10% on ‘06 </li></ul></ul><ul><ul><li>£50 million loss </li></ul></ul>
  7. 7. E.M.I. R.I.P? <ul><li>2007 </li></ul><ul><ul><li>Terra Firma pay £4.2 billion for EMI </li></ul></ul><ul><ul><li>Citigroup provides loan of £2.6 billion </li></ul></ul>
  8. 8. EMI today? <ul><li>2009 </li></ul><ul><li>£412 million net loss </li></ul><ul><li>Global economic crisis </li></ul><ul><li>Problems restructuring debt </li></ul><ul><li>2010 </li></ul><ul><li>£1.56 billion net loss </li></ul><ul><li>Forced to write down the value of its catalogue </li></ul><ul><li>£1.04 billion impairment charge </li></ul><ul><li>Debt of £2.6 billion </li></ul>
  9. 9. EMI today? <ul><li>Recorded music </li></ul><ul><li>Back catalogue </li></ul><ul><li>Music publishing </li></ul><ul><li>Improving top-line operating profits </li></ul><ul><ul><li>from £56m to £163m </li></ul></ul><ul><li>Overall profits: ~£300 million </li></ul><ul><ul><ul><ul><ul><li>Source: Pratley, 2010 </li></ul></ul></ul></ul></ul>
  10. 10. EMI today? <ul><li>Nov 2011 - RIP </li></ul><ul><li>Business broken up </li></ul><ul><li>EMI + Universal = 38% of recorded music sales globally </li></ul>
  11. 11. Causes <ul><li>The Internet </li></ul><ul><li>Peer-2-Peer (P2P) transfer </li></ul><ul><li>Digitisation of music as files </li></ul><ul><li>Broadband growth/penetration (up 23% since 2006: IFPI, 2008: 5) </li></ul><ul><li>2002: 1 billion illegal files (Sanghera) </li></ul><ul><li>2007: ratio of illegal-legal tracks: 20-1 (IFPI, 2008) </li></ul>
  12. 12. Industry voices <ul><li>RIAA (Recording Industry Association of America) </li></ul><ul><ul><li>http://www.riaa.com/ </li></ul></ul><ul><li>IFPI (International Federation of the Phonographic Industry) </li></ul><ul><ul><li>http://www.ifpi.org/ </li></ul></ul><ul><li>BPI (British Phonographic Industry) </li></ul><ul><ul><li>http://www.bpi.co.uk/ </li></ul></ul><ul><li>UK Music </li></ul><ul><ul><li>http://www.ukmusic.org/ </li></ul></ul>
  13. 13. Singles market <ul><li>1970s until 1999: </li></ul><ul><ul><li>annual UK singles sales = 70 million </li></ul></ul><ul><ul><li>Since 1999, this has more than halved. </li></ul></ul><ul><ul><ul><ul><li>(BPI, 2005: p8) </li></ul></ul></ul></ul><ul><li>2008: growth of 33% </li></ul><ul><ul><li>115 million + sales </li></ul></ul><ul><ul><ul><li>(BPI, 2009) </li></ul></ul></ul>
  14. 14. Album market <ul><li>D own 3.2% in 2008 </li></ul><ul><li>Digital albums = 10 million sales </li></ul><ul><ul><li>65% increase on 2007 (= 7.7% of market) </li></ul></ul><ul><li>Optimism? </li></ul><ul><ul><li>UK Grammy success (Radiohead, Coldplay) </li></ul></ul><ul><ul><li>New digital services? </li></ul></ul>
  15. 15.
  16. 16.
  17. 17.
  18. 18.
  19. 19. UK music market 1997-2011 (millions) BPI
  20. 20. UK music market 1997-2011 (millions) BPI
  21. 21. Yet… BPI
  22. 22. Digital music to save the industry?
  23. 23. Digital music to save the industry? Source: BPI
  24. 24. Digital music to save the industry? Source: BPI
  25. 25. UK music industry growing! <ul><li>Revenues up by 4.7% </li></ul>
  26. 26. UK music industry levelling out? <ul><li>Revenues down by 4.8% </li></ul><ul><li>Global decline of 11% </li></ul>
  27. 27.
  28. 28. The new marketplace? UK album sales (2008)
  29. 29. The Long Tail (Anderson 2004)
  30. 30. The Long Tail (Anderson 2004) <ul><li>Power law distribution curve (aka Pareto curve) </li></ul>20% head 80% tail
  31. 31. The Long Tail (Anderson 2004) <ul><li>Selling more of the ‘tail’ may be the future for t he music industry business model </li></ul><ul><ul><li>Value no longer in the hits but in the volume of content </li></ul></ul>80% tail 20% head
  32. 32. History
  33. 33. History <ul><li>1970s: home taping and organised crime </li></ul>
  34. 34. History <ul><li>Early IRCs 1990-94 </li></ul><ul><li>Evolved into the P2P networks </li></ul><ul><ul><li>Napster </li></ul></ul><ul><ul><li>Gnutella </li></ul></ul><ul><ul><li>Morpheus </li></ul></ul><ul><ul><li>Kazaa </li></ul></ul><ul><ul><li>Grokster </li></ul></ul><ul><li>Leyshon et al (2005: 180-1) a ‘musical gift economy’ </li></ul>
  35. 35. Business model <ul><li>To ‘ find, fund, record, promote and market music. Record companies fund that process by retaining the rights in the artist’s sound recordings ’ </li></ul><ul><ul><li>(BPI, 2005: 27) </li></ul></ul><ul><li>stop piracy, increase profitability? </li></ul>
  36. 36. Scale of music industry <ul><li>‘ no more than 10 percent of records actually recoup the money the record industry invests in its production’ with some companies stating that the real figure is closer to 3 % </li></ul><ul><ul><ul><li>(Leyshon, 2005: 187) </li></ul></ul></ul><ul><li>How does this fit against sales? </li></ul>
  37. 37. What changed? <ul><li>‘ a set of broader cultural forces … have changed the role of music within society, and relegated its immediacy and importance among many of its consumers’ </li></ul><ul><ul><li>(Leyshon et al, 2005: 181) </li></ul></ul>
  38. 38. Attitude shifts <ul><li>Recent developments within the music industry </li></ul><ul><ul><li>C ontext (clubs; festivals; merchandise) </li></ul></ul><ul><li>Synergetic marketing of music </li></ul><ul><ul><li>C ross platform tie-ins ( X-Factor, Pop Idol ) </li></ul></ul><ul><li>The inability to sustain consumer attention </li></ul><ul><ul><li>Competition for income (games, DVDs, mobiles, Internet subscriptions) </li></ul></ul>
  39. 39. The blame game? <ul><li>Industry business model has been in trouble at least since the 1980s. </li></ul><ul><ul><li>Temporary delay via CD back catalogues </li></ul></ul><ul><ul><li>(Breen, 1995) </li></ul></ul><ul><li>It is easier to blame an external process (Internet) than to admit the industry itself made a series of errors </li></ul>
  40. 40. Responses <ul><li>‘ Instead of exploring P2P exchange as a business opportunity, they defined it as a piratical threat. In doing so, they inadvertently implied that they had the right to determine how people apply after-sales use of intellectual property by re-asserting commercial copyright in a set of relations that were effectively deregulated.’ </li></ul><ul><ul><li>(Rojek, 2005: 359) </li></ul></ul>
  41. 41. Metallica vs Napster (April 2000) <ul><li>Name and shame users </li></ul><ul><li>Maximum fine of $150,000 per mp3 downloaded </li></ul><ul><li>2007: OiNK.cd and TVLinks closed down </li></ul>
  42. 42. One down, another appears <ul><li>May 2003 Kazaa: 230.3 million downloads </li></ul><ul><li>New user uptake of 13 million a month </li></ul><ul><ul><li>(Teather, 2003) </li></ul></ul>
  43. 43. BitTorrent protocol <ul><li>1 in 3 broadband users are pirates? </li></ul><ul><ul><li>Torrentfreak, 3 Feb 2009 </li></ul></ul><ul><li>uTorrent user base: 28 million monthly users </li></ul><ul><ul><li>Torrentfreak, 25 Dec 2008 </li></ul></ul>
  44. 44. The Pirate Bay on trial (Feb 2009)
  45. 45. Busted? <ul><li>RIAA PR own-goal: prosecution of 12 year old Brianna LaHara (BBC, 10/9/2003) </li></ul><ul><li>Illinois Senator Dick Durbin: </li></ul><ul><li>‘ Are you headed to junior high schools to round up the usual suspects?’ </li></ul>
  46. 46. Sue your customers?
  47. 47. Digital Rights Management (DRM) <ul><li>Protected AAC audio format </li></ul><ul><li>Digital downloads = 15% of market (and growing) </li></ul><ul><li>iTunes = 9 billion+ sold </li></ul><ul><li>< 3% of music on average iPod is bought from iTunes </li></ul>
  48. 48. Apple’s CEO <ul><li>“ DRM’s haven’t worked … to halt music piracy … In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on the CDs by the music companies … So if [they] are selling over 90 percent of the music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system?” </li></ul><ul><ul><li>Steve Jobs, 2007 </li></ul></ul>
  49. 49. Conclusion <ul><li>The traditional music industry business model is under threat and forcing the industry to react: </li></ul><ul><ul><li>prosecute major uploaders </li></ul></ul><ul><ul><li>prosecute downloaders randomly </li></ul></ul><ul><ul><li>develop anti-piracy measures, such as DRM </li></ul></ul><ul><ul><li>pressurise ISPs (3 strikes?) </li></ul></ul><ul><ul><li>n ew innovations? </li></ul></ul>
  50. 50. <ul><li>The industry has been partially responsible for its problems: </li></ul><ul><ul><li>it didn ’t adapt to change quickly enough </li></ul></ul><ul><ul><li>multinational business interests are split into smaller divisions which are partially responsible for the encouragement of consumer banditry </li></ul></ul><ul><ul><li>hardware/software advances destabilise the traditional role of the industry </li></ul></ul>
  51. 51. Selected sources <ul><li>BBC, 10/9/2003, ‘ Music firms target 12 year old ’ at http://news.bbc.co.uk/1/hi/entertainment/music/3096340.stm </li></ul><ul><li>BBC, 21/02/2006, ‘ Broadband growth speeds forward ’ available at http://news.bbc.co.uk/1/hi/technology/4736526.stm </li></ul><ul><li>BPI, 2005, Illegal Filesharing Fact Sheet </li></ul><ul><li>BPI, 2009, ‘UK reports resilient music sales in 2008’ press release http://www.ifpi.org/content/library/full-year-2008.pdf </li></ul><ul><li>M. Breen, 1995, ‘ The End of the World as We Know it: Popular Music ’ s Cultural Mobility ’ in Cultural Studies ¸ 9 (3): 486-504. </li></ul><ul><li>‘ Lights! Camera! No profits! ’ ,   Economist , 00130613, 1/18/2003, Vol. 366, Issue 8307 </li></ul><ul><li>‘ How to manage a dream factory ’ ,   Economist , 00130613, 1/18/2003, Vol. 366, Issue 8307 </li></ul><ul><li>Malcolm Gladwell, 2000, The Tipping Point: How Little Things Can Make a Big Difference , Abacus </li></ul><ul><li>IFPI, 2007, ‘ Digital Music Report ’ available from http://www.ifpi.org/content/section_resources/index.html </li></ul><ul><li>IFPI, 2008, ‘Digital Music Report ’ available from http://www.ifpi.org/content/library/DMR2008-summary.pdf </li></ul><ul><li>Steve Jobs, 6/2/2007, ‘ Thoughts on music ’ available at http://www.apple.com/hotnews/thoughtsonmusic/ </li></ul><ul><li>Andrew Leyshon, 2003, ‘ Scary Monsters? Software formats, peer-to-peer networks, and the spectre of the gift ’ in Environment and Planning D: Soceity and Space , 21 (5): 533-58. </li></ul><ul><li>H. Parker et al, 1998, Illegal Leisure: the normalization of adolescent recreational drug use , London: Routledge. </li></ul><ul><li>H. Parker et al, 2002, ‘ The normalisation of “ sensible ” recreational drug use: further evidence from the North-West England Longitudinal Study ’ in Sociology , 36 (4): 941-64. </li></ul><ul><li>Chris Rojek, 2005, ‘ P2P Leisure exchange - net banditry and the policing of intellectual property ’ , in Leisure Studies , 24: 4, 357-367. </li></ul><ul><li>Sathnam Sanghera, 2002, ‘ Rock ‘ n ’ Roll Suicide: How Napster, TV-created Pop and a Dearth of Talent are Killing the Record Industry ’ , Financial Times , 15 November, p19. </li></ul><ul><li>David Teather 23/7/2003, ‘ Music firms on pirates ’ tails ’ in The Guardian , available at http://business.guardian.co.uk/story/0,,1004030,00.html </li></ul><ul><li>Sarah Thornton, 1995, Club Cultures , Cambridge: Polity. </li></ul><ul><li>Griffin Mead Woodworth, 2004, ‘ Hackers, Users and Suits: Napster and Representations of Identity ’ in Popular Music and Society , 27: 2, 161-184. </li></ul><ul><li>Richard Wray, 13/01/2007, ‘ EMI sacks music boss as profits drop ’ in The Guardian , available at http://business.guardian.co.uk/story/0,,1989490,00.html </li></ul>
  52. 52. Image sources <ul><li>P1,2, 5, Automania, 2005, “Christmas Music”, http://www.flickr.com/photos/automania/74037479/ </li></ul><ul><li>P6, hc gilje, 2007, “EMI Electola”, http://www.flickr.com/photos/hcgilje/501769056/ </li></ul><ul><li>P7, 8, aus_chick, 2006, “EMI”, http://www.flickr.com/photos/hcgilje/501769056/ </li></ul><ul><li>P10, 25, 34, myuibe, 2008, “copyright and digital culture”, http://www.flickr.com/photos/myuibe/2132305949/ </li></ul><ul><li>P11, 12, 16, 17, _ambrown, 2006, “Music Millenium, Portland Oregon”, http://www.flickr.com/photos/dietpoison/195288442/ </li></ul><ul><li>P18, p_kirn, 2007, “Handmade Music 8/23/07 with Etsy Labs, CDM, and Make”, http://www.flickr.com/photos/p_kirn/1218971167/ </li></ul><ul><li>P31-3, karola riegler photography, 2009, “Vinyl kills the mp3 industry”, http://www.flickr.com/photos/karola/3639759076/ </li></ul><ul><li>P35, 37, Ferrari + caballos + fuerza = cerebro Humano, 2009, “Musica comprimida – Compressed Music”, http://www.flickr.com/photos/gallery-art/3497849677/ </li></ul><ul><li>P38, GabryPk, 2008, “Music Is My Drug pt. 2”, http://www.flickr.com/photos/gabrypk/3107000631/ </li></ul><ul><li>P47, Selma90, 2009, “Apple” http://www.flickr.com/photos/selma90/3675162262/ </li></ul>
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