Mac281 Producers, Profit, Pirates & Peers

Producers, Profit, Pirates & Peers MAC281 [email_address] @rob_jewitt

Context

Vivendi-Universal
$12.5 billion loss in the first 3 financial quarters of 2002
( Economist , 16 Jan 2003)
EMI
£54.4 million loss in the first 2 quarter of 2001 (£138.4 million profit over same period in 2002)
( Economist , 18 Jan 2003)

E.M.I. R.I.P?
2002
EMI sack Mariah
Cost = $28 million
2004
EMI sack 1,500 staff
2007
Axe boss, Alain Levy
Profits -10% on ‘06
£50 million loss

E.M.I. R.I.P?
2007
Terra Firma pay £4.2 billion for EMI
Citigroup provides loan of £2.6 billion

EMI today?
2009
£412 million net loss
Global economic crisis
Problems restructuring debt
2010
£1.56 billion net loss
Forced to write down the value of its catalogue
£1.04 billion impairment charge
Debt of £2.6 billion

EMI today?
Recorded music
Back catalogue
Music publishing
Improving top-line operating profits
from £56m to £163m
Overall profits: ~£300 million
Source: Pratley, 2010

EMI today?
Nov 2011 - RIP
Business broken up
EMI + Universal = 38% of recorded music sales globally

Causes
The Internet
Peer-2-Peer (P2P) transfer
Digitisation of music as files
Broadband growth/penetration (up 23% since 2006: IFPI, 2008: 5)
2002: 1 billion illegal files (Sanghera)
2007: ratio of illegal-legal tracks: 20-1 (IFPI, 2008)

Industry voices
RIAA (Recording Industry Association of America)
http://www.riaa.com/
IFPI (International Federation of the Phonographic Industry)
http://www.ifpi.org/
BPI (British Phonographic Industry)
http://www.bpi.co.uk/
UK Music
http://www.ukmusic.org/

Singles market
1970s until 1999:
annual UK singles sales = 70 million
Since 1999, this has more than halved.
(BPI, 2005: p8)
2008: growth of 33%
115 million + sales
(BPI, 2009)

Album market
D own 3.2% in 2008
Digital albums = 10 million sales
65% increase on 2007 (= 7.7% of market)
Optimism?
UK Grammy success (Radiohead, Coldplay)
New digital services?

UK music market 1997-2011 (millions) BPI

Yet… BPI

Digital music to save the industry?

Digital music to save the industry? Source: BPI

UK music industry growing!
Revenues up by 4.7%

UK music industry levelling out?
Revenues down by 4.8%
Global decline of 11%

The new marketplace? UK album sales (2008)

The Long Tail (Anderson 2004)

Power law distribution curve (aka Pareto curve)
20% head 80% tail

Selling more of the ‘tail’ may be the future for t he music industry business model
Value no longer in the hits but in the volume of content
80% tail 20% head

History

History
1970s: home taping and organised crime

History
Early IRCs 1990-94
Evolved into the P2P networks
Napster
Gnutella
Morpheus
Kazaa
Grokster
Leyshon et al (2005: 180-1) a ‘musical gift economy’

Business model
To ‘ find, fund, record, promote and market music. Record companies fund that process by retaining the rights in the artist’s sound recordings ’
(BPI, 2005: 27)
stop piracy, increase profitability?

Scale of music industry
‘ 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 %
(Leyshon, 2005: 187)
How does this fit against sales?

What changed?
‘ 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’
(Leyshon et al, 2005: 181)

Attitude shifts
Recent developments within the music industry
C ontext (clubs; festivals; merchandise)
Synergetic marketing of music
C ross platform tie-ins ( X-Factor, Pop Idol )
The inability to sustain consumer attention
Competition for income (games, DVDs, mobiles, Internet subscriptions)

The blame game?
Industry business model has been in trouble at least since the 1980s.
Temporary delay via CD back catalogues
(Breen, 1995)
It is easier to blame an external process (Internet) than to admit the industry itself made a series of errors

Responses
‘ 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.’
(Rojek, 2005: 359)

Metallica vs Napster (April 2000)
Name and shame users
Maximum fine of $150,000 per mp3 downloaded
2007: OiNK.cd and TVLinks closed down

One down, another appears
May 2003 Kazaa: 230.3 million downloads
New user uptake of 13 million a month
(Teather, 2003)

BitTorrent protocol
1 in 3 broadband users are pirates?
Torrentfreak, 3 Feb 2009
uTorrent user base: 28 million monthly users
Torrentfreak, 25 Dec 2008

The Pirate Bay on trial (Feb 2009)

Busted?
RIAA PR own-goal: prosecution of 12 year old Brianna LaHara (BBC, 10/9/2003)
Illinois Senator Dick Durbin:
‘ Are you headed to junior high schools to round up the usual suspects?’

Sue your customers?

Digital Rights Management (DRM)
Protected AAC audio format
Digital downloads = 15% of market (and growing)
iTunes = 9 billion+ sold
< 3% of music on average iPod is bought from iTunes

Apple’s CEO
“ 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?”
Steve Jobs, 2007

Conclusion
The traditional music industry business model is under threat and forcing the industry to react:
prosecute major uploaders
prosecute downloaders randomly
develop anti-piracy measures, such as DRM
pressurise ISPs (3 strikes?)
n ew innovations?

The industry has been partially responsible for its problems:
it didn ’t adapt to change quickly enough
multinational business interests are split into smaller divisions which are partially responsible for the encouragement of consumer banditry
hardware/software advances destabilise the traditional role of the industry

Selected sources
BBC, 10/9/2003, ‘ Music firms target 12 year old ’ at http://news.bbc.co.uk/1/hi/entertainment/music/3096340.stm
BBC, 21/02/2006, ‘ Broadband growth speeds forward ’ available at http://news.bbc.co.uk/1/hi/technology/4736526.stm
BPI, 2005, Illegal Filesharing Fact Sheet
BPI, 2009, ‘UK reports resilient music sales in 2008’ press release http://www.ifpi.org/content/library/full-year-2008.pdf
M. Breen, 1995, ‘ The End of the World as We Know it: Popular Music ’ s Cultural Mobility ’ in Cultural Studies ¸ 9 (3): 486-504.
‘ Lights! Camera! No profits! ’ , Economist , 00130613, 1/18/2003, Vol. 366, Issue 8307
‘ How to manage a dream factory ’ , Economist , 00130613, 1/18/2003, Vol. 366, Issue 8307
Malcolm Gladwell, 2000, The Tipping Point: How Little Things Can Make a Big Difference , Abacus
IFPI, 2007, ‘ Digital Music Report ’ available from http://www.ifpi.org/content/section_resources/index.html
IFPI, 2008, ‘Digital Music Report ’ available from http://www.ifpi.org/content/library/DMR2008-summary.pdf
Steve Jobs, 6/2/2007, ‘ Thoughts on music ’ available at http://www.apple.com/hotnews/thoughtsonmusic/
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.
H. Parker et al, 1998, Illegal Leisure: the normalization of adolescent recreational drug use , London: Routledge.
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.
Chris Rojek, 2005, ‘ P2P Leisure exchange - net banditry and the policing of intellectual property ’ , in Leisure Studies , 24: 4, 357-367.
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.
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
Sarah Thornton, 1995, Club Cultures , Cambridge: Polity.
Griffin Mead Woodworth, 2004, ‘ Hackers, Users and Suits: Napster and Representations of Identity ’ in Popular Music and Society , 27: 2, 161-184.
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

Image sources
P1,2, 5, Automania, 2005, “Christmas Music”, http://www.flickr.com/photos/automania/74037479/
P6, hc gilje, 2007, “EMI Electola”, http://www.flickr.com/photos/hcgilje/501769056/
P7, 8, aus_chick, 2006, “EMI”, http://www.flickr.com/photos/hcgilje/501769056/
P10, 25, 34, myuibe, 2008, “copyright and digital culture”, http://www.flickr.com/photos/myuibe/2132305949/
P11, 12, 16, 17, _ambrown, 2006, “Music Millenium, Portland Oregon”, http://www.flickr.com/photos/dietpoison/195288442/
P18, p_kirn, 2007, “Handmade Music 8/23/07 with Etsy Labs, CDM, and Make”, http://www.flickr.com/photos/p_kirn/1218971167/
P31-3, karola riegler photography, 2009, “Vinyl kills the mp3 industry”, http://www.flickr.com/photos/karola/3639759076/
P35, 37, Ferrari + caballos + fuerza = cerebro Humano, 2009, “Musica comprimida – Compressed Music”, http://www.flickr.com/photos/gallery-art/3497849677/
P38, GabryPk, 2008, “Music Is My Drug pt. 2”, http://www.flickr.com/photos/gabrypk/3107000631/
P47, Selma90, 2009, “Apple” http://www.flickr.com/photos/selma90/3675162262/

Mac281 Producers, Profit, Pirates & Peers

by Rob Jewitt on Feb 08, 2010

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