Piracy Vs. Music Industry


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A brief analysis of the economic effects of file-sharing and music piracy on the recording industry and the music industry by and large.

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Piracy Vs. Music Industry

  1. 1. The rising tide of Piracy, its effect on the music industry Kerry Snyder Law & Economics 2009 Lewis & Clark Law
  2. 2. Copyright law grants certain limited monopolies to the author(s) of a creative expression fixed in a tangible medium. For sound recordings: • copying — the right of reproduction • remixing — the right to create derivative works • public release — the right of distribution • digital performance rights Digital piracy, for the most part, infringes the rights of reproduction and distribution. Newer channels of digital piracy implicate the digital performance rights (unauthorized streaming) and the derivative works right (sampling within new compositions).
  3. 3. Share the booty? Shiver me timbers! • physical media to digital file • digital file to P2P network • P2P shared file to physical media • Napster, Kazaa, Gnutella, Limewire, BitTorrent, Ares, eDonkey, Usenet • zShare, RapidShare N.B. All images and trademarks reproduced as (hopefully) fair use under 17 U.S.C. § 109 as ―criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research,‖ or the Lanham Act § 43(c)(3).
  4. 4. Digital on the Rise; Physical Media Crashing 16.00 $ 14.00 i 12.00 n 10.00 All Sales B 8.00 i Physical Media l 6.00 l Digital Sales i 4.00 Mobile & o Others 2.00 n s 0.00 Year
  5. 5. Digital Sales by Type — ’04 to ’08 3000 $ 2500 i Subscription n 2000 Mobile M SoundExchang i 1500 e Music Video l l 1000 Albums i o Singles n 500 s 0 2004 2005 2006 2007 2008 Year
  6. 6. Digital Music Sales by Type Subscriptio 2008 2007 Subscriptio n n 8% Sound- 7% Exchange Sound- 2% Exchange 3% Singles 34% Singles 38% Mobile Mobile 37% 30% Music Albums Music Videos 18% Albums Videos 1% 1% 21%
  7. 7. Physical vs. Digital Recordings in the US 100% Q 90% u P 80% a e 70% n r t 60% c i 50% e t Physical n 40% y Digital t 30% S 20% o o 10% f l 0% d 2005 2006 2007 2008 Year
  8. 8. Arr, there be mutiny afoot…
  9. 9. File sharing meets consumer demands, formerly unfulfilled ―[The fact that] the smart people now also have access to recorded music represents a much bigger increase in economic welfare (and does not hurt the recording industry as it is ‗demand without purchasing power‘ that is being met).‖ From a study published recently by TNO, SEO, IvIR, commissioned by the ministry for Economic Affairs, the Justice Department and the ministry for Education Culture and Science of the Dutch government.
  10. 10. Not payin‘ attention, arr rrrya?
  11. 11. Piracy Makes Waves, but what is the Ripple Effect? Who is damaged by unauthorized music file- sharing? Music recording sales are down considerably (despite digital sales taking off). The Big 4 music labels increased their profitability from 1999- 2003 in spite of Napster and the golden age of file-sharing.
  12. 12. Piracy Makes Waves, but what is the Ripple Effect? Who is damaged by unauthorized music file- Music Industry Revenue Streams sharing? • radio advertising revenue • The music industry as a • record company revenues • whole has seen a significant • musical instrument sale • revenue increase since the • live music sector • advent of file-sharing • music retail sectors • • music publishing for portable according to the IFPI. digital players • Price Waterhouse Cooper tells us that the media (including music) entertainment industry is soaring, potentially rising from $1 trillion to $1.8 trillion from 2006-2009.
  13. 13. Piracy Makes Waves, but what is the Ripple Effect? Some studies find limited correlations. Downloaded songs negatively impact sales of 25% most popular albums, but positively impact the rest. Computer ownership negatively influenced record purchases.
  14. 14. Piracy Makes Waves, but what is the Ripple Effect? The most extensive macroeconomic studies with huge, proprietary datasets show no harm. No statistically significant correlation between P2P downloads and record sales. At most, 5000 downloaded songs replaced 1 album sale. Spawned a contentious debate due to lack of data transparency and general pettiness. Great Wave off of Kanagawa by Katsushika Hokusai, 1832 File sharing does not impact chart survival of albums, though album
  15. 15. Piracy Makes Waves, but what is the Ripple Effect? Lily-livered From a microeconomic study of landlubbers! Ye be no Canadians: pirates! File sharers buy 0.44 CDs for every 1 downloaded — likely subject to interest bias. No significant correlation between unauthorized and authorized downloading. Positive correlation between purchase of music and purchase of other entertainment media (DVDs, games, concert and movie tickets). Those with high interest in music purchase and download more. Income is not correlated with music purchasing.
  16. 16. How do these studies resolve with each other? It is likely that file-sharing effects the sales of albums of varying popularity and genre differently. Notably, it benefits the ―long tail‖ of lesser known artists with free, listener-driven exposure. It detracts from sales of the most popular artists, making it more difficult to “go platinum”. Replaces expensive marketing campaigns with listener‘s choice and public hype machines. Effectively evens the playing field, to the likely dismay of the Big 4.
  17. 17. How do these studies resolve with each other? As the recording industry tapers off, the music industry has ample opportunity to thrive: Cross-media markets are booming, e.g. Guitar Hero Digital music sales are climbing steadily. Competing with free unauthorized downloads is hard. Huge catalogs, e.g. iTunes Music Store, last.fm Cross-platform usage, e.g. Amazon MP3 store, no DRM Harness network effects to suggest songs, e.g. iLike, imeem Ad-based or subscription models, e.g. Spotify I posit that a more profitable equilibrium can be
  18. 18. Online Digital Music Peddlers — A Rough Survey iTunes Rhapso eMusi Last.fm Napste Pandor Amazo Spotify dy c r a n MP3 Launche 2003 2001 1998 2002 2003 2000 2008 2009 d Songs 10M 5M 4.5M 3.5M 7M N/A > 5M > 6M Big 4 yes yes no 2 of 4 yes Yes? yes yes None – Payment 69¢ - 25 $11.99 $3/mo. $12.95/ Free to None or $1.29/s free/mo. /mo. premiu mo. or links to $185.76 $1.10/d ong - and up m 99¢/son mp3 ay or $12.99/ g stores $12/mo mo.& up . Users lots unknown 400K 30M > 830K 2M on unknow growing iPhone n alone Notable 70% Owned All Owned Roxio Music 1st to Celesti market by Real indie by CBS rollout; Genom sell al share labels Best e DRM jukebox
  19. 19. 71% of users increasing their 95% of music illicit downloads downloads are cite high prices unauthorized as the reason 84% of illicit downloaders think artists deserve to be paid SOLUTION: Lower song price & Raise artist compensation transparency
  20. 20. Limited Ownership of Ownership/Limited Commodities Access
  21. 21. This is the ballad of Henry Morgan Who troubled the sleep of the King of Spain With a frowsy, blowsy, lousy pack Of the water rats of the Spanish Main, Rakes and rogues and mad rapscallions Broken gentlemen, tattermedallions Scum and scourge of the hemisphere, Who looted the loot of the stately galleons, Led by Morgan, the Buccaneer. — BertonBraley, 1934