Piracy

In the past few years, the Recording Industry Association of America (RIAA) has begun to address, with extreme prejudice, what they believe to be a serious and debilitating issue: file sharing, or piracy as it is usually called. They quickly blamed the phenomenon for the recent decline in sales of the music and recording industry, and began to bring both file sharing media, such as Napster, and individual perpetrators to court, imposing fines which some believe to be ridiculous amounts as penalties. However, while music piracy may have been responsible for some of the industry's declining revenues, it is nearly impossible to point out an exact number or to determine the severity of the decline, because the decline has been affected by a bad economy, and a lack of any quantity of big releases. Big record companies see the losses and the trend of file sharing, and assume that file sharing is the cause of declining sales. But little does the public know the ways record companies can exploit the music artists for profit. The theoretical effect of file sharing on record sales is ambiguous, but there lies the possibility that file sharing, so-called piracy, could ultimately be beneficial to the music industry and culture as a whole.

A problem with pinpointing causation between record sales and file sharing is that most of the information about the phenomenon is gathered through surveys. These surveys commonly compare the purchases of retail CD's by people who do download music from P2P servers to those who don't. The problem is that the former category of P2P users would most likely not buy CD's in any case, since file sharing typically appeals to those who are time-rich but cash-poor. So a person who has plenty of time, but no money with which to buy CDs, will download perhaps a few songs from the album. To this end, file sharing might actually improve the music industry, by acting as a promotional medium. If someone downloads a few songs only, it would appear unlikely that he or she would purchase the entire album. In this way, P2P acts much like the radio, but unlike the radio, music labels don't need to pay sums of money to get their songs promoted, making the business of promoting music more competitive and thus less expensive for the music industry. In the case of the time-rich but cash-poor persona, what P2P file sharing does is exposes the individual to the music, acting as a sampler to find music one would otherwise not be exposed to, making one more likely to attend other money-making enterprises for the music industry, such as concerts, the major means by which artists make their money, or might even buy the album in the future.

In an effort to find some relationship between file sharing and music industry sales, Oberholzer and Strumpf (2007) conducted research over a period of several years, in which they observed directly P2P servers and file sharing sites, and applied information they gleaned to several experiments, surveys, and comparisons with regard to music sales. In one such observation, Oberholzer and Strumpf discovered that file sharing decreased sharply over the summer, from about May to September. They concluded that this was because college students, possibly the largest source of file sharing and piracy, were away from their high speed internet connections. The author's hypothesis that if downloads crowd out actual album purchases, then there should be an increase in album sales over the summer vacation. When the sales over summer of 2007 were compared to those of 1995-1998, the fours year before the introduction of Napster, they discovered that the average share of summer sales had remained virtually the same, 37.0 percent in the earlier years compared to 35.9 percent in the later years. In a second experiment to determine if there were any spatial variables, Oberholzer and Strumpf compared sales and P2P activity across the United States. Since a third of US downloads come from western European countries such as Germany and Italy, P2P downloading must be affected by time zones, because peak file sharing period runs between 7:00 pm and 3:00 am. These times overlap between Western Europe and the East Coast, but not with the West Coast, implying that P2P interaction and file sharing activity would be more common on the East Coast, and indeed this is the case. Now, if file sharing was negatively affecting the music industry, then there should be a larger decrease in sales on the East Coast than on the West Coast. This is not, however, the case. The difference in sales in 1998, the last year before Napster came out, and 2002, there was also virtually no difference, 43.9 percent compared to 43.5 percent, respectively, for sales shares on the East Coast. These statistics imply a negligible effect of file sharing on total album sales. Taking the most negative findings in Oberholzer and Koleman's research, file sharing "reduces an album's weekly sales by a mere 368 copies, an effect that is too small to be statistically distinguishable from zero." The natural conclusion drawn from these numbers is that the effect of music pirating on the overall music industry is minimal.

Assuming the claim file sharing negatively affects music sales, the truth of the matter is that the only ones affected would be the recording companies and labels, who exploit the creativity of the artists through unfavorable contracts. Retail price of CD's generally range between 15 and 17 dollars, yet the artist is lucky to see $1.50 of that, and for most young bands it's more like 8 percent, and an established band is very lucky to get 15 percent revenue. The revenue is based on the standard retail price, sold in retail stores like Barnes & Noble or Tower Records (now out of business). For every album sold outside of a retail store, artists receive a fraction of the total revenue. For example, records sold outside of the US will bring in maybe 60-75 percent of the standard revenue, 60 percent for albums sold at a discount, and 50 percent for sales through record clubs. In addition, any music sold on the internet also brings in a fraction of the contract revenue. Music labels also often have the artists pay for the packaging of the CD, and pay the producer out of their revenue, deducting another 3 percent from the total revenue, in effect turning a standard 11 percent revenue into a 6-7 percent revenue. In addition, the artist or band must pay back any advancement given to them by the record company, and until that time it is standard for an artist not to see a single revenue check until the advancement is paid. Advancements typically range anywhere between $100,000-$500,000, which means that even if a band makes a gold record-that is 500,000 copies sold-they might not see a penny of their revenue. And for most bands, with standard contracts, after any touring or merchandising is finished-the areas where bands make most of their money-they'll still be in debt to the record companies. With all the money spent on videos, recording, busses, t-shirt manufacturing, new instruments, and paying for the managing fees, a band can be in debt for more than $14,000, and that's if the band's record did well. And if file sharing really does harm sale, then the only ones effected are the recording companies, and the effect on the music artists themselves is practically nil. The only feasible way for artists to make money is concert tickets and merchandise, both of which are only helped by file sharing. File sharing in this case acts as a promotional tool, letting people who typically would not buy a CD in any case sample music for free, and are in fact encouraged to become fans of more and more artists. This naturally increases concert attendance, which in turns increases the revenue of artists. The only ones who conceivably lose out are the big record companies, who use unfair record contracts to make their money off of artists.

There are many factors that contribute to the decline in music sales over the past few years. For example, music sales have shifted dramatically to discount retailers such as Wal-Mart, reducing inventories, and thus making album shipments fall to less than actual sales. There are several other variables that the music industry fails to consider, variables that are inherent in the system of distribution, but the industry refuses to look beyond what they have pegged as the cause of their decline. They sue hundreds of college students and families a week, charging up to $150,000 per song. They sued Brianna, a 12 year old girl, one of 261 people arrested in a week. She could face penalties as high as $150,000, and even have a permanent mark on her record. As her mother said, "This is a 12-year-old girl, for crying out loud."

Copyright laws are meant to protect the artist. The laws are meant to ensure that artists can earn money for the work they create, and don't have to worry about being taken advantage of. If this is the case, then why are the only ones being protected by anti-file sharing laws the record companies? The record companies take advantage of the artists' work and make money off of it, the same as if absolutely no copyright laws existed. Artists create what their name implies: art. Whereas before art would fall to the public domain after 14 years, now 70 years must pass before that happens. This literal wait of a lifetime detracts from public conversation of expression, with tributes, remixes, and recreations no longer available to people within a free democracy. Overall, the only people being helped by the restrictive copyright laws are the record companies, rather than the artist or the intended audience. Take away the some of the restrictions, allow a more free exchange of music and art, and you might find that everyone-the music artists, the public, and even the people who sell the albums-will benefit.


Works Cited
Albini, Steve. "The Problem with Music," http://www.negativland.com/albini.html, 1990.
Campbell, Richard. Media and Culture: An Introduction to Mass Communication (New York: Bedford/St. Martin's, 2009).
Hosler, Mark. "Digital Freedom." http://www.digitalfreedom.org/utilities/2008/10/mark-hosler- from-negativland-visits.html. 30 October 2008.
Oberholzer, Felix and Strumpf, Koleman. "The Effect of File Sharing on Record Sales: An Empirical Analysis." (Chicago, IL: University of Chicago, 2007). http://www.journals.uchicago.edu/doi/full/10.1086/511995, 15 March 2009
Silverthorne, Sean. "Music Downloads: Pirates, or Customers?" http://hbswk.hbs.edu/item/4206.html
"12-Year-Old Sued for Music Downloading," New York Post, http://foxnews.com/story/0,2933,96797,00.html. 19 March 2009.
"Music Industry Contracts," http://www.musiclaw.me/musiccontracts.html, 19 March 2009.