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<nettime> The problem with file-sharing
. __ . on Mon, 10 Feb 2003 01:55:06 +0100 (CET)


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<nettime> The problem with file-sharing


As P2P Filesharing is a topic which in some way or the other concerns 
nearly all the users of the net it is always surprising how passive we all 
seem to be - especially faced with an agressive music industry... so first 
we have to realize, that any of us could at any time be one of those who 
will have to defend their downloading and sharing of music in court. So it 
is important to create awareness - both with those who use P2P and those 
who are responsible for laws and judgements.

I mean, letīs face it - the judge who will try your case probably has a son 
downloading music the exact moment you are being tried... and the judge 
himself loved, when younger, to record his favourite songs from the radio 
on tape. This is a very strange situation where traditional laws and 
concepts, as we know them, no longer apply...

So the only possible reply we, as people who read our email on.screen and 
do not let the secretary print them out, should somehow form an 
international lobbying organization to be a balancing factor against the 
interests of others in this matter...

The real trouble as I see it, is the willingness of the industry to damage 
personal privacy and the sharing of scientific information for their 
crusade. This will cost us dearly in the future if we are not willing to do 
something about it...

These were some thoughts coming to me while writing my comment... I would 
appreciate others sharing theirs too...

cheers,

g



http://www.salon.com/tech/feature/2003/02/01/file_trading_manifesto/print.html

Salon's Technology & Business content is brought to you by Infiniti FX45.

Embrace file-sharing, or die
A record executive and his son make a formal case for freely downloading 
music. The gist: 50 million Americans can't be wrong.

Editor's note: John Snyder is president of Artist House Records, a board 
member of the National Association of Recording Arts and Sciences (NARAS), 
and a 32-time Grammy nominee. On Thursday night, he submitted the following 
paper to NARAS.

- - - - - - - - - - - -
By John Snyder and Ben Snyder


Feb. 1, 2003  | The following was written in response to a discussion by 
the board of governors of the New York chapter of National Association of 
Recording Arts and Sciences (NARAS) regarding the position NARAS should 
take with respect to a new public relations campaign proposed by the 
Recording Industry Association of America (RIAA) condemning those who 
download music from the Internet.

The subject of digital rights, and the position NARAS should take with 
respect to it, is near and dear to me. I've read a great deal about it. If 
I may, I would like to offer a few thoughts:

I. Intellectual Property

Irrespective of what we think should be done, it is still currently illegal 
to download copyrighted music that you didn't buy. This is a problem that 
needs to be addressed. The statistic discussed in the December meeting that 
there were 3 billion downloads the previous month shows that the law is 
going to have to be changed, unless you take the position that downloaded 
music is stealing and thereby criminalize the society. But how can 50 
million people (over 200 million worldwide) be wrong? How do we reconcile 
the reality of downloaded music with the idea of intellectual property?

Intellectual property has not always been defined and protected as it is 
today. Thomas Jefferson wrote about the philosophical considerations:

"If nature has made any one thing less susceptible than all others of 
exclusive property, it is the action of the thinking power called an idea, 
which an individual may exclusively possess as long as he keeps it to 
himself; but the moment it is divulged, it forces itself into the 
possession of everyone, and the receiver cannot dispossess himself of it. 
Its peculiar character, too, is that no one possesses the less, because 
every other possesses the whole of it. He who receives an idea from me, 
receives instruction himself without lessening mine; as he who lights his 
taper at mine, receives light without darkening me. That ideas should 
freely spread from one to another over the globe, for the moral and mutual 
instruction of man, and improvement of his condition, seems to have been 
peculiarly and benevolently designed by nature, when she made them, like 
fire, expansible over all space, without lessening their density at any 
point, and like the air in which we breathe, move, and have our physical 
being, incapable of confinement or exclusive appropriation. Inventions then 
cannot, in nature, be a subject of property."

The above quote appeared in John Perry Barlow's excellent essay, "The 
Economy of Ideas," published first in the March 1994 issue of Wired 
magazine. Barlow writes:

"If our property can be infinitely reproduced and instantaneously 
distributed all over the planet without cost, without our knowledge, 
without its even leaving our possession, how can we protect it? How are we 
going to get paid for the work we do with our minds? And, if we can't get 
paid, what will assure the continued creation and distribution of such work?

"Since we don't have a solution to what is a profoundly new kind of 
challenge, and are apparently unable to delay the galloping digitization of 
everything not obstinately physical, we are sailing into the future on a 
sinking ship.

"This vessel, the accumulated canon of copyright and patent law, was 
developed to convey forms and methods of expression entirely different from 
the vaporous cargo it is now being asked to carry. It is leaking as much 
from within as from without.

"Legal efforts to keep the old boat floating are taking three forms: a 
frenzy of deck chair rearrangement, stern warnings to the passengers that 
if she goes down, they will face harsh criminal penalties, and serene, 
glassy-eyed denial.

"Intellectual property law cannot be patched, retrofitted, or expanded to 
contain digitized expression any more than real estate law might be revised 
to cover the allocation of broadcasting spectrum..."

The entire concept of intellectual property needs to be reexamined, and 
ways of protecting it need to reconsidered. Unfortunately, the 
entertainment industry has, by legislative crook and judicial hook, 
obtained a 20-year copyright extension. The Supreme Court recently upheld 
the "Sonny Bono Copyright Term Extension Act (CTEA)" that extended the life 
of existing copyrights an additional 20 years. This, in the face of Justice 
Steven G. Breyer's estimation that only 2 percent of works copyrighted 
between 1923 and 1942 are available to the general public. The Supreme 
Court case pitted the public against Disney, whose early Mickey Mouse 
cartoons were to enter into the public domain in 2003, and for whom 
Congress drafted the legislation in the first place.

This is a clear case of a multinational conglomerate using its political 
muscle to the disadvantage of everyone but itself. So, instead of creating 
new content and allowing long-standing laws to work, the entertainment 
business frantically seeks to manipulate the process to its own ends. And 
it does this with the obsequiousness of penurious politicians and a 
supinely acquiescent Supreme Court. That is the best the establishment has 
to offer, and it has nothing to do with progress or the good of the society.

II. Competition for the CD

The current argument over intellectual property is the result of the 
sharing of music files encoded as MP3s, Windows Media files, RealAudio 
files or other formats currently available. The music business blames these 
downloads, which it perceives as piracy, for the 10 percent decline in 
sales for the year 2002. This raises several questions, among them: How and 
why do people listen to music? What other products compete with CDs? And 
what is the role of radio?

Why is it that record companies pay dearly for radio play and fight 
Internet play? What is the real difference between radio and the Internet? 
Perfect copies? If we look at the Internet as analogous to radio, the 
problem becomes one of performance rights, not the unlawful exploitation of 
intellectual property. People are creating their own "radio" on their hard 
drives, and they are constantly changing it. Would this have anything to do 
with the "McDonaldization" of radio by Clear Channel and others? Would the 
fact that almost every song on commercial radio is bought and paid for have 
anything to do with the narrow focus and homogeneous nature of radio? What 
drives radio is advertising and money, not music. A lot of music gets left 
behind thanks to the current state of radio; that consumers are rejecting 
it shouldn't be surprising. They're creating their own MP3 playlists, and 
if the labels were smart, they'd be doing everything in their power to be 
on those playlists, just like they do everything in their power to be on 
the playlists of radio stations. Instead, they scream copyright 
infringement and call their lawyers.

There are other reasons for CD sales to be down.

Dan Bricklin and Forrester Research list reasons for the drop in CD sales:

"... the economy, competition from other forms of entertainment (including 
the yearly $6 billion of video games and the rush to the new DVD video 
format), and finally the shorter playlists on radio (partially a result of 
Clear Channel's control of 60 percent of rock radio listening and their 
style) that leads to fewer new musicians becoming well known ... MTV is 
playing fewer music videos, and in general, there is a record industry 
style to push a narrower range of musicians. You can imagine that the death 
of Internet radio will also cut down on the ways to find out about new music."

Price is a major reason for the decline in CD sales. On Bricklin's Web site 
there's a chart that shows that between the years 1991 and 2001, the 
average price of a CD went from $13.01 to $14.64, which is a 12.53 percent 
increase in price. The record companies raised prices precisely at the time 
costs were coming down. When a DVD costs $19.99 and includes the movie in 
multiple formats with bonus material and no hassle, and a CD costs $18.99 
and comes with potential legal hassles, limits on fair use, and all the 
finger waving the RIAA can muster, the choice of which product to buy 
becomes clear. To put it simply, consumers feel that out of all their 
entertainment options, CDs provide the least bang for the buck.

There are five or six new and growing ways for people to spend their 
entertainment dollar. The video games market is one place the consumers 
went, and music followed suit. VH1 News recently reported that the new 
place to break an artist in is a video game. Some companies, such as Island 
Records, know this. They have a great track record of getting music on 
video game soundtracks. But unlike Island, most don't. There are other 
distractions that draw business away from the record companies: DVD, the 
fastest-growing home electronics development in the history of the world, 
the Internet itself, e-mail, cable TV, movies, and even mobile phones. In 
addition to that, the product marketed by record labels is narrow and 
significantly overpriced in comparison to the other available entertainment 
options. Portable CD players are being replaced by iPods. Instead of the 12 
songs on a CD, there are 1,500 songs on an iPod. Why shouldn't CD sales be 
down? Truth be told, the record business is lucky to be alive.

Ananova.com reported that 3.8 million DVD players were sold last year, 
double that of the previous 12 months. DVD sales reached 80 million last 
year, representing a 111 percent increase over 2001. Twenty million DVDs 
and 1.2 million DVD players were sold in December 2002 alone. The movie 
industry sold 1.6 billion tickets, taking in $9.3 billion in gross box 
office receipts in 2002, up 11 percent from the previous year, despite 
President and CEO of the MPAA Jack Valenti's recent statements that the 
future is bleak. Not since the 1950s have so many movie tickets been sold. 
Meanwhile, movie sharing on the Internet is at an all-time high. The movie 
business isn't suffering because of activity on the Internet. Quite the 
opposite -- the industry is making more money than ever! This is happening 
at a time when consumers are being offered more choices to view movies than 
ever before. This supports the view that people spend more money when they 
have more choices.

Advances in hardware and software have propelled the movie business ever 
since the VCR, which at the time was decried as the death of the movie 
business, just as the cassette was to be the death of the music business. 
In both cases, these "copying" devices enhanced their respective 
businesses. Whether it's the MPAA or the RIAA, there is no reason to trust 
those who have cried wolf in the past about new technology, especially when 
history has shown that advances in technology increase consumer spending.

Then there is the reality that the Internet is changing many businesses. 
EBay, the fastest-growing and most profitable of the major Internet 
companies, is selling everything in entertainment (and everything else) to 
scores of millions of people every week, including music and musical 
instruments. As a result, they have put many music and instrument stores 
out of business. In an era of rapidly evolving technology, businesses that 
adapt will survive, those who don't, won't. As reported by the New York 
Times on Jan. 17, 2003:

"EBay reported a profit of $87 million for the fourth quarter, more than 
triple the $25.9 million posted a year earlier ... Revenue was $413.9 
million in the quarter, up 89 percent from a year earlier ... For the full 
year, eBay earned $249.9 million, up from $90.4 million a year ago. Sales 
increased 62 percent to $1.21 billion ... Last year, a total of $14.9 
billion worth of merchandise was sold on eBay. This is just shy of the 
$15.5 billion in sales analysts expect this year from Federated Department 
Stores, the parent of Macy's."

These are startling numbers, and they reveal the way of the future. 
According to the Times, sales at Amazon increased 28 percent, to $1.43 
billion, and this in the face of one of the toughest retail markets in 
years. They did this by expanding their product lines (to include clothing) 
and offering free shipping to consumers whose orders exceed $25. They did 
it by providing greater service for less money. Perhaps the music business 
will take note.

It is true that downloading music is a very popular entertainment option 
for many people. The number one P2P application, KaZaA, was downloaded 
3,145,095 times during the week of Jan. 6-12, 2003. The number two P2P 
application, iMesh, was downloaded 440,877 times during the same period. 
KaZaA estimates that it had 140 million users by the end of 2002, twice as 
many as Napster at its peak. These fantastic numbers indicate a desire 
among consumers for music that the music companies traditionally satisfied 
but increasingly no longer do. This raises another question. Why don't the 
record labels have P2P networks? They have proven to be wildly popular. 
They don't require expensive investments in technology to start and 
maintain, and most importantly, the online community has embraced them 
wholeheartedly. The reason is, they can't agree with their "partners" -- 
publishers and artists -- on how to share the money. The same greed that 
got them into their current problem prevents them from extricating 
themselves from it.

Let's suppose I'm a kid. I have a fixed allowance or a minimum wage job. I 
have $100 a month to spend on entertainment, if I'm lucky. With that cash, 
I can rent or buy DVDs, pay for my Internet connection, go to a concert, a 
movie, or a sporting event (at which I might buy some merchandise), buy a 
video game, pay my mobile phone bill, drive through the drive-thru, or buy 
a CD. From that list of options, what's the least likely thing I'm going to 
spend money on? I think the answer would be the CD, even if downloaded 
music didn't exist. I would argue that it's not the presence of a "free" 
alternative that has caused the decline in CD sales, it's the presence of 
competing choices offering more value and fewer hassles.

III. An Argument for Downloaded Music

It could be argued that MP3s are the greatest marketing tool ever to come 
along for the music industry. If your music is not being downloaded, then 
you're in trouble. If you can't give it away, you certainly can't sell it. 
Daniel Bedingfield recently had a top 3 song on the radio, with "Gotta Get 
Thru This." However, his music was hardly available through any of the P2P 
networks. His record lasted on the Billboard Top 200 for less than a month, 
even though the single had been on radio playlists all over the country for 
several months. It's also been widely reported that the most downloaded 
album of all time was "The Eminem Show," by Eminem. It was downloaded so 
heavily that Interscope took the unusual step of releasing the album a week 
early due to the rampant online sharing of tracks from the album. 
Fast-forward to the end of 2002, and "The Eminem Show" is the best-selling 
album of the year. This seems to indicate the opposite of what the RIAA 
would have you believe. When people share MP3s, more music is sold, not less.

As VH1.com recently reported, at least one company believes that 
file-sharing is good for business, and that it's a "promotional tool and 
boosts the sales of albums that deserve it." M.S.C. Music & Entertainment 
is encouraging listeners to download 20 tracks from rapper Tech N9ne's new 
album, for free. "The major labels can no longer fool the consumer. They 
don't want you to sample their music because they know that if the fans 
realize there are only two good songs on a record, you will not buy it ... 
We believe in our product."

50 Cent, Eminem's newest talent and rap's current street king, sees an 
advantage to having his debut album, "Get Rich or Die Trying," available 
before the release date:

"The bootleggers are gonna go crazy with this record. They understand how 
much of a presence I have in the streets. They'll probably get the record 
two weeks before the album actually drops and it'll be all over the place 
... I believe word of mouth is just gonna generate more sales. Consistency 
is the key to all success. If I consistently put out good music, if they 
buy the bootleg this go-around, it'll guarantee that they purchase the real 
CD when my next album comes out. I'm in a good space financially so I'm not 
worked up about the few dollars the bootleggers are gonna get."

There's a provocative piece on P2P.com regarding piracy and on-line 
distribution titled "Piracy Is Progressive Taxation, and Other Thoughts on 
the Evolution of Online Distribution," by Tim O'Reilly. His article 
discusses a number of subjects, including:

Obscurity is a far greater threat to authors and creative artists than piracy.
Piracy is progressive taxation.
Customers want to do the right thing, if they can.
Shoplifting is a bigger threat than piracy.
File-sharing networks don't threaten book, music, or film publishing, they 
threaten existing publishers.
"Free" is eventually replaced by a higher-quality paid service.

Tim O'Reilly is the founder and president of O'Reilly & Associates, thought 
by many to be the best computer book publisher in the world. He has been a 
pioneer in the popularization of the Internet. His Global Network Navigator 
site (GNN, sold to AOL in September 1995) was the first Web portal and the 
first true commercial site on the World Wide Web. O'Reilly takes a long- 
term view of the intellectual property problem, as opposed to the 
short-term view that is characterized by the "sky is falling" rhetoric of 
both the music (RIAA) and movie (MPAA) business.

O'Reilly's observations about the book business apply to the music 
business. As with the record industry, the publishing world enjoys only a 
10 percent success rate. "More than 100,000 books are published each year 
... yet fewer than 10,000 of these new books have any significant sales." 
And like recording artists and the music business, "Authors think that 
getting a publisher will be the realization of their dreams, but for so 
many, it's just the start of a long disappointment."

O'Reilly continues:

"For all of these creative artists, most laboring in obscurity, being 
well-enough known to be pirated would be a crowning achievement. Piracy is 
a kind of progressive taxation, which may shave a few percentage points off 
the sales of well-known artists (and I say "may" because even that point is 
not proven), in exchange for massive benefits.

"I have watched my 19 year-old daughter and her friends sample countless 
bands on Napster and Kazaa and, enthusiastic for their music, go out to 
purchase CDs. My daughter now owns more CDs than I have collected in a 
lifetime of less exploratory listening. What's more, she has introduced me 
to her favorite music, and I too have bought CDs as a result. And no, she 
isn't downloading Britney Spears, but forgotten bands from the 60s, 70s, 
80s, and 90s, as well as their musical forebears in other genres. This is 
music that's difficult to find -- except online -- but, once found, leads 
to a focused search for CDs, records, and other artifacts. eBay is doing a 
nice business with much of this material, even if the RIAA fails to see the 
opportunity."

O'Reilly makes other persuasive observations:

"Piracy is a loaded word, which we used to reserve for wholesale copying 
and resale of illegitimate product. The music and film industry usage, 
applying it to peer-to-peer file sharing, is a disservice to honest 
discussion...

"The simplest way to get customers to stop trading illicit digital copies 
of music and movies is to give those customers a legitimate alternative, at 
a fair price...

"The question before us is not whether technologies such as peer-to-peer 
file sharing will undermine the role of the creative artist or the 
publisher, but how creative artists can leverage new technologies to 
increase the visibility of their work. For publishers, the question is 
whether they will understand how to perform their role in the new medium 
before someone else does. Publishing is an ecological niche; new publishers 
will rush in to fill it if the old ones fail to do so...

"New media have historically not replaced but rather augmented and expanded 
existing media marketplaces, at least in the short term. Opportunities 
exist to arbitrage between the new distribution medium and the old."

O'Reilly compares an on-line music subscription service to people paying 
$19.95 a month for an ISP when "free" Internet is available, or $20 to $60 
a month for TV programming when there is "free" TV programming:

"Why would you pay for a song that you could get for free? For the same 
reason that you will buy a book that you could borrow from the public 
library or buy a DVD of a movie that you could watch on television or rent 
for the weekend. Convenience, ease-of-use, selection, ability to find what 
you want, and for enthusiasts, the sheer pleasure of owning something you 
treasure."

Comparing TV to music, O'Reilly says a lesson that can be learned from 
television "is that people prefer subscriptions to pay- per-view, except 
for very special events. What's more, they prefer subscriptions to larger 
collections of content, rather that single channels. So, people subscribe 
to 'the movie package,' 'the sports package,' and so on. The recording 
industry's 'per song' trial balloons may work, but I predict that in the 
long term, an 'all-you-can-eat' monthly subscription service (perhaps 
segmented by musical genre) will prevail in the marketplace."

People want what they want and they have made their choices. They will 
still buy CDs, but they want to download music. The failure of the music 
business to provide a comparable alternative to peer-to-peer networks is 
the most logical explanation for the "illegal" downloading of music. And 
rather than address the problem by examining their own behavior, the music 
companies declare the consumer to be their enemy, support intrusive, 
overreaching legislation, and act precisely against their best interests. 
This remains true even in the face of the recent truce the RIAA agreed to 
with several technology groups. Rather than realize the profit potential of 
that about which they complain, they try to kill it, then they try to 
control it. Now they're trying to control the consumer. As O'Reilly points 
out in his final paragraph:

"And that's the ultimate lesson. 'Give the wookie what he wants!' as Han 
Solo said so memorably in the first 'Star Wars' movie. Give it to him in as 
many ways as you can find, at a fair price, and let him choose which works 
best for him."

The RIAA tries to "give the wookie what he wants" by giving him what they 
want. Their newest attempt is with a handful of half-baked music 
subscription services. The New York Times recently reported that "Jupiter 
Research expects consumers to pay about $79 million for downloaded songs 
and CDs in 2003. Subscription services ... are expected to collect about 
$107 million next year." The Times continues:

"The brewing battles among these services will be over how they package 
songs, what kind of exclusive access they can offer subscribers to 
particular artists and whether they can be used for portable devices, 
stereos and cars."

If subscription services offer a broad range of music and no digital rights 
management schemes, and properly labeled high- quality files, at a 
reasonable price with fast downloads, they will have a chance to compete 
against "free." Unfortunately, it is unlikely that the music business will 
avoid copy protection issues. Instead, copy protection remains the No. 1 
priority for both the music and movie industries. The future of digital 
media will have movies or songs offered in various ways for various prices. 
If you want to just play it once, or for a 24-hour period, it will be 
cheaper than if you want to download it to your hard drive and copy it. If 
you want it to play on all of your players, you will pay more than if you 
just want to hear it or see it over the Internet. 2003 will be a crucial 
year for industry online music subscription services PressPlay 
(Universal/Sony), MusicNet (BMG/Warners/EMI), and Rhapsody. They will have 
to develop an approach to these issues that satisfies the demand currently 
being met by the P2P networks if they hope to compete in this emerging 
market. Consumers are reluctant to accept limitations on use, so it is 
unlikely that copy protection will lead to a cure for what ails the music 
business.

The music business isn't like the movie business, even though both are 
involved in the digital dissemination of intellectual property. A song is 
not the same as a movie. Listening to a song on the Internet isn't the same 
as watching a movie for free on the Internet. It is arguable that 
downloading a song functions as a substitute for radio, a first step in the 
process of consumption, while watching a movie is, arguably, the last step 
in the process of consumption. Consumers may accept limitations on the use 
of a movie, making it more akin to the licensing of software, but they find 
it more difficult to accept limitations on the use of a CD they buy or 
music that they acquire by way of a subscription service. Consumers are 
used to renting movies; they're used to buying and owning music.

Music companies are more egregious in their abuse of consumers than the 
movie companies. Consumers don't hate movie companies, but they do hate 
record companies. The question is, why is this happening and what is going 
to be done about it? Digital copy protection (known as digital rights 
management or DRM) will only add fuel to this fire, so expect a very big 
blaze in 2003. In the end, it will be the music companies that run the risk 
of being consumed by it. Music companies have the opportunity to adjust to 
the new realities of digital distribution but instead they cling to their 
existing business models where they control as much of the distribution 
channel as possible. It is doubtful that this behavior will be rewarded 
with increased sales.

The Digital Millennium Copyright Act (DMCA) was passed by Congress in 1998 
to address how technological innovation would affect intellectual property. 
In drawing up the document, Congress looked to the RIAA and similar groups 
for guidance as to what the law should contain. The Electronic Frontier 
Foundation (EFF) recently released a study titled "Unintended Consequences: 
Four Years Under the DMCA" which goes on to detail how the 
"anti-circumvention" clauses of the DMCA have been used to stifle 
innovation, censor free speech, and threaten academic/scientific research. 
These chilling effects of the DMCA contradict and limit the "fair use" 
doctrine that is an important part of copyright law. Additionally, the 
digital rights management (DRM) initiatives that the RIAA and MPAA propose 
to protect their copyrights do nothing to protect the "fair use" rights of 
consumers.

Record labels are confused and contradictory. They use MP3s in private 
while they deride them in public. If they're promoting a new band, they'll 
post the band's songs on P2P networks (often in a covert manner) with the 
hopes that they'll be traded and talked about in chat rooms. If it's an 
established act with a history of sales, they'll "spoof" the P2P networks 
with fake files (also in a covert manner). It's just another way of using 
MP3s, albeit a subversive and anti-customer way. The RIAA has apparently 
engaged in "poisoning" P2P networks.

The biggest damage done by downloaded music is the paralysis it has 
inflicted upon the traditionalists in the music industry. The path to 
profitability does not include a long and drawn-out legal battle with 
consumers, yet this is exactly what the RIAA is doing. The choice for NARAS 
is whether to lead the fight for what's best for the artists or whether to 
endorse the self-serving positions of the music industry's congressional 
lobbying group, the RIAA.

There is a convincing piece by Damien Cave on Salon.com titled "File 
Sharing: Innocent Until Proven Guilty," which argues that there is no 
proven correlation between downloaded music and the decline in CD sales. He 
continues to argue in "File Sharing: Guilty As Charged?" that a good deal 
of the "sky is falling" rhetoric created by the record companies and the 
RIAA is based on supposition and self-interest. In addition, the article 
"RIAA's Statistics Don't Add Up to Piracy" analyzes the RIAA's own 
statistics and argues that they do not support the RIAA's conclusion that 
downloaded music is the cause for the decline in CD sales. In this detailed 
analysis, George Ziemann argues that the record industry released 11,900 
fewer titles in 2000 than it released in 1999, a 25 percent decrease, yet 
the total number of units shipped decreased only 10.3 percent and the 
dollar value of these units fell by only 4.1 percent. It seems that the 
RIAA is misinterpreting its own statistics.

IV. Record Company Complicity

It could be argued that the record companies are responsible for their 
current predicament. Again, how did they turn themselves into one of the 
most hated corporate sectors, and what are they going to do about it? Five 
years ago nobody gave a second thought about record companies; now they are 
reviled. Record companies need to realize that music is now viewed as a 
commodity with a shelf-life of 90 days, and that they made it so. As Prince 
recently put it:

"So are most citizens really being completely disrespectful of the value of 
art and the need 2 provide appropriate compensation 2 the artists 4 their 
works? We've said it b4 and we'll say it again: the rise of digital 
technology and peer-2-peer file sharing has little 2 do with people's 
intrinsic respect 4 art and artists, and everything 2 do with the cynical 
attitude of big industry conglomerates, which have consistently pushed 4 
more and more commercial, highly profitable products at the xpense of 
authentic art and respect 4 artists.

"If people do not feel enough guilt 2 prevent them from making digital 
copies of the latest episode of a popular TV show or hit pop song, it is 
precisely because the industry giants have succeeded in making these works 
purely commercial products, with little or no consideration 4 their actual 
artistic value. It is precisely because these companies have been 
consistently promoting commercial products at the xpense of artistic works.

"The fact that actual works of art still manage 2 seep thru the cracks of 
this huge profit-driven industry does not change anything about the 
fundamental equations that have been driving and still drive the industry, 
2day more than ever -- i.e. that art = money, artists = money-makers, and 
art lovers = consumers.

"As a simple xample of how little music is valued as an art 4m by the 
industry, it is estimated that only about 20 percent of music ever recorded 
is currently available -- and, of this 20 percent, what proportion is 
actually readily available 2 music lovers? What proportion is not the 
current 100 top albums on the SoundScan charts?

"It simply appears that the instinctive reaction of the lover of art (b it 
music, TV shows, movies, or other 4ms of art) is such that, if the industry 
has no respect 4 his or her identity as an appreciator of art, then he or 
she has no reason 2 have any respect 4 the industry as a purveyor of art. 
By making digital copies of so-called cultural products, many people r not 
demonstrating their lack of respect 4 art and 4 artists, but r xpressing -- 
consciously or not -- their frustration with the way the entertainment 
industry profits from art at the xpense of both art makers and art lovers.

"The consumers of the commercial products of the entertainment industry r 
only as cynical as the industry has deliberately made them, by dumbing down 
their products, by xploiting artists, by making profit-driven choices and 
decisions, and by providing their own kind with obscene compensations and 
legal impunity that r completely out of touch with the real world of 
ordinary people."

There is good reason for consumer cynicism. AOL Time Warner owns Warner 
Bros. Records (along with America Online, Time, Life, Fortune, Elektra, 
Sports Illustrated, HBO, Turner Broadcasting, CNN, Cinemax, Entertainment 
Weekly, New Line Cinema, Warner Bros. Studios, In Style, Warner/Chappell 
Music, Time Warner Cable, WBN, ICQ, Warner Music Group, Netscape, People, 
Reprise, Rhino, Atlantic, WEA, TNT, MapQuest, WinAmp, In Demand, Erato, 
Moviefone, and Road Runner). AOL makes a lot of money as an Internet 
service provider. There is no question that a large portion of the people 
using AOL's service are downloading the very music that Warner Bros. 
Records claims as being stolen. There is no question that the executives at 
AOL Time Warner know this. Also, let's not forget that it was AOL that 
bought Time Warner. Service trumped content.

The conglomerates are reeling from the impact the Internet and digital 
downloads are having in changing how the consumer thinks. But it is not the 
downloads that are wrecking the music business, it is the inability of the 
conglomerates to adjust to the Internet and the new ways consumers want to 
consume music. AOL Time Warner just posted a year-end loss for 2002 of 
$98.7 billion. Sony, the only multinational corporation to have interests 
in both the music and consumer electronics worlds, has relinquished its 
leadership in the portable market to Apple's iPod due to Sony's conflicting 
interests in music copyrights (Sony Music) and in hardware. Sony hardware 
comes with anti-copying features, making it cumbersome and inflexible. For 
example, as reported in the Wired magazine article "The Year the Music 
Dies," the five major music companies sold $20 billion worth of music last 
year, but Sony alone had $42 billion in electronics and computer sales, 
making their music business much less significant. "If Sony wants to sell 
MP3-capable cell phones -- a big thing in Japan and potentially worldwide 
-- how much attention will it pay to Sony Music's protests?"

In another recent article in Wired magazine Frank Rose writes:

"As a member of the Consumer Electronics Association, Sony joined the 
chorus of support for Napster against the legal onslaught from Sony and the 
other music giants seeking to shut it down. As a member of the RIAA, Sony 
railed against companies like Sony that manufacture CD burners. And it 
isn't just through trade associations that Sony is acting out its 
schizophrenia. Sony shipped a Celine Dion CD with a copy-protection 
mechanism that kept it from being played on Sony PCs. Sony even joined the 
music industry's suit against Launch Media, an Internet radio service that 
was part-owned by -- you guessed it -- Sony. Two other labels have since 
resolved their differences with Launch, but Sony Music continues the fight, 
even though Sony Electronics has been one of Launch's biggest advertisers 
and Launch is now part of Yahoo!, with which Sony has formed a major online 
partnership. It's as if hardware and entertainment have lashed two legs 
together and set off on a three-legged race, stumbling headlong into the 
future."

Sony is also the largest manufacturer of writeable CD drives. It, along 
with Philips, co-developed the CD and collects royalties from various CD 
patents. All CDs, whether used by commercial replicators or bought by the 
general public, are subject to these royalties, which currently stand at 
$0.033 per disc. There were over 500 million blank CDs sold last year. The 
advantage of being a multinational corporation is the ability to use one 
asset to create another asset. Sony may make less money on music but is 
using it to make money elsewhere.

Similar internal conflicts exist within AOL Time Warner, Vivendi Universal, 
and the Bertelsmann polygon. Nevertheless, they continue to engage in 
businesses that infringe on their own copyrights. They are trying to have 
it both ways, in all ways. Instead of dealing with their own 
inconsistencies, they direct and fund the RIAA to lobby politicians to 
support legislation like the "Peer to Peer Piracy Protection Act." This act 
gives record companies the right to invade your hard drive (an otherwise 
illegal activity) if they suspect that you have illegally obtained their 
copyrights, their music. This anti-piracy law is actually an anti-privacy 
law, and it also limits fair use and threatens academic freedom. The RIAA 
and the music business are trying to legislate profitability. NARAS needs 
to take a position with respect to the copyright issue, but it should be an 
independent position. NARAS should come up with its own ideas. The RIAA is 
acting irrationally.

Also, the record companies recently settled a price-fixing suit in which 
they admitted they were overcharging consumers. This point seems to be 
overlooked by the RIAA in its attempt to place all blame for the woes of 
the music business at the feet of file-sharing. Is it possible that the 
decrease in CD sales is related to the conspiracy by the major record 
labels to fix inflated prices?

V. Opportunity and the Future

One other word about the 3 billion music downloads each month: That's a lot 
of music. There aren't 3 billion songs. Music has become fungible. People 
are going through it faster than toilet paper. Never in the history of the 
world has there been more music in the air and never have more people 
listened to music. Out of this incredible desire and need for music, surely 
some good must come. I think more opportunity than ever is available to the 
musician and songwriter, and the record company too. They just have to 
create new ways to deal with this opportunity, and it won't be by the old 
rules. Janis Ian is a good example. Downloaded music has resurrected her 
career. She's actually making money because of downloads. I think that if 
it weren't for all of this activity on the Internet and all of this 
downloaded music, the CD market would be suffering more than it is. MP3s 
are lessening the decline of the music business, not creating it.

Record companies are not logical, righteous entities. They are ramshackle, 
profit-driven enterprises. They act in their perceived best interests, and 
they act ruthlessly and, in many cases, irrationally. The people who run 
them still have their e-mail printed out by their secretaries. We have to 
wait for the next generation to take over, the "software" generation, the 
generation of people who don't remember growing up without a computer 
around. I would argue that the future of music is multimedia, the future of 
multimedia is DVD, and the future of music companies is software. In five 
years, record labels will be software companies and I don't think they know 
that yet. The music business will be saved by someone from the software 
business who can impose a new business model on music assets.

In the future there will be no record stores as we know them, no tangible 
product as we know it. The CD is going the way of the 8-track and the 
cassette. Soon there will be no need for the tangible thing. Consumers have 
made their choice. They want to listen to music while they're working at 
their computers, on a portable device like an iPod or MiniDisc player, or 
on a home theater jukebox (similar to a feature of Microsoft's Xbox). 
Digitally available music has given the consumer choices, and they like 
those choices. They don't want music just from commercial radio. They also 
want it from their hard drives and from the Internet. Yet record companies 
still want to force tangible, overpriced media on consumers who want to 
obtain data files and temporarily store them on their hard drives or on 
cheap, disposable discs (CD-Rs). If record labels don't start trying to be 
part of the future they will be bought up and converted to it by someone 
who is.

People have always listened to music while they were doing something else. 
That's almost the essence of "American music." Record companies guessed 
right on the "something else" for a long time, but that was before the 
myriad of other choices became available to consumers. At one time in this 
country, listening to music on the radio was a miracle. It's no longer a 
miracle, and when you look at the technological developments in the last 70 
years, there's little wonder why. It's been one miracle after another. And 
yet even to this day, radio is the sine qua non of a hit record. This is 
especially true in the era of radio consolidation, where corporate Goliaths 
like Clear Channel are allowed to exist. Maybe that's the only way radio 
can remain relevant: It has to become one big punch. In a world where 
diversity is an evolutionary step, radio moves furiously towards 
consolidation, aided and abetted by the FCC. Someone should ask the 
question, why is this allowed?

The way things are going, a few corporations are going to control access to 
all digital information, and if the current administration has its way, 
these activities will be monitored. The reason why the RIAA is screaming 
bloody murder about little ol' MP3 is because it means that they are losing 
control. People are making their own individual choices, and they aren't 
going along with the program of manipulation that has always limited those 
choices. Now that they're making choices, industry executives and 
politicians are shocked.

The same argument extends to the television industry with respect to TiVo 
and other personal video recorders (PVRs). Jamie Kellner, chairman and CEO 
of Turner Broadcasting, which encompasses everything from CNN to TNT and is 
a part of AOL Time Warner, was asked in an interview why PVRs were bad for 
his industry. He responded that it's "because of the ad skips ... It's 
theft. Your contract with the network when you get the show is you're going 
to watch the spots. Otherwise you couldn't get the show on an ad-supported 
basis. Any time you skip a commercial ... you're actually stealing the 
programming." Viewers might find that reasoning less than persuasive, but 
they'll probably be very persuaded by the threatening, accusatory tone, and 
dismiss Mr. Kellner and his concerns. This is another example of an old 
media being unable to adjust to technology. Yes, Jamie, your business is 
threatened. You will have to change your way of thinking to save it. 
Abandon failing tactics.

VI. The Role of NARAS

In order for the record industry to remain relevant it will have to 
determine how to get people to buy something they can get for free. In 
addition to the cable television business, print publications, and ISPs, 
there is an industry that has found a solution to this problem, and the 
music industry should take notice. That industry is the bottled water 
industry. Bottled water is a growth market. But common sense would indicate 
that when water is virtually free (i.e., tap water) that people wouldn't 
want to pay $1 for 16 oz. of water. Yet, most of us frequently do just 
that. Why? Because it is convenient and because we have been persuaded that 
it is safer, more pure, that it is "better" water. Convenience becomes 
necessity, belief becomes profit.

The bottled water industry is built on customer service. If the music 
business were to take this approach and ally themselves with consumers 
rather than fight them, it's quite possible that their profits would still 
be growing. But record companies distrust their customers even more than 
their customers distrust them. The circle is unlikely to be broken, which 
in turn creates wide open spaces for the entrepreneur, for a "new" way. 
NARAS has to appeal to the new, not the old. NARAS supersedes the 
short-term interests of the record companies. NARAS has an obligation to 
art and to the artists who create it, to creative excellence in its 
presentation, and it is those obligations, above all, that should define 
its actions. The relevance of NARAS exists in direct proportion to its 
independence.

Charlie Feldman suggested that the board undertake a "study" of the matter. 
He's right, only we should go further. I think we need a symposium, a 
gathering of eagles. NARAS should take the lead in this matter. Those who 
are taking it now are leading us over a cliff. The RIAA has staked out an 
untenable position that is as unrealistic as it is anti-consumer and 
anti-artist. Their interests and the interests of NARAS are not the same. 
Their solutions are not good solutions. They cling unsuccessfully to the 
past rather than embrace the stunning opportunities offered by the future. 
They will be unsuccessful in their attempts to criminalize the society, and 
in their attempts to stretch the drum head of old laws onto the drum of new 
technology. It is one thing to be unsuccessful, it's one thing to argue a 
bad position, but it's quite another to be silly and laughed at, and that's 
where the RIAA has ended up. They appear to be totally irrelevant except as 
bagmen. It's more than just bad P.R., it's bad science. The RIAA reached 
its conclusions, then looked for supporting arguments, all the while 
ignoring reality, opportunity and fact. They overstate their position, 
misinterpret their own data, and make dubious claims for artists' rights 
when the biggest abusers of artists' rights are their benefactors, the 
record companies themselves.

ZDNet reported that the sale of illegal CDs increased 50 percent from 2000 
to 2001. This translates into $4.3 billion dollars in sales from 950 
million illegally sold CDs. This strikes me as a much more serious and 
obvious problem than downloaded music. So serious in fact that the problem 
of MP3s pales by comparison. This is where the record companies and RIAA 
should be putting their moral outrage, their money and energy. Those bad 
guys really are bad guys, profiting from the mass counterfeiting of someone 
else's property, unlike 14-year-old kids, who download music because they 
can't afford $18 for two songs that are going to be replaced in a couple of 
weeks anyway. Equating the downloading of music with counterfeiting for 
profit brings disrepute to the RIAA's more important and necessary efforts 
to stop counterfeiting. Then again, it's ironic that if the RIAA is 
successful in shoving everyone back into the CD market, almost half of the 
CDs they buy will be counterfeits.

With respect to the question of downloaded music, NARAS should embrace new 
technologies, be the voice of reasoned analysis, and act as an arbiter to 
reconcile the conflicting views of the various parties involved. In the 
past, NARAS aligned itself with the RIAA and the record companies. This is 
a mistake, in my opinion, and I hope that the opinions expressed in this 
paper will at least give us reason to pause and to thoroughly examine our 
position, as well as the position, claims and statistics of the RIAA and 
their corporate backers. Above all else, NARAS must not rubber-stamp what 
is quite clearly a self-serving position (as happened on last year's Grammy 
broadcast when Mike Greene berated and branded music consumers as thieves 
and shoplifters). NARAS must be the independent voice, a voice of 
objectivity. NARAS should be the "think tank" of the music business, not an 
enforcer or a PAC. What we have here is the potential to become a leader in 
the new frontier of intellectual property rights, artists' rights, 
consumers' rights, the future of music, and the power of the art itself. I 
say let's seize the day. In my opinion, there is a vacuum of leadership 
with respect to these pivotal and crucial issues and NARAS should step in 
and fill that vacuum. It is a golden opportunity.

- - - - - - - - - - - -

About the writer
John Snyder is president of Artists House Records, a board member of the 
National Association of Recording Arts and Sciences, and a 32-time Grammy 
nominee.

Ben Snyder, John's son, works for It's a Gas Marketing/Management, a 
grassroots marketing company that serves the music industry.

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