Playback and Payback series; (part 19) panic in the Suites – Napster, Grokster, the Last Kazaa (V)

By summer 2002, the RIAA had become desperate. It began to get aggressive not just with the companies putting out the P2P software, but also with the users of that software – looking into legal action against individual downloaders. It subpoenaed over 250 music fans, accusing them of getting MP3 files from one of the hubless services, Kazaa, and claiming that the downloaders could be found to owe up to $150,000 per song. 

“The end result of this,” noted Phil Leigh of the research firm Digital Media, “is that you’ve sued your customers and you’ve deterred peer-to-peer activity, but you haven’t improved sales. What have you accomplished other than frightening your customers and angering them?”

“The music industry is estranging an entire generation of music listeners,” added Jerry Del Colliano of AudioRevolution. “Gen X and Y feel it is their right to download music despite copyright infringement laws. The RIAA killing off Napster was a failed experiment because new peer-to-peer networks like Gnutella rage on with files being swapped by the millions.”

Leigh and Del Colliano were not alone in expressing these sentiments. Lawyer Fred Goldring urged the record business to “abandon the ‘Shock and Awe’ tactics… . The strategy of suing customers (thieves) and building ever-better locks for CDs and digital singles simply was not working and … everything we had done thus far had in fact made the problem worse.” Since many in the industry had become familiar with the 12-step programs that dare not speak their names, Goldring suggested a six-step recovery program for the record business:

1. Admit you’re powerless. File sharing is not going away. Downloading is already more popular than the CD.

2. Give up on anti-piracy technologies – they don’t work.

3. Stop attacking your own customers (bad PR; worse business).

4. Focus less on finger-pointing and more on immediate, practical, fair solutions.

5. Give the people what they want, even if it requires that laws be changed.

6. Support initiatives that will allow unlimited access to every piece of music in the MP3 format, whenever and wherever someone wants it, with no conditions or restrictions, in an easy-to-use interface. People will pay for this.

“Here’s the social reason that [Digital Rights Management] fails,” concurred the Electronic Frontier Foundation’s Cory Doctorow. “Keeping an honest user honest is like keeping a tall user tall… . At the end of the day, the user DRM is meant to defend against is the most unsophisticated and least capable among us.”

“Lawsuits against the file sharers are not going to save the music business,” PC Magazine gadfly John Dvorak added.

In fact, the opposite is true. I’m convinced that the shuttering of the original, wide-open Napster … was the beginning of the end for the recording industry. This is because Napster was not just an alternative sampling system … . On Napster, people were not just trading songs by engaging in mutual discovery… . You’d begin downloading songs A, B, and C – your favourite songs ever – and you’d see that one other trader had all three of these songs in his or her library. You could then peruse that person’s entire collections. You’d notice the two of you had very similar taste! But wait, you’d download a few new songs and discover another band you liked.

Another area of concern in the early 2000s became a rising global gray market in MP3s that began to emerge, taking advantage of one of the web’s chief benefits, the often-dropped first part of its name – it is world wide. The Russian site allofmp3.com offered the same downloads that iTunes offered, but for about 3c each. The Future of Music Organisation’s Brian Zisk observed:

My understanding is that allofmp3.com might very well be legal in Russia, and though the IFPI [International Federation of the Phonographic Industry] exerted extreme influence on the Moscow City Police Computer Crimes Division to recommend to prosecutors that criminal charges be filed against this service, it was decided that no charges should or would be filed. While allofmp3.com might be liable in civil suits if they pay royalties incorrectly, and while it is unknown if they are paying correctly, it is reported that rates in Russia are miniscule compared to those in the U.S.

So folks might be violating laws in the U.S. by using this service, and it’s possible that allofmp3.com might be liable under U.S. law as shown by the recent legal victories against unauthorised imports, but my hunch is that if it were as clearly illegal as the IFPI is claiming (allofmp3.com has been doing this since 2000) that charges or lawsuits would have been filed long ago.Foreign jurisdiction is a quite tricky area, and while it’s easy to state that they should be nailed under U.S. laws, I don’t think we’d want our internet publishers held to the laws of all foreign countries – say, Saudi Arabia, for example.

While 2001 saw the beginning of legal sites with legitimate, licensed major label songs on them, with Apple’s iTunes leading the way, more people got songs from Kazaa, by a conservative ratio of 5:1 (though some peg it at 20:1 or more). Indeed, the University of Texas’s Stan Liebowitz cites evidence that people download 300 million CDs worth of songs per month, while U.S. national sales run about 80 million CDs per month, a ratio of 3.75:1

On the other hand, there may actually be evidence that the P2P protocols help album sales. A 2005 Australian study from the University of Western Sydney indicates that while nearly 40 percent of them still went out and bought the CDs. Said researcher Geoffrey Lee:

The main reasons for downloading included: being able to listen to the song on their PC, being able to burn songs to a CD because it’s cheaper than the original CD, and being able to sample the song before purchasing… . Sixty-eight percent of both generations surveyed [Baby Boomers and Generation Y] continued to buy albums through traditional retailers because they prefer the original copy, like being able to look at other CDs while shopping, or like being able to listen to new CDs.

Similarly, the Organisation for Economic Co-operation Development published a report stating, “It is very difficult to establish a basis to prove a casual relationship between the size of the drop in music sales and the rise of file sharing.” The study points to quality of the music, the growing number of entertainment choices, and physical (as opposed to digital) piracy as much bigger culprits.

A joint study by professors from Harvard Business School and the University of North Carolina at Chapel Hill came to a similar conclusion. When they really dug into the statistics, they could not find any evidence that file sharing had an effect on people buying CDs. Beyond that, they found that any effect it might have would be extremely small compared to the precipitous drop in CD sales.

A few folks in the record business agree. While they would certainly prefer collecting money on all their intellectual property, they saw the alienation of their customers as foolish and destructive. Some even acted on these principles. Terry McBride, the president of Canada’s Nettwerk Records, picked up the legal tab for one of the file sharers targeted by the RIAA. “These same file sharers are great music fans and are breaking new artists with little or no mainstream media support.”

Stepping back a bit, again this reflects the cassette controversy. “Through my teen years,” one music enthusiast recalls, “my buddies and I exchanged cassettes all the time, turning friends on to favourite music, songs we wanted to do with our bands, etc. Almost universally, we would ultimately buy most of the music we liked from these compilations. In Jamaica, a tourist with two blank cassettes (and perhaps a U.S. dollar) would often get one mix tape full of the latest hits on the island in exchange. When I went, I came armed with a bunch of blanks and wound up with a handful of great mix tapes that, again, sent me off to a local record store pretty quickly.”

However, Liebowitz looked at the problem from the viewpoint of a market economist and disagreed, concluding, “MP3 downloads are causing significant harm to the record industry. It is not clear, however, whether such downloading in our current legal environment will cause a mortal blow to the industry. I suspect the worst damage to the industry is behind us.”

In 2005, the U.S. Supreme Court ruled that the file sharing service Grokster could be held responsible for the illegal activities of its users. This led to the hope in the corridors of the record business that the long years of strife would soon end. “We will no longer have to compete with thieves in the night whose businesses are built on larceny,” proclaimed the then-chief executive of Sony/BMG Music Andrew Lack.

Even so, by the middle of 2006, the digital music tracking company Big Champagne reported that at any given time 9.7 million file-sharers were online, 6.7 million of them in the U.S. alone. This figure represented an 11 percent annual rise internationally and a 7 percent rise domestically.

To the record business, the issue still boils down to control. When John Lennon’s widow, Yoko Ono, made Lennon’s work available for sale digitally, Paul McCartney was asked whether the Beatles’ catalog would ever be available for download. He said he was sure it would happen, but that with all the parties involved, it was bound to be difficult. “I get involved in stuff I can actually control and do something about,” he said. “There’s a lot of strangeness in those areas, and I tend to keep out of them.”

In a way, this is typical of many in the record business, who continue to run around, looking up and saying “the sky is falling,” despite an upturn in sales in 2004 (the first year that the RIAA took digital downloads sold into account, coincidentally – or is it?). They look everywhere but within. “It’s nothing new to say the recording companies are scared,” said Professor Steven E. Schoenherr from the University of San Diego. “They’ve always been scared.”