Monday, March 31, 2008

Tuesday Column: Ditch the spin. It's a record-sales record!

Downloading is killing recorded music, right?

It must be. The music industry is so worried that it has asked the Communications Minister Senator Conroy to introduce a three-strikes and you’re out policy for people who illegally download their favourite tracks.

They say Strike One would be a warning. Strike Two would earn you a suspension of your internet access and Strike Three would result in the removal of your internet access altogether.

It's needed because the music industry is losing sales. Or so it says, under oath, in court cases. I’m here to let you in on its guilty secret. It isn't...

The latest Australian Recording Industry Association sales figures released very quietly on the eve of Good Friday show that in fact the legal sales of recorded music climbed to an all time high in 2007 - a high that could only have been dreamed about in the years before the advent of downloading and CD burning.

It's uncomfortable with the fact. Most industry associations would crow about an all-time record high in sales. Not this one. It’s grown up believing that the sky is about to fall in.

Remember the introduction of the cassette tape in the 1970s and those skull and crossbones stickers on album covers warning that “Home Taping is Killing Music”?

In reality the exact opposite was happening. Before the advent of home taping Americans bought around 2.5 long-playing records each per year. After two decades of home taping they were buying 4.5 recorded cassettes and LPs year.

Stan Liebowitz, a Professor of Economics at the University of Texas argues forcefully that the explosion in recorded music sales wasn’t accidental. It was caused by the introduction of the cassette.

Before then, music listening was generally limited to one room in each house; the one with the record player. The advent of the cassette made it possible to listen in the car, while jogging, in the garden - practically anywhere.

With more of each day available to listen to recorded music people needed to buy (or copy) more music to fill it. Music sales (and also “illegal” home copies) skyrocketed.

I have been collecting Australian sales figures going back to 1982.

In that year we bought a total 29 million units (cassettes, albums and singles) – around 2 per person.

Ten years later after almost a decade of the compact disk we were buying 42 million units. Five years after that at around the time the internet was taking off we were buying 50 million.

Another five years later after the introduction of CD-burners and file-sharing services such as Napster we bought 59 million.

And after the most recent five years of sustained CD-burning, intensive file swapping, the introduction of the iPod and near continuous hand wringing by the industry, we bought 99 million – easily an all-time record and an impressive jump of 23 per cent on the year before.

Australia's recorded music industry is literally moving ahead in leaps and bounds.

Why is that we are now buying roughly 5 pieces of recorded music per person whereas back at the start of the 1980s we only bought 2?

Increased wealth has got to have something to do with it, particularly amongst the first generation that grew up on pop music - those of us now in our 40s and 50s.

But increased wealth by itself wouldn’t help much if we didn’t also have ever-increasing opportunities to listen to recorded music. Devices such as the iPod and home computer (just as with the portable CD player and the cassette tape player before them) have expanded those opportunities.

There is no doubt that we are downloading more music for free than ever – the industry keeps saying so. What it doesn't say (loudly) is that we are also buying and paying for more music than ever.

We are doing much of it in new forms. The sales figures I quoted include include ring tones, digital albums and tracks and music videos – formats that weren't around before the new technologies that the industry claims is ruining it.

We bought 17 million digital tracks in 2007, up from 11 million in 2006.

But even the old formats are doing well. The sales of physical CD albums peaked at 49 million in 2006 – way above anything ever achieved before the internet. Even last year's total of 44 million is well above anything achieved in the 1990s and 1980s.

The industry will argue that it would be selling even more if it wasn't for illegal downloading. It's hard to prove. Certainly it would be selling less if it turned back the clock to before illegal downloads began. And it is highly likely that illegal downloads stimulate sales. That used to be the function of CD-singles - loss-making samplers that would introduce consumers to new music and new bands.

CD singles are all-but extinct. At the start of the decade the industry sold 12 million. It now sells just 2.5 million, having ceded the promotional business to the file sharing sites it claims to hate.

Without those sites we would be exposed to a lot less new music and we might buy less.

The industry will also make the point that it is earning less from music sales. At the start of the decade it earned $648 million. By 2007 it earned only $462 million.

It has cut its prices, which is normally regarded as a good thing, not an evil necessitating government intervention to undo.

In the face of zero evidence that illegal downloads are hurting music sales or drying up the supply of music, the industry wants the Minister for Communications to empower our internet service providers to give us warnings and then cut us off from the web if it finds we have been downloading something it does not want us to.

It is a proposal that flies in the face of the presumption of innocence and grants special status to an organisation that would have difficulty proving its economic loss in court.

And it flies in the face of everything that the Minister Conroy has said about the importance of access to broadband. Didn't his election policy document say that it was as important as access to water and electricity?

The Minister should tell the industry to stick to making and selling music. It is doing well at it.


ARIA recorded music sales 2001 - 2007.

Stan Liebowitz,
Will MP3 downloads Annihilate the Record Industry? The Evidence so Far, School of Management. University of Texas at Dallas, June 2003.

Kimberlee Weatherall,
Notice and terminate/three strikes/here we go again, More on a proposed ‘three strikes and you’re out’ copyright/ISP policy, at Lawfont, February and march 2008

Peter Martin, Forget the spin, taping is not killing music, Sydney Morning Herald December 31, 2003

Peter Martin, Forget the spin! It's a record record, March 18, 2004

14 comments:

Thomas said...

With all due respect, it doesn’t matter if record company sales have increased or not, illegal downloading of copyright material is illegal…pure and simple. It is theft. I’m sure you don’t advocate turning a blind eye toward plagiarism just because Google makes it easy.

This has to be stopped and it seems that moral suasion is simply not working, leaving no choice but a statutory remedy.

Peter said...

Dear Thomas,

You are right. Illegal downloading is illegal. My point is that it is already illegal.

People who do it can and are hauled before the courts, either by the authorities or by the copyright owner.

There is no reason whatsoever to bypass due process (an independent judiciary etc, right of appeal etc) and introduce an arbitrary process that takes away access to the net.

We don't arbitrarily kneecap felons, for example.

As for whether illegal downloading is "theft", that is a harder case to make. As I pointed out, when something is stolen there is usually something missing. Not in this case, in Australia, at least not so far, it seems.

Thomas said...

Just a quick response:

If current laws are adequate then why the firestorm surrounding record labels' attempts to enforce their property rights? If I hear another diatribe about suing children and grandmothers it will be a hundred too many.

Furthermore, and to your point about nothing going missing, that's a clever comeback, but the fact of the matter is that if someone had not illegally copied the file in the first place, there would indeed be something missing.

You see, illegal downloading comprises two offenses, the illegal copy made by the person who shares with a stranger, and the illegal download itself. Both perpetrators are accomplices to the act of theft.

I think it is time that responsible people recognize the slippery slope this social phenomenon has created and first stop fanning the flames of controversy through tacit support, and start writing about the possible long term deleterious effects that could, and most likely will, in my opinion, result for all digitally encoded intellectual property.

Peter said...

And another quick response.

You ask: Why the firestorm surrounding record labels' attempts to enforce their property rights?

I guess it is because to many people their efforts seem totally disproportionate the injury caused. But not to you, and others, and that's fine.

You say "if someone had not illegally copied the file in the first place, there would indeed be something missing". I think not. In Australia so far, for music, illegal copies seem to have expanded the demand for legal copies, and obviously haven't hurt the supply.

That's how it was for academic journals after the introduction of the photocopier. The publishers sold more, not fewer (and for higher prices) after the photocopier increased the demand for the contents of those journals.

As I write here, the journals that were copied the most were the ones able to extract the biggest price increases.

The photocopier didn't kill the journal or the book, the pianola didn't kill sales of sheet music, the cassette tape didn't kill LP records, but you could well be right.

"This time it will be different", as they say. It just hasn't been yet.

Thomas said...

Again, with all due respect, I understand your point regarding photocopies, but perfect digital reproductions distributable to the world at zero cost is something entirely different. There are physical limitations to the damage that can be done by photocopies or digital cassette tapes, for example; such physical limitations do not apply in the online digital world.

Furthermore, copyrighted digital music is the property of the copyright holder; if the owner believes his interests are better served by allocating supply rather than through widespread proliferation, that his prerogative and it is not for anyone else to decide, especially when laws must be broken to do so.

Yes, it is a shame that otherwise law abiding people may be lulled into believing file stealing is OK. Journalists and bloggers constantly give explicit if not tacit approval for such behavior.

Perhaps if people in positions of influence took the high road by writing about the illegality of file stealing and how there are perfectly legal ways of procuring music then fewer people would be lulled into stealing. I think most people are morally grounded and would not be stealing if it were not condoned by the zeitgeist.

Regarding the lawsuits that copyright owners are forced to impose in order to punish offenders and set examples; you imply that such action is inappropriate for the injury caused. Perhaps it is, but without more explicit statutory regulation limiting the ability of file thieves the owners really have no other alternative. On the one hand you argue that file stealing is already illegal so there is no need for statutory action to try to limit it. Yet when copyright owners exercise their rights under the very laws which you say are adequate you then go on to imply the enforcers are out of bounds. One cannot have it both ways. Either existing laws, and the punishment allowed, are acceptable or new statutes are needed to encourage otherwise innocent people from slipping into behavior that could cause them unnecessary pain when caught. Cheers.

Peter said...

Thanks.

Good points.

Perfect digital reproductions distributable to the world at zero cost are different from photocopies etc. They haven't yet made a dent in the legal sales of recorded music in Australia (so far, far from it) but they yet might.

Even if they do, I wouldn't advocate doing away with the courts and legal processes when it comes to illegal downloaders.

And even if they do, I have a feeling that recorded music will survive - although perhaps paid for in a different way.

I can see your point that copyrighted digital music is the property of the copyright holder; "if the owner believes his interests are better served by allocating supply rather than through widespread proliferation, that his prerogative". In other words - owners of copyright have the right to prevent their works being widely available.

The counter argument is that there should be limits - that copyright owners should not be able to deprive society of the benefits of society's creations. Several have tried, among them Samuel Beckett's nephew and James Joyce's grandson. I wrote about their attempts here: http://pmbloomsday.notlong.com

If the alternative to abandon due process and just disconnect Australians from the net, I don't mind the way the law is enforced at the moment.

As Australian legal academic Kimberlee Weatherall writes:

"At least if individuals were sued, rather than disconnected, (a) the cost of enforcement would lie on the copyright owners, and (b) consumers, and media, and everyone else, would be clear on what was happening, who it was initiated by, and, in fact, that it was happening.

"The ‘advantage’ of the lawsuit option is that it is public – and that everyone takes responsibility for their action. That is not necessarily a bad thing, on all sides. In other words, if industry decides to sue individuals, it will, in so doing, at least have to articulate its reasons, justify them to the Australian population at large, and to politicians. Politicians, too, would need to observe the effects of copyright laws and to justify them to the Australian people. I think that’s only appropriate, rather than going through the back door of managing it all second hand through the ISPs."

Anonymous said...

All the music industry has to do is make downloading legally more attractive than downloading illegally. Currently I still download stuff illegally purely because I either can't find it legally, or because it's too much hassle and takes too long. The day that legal download sites are as good as illegal ones, I'll switch. It was never about the money.

Anonymous said...

To be fair, I figured I should try out at least one pay-service for downloading music to see if things had improved since last time I tried.
Well, they have, but still by not enough. I wanted a recording of Prokofiev's 1st violin concerto. There was only a choice of a single recording, and I had to pay 1.69 per track, meaning the total cost was over $5, for 3 wma files that I can't even use on another computer (and it's not clear I can legally burn them to a CD or DVD). It was certainly more of a hassle than using, say, LimeWire (having to download a bunch of IE plugins, dig out credit card details etc. etc., plus there's no streaming, and I have to log-in with email address and password each time I use the size), and for a few dollars more I could buy the CD complete with booklet, complete portability and a few extra tracks to boot.
Further, Bigpond music doesn't include any license-free stuff in it's catalog, even though there are lots of recordings out there that are now in the public domain.

So there's still no real attraction for me to legally download music at this point.

Geoff Robinson said...

Lets be Hayekian here. New technology challenges existing IP structures. So what? The market will work out a way around it (I think Christian Leithner argued something like this). Remember when people thought the Internet was going to be accessible only on a subscription basis? If there are public good problems fix these rather than shoring up obsolete technology.

Geoff Robinson said...

and another point, it's 'illegal' to operate a street stall in Cuba, it used to be illegal for road transport to compete with railways etc.

LETTER said...

LETTER TO EDITOR April 5, 2008

Music myths

Peter Martin's claim that the music industry is not being negatively affected by illegal downloading ("Music industry's false note", April 1, p11) was appropriately at odds with numerous independent reports from around the world and recent statements by artists, including John Butler, who blamed illegal downloads for a 40 per cent cut in his latest album sales.

According to Martin, it's acceptable to engage in widespread copyright theft. He asserts as further justification for this extraordinary proposition that the recording industry is flourishing and that somehow it should be grateful to see this online theft occurring.

How then does he explain the year-on-year downturn in label revenues in Australia? More importantly how does he respond to artists like Natalie Gauci, who openly express disappointment in knowing that people are illegally downloading her songs when they could be buying her album?

Martin's misguided assertions also came on the same day that Britain's largest residential broadband supplier, Virgin Media signalled a move to implement the "three strikes" proposal for users engaging in illegal file sharing on its networks.

This commonsense proposal seeks to deter widespread illegal file sharing through a graduated process of warning notices, suspension and ultimately disconnection by Internet Service Providers who detect illegal traffic on their networks. Recently ISPs in France and Japan have agreed to similarly address illegal file-sharing signalling a global movement to a more proactive approach to stem internet piracy.

Recent independent research showed that that illegal file-sharing traffic is producing more traffic in the internet than all other applications combined and therefore is substantially negatively impacting on the speed of networks.

In Australia, 60 per cent of bandwidth is being hogged by illegal file sharers.

Implementing the three-strikes proposal here would have welcome results for the majority of Australians who suffer slower internet speeds and higher connection fees because a small proportion of the population is engaging in illegal conduct.

Sabiene Heindl, general manager, Music Industry Piracy Investigations Pty Ltd, Pyrmont, NSW

Anonymous said...

Music is not about being paid, and even if it were these pople and companies are making enough. Music should be free to everyone, legal or not.

The world will not change back to storefront culture, it's up to the industry to change. I might be missing all of your pionts, but isn't the purpose of a company to serve it's customers. Not make them feel like criminals. I probably download enough music to deam me a criminal, but I also buy alot. As a music fan I take it how I can get it, the most convenient way I can.

Catch up! the consumers have changed. It's up to the industry to change with it. The old fashiond moral stance doesn't apply. The new way of thinking is the hacker moral code; All information should be free and available to everyone, creative or not. Once something has been put into digital form it is the property of the digital community, and they may do as they wish with it.

Nick said...

Sabiene,

You talk about myths.

John Butler's 40% figure is based on what? His previous album sales?

Natalie Gauci's disappointment is based on what? You clearly haven't read or chosen not to relay all she's had to say about her recent experience.

But, of course, illegal downloads can and will now always be a scapegoat for poor album sales...

Unfortunately, there still exists every one of the much much older, tried and tested since the dawn of time, legitimate reasons why a given album didn't sell well...

Sorry. Your one-sided and one-dimensional half-truths are convincing less and less people.

Anonymous said...

I have no problem with music artist selling an making money off there work.
But what I 100% do no support is when music artist have more money than most small county's.
That, is what makes me cranky and support p2p downloaders.

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