The Music Piracy Myth

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Tim O'Reilly
Apr. 13, 2003 06:08 PM
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George Ziemann of MacWizards Music, the guy who has done the best analysis of RIAA sales statistics out there, sent me the following mail yesterday, and gave me permission to reprint it here. I've added a few links.
    Currently, if you do a google search on RIAA statistics, I'm number one and two; you are three and four, and your article refers to me, so I know you know who I am.

    The article to which you referred was published in December. Since that time, a lot has happened, as I'm sure you are aware, not the least of which being the RIAA's recent lawsuits against college students.

    First of all, I am a musician. The only reason I even started researching what the RIAA has to say is because of the problems I had selling my own work at eBay, which were entirely due to RIAA accusations of copyright infringement (it was my own CD).

    After looking at the 2002 RIAA data, I also realized that over the last 5 years, the recording industry has shipped out more than 2 billion physical units of product, adding up to a retail value of more than $20 billion. You'd think that they would embrace a free marketing and promotion opportunity like mp3s. Let's face it, an mp3 is an inferior copy. I consider mp3s to be an ad for my actual recording.

    My current consternation comes in the form of a letter from my congressional representative, who states that "In 2001, record sales were down 10 percent because of unauthorized music downloads..."

    Yes, sales were down. Other than that obvious fact, there is no empirical data to suggest that downloading is the cause of the problem. I've asked the RIAA. In fact, I would go so far as to say I have relentlessly taunted them in hopes of a reasonable explanation. They offer none.

    So think about this. As the original research I conducted indicates (and has been verified by SoundScan via BusinessWeek.com), the record labels began to reduce the number of releases BEFORE the Napster hearings. When they went in front of Congress to complain about downloading, Hilary Rosen could confidently state that sales were going to suffer.

    Because it was engineered.

    Here's another interesting point. I can go to www.discmakers.com and order CDs for $1.89 each. Not "replicated" but created from a glass master. As I understand it, the current wholesale price for a CD is about $12.

    So how can EMI's Cost of Goods Sold (2001 -- at Hoovers Online) be 71% of their income? BMG's 2001 annual report blames industry shortcomings "long obscured by market success" and Vivendi told its stockholders that an "anticipated lighter release schedule" had something to do with it. BMG is the only one that even mentions file sharing -- as a justification in investing in Napster.

    Why does "sales are down 10%" overrule any other explanation for declining sales? A bigger question is -- Why won't anyone in the media even discuss this?

    Recently I spoke to the FCC at a public hearing in Tempe (Phoenix area). Next month, I'm going to speak at the DMCA hearings at UCLA Law School.

    Additionally, I'm hearing from college kids all over (Duke, Auburn, UCSD, Univ. of North Carolina, Yale Law School, Univ. of Wyoming). They're reading my site and they're using it as background for dissertations and reports. They ask questions. They do not accept vague answers.

    Why does the government accept the "sales are down" without any consideration of other, equally plausible explanations? And why does the press?

    When the majority of the public is guilty by default, then something is terribly wrong. I'm not sure why I'm even writing to you, except that you seem to be about the fifth person in the country that has applied some logic to this issue.

    I've written to every member of the Senate Judiciary Committee, Commerce Committee and Small Business Committee. I've written to Jay Berman, Hilary Rosen and the Recording Artists Coalition. With the lone exception of Janis Ian, absolutely everyone has totally ignored me.

    What can we do?

Unfortunately, I don't have any good answers for George, except to keep articulating the reasons why file sharing is not the bogeyman the industry makes it out to be. But I agree that it's puzzling how Congress and many in the media has just accepted the RIAA's contention that file sharing is to blame for the decline in sales when there are so many other possible reasons, such as the economy. But the most strikingly ignored possibility is the point that George has previously brought out through his analysis of the RIAA's own data: the industry issued fewer releases (with significantly higher revenue per release even though sales as a whole were down.)

That being said, I think that the tide will eventually turn, as long as Congress doesn't act too quickly to completely shut down file sharing. The RIAA members are fighting a delaying action till they can get themselves in gear. Ultimately, they will ride the horse in the direction it's going.

Meanwhile as George points out elsewhere on his site, there are plenty of musicians eager to have their music shared for its promotional value -- much as I argued in Piracy Is Progressive Taxation. He argues that one useful thing you can do in addition to writing to your congressional representatives is to ignore the music put out by the majors, and explore the music that is put up for free redistribution by sites such as DMusic.com and GarageBand.com.

Tim O'Reilly is the founder and CEO of O’Reilly Media Inc. Considered by many to be the best computer book publisher in the world, O'Reilly Media also hosts conferences on technology topics, including the O'Reilly Open Source Convention, Strata: The Business of Data, the Velocity Conference on Web Performance and Operations, and many others. Tim's blog, the O'Reilly Radar "watches the alpha geeks" to determine emerging technology trends, and serves as a platform for advocacy about issues of importance to the technical community. Tim is also a partner at O'Reilly AlphaTech Ventures, O'Reilly's early stage venture firm, and is on the board of Safari Books Online, PeerJ, Code for America, and Maker Media, which was recently spun out from O'Reilly Media. Maker Media's Maker Faire has been compared to the West Coast Computer Faire, which launched the personal computer revolution.

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