The Music Industry and Copyright Issue in The Digital Phase - Essay Example

? How the Music Industry has faced the Copyright issue in the Digital Phase THE MUSIC INDUSTRY AND COPYRIGHT ISSUE IN THE DIGITAL PHASE Background The recorded music industry is involved in the creation, manufacturing, and distribution of music. These products are, primarily, created and distributed through Vinyl LPs, digital music, and CDs. The recorded music industry, over the past ten years, has undergone drastic changes. Illegal downloading through the internet has become rampant with a corresponding decline in physical sales, creation of outlets for digital distribution, portability of music, cellular phones doubling up as media outlets, in addition to the development of, revenue streams for labels and artists (Wingrove et al, 2011: p271). The increased mobile phone usage and the corresponding desire by the consumer to have their favorite music have led to ring-back tones and ringtones becoming, a profitable part of the industry. The decrease in music sales has led both payers to search for alternative income sources in the generation of revenues. Today, artists are now focusing on the merchandise, touring, and endorsements. This has led to record labels requiring that an artist sign a 360 deal that covers all these other aspects (Wingrove et al, 2011: p271). In the late 2000s, sales of CDs continued with their decline, coupled with a plateau phase for digital sales. This industry is now in its mature stage and is inching towards the decline phase of its life cycle (Chiou et al, 2010: p165). The record music industry’s total revenue declined from $8 billion in 2012 from $18 billion in 2000. The recorded music industry has an oligopoly market structure where there is dominance by a small number of major record labels, which own over 40% of the market share. This allows them to set prices, heighten the entry barrier into the industry, and the sold products are similar. Because of the recent troubles, all major music companies are now struggling. Major players in the music industry include Sony, Universal Music Group (UMG), Warner Music Group, and EMI. These four companies own more than 70% of the market shares (Chiou et al, 2010: p166). UMG captures 31% of market share and owns approximately 15 record labels with $7 billion in revenues as of 2012 (Morton & Koufteros, 2008: p500). Warner Music Group captures 27% of market share, which makes it the 2nd largest in the world. Sony Music Entertainment captures 14% of the world market share after it formed Sony/BMG following a merger with Bertelsmann, which was later dissolved in 2008 with Sony now operating as Sony Corporation’s subsidiary. EMI, which is based in the UK, has a 5% market share and is the smallest of the major record labels. While these four record labels dominate the music industry, there are independent companies that require mention. These companies include Koch, EDC, Zomba, Edel Music, and Bad Boy Entertainment (Morton & Koufteros, 2008: p502). Nature of Problem Over the last decade, the recorded music industry has been shrinking. Although it has been shrinking, consumption of music is higher than it was ten years ago, especially led by technological advances and new models of business. Every major record label has reported losses on a consistent basis over the last decade and, unless there is a radical action, the trend is unlikely to stop (Altschuller & Benbunan-Fich, 2009: p52). Sales of physical CDs have declined to half of what they approximately were in 2000 with sales of digital music on the internet unable to cover for this particular decline. Revenue fell by 6.2% in 2010 as digital music sales expanded physical CD sales fell, and music piracy on the internet was made worse by consumer sentiment and poor economic conditions. Since the late 90s and early 2000s, technology has had a major effect on most industries. Illegal file sharing and the advent of MP3 technologies has had a negative effect on their revenues and is now regarded the beginning of the music industry’s decline (Altschuller & Benbunan-Fich, 2009: p53). While technology is now identified as the beginning of the industry, most are now embracing it, if only to hasten the inevitable market decline. New services that were earlier unavailable to the consumer because of technological limitations have now become viable revenue streams, although they are not viable. The new products and services created for the music consumer include mobile services, streaming services, subscription services, and digital downloads (Mertens, 2010: p665). Digital downloads have accounted for approximately 50% since 2010, of total music sales, which is representative of more than 60% of the total business on the digital platform. Currently, iTunes is the major player in this market, which accounts for approximately 70% of worldwide sales of digital distribution. At a price of $0.99 compared to $13 for physical sales, this has had a negative impact on revenues. Subscription services give the music consumer the option of getting as much music as they want during purchase. The music consumer will pay the service provider a fee in exchange for the ability to listen, as well as download the number of tracks they wish. However, this model is disadvantageous to the consumer since; even though, they pay a fee for this music they do not have ownership of the music once the subscription expires (Mertens, 2010: p665). This discourages the consumer while also reducing revenues for the music companies. Major players in this sector include Rhapsody and Napster. Streaming services, while offering the consumer the ability to listen to the music they want drastically reduces the revenues of the music companies. Streaming services, which are reliant on the ad business model, include on demand services, video streaming, and internet radio. Internet radio is the most popular amongst consumers of music and has substituted terrestrial radio in the past few years (Bach, 2008: p115). This market segment has a few established service providers, such as “last FM” and Pandora Radio. Music companies have little leverage in this sector, which presents them with a hindrance as they have to depend on royalties. On demand, service enables the music listener to access any track that they wish when they wish. Service providers in this sector include Spotify, Imeem, and MySpace. Streaming services via video in this segment include Yahoo, AOL, MySpace, YouTube, and Vevo (Bach, 2008: p115). On demand services involves those services that are given to the consumer who seek to access a particular type of music that they desire to. Music Choice is the main service provider in this market segment. Another internet service that has significantly affected the music industry is the mobile service. These come in four forms; video purchases, single tracks, ringtones, and ring-back tones. Ringtones, of these services, is the most popular, consisting of thirty-second clips that a music consumer can install on their mobile devices (Ki et al, 2011: p408). This service is the most difficult to apply copyright laws to since the installation can be done from one phone to another. Music consumers who want their callers to hear a selected song, rather than the typical ringing sound on the phone purchase ring-back tones. Video tones, on the other hand, are downloaded to a phone so that the consumer can see the video play as they call. This is also difficult to apply copyright laws to as they can be downloaded from one phone to the other (Ki et al, 2011: p410). Problem Analysis Downloading music is not so simple because it requires an individual to break several copyright protection laws as they download music from the internet. Matters become more muddled because some music can be downloaded lawfully (Bhattacharjee et al, 2009: p109). For those that are not, the laws that cover the downloading and sharing of music digitally over the internet varies from one country to the next. For instance, in Canada and Britain, downloading music that is copyrighted from P2P networks is legal. However, uploading of files onto these networks is not. Canada has a levy on private copyrighting that grants one the right to make noncommercial and personal sound recording copies. Levies imposed on blank CDs are used to fund musicians for revenues that are lost because of consumer copying. Because of this, Britain and Canada do not have as many court cases and fines with regards to illegal copying as seen in the United States. Furthermore, whereas Canada initially charged a similar tax on MP3 players, a Supreme Court ruling declared the law was written in a manner that exempted them from taxation (Bhattacharjee et al, 2009: p110). The Canadian government also sought to make circumvention of digital locks as illegal with statutory damage awards set at approximately $10,000 for every music download. This shows just how much illegal downloading has hurt the music industry in Canada. Revenue loss is, of course, one of the biggest issues that face the music industry. If a person, in theory, can download their favorite music from the internet, this person would not have the need to buy CDs at the local music store (Hall, 2012: p16). Every article on the music industry and the effects of the digital phase will most likely give varying sets of numbers as to the revenue lost by the music industry through illegal downloading. However, the most common approximations of average numbers rest at 20% globally since 2000 in sales. The organizations that support downloading and sharing of music are of the opinion that the decline in sales has to do with fewer new releases of music and a bad economy. However, it is obvious that the industry has taken losses in revenue because of internet file sharing. While the exact amount of money that internet downloads cost the industry is not clear, it is certain that these losses affect music stores, recording studios, sound technicians, musicians, and the entire industry (Hall, 2012: p19). Musicians and other music industry players have begun to take action after losses from sharing of copy-protected music online. Those who are at the receiving end of this fight-back are creators of P2P and music sharing programs to the individual users who are sharing and uploading copy-protected music over the internet (Chiang & Assane, 2012: p1374). It is clear that these two groups of people keep the illegal download sector going, and the music industry feels that these people are the most responsible for the loss of revenues. The recording Industry Association of America has now divided the copyright infringement acts into whether the act is done for private financial gain or commercial purposes. Being caught in the act of copyright infringement in the United States now carries a big fine with online infringement now taken as a crime. Online infringement of music that is copyrighted is now punishable by approximately three years of jail time or fines of up to $250,000 (Chiang & Assane, 2012: p1376). Those who are repeat offenders are open to imprisonment of up to six years. The issue has become so serious that an individual could be held as civilly liable without regard for whether the internet downloads is for profit. This is so for lost profits, actual damages, or for statutory damages of up to $200,000 for every infringed copy. While there are so many legal issues that surround online music downloading, the influx of CD burners, MP3 players, and software that lets users easily rip music to their computer from a CD has not declined (Gopal et al, 2010: p93). This results from the idea that these devices possess a legal and legitimate fair use association. An individual, as mentioned, may choose to create a back up copy personally for use in an MP3 player or even use iTunes and other Web sites that offer music that the individual pays for as they download. Previous Position For entrepreneurs who make a living from the creation and sale of music, the effort to tackle piracy is an ongoing battle. Protection of intellectual property rights needs them to use various different approaches that involve adjusting to the marketplace with an appetite that is still high for new content (Condry, 2012: p350). While the public may view the issue of online music piracy as a crime without victims, copyright infringement of this kind, damages the professional’s creative ability to make ends meet from their work. Because of this, it is essential for them to tackle the issue and they have been doing so for the past decade. One method used is public education campaigns that have long been considered as the first line of defense against online music piracy. To aid in stopping of music piracy, the music industry began to put out short commercials on the internet and as the first track in music CDs that equated piracy of music to shoplifting. Individual music artists from acts like Metallica and Dr. Dre to stay at home ladies who sell, during their free time, digital scrapbooking, frequently speak out against the act when talking to fans and music consumers (Condry, 2012: p351). There are grassroots organizations that work towards educating the public concerning intellectual property rights via campaigns on online marketing. Technology has also been used as a vital component in the fight against online music copyright infringement. Music companies have experimented with anti-copying software on their CDs that require online registration forms or authorization codes that strive to make it more difficult to pirate music as they are only available with legal copies (Easley, 2009: p165). For content that can be downloaded, systems of digital rights management limit the devices that one can use to play the music to stop them from sharing copies that are not authorized. Some sites have also been selling downloadable files in possession of digital fingerprints that enable them to trace pirated copies to point of origin. Resourceful hackers, however, have found ways to circumvent these measures. Lawsuits have also become an obvious manner in which to stop illegal digital music downloads. However, this is normally used as a last resort. The internet’s global nature makes it expensive and unbearable to track down the involved parties. In addition, music piracy laws differ according to a country, which ensures that enforcement is difficult. Large corporations are also wary of the negative publicity that these lawsuits bring with the RIAA coming under fire for suing individuals in 2000 for illegally downloading music that was copyrighted via Napster, including retirees, stay-at-home mums, and college students (Easley, 2009: p168). It is still easy to access illegal music download websites despite recent action, by Google, to revamp its search formula in order for them to discourage users from searching for illegal download sites on the internet. According to a study by the RIAA, while Google has made decisive efforts, it has failed, ultimately, failed to stop these sites from popping up in searches (Coyle & Gould, 2010: p1036). The websites have simply found ways to reduce the impact of their demotion on the search algorithms by advertising on blogs and other legal websites. YouTube, Endemol, and UMG have taken up the mantle to stop illegal music downloads. Piracy in Africa was estimated, in 2009, to cost their music industry approximately $56 million a year. The report by RIAA claimed that serial infringes that they identified in Google’s transparency report for copyright was not demoted in a manner that significantly limited search results and the illegal download sites still managed to appear on the first page over 98% of the time that searches were made (Coyle & Gould, 2010: p1038). Alternative approaches The impact that illegal digital downloads of music on the internet has on the music industry is a topic, which the industry has looked at carefully, and they have tried to tackle it. However, as seen in the cases above, the methods in use have not been truly effective. The war on piracy is now moving towards cyber-blockers like Media-fire and Zippy-share who pays money to those who play host to their files on their websites that achieve a particular amount downloads, legally or illegally (Easley, 2009: p165). Because of the high traffic volume that goes to the files, search engines like Google or Bing rate them highly, which makes members of the public who are searching, for new music, to see matching file links for illegal downloads among results from legitimate music download stores. These links from cyber-blockers appear on multiple websites; therefore, by tackling it with the host, these links can be rendered useless (Easley, 2009: p165). A range of services that record labels and other players in the music industry that can be used to remove illegal links exist. One of them is BPI, which is UK’s representative body for recorded music business with 90% of recorded artists in the country sold by its members. Members of this body have access to its anti-piracy unit that can help in taking down illegally distributed material (d’Astous et al, 2011: p293). As well as the ability to inform them of promos and new releases directly, if one’s music is PPL registered, then BPI can utilize their database to trawl the web and look for illegal links. For a label that is independent, they will have to pay membership fees at a cost of ?67.50 and an additional 5% for UK distribution, as well as VAT (d’Astous et al, 2011: p293). Those who are members of other organizations like AIM can access these services free as members. Music industry insiders can also use IFPI that is an organization concerned with global policing of the industry and recorded music. This association works in conjunction with national bodies like BPI and can take down illegal links. Music industry players can also look towards private companies; to tackle the issue of illegal music downloads. Audio-lock is one of these companies that specialize in track watermarking (d’Astous et al, 2011: p294). Watermarking a track involves embedding the track with a unique code that is traceable afterwards. This is meant to protect music at the source from piracy, as well the identification of pirates and their removal from distribution. A music label could assign each file with a watermark that is sent out during the promotion stage. If this file then re-appears via illegal means, the label is notified, and it is removed immediately. However, it does not tackle piracy once the music is in general circulation, in the public arena. Rip-block is another program that is being tested (d’Astous et al, 2011: p296). This service employs manual staff to check for all instances of illegal downloads that would apply to files and music once it is in general release and the promo stage. A TID project like Track-it-down is a major retailer of online dance music that also operates a successful service against illegal downloads. It possesses a dedicated group of people who trawl the internet searching for illegal copies of music, done by their clients and requests their immediate removal when sited. MUSO is yet another service that can be used to tackle illegal music downloads (Chiou et al, 2010: p170). It is tiered and dependent on file removal numbers allowed and the manner of actively managed file removals. It is also worth it to weigh up the money and time that it takes to police the label’s music. While illegal downloading of music is frustrating and a drain on resources, a label with limited resources would be best placed to persuade the market to buy their products in the first place as it takes a lot of money to police music. Conclusion While technology does seem to have initially hurt the music industry, especially in the area of illegal music downloads, it is developing in a manner that is expected to put the music industry in a position of future success. However, the issue with technology in the music industry is that most major music labels who take charge of the manufacture, creation, and distribution of music are lagging behind when it comes to being in pace with technological trends. Since these companies are in the music industry, rather than in the technology industry, they are not up to scratch as to how to control its open source nature. They, thus, misunderstand the way technology can be utilized to their benefit; initially spending time attempting to fight changes that produced by these new technologies. Music companies were unable to grasp the manner in which technology could be utilized to efficiently to grow the industry. Had they done this, they would have hastened the decline of the music industry and gotten substantial returns from it. Currently, music companies are in the process of attempting to reconcile the traditional physical sales and the internet download culture, attempting to find out what will and will not work in the internet digital space. References Altschuller, S. & Benbunan-Fich, R., 2009. Is music downloading the new prohibition? What students reveal through an ethical dilemma. Ethics and Information Technology, 49-56. Bach, D., 2008. The Double Punch of Law and Technology: Fighting Music Piracy or Remaking Copyright in a Digital Age? Business and Politics, 111-122. 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