Free Online Music Sharing: irreversible and beneficial


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Music has been a primary form of artistic expression since the dawn of civilization and in the last a little bit more than a century it turned into a very vibrant, influential and fast changing industry, significant both in economical and cultural terms. The music industry is the business industry connected with the process of creating a musical work and of exploiting it.
The broader music industry (formed by radio advertising, recorded music, audio home systems, live music, portable digital players, musical instruments, music TV/magazines advertising, music related video games, publishing, and performance rights), as assessed by the International Federation of the Phonographic Industry (IFPI), was worth over USD 160 billions in 2008 with an estimate of 0.6% growth comparing to 2007, a trend that is followed over the last years. Areas that experience a fall in value are radio advertising, recorded music sales, and musical instrument sales. All the other sectors benefit from a growth in value. Worth noting is that the live music sector went from a value of USD 14 billion in 2005 to USD 21.6 billion in 2008.
The global recorded music sales are the ones that suffer a decline each year since 1999, which was preceded by 15 years of rapid growth. The digital sales are reported starting 2004 and in 2009 more than one quarter (27%) of the global recording industry’s revenues came from digital channels. The growth of the revenues coming from digital sales and performing rights is not able to compensate for the decline in the physical sales. Therefore, IFPI reports a fall of 30% in global sales from 2004 to 2009, with a slowing growth rate for the digital sales.
Since 2008 the recording industry consists of four major labels (Warner Music Group, EMI Music Group, Sony Music Entertainment, Universal Music Group, put together accounting for more than 70% of retail music sales) and thousands of independent labels. Another dominant position is occupied by Apple Inc. – the largest digital music retailer and producer of portable music players (iPod market share – 73,8% in 2009).

The Irreversibility of Free Online Music Sharing

During the past decade mass-media and scientific research tackling music industry issues targeted mainly the popular and painful topic of recorded music sales decline mentioned above. Many players from the industry, especially the major labels, understandably, make file sharing responsible for this decline. In the same time, there are no unambiguous theoretical and empirical economic studies regarding the impact of file sharing on sales.
Free online music sharing can be defined as the distribution of digitally stored music or the provision of access to it, via Internet, either in an authorised or unauthorised by the copyright holder manner, while the non-commercial end consumer (the individual) doesn’t explicitly pay for the use of music. Nonetheless, the unauthorised sharing, an act/process sometimes referred to as “piracy”, taking place through the Peer-to-Peer networks, accounts for the majority of free online music sharing.
The protection of the copyrighted music works in the digital era was firstly tried to be enforced through Digital Rights Management (DRM), which refers to the technologies/measure designed to control how end users can access, copy, or convert information goods. The first DRM control used was introduced in 1992 and it was incorporated in any digital audio recorder sold in USA. But when the “rip” and “burn” of CDs via the computer became widely available, music industry saw itself in front of a big problem, since the law exempted computers and computer hard drives from this measure. In the beginning of 2000s, some major labels chose to develop several ways of embedding the copy control on the CD/DVD itself, but with the help of various software, the control could be circumvented. The DRM on CDs was dropped in 2007. As for the online music stores, iTunes (Apple’s Music Store) launched with DRMed songs that imposed many restrictions. Again, there were possibilities to bypass them, too. As a result of great public and scientific opposition to DRM, many companies started to provide DRM-free music in 2008, followed by Apple in early 2009.
The explosion of the online public exchange of music without the permission of its owners and without monetarily compensating them happened in June 1999, when a student in USA created Napster, a file-sharing service, that reached its usage peak in February 2001 – 26.4 million users worldwide (that is, around 7.3% of Internet users at that time). In late 1999, the Recording Industry Association of America (RIAA) put the company to court for copyright infringement. Since Napster had a centralized architecture (i.e., all users would connect to a single server that would facilitate their connection among each-other), it was easy to prove its ability to control the illicit conduct. Although Napster was forced to shut down in June 2001, it served as an inspiration for others and thus free decentralized file sharing networks are developed since 2000. Many recorded music industry representatives, especially from USA, continued the practice of lawsuits, mainly targeting the software used for file-sharing. As decentralized networks do not control a central database and they are considered to provide tools that customers, which have equal features in the network, could use to trade both legal public domain materials as well as copyrighted materials, the software (clients) was deemed legal in the beginning. This decision did not last for long and courts all over the world started to shut down P2P clients and index sites (search-engines) since 2005. Moreover, the USA music industry is known for opening legal proceedings against about 35,000 people since 2003 on the grounds of downloading and sharing songs through P2P networks. This practice was highly criticized and abandoned only at the end of 2008.
One of the most recent and interesting legal cases regarding P2P is Sweden vs. The Pirate Bay. The Pirate Bay is an index site operating since late 2003. The fight against it started in May 2006, by police raiding site’s facilities. The website was back in 3 days and the immense mass-media coverage related to this action contributed to the website’s popularity. In January 2008, the Swedish authorities, being supported by a consortium of copyright holders led by IFPI, charged four men with facilitating copyright infringement in connection with the website Pirate Bay. The men were found guilty, but they appealed the verdict and the case is expected to take place in later 2010. The website itself was never attacked in court, but its shut down was tried by other means, like the court ordering the bandwidth supplier to disconnect it from Internet. Pirate Bay responded with relocating its web servers to Ukraine within hours. This is a method that other sites also use. Music industry investigators have tried to trace the ownership of the firm behind The Pirate Bay, but had no success, since the firm is registered in the Seychelles islands, and records on file there do not reveal any owner information.
Most recently the recorded music industry mainly lobbies governments to impose the Internet Service Providers (ISPs) to be the police related to unauthorised file sharing and to block access to copyright-infringing websites, to impose a download limit, to send copyright warnings to Internet users, or to disconnect them if suspected of copyright infringements. In return, the ISPs (which are controlled by companies much bigger than the labels) comment that “trying to stop people sharing copyrighted material over the Internet is a game in which the pirates always win and calls for ISPs to halt illegal file sharing are naïve”, since there are easy methods of disguising the traffic; and that the cost of this measure would be much higher than the music industry losses.
Thus the practice shows that technologically and legally it is not possible to terminate the unleashed process of free online music sharing, unless a unique worldwide legal agreement and its efficient enforcement via various actors (including ISPs) is achieved, something that is very improbable.
The irreversibility of free-to-non-commercial-consumer music can be also grounded on a series of reasons of other nature, to name a few:
–    tacit acceptation and encouragement of file-sharing by the electronics industry (for example, without the free online music sharing the portable music players with large capacity (like iPod) or spacious hard drivers would not be so popular). Moreover, some content owners are controlled by electronics companies;
–    two-channel deflationary force of technology that suggests a very low or approaching to zero price for a copy of the recorded music and also gives opportunities to a larger number of people to create and distribute music, thus giving birth to the economics of abundance question, when the consumer is the one to decide the price;
–    inability of the music industry actors to compete with P2P networks on many other features, besides “free” (access to a larger music library, easy unbundling of music pieces from albums, highly user friendly clients/sites);
Generally, looking back at the history of recorded music distribution, it is true that technology was always ahead of legislature, and that every time a new release/invention was made in this field, the major players in the music industry could not foresee and/or prevent the negative externalities, i.e. the unwanted copying of music. The major players were firstly showing resistance, but then embracing the invention – this is especially true for radio. Now free online music sharing is a component of the digital revolution, therefore the industry has to assume it and to produce its own revolution.

The Benefits of Free Online Music Sharing

From a practical point of view, the positive impact of free online music sharing can be assessed from the perspective of the artists, consumers and the business that lies between them.
Nowadays artists are more able to: gain exposure and actually find an audience; distribute and promote their music, moreover, at a really small cost; better interact with the listeners; promote other music-related goods and services, which might be more financially rewarding than recordings, this being the case of live performances. A valuable, both artistically and financially, phenomenon is prosumption.  Consumers become “prosumers” by cocreating goods and services rather than simply consuming the end product. This can fruitfully happen if the recordings are freely available and they can be freely, yet non-commercially, used and transformed, such that, subsequently, the new works would be again freely shared. Thanks to free online music sharing, the proportions of word-of-mouth increase. “Word-of-mouth” is a term used for the passing of information from person to person and it includes any type of human communication. Individuals are more inclined to believe in word-of-mouth, than more formal forms of promotion methods. Generally, the marketing tools that can be developed thanks to file sharing are diverse and efficient, leading to the creation and expansion of the fanbase which is essential for an artist in all perspectives.
The conjunctures created due to file sharing gave the artists more tools for becoming efficient independent acts – a situation that generates further positive outcomes (control over their music; greater bargaining power, if decided to sign with a label etc.).
No doubt, the most favoured ones in the era of free online music sharing are the consumers, which, besides obtaining a recording at no price, have: instantaneous access to a large music library; the ability to more efficiently select the music they enjoy and the ways to spend the budget dedicated to music; more chances to involve in the decision making process related to what music should stay and prosper on the market; the possibility to communicate with the artists and to become an active prosumer etc. Therefore, a higher level of consumer satisfaction is obtained. And more importantly, economic research shows that consumer welfare gain largely offsets the loss related to recording sales, thus a welfare improvement is achieved.
The labels, as artist representatives, can enjoy the same benefits as mentioned above for artist. Moreover, the label’s task of talent spotting is considerably eased by free online music sharing. On the other hand, the traditional way of doing business of the labels is largely hurt due to online sharing.
The recorded music industry underlines that the main negative aspect of the unauthorised sharing is less investment in talent and therefore fewer music products. Conversely, statistic data for USA and Canada shows that “while album sales have generally fallen since 2000, the number of albums being created has exploded. In 2000, 35,516 albums were released. Seven years later, 79,695 albums (including 25,159 digital albums) were published.” (Oberholzer-Gee and Strumpf (2009), citing SoundScan (2008)).
The new information infrastructure offers more quality, quantity, and access, eliminating many barriers and discriminations present in the physical format.
Surely, not all positive effects are produced directly by the free online music sharing, but it is this sharing that made music ubiquitous, thus creating chain reactions on various levels.
The benefits and opportunities brought by the free distribution of digital recordings have to be acknowledged and taken profit of. In order to fruitfully continue the activity in the nowadays circumstances, all the players have to adapt and reinvent themselves.
The real world of music offers us examples of both: artists that were already famous at the moment of engaging in business models that would assume the sharing phenomenon and their practice brought positive results (for example, Radiohead, Nine Inch Nails); and once unknown artists that gained popularity thanks to free online music sharing (Arctic Monkeys and others). Some less-known artists complain about free online music sharing, but unfortunately they refuse to realize that in the pre-digital era their music or even complains would have not been heard at all. Cases when popular artists were obviously hurt by free online music sharing are not reported in mass-media. Although there are some against free online music sharing, they do not bring exact data. Surely, first of all, the impact of sharing on unsuccessfulness can not be exactly measured, because this can also be the result of bad quality music, consumers’ taste, large availability of new music (which was not true in the pre-digital era) and many other reasons.

The Future of Music Industry

During the past six years the recording music industry is trying to come up with new business models that will fit the digital era, but its work started with a delay, four years later than the file-sharing phenomenon, and at a slower pace, with many of the resources directed towards the fighting of the file-sharing, instead of offering alternatives, which proved to be a wrong strategy.
I would like to shortly present several models that have the potential to contribute to the development of the music industry, in the presence of free online music sharing:
1. “360 degree contracts” – the music company represents all aspects of an artist’s career, agreeing to provide greater recording royalties and financial support for the artist, in return of a percentage of artist’s all interests.
2. exploring niche markets – in the new environment, where the costs of bringing music to the listener greatly decreased, an efficient business model option for music companies is to rely on niches that can address the incredibly various musical tastes of people around the world. During the last decade niche music appeared in large amounts, but it was not efficiently managed;
3. statutory license – non-commercial users of P2P system would be legally free to distribute and modify files as they wish, but providers of services and devices the value of which is substantially enhanced by P2P file-sharing should be charged a statutory fee (Netanel 2003). The likely candidates to be charged include ISPs, P2P software and services, computer hardware, consumer electronic devices. A mechanism of tracking the popularity of songs and distributing the revenues would be developed.
Nowadays, more than ever, music is ubiquitous and it became an integrant part of people’s everyday life and this is mainly the merit of free online music sharing. Thus, the present state of affairs can not be without significant benefits for all entities in the music industry, old and new, if they accept change and do not fail to adapt and innovate.

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