The origin of Music Piracy
Music piracy is a conceptually abstract and intangible phenomenon that is considered to be the main enemy of the global music industry. However, this practice is not condemned unanimously by all parties involved; while artists may thoroughly despise it, consumers are very divided with regards to it. The discrepancy in how this phenomenon is seen lies in the fact that piracy is a very flexible term and can be moulded to fit any kind of argument. Therefore, before we even try to analyse the extent to which the music industry is damaged by piracy, we must firstly understand what piracy really is.
The Economic Times defines it as “the copying and distributing of copies of a piece of music for which the composer, recording artist, or copyright-holding record company did not give consent.” Dictionary.com makes an even broader definition defining piracy as “the unauthorized reproduction or use of a copyrighted book, recording, television program, patented intervention, trademarked product, etc.” If we use this definition as the only true definition of piracy, we can be accused of piracy if we sing under the shower and someone hears us. The American Federal law code, (Title 17, United States Code Sections 501 and 506), other than unauthorized reproduction, also includes the simple copying of the medium without any further use (e.g. for backup).
From this brief research we can conclude that copyright infringement through illegal music sharing is hard to define and therefore hard to quantify. It should be no surprise therefore, that record labels blame all of their woes on piracy, after all, estimates using such broad definitions, can potentially allow them to produce huge numbers of potential “pirates” and consequentially increase the economic damage done.
The term “piracy” implies that there is a theft of a good, taking something away from someone without their consent, but this implication is actually the complete opposite of what music piracy actually is: the sharing of songs without the permission of the artist. Illegal music sharing is more of a form of vandalism, where most of the time it just damages the owner of the copyrighted material without bringing any benefit to the criminal. In many cases, therefore, this type of activity leads to a net loss of welfare. Therefore, in this article while discussing the widespread phenomenon of music “piracy”, I will refer to it as Illegal Music Sharing (IMS).
CD-burning was the first real catalyst for IMS, it was incredibly cheap to copy a song and give it to a friend, or a family member, but copying files took time and still imposed a cost on the criminal, there were still many barriers that prevented IMS from expanding beyond the more technically savvy users. With the advent of Napster in the early 2000’s IMS really began to expand at an incredibly rapid pace as it was virtually free to download and reproduce songs that other users had uploaded, at its peak there were 57 million users. The revolution set off by Napster survived the website’s demise as by the time it was closed, thousands of similar websites had emerged in the web, not only that, but peer-to-peer file sharing over “torrents” was also being coordinated by sites such as Limewire. IMS found fertile territory in the World Wide Web and grew to dimensions that even governments and institutions are unable to control.
Only damage?
IMS damages the music industry in many ways, the most obvious is that it supposedly deprives the music industry from the income it needs to survive and expand. The economic reasoning behind this is quite simple. In an initial scenario, the consumers, in order to obtain the song they want, can only purchase it through the authorized retailers who at times even charge their own mark up. The possibility of illegal music sharing, initially through CD cloning and then through online platforms, gives the potential buyers another option, in this case, the cost is zero but the enjoyment they derive from it is the same. Obviously consumers would choose the latter option and acquire the so-called “pirated” song.
This is the assumption of many economic studies reported on the RIAA website. These studies unsurprisingly, given where they were reported, strongly suggest that music piracy directly damaged the industry. The following are a sample of a collection of statements reported on the website:
- Since the peer-to-peer (P2P) file-sharing site Napster emerged in 1999, total music sales in the US have dropped 53 percent, from $14.6 billion to less than $7.0 billion in 2013. (The main decline, however, was due to a fall in CD sales, so there may be no causal link.)
- NPD, a market research company, reports that only 37 percent of music acquired by US consumers in 2009 was paid for.
- Digital storage locker downloads constitute 7 percent of all internet traffic, while 91 percent of the links found on them were for copyrighted material, and 10 percent of those links were to music specifically, according to a 2011 Envisional study.
Clearly, there is a deep economic impact caused by IMS, more specifically, a study conducted by Jupiter research concluded that between 2001 and 2012 music piracy cost the UK music industry £1.6bn, to put in perspective, the whole music industry was worth £3.5bn in 2012. On the other side of the Atlantic, a study in 2007 concluded that “recorded music piracy costs American workers significant losses in jobs and earnings, and governments substantial lost tax revenue” This study concluded in fact that there were 71,000 lost jobs and an annual loss of $12.5 billion through knock on effects on related industries.
[FIGURE 1: CD’s sales have declined, but is it piracy’s fault?]
It is easy to conclude, therefore, that there is a concrete impact on the number of sales of music. We must still consider, however, the results of survey data dependent heavily on the sample and the type of questions asked, a bad combination of these two factors could lead to an overestimation or underestimation of the problem.
To make matters worse, one of the few studies that analysed the real behaviour came to the opposite conclusion of the surveys. In the European Commission report “Digital Music Consumption on the Internet: Evidence from Clickstream Data”, the researchers followed 15,000 unsuspecting internet users across Europe for a whole year came to the following conclusion “Across specifications, the estimates of δ suggest elasticities of about 0.02 between clicks on illegal downloading websites and legal purchases websites. If this estimate is given a causal interpretation, it means that clicks on legal purchase websites would have been 2% lower in the absence of illegal downloading websites” of course, this is giving “causal interpretation”, but even without this assumption, the study also said “After using several approaches to deal with the endogeneity of downloading and streaming, our results show no evidence of sales displacement”.
[Figure 3: Music pirates buy more music] Source: www.statista.com
The fact that the European study concluded that there were potentially some benefits, or at least no drawbacks to illegal music sharing suggests that, even if the data contradicts what would happen in the common sense situation, there are many scenarios in which this conclusion may seem perfectly valid. For example, illegally shared music can theoretically increase the consumer’s level of “knowledge”. This is because illegally shared music through uploads on streaming services such as YouTube can be used as a “trial” before the actual legal purchase. Unlike many other goods, a song or album cannot be objectively reviewed and the common 30-or-less second samples are clearly not enough to get a good feel for a song especially in the case of a whole album. In this case, downloading an illegal copy would allow the consumer to make an informed decision in the purchase.
A second situation in which the potential revenue of a record company is not harmed by illegal music sharing is if the person who downloads the track had no other option left. Many non-English speaking artists are very difficult to find in the common Anglophone online stores, for those who perhaps do not speak the language, purchasing a track in a foreign on-line store could present serious challenges or even be impossible due to IP region locks. This would mean that if consumers wanted to avoid breaching the law, they would not be able to buy the track or album. In this respect, illegal music sharing has a more capillary presence in the web, making it possible to access previously inaccessible data.
Sometimes, albums and individual songs are perceived to be simply too expensive and priced unfairly. In a study conducted in 2010 by the University of Pennsylvania, the researchers revealed that the interviewed consumers saw $0.60 as the fair price of music and concluded that potentially the industry’s profits are almost 50% lower than than what they could be if they had charged $0.60 per song rather than the common $0.99. This is both congruent with the view that illegal music sharing may harm the industry since, at an extreme, the 50% loss in revenue could be totally attributed to people resorting to piracy, but at the same time it is also suggesting that the record labels are giving people a reason to illegally share files because they are overpricing their products or simply discouraging people from purchasing the song.
The future
The music industry is reacting to the phenomenon of illegal music sharing in a disjointed manner as the interests of artists, record labels and consumers diverge. While there is a set of new approaches, which could work in some cases, there is no one solution and none of them is likely to succeed in the industry as a whole.
Some independent artists, for example, have begun selling songs for free on their websites and instead earn revenue through the advertising on their page and donations, this clearly does not give the artist much hope of making a large profit, but in some cases, it allows them to continue to make music. More popular artists, such as Madonna have contracts with music labels in which they forgo almost all of the single sales, but keep all of the profit from live performances and are paid in advance for their albums. Through these techniques, many artists have been able to partially shield themselves from the financial damage of illegal music sharing by changing the market they operate in, instead of selling their songs to the listeners, they are selling them to the record companies. While effective, to various degrees, in protecting the artists’ profits, these approaches, however, are not the best response to illegal music sharing; it is just as easy to copy a song today as it was five years ago.
Since record labels cannot run away from the consumers, the culprits for illegal music sharing, their solutions are more focused on addressing this problem. Techniques such as selling pre-orders with one-time codes, giving out CDs for free in special occasions and even at times producing one CD and preventing the buyer from selling it for another 88 years[9] can all be seen as direct attacks on illegal music sharing.
A solution can be found by looking at how other industries have responded to the phenomenon of illegal file sharing. The most successful example is the videogame industry, through the use of techniques such as online checking and codes that are tied to one account, the difficulty of pirating a videogame has increased dramatically. Perhaps then, the music industry can adopt a similar approach.
While this would be an increase in the cost of pirating music, another way could be to lower the cost of listening to the legal copy. This can be done through streaming services such as Spotify and Tidal, where due to the incredibly large libraries and unlimited music available, both free and paying users face incredibly low costs for a single track, which has the potential to offset the cost of downloading the illegal track. It has shown some success in the TV and Movie industry through services such as Netflix and Hulu; therefore, it could also work in the music industry. This seems to be the direction the industry is heading, while disputes between the music industry and these services (like Taylor Swift vs Spotify) are inevitable, but necessary for the development of a market that pushes buyers to acquiring music through legal means.
Although, as we have seen there are cases in which illegal music sharing does not damage the industry or even benefits it, it is undeniable that, fundamentally, people are going to choose the cheapest option available. With the complicity of common search engines, the damage done by this practice is undeniable. While estimates may vary, and are probably overstated, the economic consequences are still very real for those who work in their industry. The real risk to society as a whole is that potential artists may be put off by the widespread diffusion of illegal music sharing and in the long run this may lead to a decline in quality of the entertainment medium. Luckily, as we have seen, the industry is already evolving; services such as Spotify, Tidal and Apple music show the flexibility and creativity of the industry in dealing with this problem. Therefore, it is not unreasonable to think that if the economic incentive is large enough, an effective response to illegal music sharing is going to be produced.
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