Friday, May 06, 2005

Piracy & pluralism- the future of the record industry?

Rest assured that the RIAA is preparing a lengthy rebuttal for this USA Today article: Pirating grows, it may not be the end of music world:

'Music pirating is so rampant and so entrenched in China that it's unlikely to ever be eradicated... In all probability, no company will ever be able to sell $15 CDs or 99 cents-a-song downloads in the world's most populous nation.

The International Federation of Phonographic Industry, which tracks music copyright issues worldwide, agrees. It figures 95% of music sales in China are of pirated copies. Instead of predicting that China will change as it engages with the global economy, the federation warns that China is, in fact, the leader. The federation's chairman, Jay Berman, has been quoted as saying, "The business model for the record industry worldwide is moving toward resembling what we see in China today".'

Needless to say, this is not unique around the world. Even though pressure has also been put on Russia by the IFPI to clamp down on music pirates, they're likely to have as much success there for the same reason. The CD's that are officially released by record companies are far out of the reach of most of the people there so they instead rely on boots to hear music. They're even pretty creative about how they do their homemade compilations. A friend who lived there picked up the entire Kraftwerk catalog on one CD-R for less than the price of an album. Similarly, when I was in Morocco and wanted to sample some of the local music, I went to some record shops to pick up CD's. When I later opened them up, I found out that all of them were CD-R's which were obviously not made by any official record company.

Can a group like the IFPI (or any other group) really stop this? That would require them trying to pressure local governments to pass stricter copyright laws. Unless America, where they line the pockets of senators, governors, etc.. to make these things happen, international law is trickier for them to deal with. The carrot-and-stick approach they can use is to threaten other trade agreements if these governments don't comply. If this does work (and it doesn't always), they then have to convince these countries to actually enforce the laws extensively and continually, which isn't cheap and will have the police diverted from other duties.

Assuming that all these measures are successful and that all of the international pirates are shut down... uh wait a minute, there's a problem with that too. As Napster, Kazaa and other P2P services have proven, once you shut down or threaten one service, many others are ready to spring up in their place. It's simple supply-and-demand. You shut down dozens of pirates, there's dozens more ready to take their place, even under threat of prosecution. Then, these countries would have to be willing to spend the time and money to drag these people into courts and have them fill up their jail cells.

OK, but let's take a huge leap of faith here and suppose that the Chinese, Russians and other governments play along and pour their resources into stopping all these pirates over a long-term basis (a huge IF for sure). Now everyone's going to buy CD's legitimately, right? Wrong. As noted in the USA Today article, most people in these countries don't make enough money to afford these albums. So if no one can even afford to buy your product, that's not exactly a boon to your industry. Will the IFPI raise the average wages in these countries so people can afford to buy these albums? Sure, if they're willing to shut down the sweat-shops that supply the West with all that reasonably priced clothing and goods we enjoy. Obviously, that's not going to happen.

So what's the solution for record companies? It seems pretty obvious and it's been repeated often but not readily adopted because it's a difficult reality to grasp. Instead of being in the business of only selling records, they're going to have to adapt to a pluralistic model (again, as the USA today article suggests). Artists are already realizing this and if the majors don't, they'll go the way of the player piano and gramophone- pricey antiques that will be traded on E-bay.


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