At a Senate hearing on music piracy earlier this month, Senator Dianne Feinstein (D-Cal.) hinted at legislation to ban peer-to-peer file sharing software. “If we don’t stop it,” she said, “it’s going to destroy these intellectual property industries.”
Banning technologies, however, is not the answer to piracy. First, it is a shortsighted response. The movie industry fought hard in the 1980s to have videocassette recorders declared illegal, claiming that copying would demolish the movie industry. Yet today, home video sales account for about 60 percent of its revenues. Second, online piracy is unstoppable. Illegal file sharing accounts for over half of the traffic on the Internet and that figure has only grown since the recording industry began its aggressive litigation. Consumers want file sharing, and banning P2P software will only drive its development underground, just as prohibition resulted in speakeasies.
So what is the content industry to do? As Feinstein asked at the same hearing, “How can you stop piracy in China when we can’t stop it in our own country?”
The answer may in fact lie in China where rampant piracy is a fact of life. Industry there has been forced to innovate and change its business models in order to cope. Universal Music is beginning to rely less on revenue from music sales and is shifting to concert promotion, artist management, and commercial sponsorship. Warner Bros. has lowered the price of its DVDs to between $2 and $4 in order to compete with the sub-par copies sold by pirates.
Apparently, however, Warner in the U.S. is not getting the message from its Asian sibling. Warner Music chief Edgar Bronfman said last week he would like prices raised on Apple’s popular iTunes online music store. Apple currently charges 99 cents per song download, but its contracts with Warner and other labels are up for renewal next year. Apple CEO Steve Jobs is rightly worried, explaining, “If the price goes up, [consumers] will go back to piracy and everybody loses.”
Bronfman also said that although the record companies’ songs were driving sales of Apple’s iPod, the labels where not sharing in revenues from sales of the device. However, it is unclear why content owners should be rewarded for someone else’s technological innovation. “We want to share in those revenue streams,” Bronfman said. “We have to get out of the mindset that our content has promotional value only.”
That mindset, however, is exactly the one that media companies are embracing in Asia and that firms in the U.S. should stop resisting. iTunes has provided an alternative to illegal downloading that consumers have embraced even if iPod sales have greatly benefited from the low-priced songs. Because this model requires record labels to price closer to their cost of production in order to sway consumers away from illegal downloads, profit margins will likely shrink relative to profits earned before consumers turned to digital distribution of content. But digital distribution is a fact that banning new technologies will not change.
Instead of trying to continue to squeeze all its revenue from its songs, music companies–and media firms generally–should take the cue from Apple and develop products that can leverage their content to attract consumers. Apart from music sales, there is plenty of money to be made by innovative media companies in music merchandising, corporate sponsorship of concert tours, cell phone ringtones, and other products that do not rely exclusively on copyright.
Content will still create revenue in a digital world, but it will have to be offered to consumers either cheaply or with added value. For example, Snocap, a new company started by Napster founder Shawn Fanning, is looking to act as a middleman between the many music labels and the many online download services. If successful, this system will enable giant searchable catalogs of legal music that will be able to compete with the pirate networks.
While some media companies have started to make this transition in Asia, others continue to try to fight back the inevitable commoditization of their product. Earlier this year, iTunes launched in Japan without songs from Warner Music or Sony BMG because Apple could not reach an agreement with those firms. This might be a harbinger of what is to come once the U.S. contracts have to be renegotiated. If it turns out this way and media firms continue to guard their copyrights so slavishly, the result will be more piracy and less innovation.
More piracy will mean more lawsuits and more calls for congressional action. Less innovation will ensue because companies like Apple or Snocap will have fewer incentives to create products that rely on a legal market for digital content.
Jerry Brito is editor of Brainwash. His Web site is jerrybrito.com.
Source: AFF Doublethink Online | Andrew Stiles
Source: AFF Doublethink Online | Kathlyn Ehl