An Industry in Free Fall

Physical sales of music plummeted at a rate that exceeded the sales growth of legal downloads in 2007, according to the IFPI. While global digital sales grew by 40% in 2007—representing about 10% of all music sold—IFPI figures suggest that CD sales in the US dropped by 19% (10.5% in the UK).

The IFPI also made sweeping claims about illegal downloading, claiming that in 2007, illegal downloads outnumbered legal ones by a ratio of 20:1. Ever wonder where the IFPI, RIAA, and MPAA get their statistics on illegal downloads?

Sometimes they just guess, said the Associated Press this week. In a 2005 study it commissioned, the MPAA stated that 44% of the film industry's domestic losses (which it estimated as $6.1 billion) were caused by college students illegally downloading movies over universities' high-bandwidth networks. This week the MPAA told education groups it had made "a human error" and got the percentage wrong. The figure should have been 15%.

In Australia, a confidential briefing for the Attorney-General's Department, prepared by the Australian Institute of Criminology (AIC) savaged the Business Software Association of Australia's (BSAA) contention that Australian companies lost $361 million a year from intellectual property theft. According to The Australian an early draft of the report said the statistics are "unverified and epistemologically unreliable."

The study called the BSAA's figures "absurd" and described the industry as "seething with competitive jealousies" and "well-connected Canberra-based lobbyists" clamoring for government attention. Researcher Alex Malik clearly laid out the danger of cooked figures: "Of greatest concern is the potentially unqualified use of these statistics in courts of law."

The AIC report also challenged the contention that there was a link between organized crime and piracy. "Either there is no evidence of any links between piracy and organized crime or it is simply beyond the capacity of rights holders to identify these links . . . . It is inappropriate for courts and policy makers to accept at face value currently unsubstantiated statistics. Either these statistics must be withdrawn or the purveyors of these statistics must supply valid and transparent substantiation."

The report also said that Music Industry Piracy Investigations (MIPI) manager Sabiene Heindl did not know how the statistics were compiled—a charge Heindl confirmed, saying they were outsourced to the IFPI. She added that the figures were based on Australian data, but compiled in the UK.

The strong language of the draft will probably be tempered in the final version of the study, more's the pity.

At pcmag.com, Lance Ulanoff laid down the hammer on the foes of DRM, stating "DRM-Free Music Spells Trouble". His contention, if I have correctly grasped the complexities of his argument, is that digitizing media has taught us that "we do not really own any of the content we consume," we only access or "play an instance of it."

Oh really—sez who?

Ulanoff completely misses the fact that many people illegally downloaded content because the content providers put obstacles in the way of their legally obtaining it. Of course there are content thieves out there, but as with Prohibition, DRM and the obstinacy of the records labels turned many law-abiding citizens into criminals. Napster was astonishingly popular, not simply because it was free, but because it was simple. The record labels had a chance to legitimize Napster and turn it into a profit-generating distribution model, but they neutered it instead.

Only now, with Amazon.com's DRM-free Download Store, have all four major labels replaced Napster with a for-pay distribution system. However, after six years, consumers may have simply lost the habit of buying music—especially if pundits continue claiming we don't own it after we pay for it.

And don't think that just because EMI, UMG, Warner, and Sony BMG have dropped DRM that it's gone. According to Wired's David Kravets, 80% of the digital market remains DRM-encoded, especially at the industry-leading online music store iTunes.

And Napster may not quite be dead yet. It announced December 31 that it was in licensing agreements with the Big Four for unrestricted downloads in Q2 2008 because its DRM-encumbered subscription service is not iPod compatible.

As Colombo used to say, just one more thing. Sony BMG announced its MusicPass physical download distribution hybrid on the same day it announced that its files would be available on amazon.com without DRM. How did I miss it? Well, quite simply, if I even noticed it, I probably didn't believe it. That fine line between genius and stupidity? Not even close.

Get this: These are downloads you have to go to a store to buy. You then take your MusicPass home, scratch off the film obscuring an authorization number, enter it on Sony BMG's MusicPass site and the DRM-free MP3s are downloaded to your computer. All of the inconvenience of brick-and-mortar shopping with none of the instant gratification!

MusicPass cards will be sold at Best Buy, Target, Fred's, Trans World stores (Coconuts, FYE, Wherehouse, and Specs) and Winn-Dixie, which may tell you everything you need to know about the target demographic. The initial 37 offerings are all over the map, from Britney Spears and Pink to Brooks and Dunn, Elvis, and Tony Bennett. Regular MusicPass albums are $12.99; Extended MusicPass albums will contain bonus material and another recording from that artist's catalog for $19.99. The initial Extended MusicPass artists are Kenny Chesney and Celine Dion.

About the only thing Sony BMG got right with MusicPass was leaving out DRM. I'm betting the program will be pronounced dead before the third quarter of Super Bowl LXII.

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