Canadian Judge: Downloads OK

Canadian music fans are breathing a collective sigh of relief in the wake of a ruling by a federal justice that sharing music over the Internet doesn't violate the nation's copyright laws.

On Wednesday, March 31, Justice Konrad von Finckenstein stymied efforts by the Canadian Recording Industry Association (CRIA) to rein in file-sharing activity by music fans who had made large collections of recordings available to others via services such as KaZaa and DirectConnect. His decision means that 29 alleged large-scale copyright violators, to date known only by their screen names and IP addresses, won't have to reveal their identities—unless the decision is overturned on appeal.

The CRIA had brought the case against five Internet service providers—Bell Canada, Rogers Cable, Shaw Communications, Telus Communications, and Videotron—seeking the identities of the file sharers. In his 28-page ruling, von Finckenstein said that attorneys for the CRIA failed to prove that high-volume "uploaders"—those who make large collections of music available for others to sample—had "either distributed or authorized the reproduction of sound recordings....They merely placed personal copies into their shared directories which were accessible by other computer users via a P2P service."

The justice compared the accessibility of peer-to-peer networks to the presence of copy machines in "libraries full of copyrighted material," according to an April 1 report by Nick Lewis in The Calgary Herald. University of Ottawa professor Michael Geist, an expert in copyright law, technology, and e-commerce, told reporters he was "stunned" at von Finckenstein's decision. "It raises questions of the viability of suing individual users in Canada under current Canadian copyright law," he said. CRIA general counsel Richard Pfohl said the organization would appeal the decision.

The day von Finckenstein issued his ruling, a report appeared on CNET quoting a study by researchers at Harvard and at the University of North Carolina that found the measurable effect of file sharing on album sales to be "statistically indistinguishable from zero." The researchers spent 17 weeks in 2002 attempting to correlate sales of CD albums and singles with file-sharing activities on the same titles. They were unable to find a correlation, a result that flies in the face of the music industry's insistence that downloading is primarily to blame for the continuing decline in music sales.

A longstanding article of faith in the industry, the belief is one that has no scientific basis, according to researchers Felix Oberholzer of the Harvard Business School and Koleman Strumpf of UNC Chapel Hill. During their 17-week study, Oberholzer and Strumpf analyzed logs of approximately 1.75 million downloads from two "OpenNap" servers. The average user downloaded only 17 songs during the four-month period, the scholars found, although one statistical "outlier" on the high end of the scale logged in 71 times and downloaded 5000 songs. To narrow the focus of their study, the two professors concentrated on 500 albums of various genres which were then on the charts to see if downloading activity would affect sales. Their conclusion reflects opinions frequently expressed in Stereophile.com's "Vote" and "Soapbox" features—that people who download individual songs for free wouldn't be likely to buy the albums even if file-sharing didn't exist.

In fact, the most negative interpretation of the statistical model the two created indicates that it would take approximately 5000 downloads to displace the sale of "just one physical CD," the CNET report noted, adding that other factors have contributed to the music industry's slump, such as "lower household spending during the recession, and increased competition from other entertainment forms such as DVDs and video games." Over the past five years, sales of DVDs and video games have skyrocketed as music sales languished, indicating that record labels' biggest competitors are often sibling home-entertainment companies within larger media conglomerates.

The Recording Industry Association of America (RIAA) dismissed the significance of Oberholzer's and Strumpf's findings. "Our own surveys show that those who are downloading more are buying less," said RIAA spokeswoman Amy Weiss.

That may be true in North America, but definitely not down under, according to a March 28 opinion piece in the Sydney Morning Herald by broadcaster Steve Cannane, who argues that the Australian Recording Industry Association (ARIA) enjoyed "its best year ever" in 2003, but doesn't want the public to know about it.

The recording industry has continually argued that file sharing and CD burning cannibalize CD sales, but "their own sales figures don't back up their arguments," Cannane writes, quoting research done by finance reporter Peter Martin, who found that unit sales of music recordings in all formats topped 65 million in Australia for the first time last year. Sales figures rose steadily from 39.6 million CD albums sold in 1998 to 50.5 million in 2002—a period in which file sharing went from obscure activity to household word.

Last year, album sales rose 7.85% in Australia, but CD singles declined 16.5%. Rather than celebrate its overall success, the ARIA chose to emphasize the drop in singles because that statistic bolsters its campaign against file-sharing. And even the singles figure is misleading, Cannane argues, because the recording industry isn't issuing as many singles as it once did. "In the US," he states, "singles have virtually disappeared from sale." Music fans over the age of 45—in other words, those with disposable income—tend to buy more CDs after hearing new recordings via file sharing, in Cannane's view.

If accurate, his take on the situation supports the sentiment often expressed in this publication that "downloads are the greatest promotional tool ever devised." As Cannane puts it, "Maybe it's the record industry that's getting a free ride from file sharing—a massive marketing system that allows music lovers to get exposed to all kinds of music without the record industry having to pay a cent."

It's an argument that will never be won by either side, but blaming declining sales on downloads and CD burning makes for easy rationalization among music industry executives when downsizing season approaches. On March 31, London's Financial Times reported that EMI Group PLC would cut 1500 jobs from its record label's workforce. Also to be sent packing were an undisclosed number of "underperforming artists." The move follows a similar cut last year, in which 1900 EMI workers lost their jobs. The latest cut could save the world's third-largest music label $91 million annually, according to the report.

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