There's No Such Thing As Free Music

"THERE'S NO SUCH THING AS FREE MUSIC"

The Internet has made a significant impact on the American economy. These impacts have been both beneficial and negative for many industries. The Internet's impact on the music recording industry has received wide-spread attention and much debate over the past eight years. The emergence of file sharing has sent shock waves throughout the industry. In 2003, one study found that 35 million Americans download pirated music on a regular basis.1

Many consumers are not aware that file sharing has made positive and negative impacts on the music industry. Industry experts are split between those who say file sharing is hurting the industry and those who say file sharing is harmless. Despite which side experts take, none deny that consumers are the true beneficiaries from file sharing. File sharing has given consumers free music and lead the industry to focus on the Internet market.

Birth of File Sharing

File sharing burst into public awareness in May of 1999 with the birth of Napster.2 Napster3, through its simple to use interface, provided users the ability to share and download digital copies of music4. Both copyrighted and non-copyrighted songs were available to Napster users free of charge. In 2000, a Pew study found that approximately 14 percent of all Internet users downloaded music for free.5 Today, after the rise and fall of Napster and similar interfaces, millions of copyrighted songs continue to be illegally downloaded every day.

Some researchers attribute the continual prevalence of music piracy to file sharers' moral beliefs. "Some consumers claim that entertainers do not seem worse off from music piracy as they still enjoy a high income and live in a bountiful way."6 This sort of mind-state supports those who believe the Internet is the ultimate host for immoral actions. Has the Internet caused music consumers to believe music should be free? In an article on Internet activities, Milicevic stated:

"...the future of cyberspace activities is going to be the unleashing of one of many human predispositions--the predisposition to steal. Cyberspace represents a perfect medium for concealing a person's identity and the encouragement of irresponsible behavior."7

Crimes do not exist for harmless actions and music piracy is a crime. Downloading or distributing copyrighted material without the expressed consent of the copyright holder is theft. Theft is a felony, a crime punishable by one or more years of incarceration plus fines no less than $1,000. Since music piracy continues despite the fall of Napster through legal action, a reasonable assumption is the threat of incarceration or steep fines is not an adequate deterrent.

File sharers view their actions as harmless. However, music piracy affects artists, companies, other consumers, and every American citizen. Music piracy may not physically harm people, but it does economically harm everyone.

Anti-File Sharing

Economic models offer ambiguous conclusions on whether file sharing directly leads to decreased album sales. File sharing's opponents claim indiscriminate copying decreases music sales.8 The most notable opponent to file sharing is the Recording Industry Association of America (RIAA).

The RIAA attributes the mass proliferation of pirated album sales and illegal downloading for causing the decline in official album sales. The RIAA estimates that 2.6 billion songs are illegally downloaded every month. Furthermore, the International Federation of the Phonographic Industry (IFPI) estimates over 5 million online users share approximately 885 million copyrighted songs at any given time.9

In less developed countries, such as Taiwan, where high speed (broadband) Internet connections are less common household commodities, the selling of burned (pirated copies) albums has become increasingly popular. The act of selling pirated copies has significantly harmed the record industry's revenues. In 2001, Chiou's study found that pirated CD sales accounted for approximately 40 percent of worldwide CD sales.10 In 2004, industry experts estimated pirated albums accounted for 33 percent of all album sales.11 Although many studies attribute CD burning with less developed countries, research supports the idea that this phenomenon is also prevalent throughout developed countries. In 2002, the International Recording Media Association (IRMA) reported that the sale of recordable CDs (CD-R), the discs used for copying CDs, rose 30 percent in North America.

A rough glance at yearly album sales (figure above) prior to and after file sharing's emergence offers unambiguous evidence that the wide spread practice of file sharing leads, directly or indirectly, to declining sales. Remember that file sharing emerged in 1999. Prior to file sharing, the music industry was experiencing huge growth.12 During the years 1995 through 1999, album sales annually increased. During the post file sharing era, 1999 to present, album sales have annually declined. From 2000 to 2003, album sales declined 31 percent with record company revenues down 22 percent.13 The sales numbers from before and after file sharing clearly show a correlation between file sharing and declining album sales.

In addition to declining album sales, file sharing has also altered the traditional distribution method of albums. The Internet and file sharing has allowed record companies to be bypassed or completely cut from the distribution process. In the traditional distribution process, the artist signs a contract with a record label, which typically assigns responsibility to the label for the album's marketing and distribution. The artist then records the album and the label does the production. Retailers purchase the album from the label and consumers purchase the album from the retailers. The majority of the label's revenues come from album sales and concert tours. Typically, the artist only receives 10 percent of the album sales.

In the new Internet distribution process, artists can bypass the record labels by reaching their fan base and potential consumers directly through e-commerce websites.14 On their websites, artists are able to upload new material immediately for streamlining, offer free downloads, or make their material available for purchasing. Should the artist charge for downloading their material, the revenue does not have to be shared with the record label. The exposure and options available through these websites is an attractive incentive to abstain from signing restrictive contracts required by major record labels.