Stop Music Theft

Introduction

Is there some unknown exogenous event that is killing music sales? People somehow stopped liking music? People abandoned music for some other past time?

Let us take a logical approach to answering these questions. If there is some new entertainment, whatever it is, can we not assume that it also would be cannibalizing other forms of entertainment like the movies? So, from 1999 to 2008, what was going on with movie revenues? Well, in the US, box office receipts went up 34%¹. What about TV? Well, Nielson, the statistical powerhouse when it comes to TV says viewership is at an all time high². How about gaming? Definitely no problems there. 2008 sales were up 19% after a 44% increase in 2007³.

Are we to assume that all of these growing forms of entertainment are not cannibalizing each other, but there is something intrinsic about music such that it IS being cannibalized?

Let's take the logic a step further. If music, for whatever reason, is losing market share to these other forms of entertainment, shouldn't ALL music be suffering?

iTunes

Well, the success of iTunes sure doesn't support that case. Check out this hockey stick:

Source

This graph shows iTunes unit sales from inception (May 15, 2003) through January 9, 2007 when Apple sold their 2 billionth track (by the way: they passed 10 billion in early 2010). Now, we ask you, how on earth do you square that kind of demand for music with a 70% decline in overall music industry growth. Clearly, there is a rabid appetite for reasonably priced and easy as well as "free and easy."

Napster

Let's take another stroll down Memory Lane. What of Napster? The "old" Napster (versus the "new" pay model) had explosive growth delivering purloined tracks to the masses. As the following graph shows, the "service" went from zero to over 25 million unique users in less than one year.

Source: Wikipedia

Just to drive home the point that Napster started the ball rolling, consider this quote:

While few participated prior to 1999, the founding year of Napster, in 2006 there were about ten million simultaneous users on the major peer-to-peer (P2P) networks.⁴

Before we leave Napster, it might be enlightening to consider that if the RIAA hadn't "killed" Napster, iTunes probably would never have happened. In other words, it took the RIAA suing old Napster out of business to set the stage for the development and implementation of what is today the largest seller of legal music in the world⁵.

BitTorrent

The dominate P2P (peer-to-peer) file transfer protocol on the internet these days is "BitTorrent." Invented in 2001⁶, today it is estimated that it accounts for from roughly a quarter to a half of all internet traffic⁷. Certainly a success story. So, what's it used for?

Source⁸

Getting a handle on how much of the content being downloaded via BitTorrent is tough, but there are some studies that have been done. One of the more authoritative source, BigChampagne Media Measurement issued a report in 2007 that indicated a billion music tracks per month were being illegally downloaded in 2006 in the United States⁹.

If we take that figure and crosscheck it against the RIAA's database of music industry sales and do a few calculations (as in the embedded spreadsheet below), we find out the following:

• % of Total Implied CDs Sold & Pirated that were Pirated: 60%
• What Music Industry Sales might have been if pirated CDs sold (at $14 each): $23 billion¹⁰
• Actual Recording Industry Sales in 2006 (US): $9.37 billion.

The International Federation of the Phonographic Industry says 40 billion tracks¹¹
(equivalent to 3.3 billion 12-track albums) are being illegally downloaded around the world each year. (incidentally, assuming $14 per album, that's $47 billion in lost revenue or simply using the 99¢ iTunes single pricing, ~$40 billion.)

Single Downloads Cannibalizing Album Sales

Many argue that a big part of what ails the music industry is that legal downloads from places like iTunes (as well as illegal single downloads) are cannibalizing album sales. While there is no doubt some truth to that, we think it's hardly supportable as the main or even a major thing destroying the music business. For instance, if you look at the audio downloads page at a popular BitTorrent site like bt junkie . org /browse/Audio/page1/?o=52&t=0&s=1, you will see almost nothing but albums—not singles!!! Our contention is that music lovers love the album format and are busy consuming it at today's best possible price WHICH IS FREE!!! It's up to us and our industry to stop this.

Internet Usage: Is it Hiving Off Music Listeners?

Now certainly, the growth in internet usage is an exogenous event and is attracting eyes and ears. But, is it reasonable to assume that all of that is at the expense of just one form of entertainment—music—and not the others? Doesn't really pass the smell test does it.

Moreover, since internet users are using the internet to steal 40 billion tracks per year, trying to build a case that increased internet usage is somehow depressing interest in music seems a patent absurdity. Likewise, trying to build a case that illegal downloading is somehow helping the music business given the case we have documented that the industry is literally dying out is also pretty hard to swallow.

The True Cause

We maintain, the exogenous event crippling the music industry is the ease with which music can be stolen over the internet.

• Fast broadband.
• High quality 320kb MP3 files in many cases (and ears that have been so exposed to less high resolution 128kb mp3 files and even lower quality streaming bit rates).
• Free BitTorrent software (like Vuze).
• Email services that notify you of new albums the minute they are available to be stolen (which is generally the day the promo copies go out and generally a month or so before the official release date of the album).

Conclusions

Music is more popular today than it has ever been—in fact wildly so as the industry is largely giving it away for free. "Free" is cannibalizing the pay model. What a surprise!!

(For more on the "new" music industry business model versus the "old" model, click here.)