[opendtv] News: Music Industry Must Look In A Mirror

http://www.forbes.com/2005/06/30/grokster-file-sharing-music-cx_ld_0630music.html
 


Digital Media
Music Industry Must Look In A Mirror
Lisa DiCarlo, 06.30.05, 6:00 AM ET

NEW YORK - The U.S. Supreme Court's decision against Grokster, while 
certainly a landmark, fails to address the underlying issue of 
whether peer-to-peer services have had a direct negative impact on 
music industry revenue.

But one of the Supreme Court justices, the U.S. Federal Trade 
Commission (FTC) and the Organization of Economic Cooperation and 
Development, have all very recently questioned music industry claims 
that file-sharing services are uniquely to blame for slumping sales.

That such disparate sources are all openly questioning the 
correlation between P2P services and the decline in music industry 
revenue should focus the issue more squarely on what the music 
companies can and should be doing to more creatively and aggressively 
embrace new forms of distribution.

Supreme Court Justice Stephen Breyer, in his consenting opinion on 
the Grokster case, wrote that "unauthorized copying likely diminishes 
industry revenue though it is unclear by how much." He added that 
copyright holders have various other means to curb infringement, 
including digital watermarking and digital fingerprints.

Justice Breyer addressed the long-term applicability of the Sony 
(nyse:  SNE - news  -  people  ) Betamax case on today's music 
industry. Grokster based its defense on that 1980's decision, which 
said that Sony should not be held liable for the illegal actions of 
some of its users simply because its technology provided the means to 
do so. "I do not doubt that a more intrusive Sony test would 
generally provide greater revenue security for copyright holders, but 
it is harder to conclude that the gains on the copyright swings would 
exceed the losses on the technology roundabouts," Breyer wrote.

Earlier this month the OECD published a 132-page report on the global 
digital music market, authored by Dr. Sacha Wunsch-Vincent and Dr. 
Graham Vickery of the OECD's Directorate for Science, Technology and 
Industry. In it, they concluded that it is "very difficult to 
establish a basis to prove a casual relationship between the size of 
the drop in music sales and the rise in file-sharing."

While acknowledging that file-sharing does threaten the music 
industry business model, the report cited a host of possible reasons 
for a drop in industry revenue, including increased competition from 
other entertainment sources, a drop in new music releases, video 
games, economic factors and CD pricing.

The OECD, an organization of the world's wealthiest and most 
developed nations, further said that P2P music downloads do not lead 
buyers to substitute away from purchases in a one-to-one fashion. The 
report concluded what other studies have confirmed--for some users, 
P2P file-sharing leads to music purchases, and for others it does not.

That report followed the publication of an FTC staff workshop on P2P 
file-sharing. The FTC, a U.S. government regulatory body, has not 
endorsed the music industry's assertion that P2P services are the 
cause of its sales decline. After the two-day June workshop, which 
featured economists, industry experts and executives from the music 
and P2P industries, the FTC could not conclude one way or the other 
that file-sharing had a direct negative impact on music sales. It 
also disagreed with the industry's assertion that file-sharing 
services were any more dangerous (in terms of inviting viruses, 
spyware and unwanted pornography to user's computers) than using the 
Internet in general.

In the long run, these opinions won't make the file-sharing services 
any less liable for enabling music theft (as the Grokster loss 
shows), but it raises the issue of how the labels are responding to 
the digital music revolution. In short, they've responded with scorn, 
blaming file-sharing services for a multi-year sales slump that began 
to rebound (at least, in the U.S.) late last year.

Some industry representatives are laying some blame at the feet of 
Internet service providers. In a January speech, John Kennedy, chief 
executive of the International Federation of Phonogram and Videogram 
Producers, whose members include the Recording Industry Association 
of America, asked, "Is it really too much to expect that major 
companies should take steps to prevent their distribution channels 
from being used for illegal activity?"

Kennedy said that ISPs such as Time Warner's  (nyse:  TWX -  news  - 
people  ) AOL could make litigation unnecessary if they prevented 
their customers from swapping copyrighted material over their 
networks.

The music industry is looking everywhere but in the mirror for its 
problems and the possible solutions.

In his opinion, Justice Breyer wrote that copyright holders have many 
means of reducing infringement, including digital watermarking and 
digital fingerprints. Yet the industry has only just begun to 
incorporate these copyright protection technologies into its CDs. 
Sony BMG is selling about half of its CDs with technology that 
prevents users from making more than three copies, which themselves 
can't be copied again. EMI sells some discs outside the U.S. with the 
technology and will start selling some in the U.S. later this year.

The music industry must wake up to the fact that we are living in the 
digital age and align their business accordingly. That means that the 
old rules don't apply. Some panelists at the FTC's workshop argued 
for the creation of one "unified digital transmission right to 
replace the reproduction, public performance and distribution rights 
for purposes of digital transmission."

The question is whether the music industry is creative and determined 
enough to implement these profound changes.
 
 
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