Music industry watch
RIAA's continued piracy spin
Almost a year ago I discussed George Ziemann's RIAA's Statistics Don't Add Up to Piracy article. George pointed out that the RIAA is spinning itself a crisis about the piracy on the Internet. Now that many music companies are recovering it becomes clear the the RIAA is spinning FUD (Fear, Uncertainty, Doubt). The New York Times rolled out A Heretical View of File Sharing in which two university professors conclude the same thing that George Ziemann saw 18 months ago:
Using complex mathematical formulas, they determined that spikes in downloading had almost no discernible effect on sales. Even under their worst-case example, "it would take 5,000 downloads to reduce the sales of an album by one copy," they wrote. "After annualizing, this would imply a yearly sales loss of two million albums, which is virtually rounding error" given that 803 million records were sold in 2002. Sales dropped by 139 million albums from 2000 to 2002.
I believe the numbers, no matter what the RIAA Cartel says. This brings me back to something I've been saying for the past three years:
There are three distinct sub markets inside the entire music consumer market:
- People who will never buy music, and always steal.
- People who will buy music if it is easier to buy than to steal.
- People who will always buy music and never steal.
The first group might be people who are poor or who have an ethical/moral objection to buying music. The third group is the exact opposite, and neither of these two groups is very interesting in this discussion. The middle group, the people who would buy the music if it was a good value and it was easier to buy the than to download it off the net are the people the music companies need to be worried about.
Lowering the threshold between group 1 and group 2 (read: expand group 2) would yield more income for the music industry -- that's obvious. So, if I were in charge of a music company I would make music easier to buy than to steal. No DRM, and provide lots of free tools to make downloading music easy. We figured this out back in the early days of EMusic -- its a no brainer.
However, I think the music industry focuses too much on piracy. Every business in the world will attract people who want to steal from it -- that is one of the basic rules of business and human nature. The music industry continually equates piracy to lost sales, which is not true. The Professor Oberholzer-Gee has a great analogy for this:
"Say I offer you a free flight to Florida," he asks. "How likely is it that you will go to Florida? It is very likely, because the price is free." If there were no free ticket, that trip to Florida would be much less likely, he said. Similarly, free music might draw all kinds of people, but "it doesn't mean that these people would buy CD's at $18," he said.
Instead of treating piracy as lost revenue, they should take a cue from Tim O'Reilly and consider it a progressive tax. Thus, instead of spending gobs of money on lawyers to sue the snot out of anyone who ever downloaded a P2P client, they should divert most of that money to creating more and better music (Though some enforcement will always be needed to reasonably defend their copyrights). They should focus on improved tools for delivering the content to the consumers. They should work to create good will in the community so that the music consumers will respect the companies and be less willing to pirate the content. Suing everyone creates ill will, and ill will moves the I will never buy threshold up, which causes a real loss of sales. With a little foresight and benefit of the doubt of the music community, the music companies could be making more money than they ever have.
P.S. Raising music prices is not the way to lower the I won't buy threshold.
Posted by Mayhem at April 8, 2004 07:00 PM