Report: Future Bright for Online File-Sharing
Thu Aug 15, 1:34 PM ET
Jay Lyman, www.NewsFactor.com
A new report from The Yankee Group predicts that free file-sharing systems -- such as Kazaa, Morpheus and Limewire -- will flourish over the next few years as legitimate music services struggle to provide what users want.
The report, which said consumers downloaded more than five billion audio files from unlicensed file-sharing services in 2001, indicates that the number of downloaded files will grow to nearly 7.5 billion in the next few years, when legitimate services will begin having an impact.
The Yankee Group predicts that unlicensed file-sharing will decline to 3.9 billion in a few years, while legitimate music services gain momentum.
"Efforts by the record labels to use the courts to quash music piracy have failed, and legitimate online music services have had little impact," said Yankee Group senior analyst Michael Goodman. "The future of music, however, resides on the Internet and its dramatically lower distribution costs."
The Free Flag
Goodman told NewsFactor that despite the recording industry's legal attacks on Napster ( news - web sites)-like peer-to-peer services, free file-swapping systems continue to gain users.
"You're never going to shut down the free services," Goodman said. "You knock these out and there are another 70 to take their place."
The newest free file-sharing services are avoiding Napster-like problems by not using centralized servers. Some services are also moving their operations off-shore and out of reach of the Recording Industry Association of America ( news - web sites) (RIAA), which has zealously tried to stop the file-sharing activity in court.
Label Legal Attack
The latest Yankee Group report echoes complaints that the RIAA's legal efforts, which include seeking court orders to shut down Internet sites, have largely failed.
In response, RIAA spokesperson Amanda Collins told NewsFactor that the recording industry has, in fact, been successful in court.
"While litigation is not a business model, the courts have agreed with us every step of the way that these illegal sites are guilty of copyright infringement," Collins said.
Keys to Success
The Yankee Group said that in order to succeed, legitimate sites -- such as MusicNet, Rhapsody, MusicNow and Pressplay -- must offer a wide range of content from all five major record labels as well as from independents.
The report concluded that they must also give consumers ownership -- including the ability to copy songs -- and must make downloadable files portable, meaning that they can be played on different devices at home, at work and while mobile.
"Consumers want to burn music," Goodman said. "[Services have] got to give them ownership, and you need content."
Goodman said that the latest versions of legal sites are improving by "loosening their business rules" and providing limited recording ability. But these legitimate challengers still have a ways to go.
DRM Is Futile
The Yankee Group also said that the recording industry must differentiate between legitimate music services and their free rivals by adding unique content and services.
The report noted that efforts to lock in content through digital rights management (DRM) technology is a lost cause, and said that consumers who want to share music will find a way to do so, "thereby defeating all realistic DRM capabilities."
Goodman suggested that content owners should use DRM instead to promote sales and increase revenue by letting users, if they wished, copy music files with software that delivers advertisements for similar music.
"You get opportunities to sell out of DRM instead of putting up a wall," Goodman said, adding that a single DRM workaround equates to widespread distribution quickly over the Internet.
Going Legit
While the report said that the next few years will be dominated by free file-sharing services, it does predict that legitimate, licensed services will gain users and are sure to have an impact on online music trading in the years ahead.
Goodman said that the success of legitimate services depends on a change in the current relationship between the record industry, which must learn to share control of content with users, and consumers, who will need some time to adapt to fee-based services.
Asked about the requirements for creating a successful legitimate site, the RIAA's Collins said, "We agree that you can't compete with free. The record companies are online and are licensing new deals all the time."
