e.Digital Corporation (fka EDIG)

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Fighting back

Nov 14th 2002
From The Economist Global Agenda


EMI’s new online music service is the latest sign that the big record labels, shocked by the speed with which their market is being eroded by piracy and the illegal downloading of songs over the Internet, are determined to fight back
Kylie.com


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STUNG by the fact that sales of pirated music are rising faster than the legal market for songs, record labels are coming to realise that the Internet is an outlet they cannot ignore. On November 13th, EMI Recorded Music, the world’s largest independent record company, announced that it was setting up a new online service that will allow music fans to download the songs of their choice. There is nothing new in this. Through legitimate websites like pressplay, a joint venture between Sony and Vivendi Universal, fans have been able to download music since earlier this year. But the songs on such sites are usually available only for a limited period (as long as users pay a subscription) and often with restrictions on how the music is used (for example, not on portable players). EMI is offering something better.


To make its service more appealing, from December 1st the company plans not only to allow music fans in America to “burn” a limited number of songs on to blank CDs; it says it will also let users listen to copyrighted recordings on portable players. To reach as wide an audience as possible, EMI is teaming up with nine distributors of digital music (among them FullAudio, Listen.com’s Rhapsody, MusicNet, pressplay, and Streamwaves). Customers will also get the chance to buy and download singles from forthcoming albums when they are played on the radio.


A snag with many of the existing websites offering copyrighted music is the narrowness of their repertoire. Worried about damaging their sales of physical CDs, record labels have so far released only a limited proportion of their lists online. This has annoyed music fans and done little to wean them off the pirate websites, which offer what they want for free. EMI says its new service will offer a range of artists, from Joe Cocker and Kylie Minogue to Coldplay and Pink Floyd. Classical music will also be available.


There is little doubt that the music business is in trouble. After a 5% decline in the sales of recorded music in 2001, the first fall in living memory, the industry is gritting its teeth for yet another drop this year. Informa Media, a research group, said last week that it reckons worldwide sales of CDs, tapes and the like could tumble by 7% to just over $31 billion, its lowest level since the mid-1990s. Worse, it could be at least three years before sales regain their peak of 2000.


Part of the reason for the decline is economic: with growth in western countries slowing, consumers have less to spend on the music of their choice. The rate of growth in the sales of CDs was bound to slow after the headlong increases of the 1990s. But that is only part of the problem, and one the industry can do little about. As worrying is the damage being done to sales of copyrighted music by counterfeiting and illegal file-sharing.


As fast as the music industry slaps down one website dedicated to the illegal sharing of digital files, another pops up. Napster, which pioneered the idea of downloading music illegally over the Internet, was finally killed off in September after a two-year court battle. Now a district court in Illinois has ordered Aimster, a Napster lookalike that also goes by the name of Madster, to prevent its users from downloading copyrighted works and to employ filters to stop them from sharing illegal files. If it doesn’t, the court has said it will take steps to shut the firm down.


The trouble is, Aimster is only one of a number of sites that have sprouted in Napster’s wake. In June, the number of users in America of KaZaA, Morpheus and Audiogalaxy, all file-sharing services, between them reached 14.4m, a million or so more than Napster achieved at its peak. So worried are the record labels that some, including EMI and Warner, have even talked about suing individual file-sharers for illegally downloading songs. This would be a last resort, for it would alienate potential customers of legitimate services. Another tactic being employed is to plant decoys on file-sharing sites. The decoys prevent sharers downloading songs and enable record companies to track down the users. Interscope, a record label, is thought to have planted a decoy when it launched Eminem’s recent album, “The Eminem Show”.


Counterfeiting is also growing in size and sophistication. Another report published this week by Informa Media reckons pirated music sales rose in value by 2.4% in 2001 to a worldwide total of $4.3 billion. Taiwan remains the biggest culprit: it has the capacity to press 8 billion CDs a year but has a legitimate demand for only 200m, says the report. Around 90% of CDs sold in China each year are pirated. But the problem is growing in western countries too. The heads of European record companies, meeting recently in Rome, estimated that 27% of music sold in Italy is now pirated; in southern Italy, the proportion is nearer half.


EMI’s new service is the industry’s best shot yet at dealing with the problem. Even so, it is late in arriving. Illegal sites like Aimster have already become so popular that they are attracting advertisers keen to market their wares to the sites’ millions of users. When users install KaZaA’s downloading software, they automatically receive a program from Altnet, another software firm. This enables advertisers to place their material prominently when users are searching for files. Whether music fans take to EMI’s new service will depend on how easy it is to use, but also on the repertoire made available. If users get what they want, they might just be tempted to pay. If they don’t, they will continue to go where they can find it for free.
http://www.economist.com/agenda/displayStory.cfm?story_id=1446431
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