The RIAA: "The Piracy Rate Is Growing" - Businessweek
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`The RIAA: "The Piracy Rate Is Growing"
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`May 12, 2002
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`As the Web grows and more homes get broadband access, the record labels stand to
`be the biggest losers. The digital revolution has pushed tunes from plastic to PC
`hard drives, where they can be shared with thousands of others via free file-
`swapping systems such as Gnutella and KaZaA. The five largest U.S. record labels
`and their trade organization, the Recording Industry Association of America
`(RAIA), claim that rampant Net piracy helps explain consecutive 5% dips in the
`dollar value of worldwide music sales in 2000 and 2001. But so far, efforts to use
`the courts to quash music piracy have largely failed -- though the music industry
`did succeed in crippling Napster, the most famous site for sharing music files over
`the Web.
`
`Still, the labels concede that their future is on the Net, where distribution costs are
`low. Thus, at the same time the industry is trying to stop piracy, it's also trying to
`cash in on music sales over the Net. BusinessWeek Online Technology Editor Alex
`Salkever recently talked to Cary Sherman, RIAA senior executive vice-president
`and general counsel, to get his take on what the future holds for the music business
`and the Net. Here are edited excerpts of their conversation:
`
`Q: Could you please give us the RIAA point of view on why copyrighted materials
`in the digital realm should be more tightly controlled, and what the implications
`are for society and business if they aren't.
`
`A: Digital technology opens up all sorts of opportunities for new delivery options.
`But it also opens up the threat of uncontrolled piracy because creative works can be
`converted to bits that can be copied endlessly and distributed globally with the
`touch of a button. If we are to realize the benefits of digital technology, we have to
`
`http://www.businessweek.com/stories/2002-05-12/the-riaa-the-piracy-rate-is-growing[3/18/2014 3:21:04 PM]
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`The RIAA: "The Piracy Rate Is Growing" - Businessweek
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`avoid the adverse effects of uncontrolled piracy. We have to give consumers the
`uses they want for a satisfying music experience, but we have to do that without
`simultaneously giving away the right to worldwide distribution.
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`The failure to bring piracy under control could kill the opportunities of the
`Internet. What business can invest in the content and infrastructure required to
`give consumers new choices if pirated versions of the same content are available for
`free? It's true for music -- and it will be true for other forms of creative content.
`That's why everyone has a stake in providing some sort of balanced solution.
`
`Q: Would the members of the RIAA be happy with some "noise level" of piracy as
`long as it didn't destroy their business models?
`
`A: No record company expects to have a piracy-free world. It is the nature of
`intellectual property to always have some level of piracy. The key is finding that
`balance. Record companies may have rights against copying, but they have never
`sought to enforce those rights against consumers. They have been ready for
`consumers to undertake the kinds of uses that make their music experiences
`enjoyable...as long as they still come back as customers!
`
`That's the balance we're talking about -- something that allows consumers to enjoy
`the experience but avoids the mass copying and widespread distribution that kills
`the market.
`
`Q: From a legal standpoint, what should be done to help bring that balance about?
`
`A: We're big believers in the marketplace. We think that anytime you write
`something into the law you risk having unintended consequences. The
`marketplace, on the other hand, allows businesses and their customers to respond
`to their needs and desires in real time. Companies will have the ability to see what's
`working and what isn't working. That's the best way to find the sweet spot between
`the needs of artists and labels and their customers.
`
`Q: Hasn't the RIAA expressed some support for the idea of putting hardware
`controls on digital information, as proposed in the bill [the Consumer Broadband
`Protection Act] introduced recently by Senator Hollings? (See BW Online, 3/27/02,
`"Guard Copyrights, Don't Jail Innovation.")
`
`A: Actually, what we said when the Hollings legislation was introduced was that the
`bill was important because it called attention to a serious problem that needed
`fixing, and that we support voluntary marketplace negotiations to arrive at open
`standards to address the issue. Now, we also recognize that marketplace solutions
`can only emerge when the marketplace is working, and we expressed concern that
`the marketplace may not be working here. The challenge we have is to make the
`marketplace work and avoid the need for government intervention.
`
`Q: Now that the labels have subscription services up and running on the Web, are
`they starting to feel more comfortable?
`
`http://www.businessweek.com/stories/2002-05-12/the-riaa-the-piracy-rate-is-growing[3/18/2014 3:21:04 PM]
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`The RIAA: "The Piracy Rate Is Growing" - Businessweek
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`A: I don't think that any content company can feel comfortable with the online
`marketplace so long as 99% of downloaded content is pirated. Most of the music
`downloads happen without the authorization of the creators. The piracy rate is
`growing rather than contracting. It's very hard to see how legitimate businesses
`can compete in that environment.
`
`Q: How does the RIAA envision music e-commerce developing over time?
`
`A: I think we're going to see a lot of experimentation in the months ahead, and I
`think it would be a mistake to draw conclusions about the long-term success or
`failure of e-commerce initiatives based on their initial rollouts. We're really at
`version 1.0 of the online music business. Many more versions are yet to be seen.
`
`Q: What strategies might be useful in getting people to pay for copyrighted
`content?
`
`A: Everybody thinks we have to offer certain givens: reliability, security, ease of
`use. No one is going to gravitate to systems that aren't better than the free
`download sites. Beyond that, no one knows what will convert a consumer who
`downloads music for free into a paying customer. Is it the cover art or video
`footage? Is it packaging it with some alternative kind of entertainment?
`
`And, of course, we know the prices have to be reasonable. Unfortunately, that
`means free to some people, but maybe we can support a model that "feels" like
`free. That's what the subscription model is all about. However, figuring out how to
`do all this without killing the rest of the industry that still relies on sales of physical
`product makes it very challenging.
`
`Q: Well, in the Digital Age, no one thinks of music as something you need to go the
`store to buy.
`
`A: Of course you're right about that. That's also our opportunity. We can now offer
`and package music in all sorts of new ways. Wouldn't it be wonderful if you could
`rent a portfolio of music for a weekend for a party? You could have a choice of
`1,000 songs of some particular genre, just for that weekend. There are so many new
`ways that consumers could use music that weren't there before. We're just at the
`beginning of these initiatives.
`
`Q: How can we account for "fair use" [the idea that people who buy copyrighted
`materials have certain rights to copy them or use them on multiple platforms]
`while, at the same time, enforcing copyrights more strictly?
`
`A: I think there's a lot of unfair use right now. That's the problem. The alarmists
`refer to concerns about fair use on the theory that all future content will be locked
`up and will only be made available on a pay-per-use basis. There's simply no
`evidence to support that kind of fear. If anything, the concern goes the other way.
`The content made available is completely uncontrolled, and there might be no
`payment at all for it.
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`The RIAA: "The Piracy Rate Is Growing" - Businessweek
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`CDs will be around for decades more, since there are hundreds of millions of CD
`players in the world. That ensures there will always be fair use. Our problem now is
`to bring the unfair use under control so that legitimate business models can survive
`and consumers can get the kind of choices that will come from enabling new
`business models.
`
`Q: What about some of the new copyright-protection systems that labels are
`putting on CDs so you can't play them in a computer? Doesn't that violate fair use?
`
`A: The U.S. companies that have talked about protecting their CDs have also talked
`about putting so-called second sessions on the same CDs so that the same music or
`even more music will be available for playback on computers. At least in the U.S.,
`the labels recognize that a lot of consumers listen to their music on computers. So
`nobody is talking about preventing playback on computers.
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`The RIAA: "The Piracy Rate Is Growing" - Businessweek
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