How the Music Industry’s War on Sharing Destroys Markets and Erodes Civil Liberties

Depression and acceptance: Moving beyond the CD

1 Leave a comment on paragraph 1 0 The final stages of grief, Kübler-Ross tells us, are depression and acceptance. During the first decade of the 21st Century, the music industry faced depression in both senses of the word. Economically, the traditional music retail market imploded; US music sales plummeted from roughly $18 billion in 2000 to $8 billion in 2009.[1] While this is certainly a precipitous drop, the economic impact wasn’t quite as dire as it may appear at first glance. As I will discuss in far greater detail in Chapter 5, the losses were, to an extent, both foreseeable and preventable, and were also offset by a number of economic gains not reflected in these figures. Yet there is little question that the market data reflects a profound transition in music industry economics, with fundamentally destabilizing effects that worked to the benefit of some and to the detriment of others.

2 Leave a comment on paragraph 2 0 Emotionally and culturally, it was a decade of depression as well. There was a growing sense of unease and frustration among many throughout the industry, from recording artists to executives to support staff. For some, it was merely a sense of impending doom associated with the bad market data and waves of layoffs. Yet there was also a pervasive sense, especially among some of the most successful artists and highly-placed executives, that the music industry was either hopelessly obstinate or otherwise incapable of adapting to the new reality of empowered consumers and digital distribution networks. In public, most hewed to the RIAA narrative, excoriating digital upstarts and their user bases for destroying a venerable industry. But privately, many expressed bafflement or outrage at the slow pace of change within their own organizations and among their partners. Anyone who worked in or around the music industry during these years can attest to this.

3 Leave a comment on paragraph 3 0 While I can’t share the sources or contents of my own private communications with executives and artists critical of their own organizations, the corollary of these opinions can be seen in the exodus of some of the industry’s most visionary thinkers and most powerful businesspeople from the major labels. The list is far too long to publish in full, but some notable examples include executives like Michael Nash (formerly the head of digital strategy for Warner Music Group), Cory Ondrejka (formerly the head of digital strategy for EMI, he returned to his tech origins by working for Facebook), Larry Kenswil (formerly the head of digital strategy for Universal Music Group, now an attorney), and Strauss Zelnick (formerly the CEO of BMG Entertainment, he left the music industry to run video game publisher Take-Two), as well as recording artists like Radiohead, Prince, Nine Inch Nails, Ok Go and Madonna,[2] all of whom abandoned their major label contracts in the midst of thriving careers.

4 Leave a comment on paragraph 4 0 When I first started using Kübler-Ross’s framework as an explanatory metaphor for the music industry’s self-immolation in 2006, There was scant evidence of the fifth phase, acceptance. At the time, I cited a promising (if poorly-named) initiative called SpiralFrog, the first digital music service to offer licensed major label downloads for free in an advertising-supported environment,[3] as well as highly-publicized plans for Warner Music Group to launch an “e-label” for online-only music distribution, granting artists control over their own copyrights.[4] Although the major labels were still primarily dependent on the CD format and deep in the grip of DRM, it appeared they were at least willing to consider a way forward.

5 Leave a comment on paragraph 5 0 In the years since then, the music industry has taken major strides to move beyond its 20th Century business models and technologies. Depression has abated somewhat and acceptance has been on the rise. Starting in 2007, the major labels allowed iTunes and other retailers to begin selling digital downloads without DRM. The industry appears largely to have stopped suing customers in 2008. Labels and publishers have granted licenses to some high-profile digital music sellers employing novel, 21st-Century business models, including “cloud” music services like Apple’s iCloud and “freemium” mobile subscription providers like Spotify. And there have even been some mea culpas from senior music industry executives, such as the Edgar Bronfman, Jr. quote I cited above and Geoff Taylor’s (CEO of British collection society BPI) acknowledgment that “I, for one, regret that we weren’t faster in figuring out how to create a sustainable model for music on the internet.”[5] The music economy seems to be responding to these changes; in 2011, the RIAA reported that music retail sales revenue had climbed for the first time in seven years, driven primarily by digital music.[6]

6 Leave a comment on paragraph 6 0 Yet for all the indications that the music industry is beginning to work through its challenges and biases, in many ways it is still mired in the legal, economic and ideological detritus of the past. Rather than ceding copyright to creators, the labels have been fighting tooth and nail to prevent their artists from regaining control over their own work per the “reversion” clause of the 1976 Copyright Act,[7] while insisting that newly signed artists agree to “360 deals” that grant labels a much broader ownership stake over an artist’s work and life than traditional contracts did.[8] And despite their refreshing willingness to grant licenses to innovators like Spotify, the labels are still essentially requiring that licensees pay them on a “per-use” basis, rather than collecting a share of revenues, a condition that structurally excludes smaller and more innovative companies from competing with the well-funded Apples and Googles of the world, and makes it difficult for any music seller, no matter how large, to recognize a profit.

7 Leave a comment on paragraph 7 0 Underpinning all of these decisions is the recording industry’s continuing commitment to a narrative in which it plays the role of victim, and the internet’s billions of users are painted as aggressors, or at best, suspects. In the name of this narrative, which routinely invokes Napster as the ground zero in this imagined assault, the industry has pushed, and continues to push, for the enactment of laws and treaties that would effectively subject people around the world to a degree of digital surveillance and censorship that has no precedent in free society.

8 Leave a comment on paragraph 8 0 The rest of the book will focus on this narrative and its effects. In Part II, I will deconstruct the industry’s claims of market harm by piracy, looking closely at the many factors responsible for the transformation of the music industry economy and critically evaluating the recording industry’s own role in the process. In Part III, I will examine the social consequences of the industry’s crusade against digital piracy, from constrained cultural and business innovation to threats against our basic civil liberties. In the final analysis, I hope to show that the considerable costs of the piracy crusade outweigh whatever negligible benefits it may bring.

9 Leave a comment on paragraph 9 0 [1] In inflation-adjusted, 2010 dollars.

10 Leave a comment on paragraph 10 0 [2] Although Madonna’s 2012 album, MDNA, was distributed and marketed by major label Interscope, her recording contract is part of a “360 deal” with live events company Live Nation, which she signed after leaving a decades-long relationship with Warner Music Group.

11 Leave a comment on paragraph 11 0 [3] As I told the Seattle Times when SpiralFrog was announced, I felt it was “really promising that the labels are going to finally stop kvetching and start thinking intelligently about where their money’s going to come from in the 21st century.” (http://seattletimes.nwsource.com/html/nationworld/2003234969_music30.html)

12 Leave a comment on paragraph 12 0 [4] McCullagh, D. (2006). Warner Music readies CD-free ‘e-label.’ Cnet. Downloaded from http://news.cnet.com/Warner-Music-readies-CD-free-e-label/2100-1027_3-5841355.html

13 Leave a comment on paragraph 13 0 [5] Taylor, G. (2009). Napster – 10 years of turmoil. BBC News. Downloaded from http://news.bbc.co.uk/2/hi/technology/8120320.stm

14 Leave a comment on paragraph 14 0 [6] Pedersen, E. (2012). Has the music business turned a corner? RIAA reports first revenue increase in 7 years. Hollywood Reporter, 3/28/12.

15 Leave a comment on paragraph 15 0 [7] http://www.wired.com/epicenter/2009/11/copyright-time-bomb-set-to-disrupt-music-publishing-industries/

16 Leave a comment on paragraph 16 0 [8] http://techcrunch.com/2008/11/08/360-music-deals-become-mandatory-as-labels-prepare-for-free-music/

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