Music dowloads

Is downloading really bad?

Two controversial findings last week have reopened the debate about music piracy. Yinka Adegoke reports

By Yinka Adegoke 

Monday 5 April 2004

    Last week's ruling by the federal court of Canada that music fans who download music for personal use via peer-to-peer services, such as Kazaa and Grokster, are not breaking its local copyright law highlights the risk the music business is taking in deciding to sue music filesharers.

    Add to that the fact that new research from Harvard Business School contradicts the record industry's central claim that file-sharing via such services seriously damages record sales, and you start to get a sense of the huge task facing the industry. But the International Federation of Phonographic Industries (IFPI) and its UK sister body BPI are both taking this challenge to music fans outside the US. The IFPI is suing 247 fans in Canada, Denmark, Germany and Italy for online piracy, while the BPI is sending out messages across P2P sites warning fans to stop illegal activity or face the legal consequences.

    When it comes to figures on how record sales have been reduced by illegal downloading it has always been a case of lies, damned lies and statistics. The music industry is convinced that since the early days of the original Napster it has lost revenue. Jay Berman, chairman and CEO of IFPI, has no doubt that there is a strong link between CD sales and the availability of illegal content. "It's clear-cut to me," he says. "If there are 800m files [IFPI research] being shared for free then it is less likely that they would pay for music."

    But the research from Harvard and the University of North Carolina says that, on the contrary, file-sharing helps music sales. The authors, Felix Oberholzer-Gee and Koleman Strumpf, conclude that file-sharing had no effect on the sale of popular CDs in the second half of 2002. They go on to say that for the top 25% of albums (with sales of more than 600,000 copies) they found a positive effect: 150 downloads were said to increase sales by one copy.

    Berman is scornful of the research, pointing out that it was carried out in the record industry's traditionally strong second half of the year - when Christmas boosts sales.

    "If I listened to that study my business would have improved," he says. The one thing that the report claims which he agrees with is that tracks from the most popular albums are those most likely to be downloaded. For Berman, this explains a worrying trend, which has seen a "substantial" fall in the number of albums sold by the biggest artists. He points out, for example, that in the period the Harvard report covers, 2002, only one album (by Linkin Park) sold more than 5m copies.

    But Wayne Rosso, chair of the US based lobbying body P2P United and CEO of Optisoft, supports the Harvard research and claims that despite legal action in the US, P2P traffic numbers have remained healthy.

"The recording industry is so completely misguided in its use of fear tactics that it can only engender even more contempt from fans. And what's even more ridiculous is that they're all profitable and their business is up, in part due to the free marketing they get from P2P networks. They should be paying us!"

    And the artists, too, are not so certain that the stats being bandied about by the record companies stand up to scrutiny. Dave Rowntree, the drummer of Blur, told the industry weekly New Media Age last week he was furious that the BPI had followed its US counterpart RIAA by threatening to sue music fans blamed for online piracy.

    "It's preposterous," he said. And he wondered how the researchers could know for certain if people spent less money on CDs because they downloaded music. "How do they know that? The BPI isn't speaking on behalf of all the industry."

    The study, based on 3,667 adults in the UK, found that 8 million people in the UK download music, with 92% of them doing so illegally. The study also claimed that downloaders spent 32% less on albums and 59% less on singles than before they started downloading.

    BPI spokesman Matt Philips says: "We could have taken legal action a year ago but we were surprised as anyone when the in-depth research came through. The scale of the problem has been masked by the fact that we sold more albums in the UK than we've ever sold before."

    Interestingly, at the new paid-for Napster its internal figures show that the biggest purchasers of downloads to burn on to CDs via its on-demand service are the same people who pay $10 a month to listen to as much music as they like via its streaming service.

    Though Napster is reluctant to say that this supports the claim that access to music via P2P services could boost record sales, a spokesman accepts that: "People given a wide access to songs are more likely to buy than others."

    Whatever the reasons for the dip in record sales, it seems that the days of top performers, such as Prince or Michael Jackson, shifting tens of millions of albums might well be behind us. But some feel that the music industry should learn to turn the current challenges facing it to its advantage.

    At legal P2P service Wippit, which recently signed deals to distribute music from EMI and BMG, CEO Paul Myers feels strongly that the record companies are sending out a one-sided message. Referring to the BPI research, he says: "For me this just says there are 8 million who are familiar with download services who want to buy music."

   Myers also believes they should be thinking long-term: "This message would be much more powerful if it was also backed up by a campaign encouraging legal downloads. A TV commercial for the new Outkast CD or a personal message to a P2P user could contain the message, 'If you're going to download it, download it legally from Wippit'."

    The fact that people outside the US are finally showing some interest in legal services is backed by figures put out by Peter Gabriel's OD2, Europe's largest digital music distribution service. It has revealed that over a million digital downloads were bought via its retail partners across Europe, including mycokemusic.com, HMV.co.uk, MSN and Tiscali, in the first quarter of this year.

    These figures are impressive if you consider the relatively low profile of the OD2 services, apart from mycokemusic.com. This augurs well for the arrival of Apple's iTunes and the new Napster in the UK. Berman is very keen to get the services up and running in Europe. "I want iTunes, Real and Napster here as soon as possible. I'm trying more than ever for a licence on behalf of all these services."

    How long does he think his industry will still be about selling CDs? "Five years from now we'll still be selling CDs, but I think a substantial part of our business will be digital sales."