Industry Reaction & Strategies

Piracy on the Internet has become one of the biggest problems facing the music industry today. On the other hand, the Internet provides a groundbreaking new medium in which the music industry can develop and grow. If key players in the music industry are able to use this medium wisely, they will be able to profit from new growth. Members of the Big Six have been diligently working on strategies to profit from the internet rather than lose from internet piracy.

The Bright Side

Music corporations are looking at the bright side of the internet- the huge profits to be made- and limiting the negative side- where piracy falls into play. The EMI 1999 annual report sums up this relationship by stating, "Indeed, music and the Internet were made for each other." They offer various advantages to be had from Internet use. First, the Internet allows them greater access and knowledge of the people who buy and listen to music. This allows greater flexibility in what the music industry can offer and the speed with which they can offer it. Also, the Internet is a creative outlet for artists and allows them to be more in touch with their audience. In a marketing perspective, the Internet allows for a direct and interactive access to customers allowing for greater advertising and exposure. EMI attracts more than 3 million visitors a month to its 45 websites around the world. Not only can companies build on their websites to attract more customers, but they can also use commercial links with other companies such as Microsoft, AOL, Amazon.com, and the millions of music outlets for recorded music. Further investment in R&D, especially in digital downloading technology and human resources, will help these companies be competitive in the Internet era.

Protection from the Pirates

To harness the market power of the Internet, though, the music industry must also come together to properly protect their copyrights and those of their artists. This means investing in solutions to Internet piracy and new copyright laws.

Before the Internet

Before the rise of the Internet, these copyright laws were useful to solve piracy problems because the piracy could be materially detected. Law enforcement agencies had physical evidence from things like bootleg CD’s to arrest the offenders and enforce the law. In 1976, the Copyright Revision Act made the "willful infringement for commercial advantage or private financial gain" of recorded music not even a felony. Punishment included one year in jail and $10,000 for the first offense. As piracy grew more and more, the government and the music industry realized that these remedies were not enough; people were still willing to risk such a small punishment for such a profitable business. In 1982, piracy became a felony. In 1992, the stakes went up to 5 years in prison and $250,000 for individual offenders of $500,000 for organizations. If someone was caught with 10 copies with a retail value of $2,500 or more, they were liable for committing a felony. Yet, the International Federation of Phonogram Industries (IFPI) recorded an estimate of $2.1 billion in the world piracy market, with Russia and China taking the lead in the industry. In 1996, the U.S. even threatened trade sanctions with China if they could not enforce their piracy laws more effectively. Changes and revisions to copyright laws are constantly being made, especially with the rise of the Internet.

New Measures to Limit Internet Piracy

A report by Andersen Consulting estimated over 1 billion music downloads in 1999. MP3 has replaced sex as the most searched for word on the Internet. What can the music industry do to limit the hazardous effects of this new industry?

• The RIAA, funded by major players in the music industry, tracks Internet sites offering illegally recorded music to download or listen to by using an electronic Webcrawler to target these sites.
• RIAA loses case begun in 1998 against Diamond Multimedia company. Diamond was charged for violating the Audio Home Recording Act by creating their portable MP3 recording devices, the Rio, which allows music to be illegally recorded.
• Sony Music Entertainment has joined Microsoft in its new streaming-media platform, Windows Media Technology 4.0, including MS Audio, a new rival for MP3 that includes security features.
• Real Jukebox was introduced at the same time as MS Audio by IBM, RealNetworks, and Xing Technology. The Jukebox can play a variety of audio types from MP3 to its own G2 format. It can record from a CD to hard drive, making it easier for consumers to distribute and record from their own collections. This technology has security features as well.
• Secure Digital Music Initiative (SDMI), created by RIAA members, creates cumbersome security features on MP3 and other digital audio formats on the market such as Liquid Audio and a2b. SDMI is able to provide these features because most of these new formats are in accordance with their standards.

SDMI is supported by over 110 technology companies and most major recording labels. Their goal is to research and establish a secure format and to create a better, more competitive and secure technology than the MP3 to lure customers away from piracy. They compete with other vendors to develop a new technology with a superior audio quality and a faster downloading time.

The problem with these new security features is that they might have come too late to put MP3 and other audio players back in the bottle. Yet, the struggle is not over yet for research and development into new areas in the market.