On-Line Battle Over Copyright

THE HOLIDAYS are over. Stockings, wrapping paper and New Year's streamers are all packed away, and we're all still learning our way around our cool new gadgets - maybe it's an MP3 player or a new computer that can create music CDs and DVD movies.

On-Line Battle Over Copyright

THE HOLIDAYS are over. Stockings, wrapping paper and New Year's streamers are all packed away, and we're all still learning our way around our cool new gadgets - maybe it's an MP3 player or a new computer that can create music CDs and DVD movies. The jolly old elf made his list, checked it twice and delivered. But don't count your Figgie puddings just yet. The gift-giving frenzy used to generate a third of the music industry's annual sales, but it hasn't been much of a saviour of late. So there's another list being compiled now, one just for naughty Canadians who share music files over the INTERNET. According to industry sources, people who get caught here can expect lawsuits as early as this month.

On-line piracy has ravaged the RECORDING INDUSTRY's bottom line and forever altered the way music lovers acquire their tunes. In 2004, convincing consumers to pay is at the top of every record executive's list of New Year's resolutions. After nearly four years of failing, new strategies to combat file-sharing - a little carrot, a little stick - seem to be slowing the download craze.

Still, the music business is hurting. Compact disc sales in the U.S. have dropped 26 per cent since 1999. The Recording Industry Association of America, which represents music labels, says its members have lost more than US$2 billion, thanks in part to peer-to-peer (P2P) file-sharing networks. The Canadian Recording Industry Association reports a $425-million drop in retail sales in Canada during the same period. "It's been grim," says Brian Robertson, CRIA's president. "Two-thirds of that is directly attributable to Internet piracy."

It's no secret why downloading music (or movies, software and computer games for that matter) has been such a hit. In June, the Pew Institute for Internet and American Life found that nearly 70 per cent of 18- to 29-year-olds download music or movies - and don't care that it's wrong. Part of it is a lack of sympathy for mega-companies like the big five labels - Universal Music Group, Sony Music Entertainment, EMI Group, Warner Brothers Music and BMG Entertainment - which control about 80 per cent of the market. And consumers are fed up with buying 15 songs in order to listen to one track. But the biggest lure is that downloaders can get what they want by gorging on a free, all-you-can-eat media smorgasbord.

Despite the industry's best efforts, the challenges of an increasingly digital world have left companies mired in a nightmarish carnival game of whack-the-gopher. In 2001, the RIAA succeeded in shutting down Napster, the first big threat. Another file-sharing site surfaced, then another, each more difficult to kill than its predecessor. Attempts to secure CDs with anti-piracy technology were either defeated (one Ph.D. student at Princeton University discovered that holding the shift key after inserting a disc into a computer prevented the copy-protection software from loading), or proved too consumer-unfriendly (CDs just wouldn't play on computers).

Two recent decisions - one in Canada and one in the U.S. - have compounded the industry's problems. On Dec. 12, Canada's Copyright Board declared that while uploading, or making music files available for others to copy, is illegal in this country, downloading files for personal use is not. One week later in Washington, a federal appeals court ruled that the recording industry can't force Internet providers to identify subscribers who may be swapping music files on-line.

Meanwhile, millions continue to flock to P2P networks like Kazaa Media Desktop. In the process, however, they're affecting law-abiding consumers. In the same December decision, the Copyright Board imposed a surcharge on portable music players that contain an internal hard drive, such as Apple's iPod. The levy ranges from $2 to $25, depending on the size of an MP3 player's memory. The money collected goes to a fund from which artists are compensated for losses caused by copying. (This is nothing new - blank cassettes and writeable CDs have had a surcharge on them for years.) As well, the SOCIETY OF COMPOSERS, AUTHORS AND MUSIC PUBLISHERS OF CANADA has appealed to the Supreme Court to tax Internet service providers such as Bell Sympatico and Rogers Hi-Speed in order to compensate artists. Critics say that if the court agrees with the society's appeal, one consequence will be that all Internet subscribers in Canada - whether they download music or not - will share the burden because service providers will add the extra costs to subscription fees.

So anti-piracy forces have finally gotten tough. In the U.S., the RIAA sued 382 people they accuse of sharing a large number of music files with others. That has stirred up some bad press: among those sued are a 12-year-old New York City girl and a 79-year-old retiree from Ridgefield, Wash., who doesn't even own a computer. But the aggressive legal tactics seem to be working. Nielsen NetRatings recently reported a steady decline in Kazaa users, from seven million per week in June, when companies announced their intention to sue offenders, to 3.2 million per week in November. "Based on the responses we got from consumers, especially young consumers," says Forrester Research Inc.'s Josh Bernoff, "I think the lawsuits are likely to be effective in scaring some people into stopping."

The CRIA has held off suing individual file-sharers, preferring instead to try to reform pirates. But that's changing. "There are individuals with 5,000 copyright songs that they're making available to half the universe," says Robertson. "We have tried education to stop them and it has not worked. So now we'll try litigation. If this is the only way we will get these individuals' attention, that's what we'll do."

In the meantime, anti-piracy forces are still trying to get their message out. The RIAA has earmarked more than US$1 million for anti-piracy education, and the CRIA recently launched an ad campaign of its own, warning parents that their children may be inadvertently downloading viruses along with their music. "Your kid may be downloading music," says Robertson, "but do you have any idea what else they are being exposed to?"

Along with the threat of legal reprisals or potentially higher costs of getting on-line, the recording industry is trying to lure the public back into buying albums by adding bonus material to them. "They're trying to increase the value of CDs," explains Bernoff. "And cutting the price." Nothing's too kitschy to offer. One lucky Blink-182 fan could find the "Golden Ticket" in a CD case, good for him and 50 of his friends to see a private concert staged by the trio. In October, the top six spots on the weekly Billboard 200 album chart were held by artists offering some type of bonus on their albums.

Perhaps the most important recent change is that the big labels are embracing the concept of using the Internet as a distribution method. At least a dozen on-line music stores have launched this year, selling music tracks from 99 cents each. By all accounts, the legal alternatives are making a dent. The leading outlet, Apple's iTunes Music Store, has sold more than 20 million tracks since opening in April. The number of on-line stores is expected to double in 2004 as Sony, Microsoft and Wal-Mart get into the mix. "I think they will take off," says Bernoff, who estimates that five years from now, 33 per cent of all music sales will come from on-line retailers. But will that be the end of file-sharing? "No, absolutely not," he says. "That's like asking, 'Are we seeing the end of speeding?' " Maybe not. But with the industry setting up more speed traps, the cost of file-sharing will force some music pirates off the information highway for good.

Maclean's January 12, 2004