Piracy and the Music Industry

EMI invited some teenagers into its headquarters in London for a focused group session to talk to its top managers about their listening habits.  At the end of the session, the bosses thanked the group for their comments and told them that they can take as many free CDs as they wanted.  The teenagers didn’t take a single one!  

- This was the moment the company realized that “the game was completely up.”

The record industry’s main product, the CD, accounts for almost 80% of their total sales.  CD sales however has been rapidly decreasing in the recent years because of music piracy.  The companies thought that paid digital download would rescue the music business.  However, although paid digital download grew rapidly, it could not begin to make up for the loss of revenue from CDs.  

The record labels have tried to enforce measures to curtiail music piracy. Music IP is controlled by copyright.  Digital Rights Management (DRM) has been used to enforce licensing agreements on digital recording files.  However, the irony here is that, by restricting the use of the legally distributed digital music, DRM makes the legal product of lower quality than the illegal product, which makes the illegal product more preferable than the legal one.  

Lawsuits by major music labels and promises by the governments of different countries, such as China, to crack down on Internet piracy have failed to deter the practices as well.  Ninety nine percent of music downloaded in China country violates copyrights.  Ninety nine percent!

Now.. as reported in CNN, the world’s biggest record labels including EMI, Warner Music and Vivendi’s Universal Music have recently worked with Google by offering free downloads of music to anyone inside China, the country where piracy is arguably most rampant.  The record labels say that instead of earning money from each download, they will share advertising revenue with Google’s partner in the deal, a Chinese company called Top100.cn. For the music industry however, which believes it has lost hundreds of millions of dollars to online piracy, they feel that this deal promises to deliver a steady stream of revenue.  Google has no plans of doing the same thing in other countries.  But the companies are looking closely at where this new scheme in making business would lead to.