(As regular readers already know, I work part time for trueAnthem an online music distribution and viral marketing company. Below is an email from one of trueAnthem’s artists and my response.)
Greg what is your stance on the RIAA suing people that do downloads on KAZAA and like services…. as I was logging in to yahoo saw this article featured … Yahoo Jamie Thomas Verdict
Suing individual consumers while sound legally is a stupid business strategy. However it is not surprising given the old business model. The people in charge of the RIAA and music labels got to their positions because of their knowledge of the music industry, contracts, distribution, and marketing. As a result it is not surprising that they failed to understand the technology available and how to profit off of it.
From their standpoint the technology was something to fear. Take a look at the recent writers’ and actors’ strikes and you will see how everybody is fighting over what the revenue distribution should be for digital downloads. Because people don’t know what the digital pay model will look like they are afraid to create deals (they have no idea whether they are getting a good deal or a bad one.) The alternative is to license content on a revenue share model rather than a royalty rate. This would leave music labels and movie studios in the positions they have put their talent for years: relying on someone else’s honest accounting. Given the rumors of bad accounting in the movie and music business it is not surprising that the revenue sharing model is not one that the studio executives jumped on quickly.
Personally I believe the RIAA and record labels should have made licensing of catalogs extremely easy early on and thus allowed lots of different distribution models to be tested. Had they done this, market theory suggests that the good ones would have succeeded and everyone would be in a better position than they are today. (Again I think studio executives expertise is partly to blame. As I said earlier their expertise was not technology. As these models succeeded they would be replaced by executives who were both experts in technology and the music industry. Thus even if they had been smart enough to have done this they would have been signing their own pink slips. Considering this Catch-22 it is not surprising that they did not embrace the technology.)
Another reason why they did not adopt digital distribution early on was the fear of piracy. The theory behind most early RIAA and studio attempts at digital distribution revolved around DRM (trying to assure that the music was not copied and distributed for free.) One of the problems with this focus is that it mainly restricts legitimate uses by your customers while doing little to restrict those who are going to pirate music. Video game companies are currently dealing with this as well and are beginning to realize that they will never be able to keep everyone from getting the game for free. Instead they are focusing on creating incentives to buy the game rather than get it for free (back to value added services.)
Had the music industry recognized this from the start I believe they could have discovered they were profiting despite the piracy. A working paper by some people at Harvard Business school argues that they are still profiting despite piracy (and their own missteps.) Ars Technica has written a good summary of the paper.
I think that some of this should have been obvious in the sense that the music industry has been profiting despite free distribution for a long time. Radios have been playing music for free since the early 1900s. Despite this free distribution, music labels have profited. In fact I would argue that without this free distribution they would have profited much less because they would have had no easy vehicle to get people to listen to the music. Very few people are going to buy music from a band they have never heard.
Getting back to KaZaA, I think that even with the reduced digital distribution market available it was not hurting music sales as much as record labels believe (I have an old post about other possible reasons for decline in music sales.) I believe a majority of people are using the internet to discover the music people discovered on the radio in the past. While some people will inevitably “steal” music they otherwise would have purchased, lots will buy music they otherwise would never have discovered. I think the biggest thing digital distribution has done is create larger markets for niche bands. In the past labels where limited in signing and distributing bands that catered to smaller niche markets because of the distribution costs. The internet reduces this problem by aggregating people with similar music tastes (such that they can find bands that fit their niche more easily) and reducing the cost of distribution (less of a financial barrier to distribute the music in the first place.)
As far as the Jamie Thomas $1.9 million dollar verdict I think it hurts the record labels as much if not more than it helps them. From what I have read Jamie Thomas was the perfect person for them to go to trial against (other than her being a mom.) While I believe the evidence linking a user to specific uploads is tenuous at best, the evidence against Jamie Thomas was strong: she did not have a wireless router, she replaced her hard drive after being notified of her infringement, she used her only internet username, she regularly locked her computer, she was caught lying numerous times… She clearly deserved to lose the lawsuit.
That being said the RIAA is never going to see the $1.9 million dollars and all it does is make them look like even bigger bad guys because of the large amount of the award. Nobody objectively thinks that $1.9 million is a fair penalty for her. If the RIAA were smart it would settle with her today for $5-10k and announce how given the circumstances of a single mother of two they would rather not see the money then be at all responsible for financially ruining the family. Then they need to bring up the artists whose songs she “stole” and give them each their share of the settlement.
