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Did Music Piracy and Copyright Infringement Kill the Music Industry?

March 30, 2015

 

The International Federation of the Phonographic Industry estimates that more than a quarter of internet users worldwide (26%) regularly access unlicensed music. This number is based on desktop-based devices and does not even include the infringement that occurs via popular tablet and mobile devices. The music industry has historically relied on the legal environment and copyright law to protect its rights and its business structure. However, after the rise of the internet in the early 2000’s, the music industry has faced challenges of unfair competition from internet services providing unlicensed music.[1] Although record companies are quick to blame piracy for its shortcomings, there may be another explanation for the perceived downfall.

 

Digital piracy is the unauthorized reproduction or use of digital copyrighted material and is the biggest threat to the development of licensed music and investment in artists. Piracy platforms bypass the obligation to obtain licenses for the music that they are providing and simply offers it to internet users either for a fee or for free. Some of these platforms include streaming websites, peer-to-peer file sharing networks such as Napster, Kazaa, and Limewire, cyberlockers and aggregators, stream ripping, and mobile applications.[2] Since the availability of digital piracy, the sales of number one albums have shrunk significantly. In 1991, Paula Abdul’s Spellbound” sold 88,000 copies. In 2011, Taylor Swift’s “Speak Now” only sold 52,000 copies, yet both artists claimed the No. 1 spot.[3]

 

Digital Piracy Statistics

 

The music industry has seen a recognizable change since music piracy became popular for internet users. To give a clearer understanding of the damage of music piracy, here are a few statistics:

  • In 1999, the total U.S. music sales, for both physical and digital media, was $14.5 billion. In 2008, that number dropped to $8.5 billion.

  • In less than two years, the Recording Industry Association of America has sent copyright infringement notices to 1.8 million internet subscribers and 269,609 to colleges and universities in the U.S.

  • 36% of internet users in the U.S. admit to regularly sharing music illegally.

  • In 2009, 95% of all digital music worldwide had been illegally downloaded.[4]

  • 70% of internet users find nothing wrong with online piracy.

  • 8% of data transferred using peer-to-peer networks is copyrighted.

  • Websites hosting pirated content receive more than 146 million visitors each day.

  • An average iPod contains $800 worth of pirated music.[5]

Music Piracy and Copyright Infringement

 

People who take part in music piracy may not even know that doing so is against constitutional law – specifically, copyright infringement. Copyright law protects the value of creative works, such as books, paintings, sculptures, photographs and of course, music. When people make unauthorized copies of creative works, by downloading it online without a license for example, they are taking something of value from the owner without his or her permission. This amounts to copyright infringement and is punishable by federal law. Copyright law provides severe civil and criminal penalties for the unauthorized reproduction, distribution, rental or digital transmission of copyrighted sound recordings.[6] It is likely that people who take part in music piracy are not aware of this liability since it is so easy to use software to burn CDs or download music online. U.S. copyright law provides full protection of sound recordings whether they exist in the form of physical CD’s or digital files. Regardless of the means of copying, the same basic principle applies: music sound recordings may not be copied or distributed without the permission of the owner.

It is important for internet users to understand what amounts to copyright infringement. Here are some common actions of music lovers which amount to online copyright infringement:

  • You make an MP3 copy of a song because the CD you bought expressly permits you to do so. But then you put your MP3 copy on the internet, using a file-sharing network so that millions of other people can download it.

  • You join a file-sharing network and download unauthorized copies of all the copyrighted music you want for free from the computers of other network members.

  • In order to gain access to copyrighted music on the computers of other network members, you pay a fee to join a file-sharing network that isn’t authorized to distribute or make copies of copyrighted music. Then you download unauthorized copies of all the music you want.

  • You transfer copyrighted music using an instant messaging service.

  • You have a computer with a CD burner, which you use to burn copies of music you have downloaded onto writable CDs for all of your friends.

  • Somebody you don’t even know e-mails you a copy of a copyrighted song and then you turn around and e-mail copies to all of your friends.[7]

These examples seem harmless and unfortunately are relatively normal activities in today’s digital era.

Penalties of Sound Recording Copyright Infringement

If you make copies of music without permission from the copyright owner, you can be prosecuted in a criminal court and/or sued for damages in civil court. A civil lawsuit may enable a copyright owner to recover thousands of dollars in damages, while criminal charges, for even first-time offenders, may result in a felony record and up to five years in jail with fines up to $250,000. The minimum civil penalty is $750 per song for registered copyrighted works. While penalties may be more severe if the infringement was motivated by making a profit from another’s work, even if a profit was not expected, an infringer is still liable in civil court for damages and lost profits of the copyright holder.[8]

 

Enforcement of Sound Recording Copyrights in the Courts

 

Courts have agreed that owners of artistic works have valuable rights and should be protected through copyright law. For example, in UMG Recordings v. Mp3.com, Inc., the United States District Court for the Southern District of New York held that Mp3.com’s online technology was a clear case of copyright infringement and held it accountable. Mp3.com’s service permitted subscribers to store, customize, and listen to recordings contained on their CDs from any place where they have internet connection. In order to do so, Mp3.com purchased tens of thousands of popular CDs in which UMG owned the copyrights, and, without authorization, copied their recording onto its computer servers to re-play the recordings for its subscribers. The court held that the re-playing for subscribers converted versions of the recordings it copied and was therefore a presumptive case of infringement under the Copyright Act of 1976. In its defense, Mp3.com argued that such copying id protected by “fair use,” under section 107 of the Copyright Act. In analyzing the fair use defense, the court considered four factors: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. Upon considering these four factors, the court rejected the fair use defense, as well as Mp3.com’s other affirmative defenses including copyright misuse, abandonment, unclean hands, and estoppel. Finally, the court reminds us that copyright is not designed to afford consumer protection or convenience, but, rather, to protect the copyright holders’ property interests.[9]

 

Individual downloaders should be weary of their music downloading as well. In 2012, the United States Court of Appeals for the Eighth Circuit held that Jammie Thomas-Rasset, a Minnesota woman, was liable for $222,000 in damages for copyright infringement for illegally downloading 24 songs. Although Thomas-Rasset argued that the $9,250 fine per song was excessive and violated her due process rights under the Constitution, the court rejected that argument and held that the damage award was not so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable. Although Thomas-Rasset stated that it was probably her ex-boyfriend or two young sons that actually did the downloading, her plea for sympathy went unnoticed. Thomas-Rasset was one of 18,000 people the Recording Industry Association of America sued between 2003-2008 in an attempt to discourage people from downloading songs from file sharing sites like Kazaa.[10] Individuals who take part in illegal downloading should be weary that copyright owners, despite their wealth in proportion to the infringer, will certainly enforce their rights.

Similarly, a former Boston University Ph.D. student was ordered to pay damages amounting to $675,000, to be split between four major record labels, for illegally downloading and sharing 30 songs online. In this case, Sony BMG Music Entertainment v. Tenenbaum, the student argued that a more appropriate penalty would be $450, the cost of the 30 albums that contained the songs that he illegally shared. However, the court rejected this, noting that he did not just download the songs, he also shared them afterwards. In addition, the court refused to disregard the deterrent effect of statutory damages and Sony’s evidence of the harm it suffered from music piracy, stating that the student’s behavior was exactly what Congress was trying to deter when in amended the Copyright Act. As a result, the court imposed the award of $22,500 per song which was 15 percent of the maximum award for willful violations and less than the maximum award for non-willful violations.[11]

 

Knowing that the courts are on their side in their pursuit of enforcing copyright protection should alleviate some concern for financial loss as a result of music piracy. However, as technology grows, the Copyright Act has reflected that, making copyright enforcement continuously difficult for owners of sound recordings.

 

The Digital Millennium Copyright Act Safe Harbor

 

As previously discussed, the potentially infringing activities of individuals are stored and transmitted through the networks of third parties. Website hosting services, internet service providers, and search engines that link to materials on the Web are just some of the service providers that transmit materials created by others. In order to keep up with the technological advances and to provide an alternative for the extreme burden that these third parties would face if they had to verify licensure for each piece of content that they provide, Congress has enacted section 512 of the Digital Millennium Copyright Act (DMCA).

 

Section 512 protects online service providers from liability for information posted or transmitted by subscribers if they quickly remove or disable access to material identified in a copyright holder’s complaint. In order to qualify for the safe harbor protection, a service provider who hosts content must (1) have no actual knowledge of infringing activity on its network, (2) once provided with knowledge, act expeditiously to remove or disable access to the complained-of material, (3) have a specific copyright policy detailed in the DMCA and display proper notification of that policy to its subscribers, and (4) list an agent to deal with copyright complaints.

 

Although the safe harbor provides a way for copyright owners of music to enforce their copyright, it is often a difficult task for artists that do not have the financial means to enforce his/her rights against piracy. If a service provider removes infringing material from its site as a result of a copyright owner enforcing its rights via the take down policy, and the site user counters the removal, the content may legally be restored if the copyright owner does not notify the service provider within 14 days that it has filed a claim in court. This is a very burdensome process for copyright owners and shifts the burden from the service provider (needing to obtain a license), to the copyright owner.[12] Not to mention, copyright litigation can cost an average of $300,000. Some may argue that the inefficiencies of section 512 of the DMCA is another challenge to the music industry and obstacle in enforcing copyright protection against music pirates, contributing to its inability to thrive as it once did.

 

The Damaging Effects of Music Piracy

 

While downloading one song may not feel that serious of a crime, the accumulative impact of millions of songs downloaded illegally and without any compensation to all the people who helped to create that song and bring it to fans is devastating.  One credible study by the Institute for Policy Innovation reports the annual harm to be $12.5 billion dollars in losses to the U.S. economy as well as more than 70,000 lost jobs and $2 billion in lost wages to American workers.[13] Although these facts may sound devastating, some aspects of the music industry has actually benefited from the force of music piracy.

 

Piracy Did Not Kill the Music Industry

The Music Industry’s Share of Accountability

 

While it is true that the music industry is far from the point of its highest peak in the late 1990’s, its decline is likely not from piracy. The downward trend for the recording industry represents an entry into the decline phase of the standard product/business life cycle. The music industry is like any other business or industry that reached maturity and must react. In the maturity phase, sales are leveling or declining, signaling firms to fight for market share, operate more efficiently, and focus on branding and securing a competitive advantage. The introduction of a replacement product can rejuvenate the company and new sales of the replacement can make up for the loss. The sales trend in the music industry evidences that it reached the maturity phase, calling for new initiatives:

 

For the music industry, the ‘new product’ was a new music format, the MP3. But the music industry may have missed this because they did not create the MP3 themselves. But rather than supporting the MP3 and taking advantage of the new digitized version of music, the industry fought it by enforcing copyright and shutting down peer-to-peer sites. It was inevitable that when a new format of music emerged to replace CDs and the industry did not adopt it and offer to consumers viable methods of purchasing it, people would consume it for free because it was available. The MP3 went viral in 1994, yet no one in the record industry responded. It was only in 2000, six years after the explosion of MP3’s on the internet, that Apple bought a small start-up and renamed it iTunes to offer MP3s legally.[14]

 

This evidence shows us that it is not piracy that forced the decline of the music industry, but rather, the unresponsiveness of the industry to digital advances and consumer demand. If the music industry had spent more time and money adopting MP3s into their business model instead of fighting it, I believe that they could have prevented the trend of piracy and capitalized on the new, popular, and convenient form of music. A study from the American Assembly showed that the highest consuming free music downloaders also purchased about 30 percent more music.[15] This shows that pirates are willing and able to spend money for music, more than the average person. Although one may think that people who participate in music piracy are likely the ones who will not buy music, such simple thinking, in my opinion, is what got the music industry in this predicament in the first place. As previously explained, record companies have spent thousands of dollars fighting for copyright enforcement in courts, even going after individuals who have no way of paying such large damage awards. It is unfortunate that individuals like Thomas-Rasset and Tenenbaum had to be dragged through the court system in an effort to be made an example out of when it is the music industry that needs the lesson. This is an unfair result of the music industry’s failure to adopt to the changing times. While the industry may see themselves as the victim, I see the consumers as the victim. They are targeted and viewed as criminals for doing something that the industry could have and should have prevented. The music industry points the finger at pirates when they should really be blaming themselves for the missed opportunity to capitalize on the popularity of MP3s.

 

It may actually be a good thing that section 512 of the DMCA shifts the burden to the record companies in enforcing their copyright online. If record companies embraced the MP3 format when it was introduced, people would likely use music that they legally acquired on the websites of service providers. Further, section 512 provides an obstacle for record companies who seek to bring lawsuits for copyright infringement as it relates to some forms of piracy. While I am certainly an advocate of copyright laws and the protection of intellectual property of all forms, I am disturbed by the music industry’s means of recouping for the loss that resulted from its failure to adopt to a changing society.

 

The Music Industry is Not Dead

 

While there has certainly been a decrease in some aspect of music sales, the music industry is making more money in unexpected ways. Between 2004 and 2008, the number of single tracks sold in the U.S. increased by 669 percent! During that same time period, music unit sales have continually increased each year as displayed in this chart:

 

 

Despite the availability of piracy, digital sales are booming and amount to 70% of all music unit sales.[16] Concert ticket sales went from $1.3 billion on 2006 to $10.3 billion in 2011, in the U.S. In addition, new revenue streams have become common for record labels through 360 deals. In an attempt to make up for the lost sales of albums, record labels use 360 deals to get a portion of artists’ other revenue streams such as merchandising, touring, videos, endorsements, acting, book sales, and licensing.[17]This is certainly a positive result of the obstacles that the music industry has faced and shows that the industry is still thriving and making money.

 

So did piracy and copyright infringement kill the music industry? My answer is no. The music industry itself is to blame for declining sales of albums by their failure to adopt to new formats for music. And despite the decline in albums, the music industry is making more money in other ways than ever before.

 

[1] “The Recording Industry’s Ability to Develop the Digital Marketplace Is Undermined By piracy.” Music Piracy. Web. 14 Nov. 2014. <http://www.ifpi.org/music-piracy.php.

[2] Id.

[3] Fitzgerald, Britney. “Music Piracy: Moochers Are Also Big Spenders Within The Record Industry, Study Finds.” The Huffington Post. TheHuffingtonPost.com, 16 Oct. 2012. Web. 14 Nov. 2014. <http://www.huffingtonpost.com/2012/10/16/music-piracy-biggest-spenders_n_1970242.html.

[4] Source: RIAA, IFPI, BBC, intotheunknown.co.uk, andrewpeterson.com, minorityfortune.com, businessweek.com, grabstats.com, apple.com, safeconcerts.com, prettypolly.com; “Infographics Showcase.” Infographics Showcase RSS. Web. 14 Nov. 2014. <http://www.infographicsshowcase.com/money-music-piracy-statistics-infographic/.

[5] “Online Piracy in Numbers – Facts and Statistics [Infographic].” Web Design Dubai Dubai Web Design and Web Application Development Company Online Piracy in Numbers Facts and Statistics Infographic Comments. Web. 14 Nov. 2014. <http://www.go-gulf.com/blog/online-piracy/.

[6] Title 17, United States Code, Sections 501 and 506

[7] “RIAA – The Law” http://www.riaa.com. Web. 14 Nov. 2014. <http://www.riaa.com/physicalpiracy.php?content_selector=piracy_online_the_law.

[8] Id.

[9] UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000).

[10] Capitol Records, Inc. v. Thomas-Rasset, 692 F.3d 899 (8th Cir. Minn. 2012);

“Minnesota Woman Ordered to Pay $222,000 in Music Piracy Case.” Rolling Stone. Web. 14 Nov. 2014. <http://www.rollingstone.com/music/news/minnesota-woman-ordered-to-pay-222-000-in-music-piracy-case-20120912.

[11] Sony BMG Music Entm’t v. Tenenbaum,660 F.3d 487 (1st Cir. Mass. 2011); “Appeals Court Approves $675,000 Fine for Student Who Illegally Downloaded 30 Songs.” Digital Trends. Web. 13 Nov. 2014. <http://www.digitaltrends.com/music/appeals-court-denies-piracy-penalty-plea;.

[12] “DMCA Safe Harbor-Topics-Chilling Effects.” DMCA Safe Harbor :: Topics :: Chilling Effects. Web. 14 Nov. 2014. <https://www.chillingeffects.org/topics/14.

[13] “RIAA – Who Music Theft Hurts – November 18, 2014.” http://www.riaa.com. Web. 14 Nov. 2014. <http://www.riaa.com/physicalpiracy.php?content_selector=piracy_details_online.

[14] “Piracy and Peer-to-Peer Did Not Kill the Music Industry | Hip Digital Media.” Hip Digital Media. Web. 9 Nov. 2014. <http://www.hipdigitalmedia.com/main-blog/piracy-and-peer-to-peer-did-not-kill-the-music-industry.

[15] Fitzgerald, Britney. “Music Piracy: Moochers Are Also Big Spenders Within The Record Industry, Study Finds.” The Huffington Post. TheHuffingtonPost.com, 16 Oct. 2012. Web. 9 Nov. 2014. <http://www.huffingtonpost.com/2012/10/16/music-piracy-biggest-spenders_n_1970242.html.

[16] “Is Piracy Really Killing The Music Industry? No! | TorrentFreak.” TorrentFreak RSS. Web. 14 Nov. 2014. <https://torrentfreak.com/is-piracy-really-killing-the-music-industry-no-100418.

[17] “The 360 Deal – the Music Industry’s Scary Monster – Disc Makers Echoes.” Disc Makers Echoes The 360 Deal the Music Industrys Scary Monster Comments. Web. 14 Nov. 2014. <http://blog.discmakers.com/2012/01/the-360-deal.

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