Record labels keep blaming P2P, but it’s a hard sell

In response to a new survey suggesting that P2P file-swapping might not be harming music sales, music’s international trade group IFPI today put out a statement. “The net effect of illegal file-sharing in the UK and elsewhere has been to reduce legitimate sales,” IFPI asserts. “This is why spending on recorded music has fallen every year since illegal file-sharing began to become widespread.”

In other words, P2P file-sharing is the main cause of the revenue decline and the (very real) job losses in the recorded music business. It’s a strong assertion, but it’s not necessarily accepted outside the music industry. And we’re not talking about the usual copyrighters, or groups like EFF, or Pirate Party backers; complaints about P2P have failed to convince even people like the European Commissioner for Information Society and Media, Viviane Reding.

The industry responded not with a vigorous new ideas, but with strong-arm tactics and threats. It served fans not with digital innovation but lawsuits—more than 20,000 in the span of four years, in an attempt to intimidate consumers away from file sharing.

Back in June 2009, Reding made a speech in which she put equal blame for the problem on Big Content, so terrified of piracy and lack of control that many companies refuse to give customers what they want.

“It is necessary to penalise those who are breaking the law,” she said, “but are there really enough attractive and consumer-friendly legal offers on the market? Does our present legal system for Intellectual Property Rights really live up to the expectations of the Internet generation? Have we considered all alternative options to repression? Have we really looked at the issue through the eyes of a 16 year old? Or only from the perspective of law professors who grew up in the Gutenberg Age? In my view, growing Internet piracy is a vote of no-confidence in existing business models and legal solutions. It should be a wake-up call for policy-makers.”

Innovation stagnation

“A vote of no-confidence in existing business models.” It’s a common criticism, and one advanced by all sorts of people who aren’t out to destroy copyright or sink major music labels.

Take the All Party Parliamentary Communications Group in the UK Parliament, which solicited mountains of comments from groups on all sides of the issue, and concluded in its final report (PDF) this fall that “much of the problem with illegal sharing of copyrighted material has been caused by the rightsholders, and the music industry in particular, being far too slow in getting their act together and making popular legal alternatives available.”

Plenty of musicians now agree. Greg Kot, a Chicago journalist and the host of NPR’s “Sound Opinions” radio show, collected a wide range of such sentiments for his recent book Ripped: How the Wired Generation Revolutionized Music.

Kot quotes Peter Jenner, the first manager of 60s psychedelic rock band Pink Floyd, saying, “The flagrant spread of ‘Internet piracy’ in developed countries is a reflection of the failure of the industry as a whole to develop an appropriate copyright responds to the distribution and remuneration options made possible by the new technologies.”

Kot’s own take on what happened to the music labels is that they took the wrong approach to file-sharing. “The industry responded not with a vigorous new ideas, but with strong-arm tactics and threats,” he writes. “It served fans not with digital innovation but lawsuits—more than 20,000 in the span of four years, in an attempt to intimidate consumers away from file sharing.”

Even music’s top executives now recognize the dire lack of innovation in their businesses. Edgar Bronfman, CEO of Warner, said in 2007, “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection, and file sharing was exploding. And of course, we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inversely went to war with consumers by denying them what they wanted and could otherwise find. And as a result, of course, consumers won.”

Steve Knopper, in his excellent book Appetite for Self-destruction: The Spectacular Crash of the Record Industry in the Digital Age, quotes Mac McCaughan, founder of Merge Records (early home to bands like Arcade Fire).

“I’ve always felt like major labels claiming downloading for their declining sales is just somewhat wishful thinking,” he said. “It’s like a scapegoat—they wish it was that and not ‘they’ve been putting out terrible records for a long time’… People who are our hardcore fans like music and want to support the artists and labels that put out records they like. We’re all in the music business, but it’s like we’re two different businesses.”

The single resurgent?

Stealing music is not killing music. When I talk to people in the music business, most of them will admit that the problem is they’re selling songs and not albums.

But if P2P isn’t the main driver of lost revenue, where’s that revenue going? After all, major label music income is way down, and up to 50,000 people may have been laid off during this decade.

Knopper offers a simple explanation: labels used the CD era to basically eliminate the single and push the album. In addition, the new-at-the-time digital format encouraged many consumers to re-purchase albums that they had previously owned only in analog.

When the digital download era arrived, labels had grown fat on this business model and were not prepared to nurture “album bands.” Instead, the relentless obsession on creating “hits” in order to move albums, which worked so well in the CD era, proved disastrous in the age of iTunes. Individual digital downloads brought the single back to life in a big way, and moving a 99� single couldn’t come close to generating the same profit as a $14 CD, even with the costs of packaging eliminated.