Recording Industry Seeks to Regain Groove with New File-Sharing Approach

Intellectual Property Law

Recording Industry Seeks to Regain Groove with New File-Sharing Approach

Jun 4, 2010, 11:20 pm CDT

Note: This month’s CLE, “Seeking Harmony in Music Distribution,” is Wednesday, June 16.

Recession or no, the music industry has been hitting a high note lately. Reports indicate that, on average, revenues are on the rise for musical artists. Income from concerts and ancillary merchandise (such as souvenir T-shirts) has become a key revenue source for most performers. New vehicles for delivering music in innovative and exciting ways are being introduced regularly. And consumers are getting more music at lower prices.

But sales of recorded music have hit a sour note. In 2000, manufacturers shipped 942.5 million music CDs with a retail value of $13.2 billion to sales outlets in the United States alone, according to the Recording Industry Association of America. By 2008, those numbers had dropped to 384.7 million CDs shipped with a retail value of $5.5 billion—a plunge in dollar value of 58 percent in only eight years. (Ironically, the only segment of the physical recordings market to grow between 2000 and 2008 was vinyl LP records, thought at one point to be headed for extinction.)

Many in the recording industry say the villain in this opera is file-sharing, which allows computer files to move back and forth freely among networks of users on the Internet. The recording industry sees no coincidence in the fact that file-sharing has exploded during the same period that the market for CDs has withered.

In the industry’s view, the problem is that file-sharing is both enormously popular and almost always illegal.

In 2008, for example, 40 billion music downloads—95 percent of the total worldwide—were infringing, according to the International Federation of the Phonographic Industry.

Though the RIAA says the music industry has fully embraced the Internet as a major channel for distribution to consumers, the group has called on the Federal Communications Commission to endorse efforts to curb illegal downloads of copyrighted works.

“The full potential of those licensed digital distribution models [is] undermined by a glut of illegal file-sharing, which has inflicted enormous damage on the creative industries generally,” the group said in a press release in January.

Illegal file-sharing also has wider economic implications, said the RIAA, citing a 2007 report by the Institute for Policy Innovation in Lewisville, Texas. That report, titled The True Cost of Copyright Industry Piracy to the U.S. Economy, estimates that in 2005 at least $25.6 billion in potential revenue was lost to piracy in sound recordings, motion pictures, business software and entertainment software/video games. The report claims that copyright piracy costs the U.S. economy more than 373,000 jobs annually in related fields and industries, and also results in more than $2.6 billion in lost tax revenue for local, state and federal governments every year.

“We need to get file-sharing to a level that is manageable, that allows the music industry to flourish,” says Steven M. Marks, executive vice president and general counsel at the RIAA.

Click link to continue reading “The Record Business Blues” in the June issue of the ABA Journal.

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