Friday, March 03, 2006
Stupid Music Industry Tricks
According to reports in the American press, the Department of Justice (DoJ) has begun investigating a number of big companies for possible collusion over the wholesale price of digital music.
It is probably no coincidence that regulators are taking more of an interest in online music just as it is becoming big business. Revenues from digital downloads hit $1.1 billion in 2005, three times more than the previous year, according to the IFPI, a record-industry body. Digital sales made up 6% of the recording industry’s global sales. The DoJ and Mr Spitzer appear to be concerned that the industry is overstepping the mark as it tries to squeeze as much profit as it can from its new source of revenue—especially since offline sales of CDs are so lacklustre. Despite the fast growth in digital downloading, overall music sales are expected to remain flat this year after falling by over 15% in the past five years.
Online sales are set to become increasingly important for the business. Estimates suggest that within ten years around a quarter of the music industry’s revenues will come from digital downloads. Not only are the streets awash with people happily plugged into iPods and other digital music players, but mobile phones that can play songs are also gaining ground. Of the $1.1 billion spent last year on digital ditties, around 40% went on downloads to such phones.
If the industry is colluding to keep the price of digital music high to the retailer, and this price is passed on to consumers, it could drive music-lovers back towards illegality. Though some of the early pirate sites have either closed or, like Napster, gone straight as subscription services following legal action brought by the music majors, illicit downloading is still widespread. The IFPI reckons that 885m illegal music files were available on the internet in January—and by some estimates, for every track that is downloaded via a subscription service another 75 are grabbed illegally. It is small comfort to the music business that at the peak of the file-sharing boom, some 1.1 billion infringing files were available.
The recording industry has pursued the illegal file-sharers vigorously since Napster’s closure as a pirate service in 2001. Last year, for example, America’s Supreme Court ruled against Grokster, a firm that made software which could be used for the purposes of illegal file-sharing. And the industry has taken legal action against some 20,000 of the most prolific downloaders of music files under copyright. It has also launched public-information campaigns to lambast pirates and sing the praises of legal downloading.
The music giants like to think they are finally getting the better of the illegal file-sharers—or have at least found a way to make decent money from digital music. If they are now shown to have colluded to pump margins up, they will only have themselves to blame if illicit downloading starts to gain ground again. The pirates may be past their heyday, but they will continue to wield their cutlasses.
It's rather simple, really: don't turn your customers into criminals. But when your very business model is based on greed, nothing will end well for you.
March 3, 2006 | Permalink
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Heads in the Sand, Part Eleventy Six.
The music industry will go from a high margin, relatively low volume business to a low margin, high volume business. Period.
The suits can't seem to wrap their tiny little brains around that simple fact.
Posted by: flory | Mar 3, 2006 6:58:42 PM