1.
The rising tide of Piracy,
its effect on the music
industry
Kerry Snyder
Law & Economics
2009
Lewis & Clark Law

2.
Copyright law grants certain limited monopolies to the author(s) of
a creative expression fixed in a tangible medium.
For sound recordings:
• copying — the right of reproduction
• remixing — the right to create derivative works
• public release — the right of distribution
• digital performance rights
Digital piracy, for the most part, infringes the rights of reproduction
and distribution. Newer channels of digital piracy implicate the
digital performance rights (unauthorized streaming) and the
derivative works right (sampling within new compositions).

3.
Share the
booty? Shiver
me timbers!
• physical media to digital file
• digital file to P2P network
• P2P shared file to physical
media
• Napster, Kazaa, Gnutella,
Limewire, BitTorrent, Ares,
eDonkey, Usenet
• zShare, RapidShare
N.B. All images and trademarks reproduced as (hopefully) fair use under 17 U.S.C. § 109 as
―criticism, comment, news reporting, teaching (including multiple copies for classroom use),
scholarship, or research,‖ or the Lanham Act § 43(c)(3).

4.
Digital on the Rise; Physical Media
Crashing
16.00
$
14.00
i
12.00
n
10.00 All Sales
B
8.00
i Physical Media
l
6.00
l Digital Sales
i 4.00
Mobile &
o
Others
2.00
n
s
0.00
Year

5.
Digital Sales by Type — ’04 to
’08
3000
$
2500
i Subscription
n
2000
Mobile
M SoundExchang
i 1500 e
Music Video
l
l
1000 Albums
i
o Singles
n 500
s
0
2004 2005 2006 2007 2008
Year

6.
Digital Music Sales by Type
Subscriptio
2008
2007 Subscriptio
n
n
8%
Sound- 7%
Exchange Sound-
2% Exchange
3%
Singles
34% Singles
38%
Mobile Mobile
37% 30%
Music Albums Music
Videos 18%
Albums
Videos
1%
1% 21%

7.
Physical vs. Digital Recordings in the
US
100%
Q
90%
u
P 80%
a
e
70%
n
r
t 60%
c
i 50%
e
t Physical
n 40%
y Digital
t 30%
S 20%
o
o 10%
f
l
0%
d
2005 2006 2007 2008
Year

8.
Arr, there be
mutiny
afoot…

9.
File sharing meets
consumer
demands, formerly
unfulfilled
―[The fact that] the smart
people now also have access
to recorded music represents
a much bigger increase in
economic welfare (and does
not hurt the recording industry
as it is ‗demand without
purchasing power‘ that is
being met).‖
From a study published recently by TNO, SEO, IvIR, commissioned by the ministry
for Economic Affairs, the Justice Department and the ministry for Education Culture
and Science of the Dutch government.

10.
Not payin‘
attention, arr
rrrya?

11.
Piracy Makes Waves, but
what is the Ripple Effect?
Who is damaged by
unauthorized music file-
sharing?
Music recording sales
are down considerably
(despite digital sales
taking off).
The Big 4 music labels
increased their
profitability from 1999-
2003 in spite of Napster
and the golden age of
file-sharing.

12.
Piracy Makes Waves, but
what is the Ripple Effect?
Who is damaged by
unauthorized music file- Music Industry Revenue
Streams
sharing?
• radio advertising revenue •
The music industry as a • record company revenues •
whole has seen a significant • musical instrument sale •
revenue increase since the • live music sector •
advent of file-sharing • music retail sectors •
• music publishing for portable
according to the IFPI.
digital players •
Price Waterhouse Cooper
tells us that the media
(including music)
entertainment industry is
soaring, potentially rising
from $1 trillion to $1.8 trillion
from 2006-2009.

13.
Piracy Makes Waves, but
what is the Ripple Effect?
Some studies find
limited correlations.
Downloaded songs
negatively impact
sales of 25% most
popular albums, but
positively impact
the rest.
Computer
ownership
negatively
influenced record
purchases.

14.
Piracy Makes Waves, but
what is the Ripple Effect?
The most extensive
macroeconomic studies with
huge, proprietary datasets
show no harm.
No statistically significant
correlation between P2P
downloads and record sales.
At most, 5000 downloaded
songs replaced 1 album
sale.
Spawned a contentious
debate due to lack of data
transparency and general
pettiness. Great Wave off of Kanagawa by Katsushika
Hokusai, 1832
File sharing does not impact
chart survival of
albums, though album

15.
Piracy Makes Waves, but
what is the Ripple Effect?
Lily-livered
From a microeconomic study of landlubbers!
Ye be no
Canadians: pirates!
File sharers buy 0.44 CDs for every 1
downloaded — likely subject to interest
bias.
No significant correlation between
unauthorized and authorized downloading.
Positive correlation between purchase of
music and purchase of other entertainment
media (DVDs, games, concert and movie
tickets).
Those with high interest in music purchase
and download more.
Income is not correlated with music
purchasing.

16.
How do these studies resolve with each
other?
It is likely that file-sharing effects the sales of
albums of varying popularity and genre
differently.
Notably, it benefits the ―long tail‖ of lesser known
artists with free, listener-driven exposure.
It detracts from sales of the most popular
artists, making it more difficult to “go
platinum”.
Replaces expensive marketing campaigns with
listener‘s choice and public hype machines.
Effectively evens the playing field, to the likely
dismay of the Big 4.

17.
How do these studies resolve with each
other?
As the recording industry tapers off, the music
industry has ample opportunity to thrive:
Cross-media markets are booming, e.g. Guitar
Hero
Digital music sales are climbing steadily.
Competing with free unauthorized downloads is
hard.
Huge catalogs, e.g. iTunes Music Store, last.fm
Cross-platform usage, e.g. Amazon MP3 store, no
DRM
Harness network effects to suggest songs, e.g.
iLike, imeem
Ad-based or subscription models, e.g. Spotify
I posit that a more profitable equilibrium can be

18.
Online Digital Music Peddlers — A Rough
Survey
iTunes Rhapso eMusi Last.fm Napste Pandor Amazo Spotify
dy c r a n MP3
Launche 2003 2001 1998 2002 2003 2000 2008 2009
d
Songs 10M 5M 4.5M 3.5M 7M N/A > 5M > 6M
Big 4 yes yes no 2 of 4 yes Yes? yes yes
None –
Payment 69¢ - 25 $11.99 $3/mo. $12.95/ Free to None or
$1.29/s free/mo. /mo. premiu mo. or links to $185.76 $1.10/d
ong - and up m 99¢/son mp3 ay or
$12.99/ g stores $12/mo
mo.& up .
Users lots unknown 400K 30M > 830K 2M on unknow growing
iPhone n
alone
Notable 70% Owned All Owned Roxio Music 1st to Celesti
market by Real indie by CBS rollout; Genom sell al
share labels Best e DRM jukebox

19.
71% of users
increasing their
95% of music illicit downloads
downloads are cite high prices
unauthorized as the reason
84% of illicit
downloaders
think artists
deserve to be
paid
SOLUTION: Lower song price &
Raise artist compensation
transparency

20.
Limited
Ownership of Ownership/Limited
Commodities Access

21.
This is the ballad of Henry Morgan
Who troubled the sleep of the King
of Spain
With a frowsy, blowsy, lousy pack
Of the water rats of the Spanish
Main,
Rakes and rogues and mad
rapscallions
Broken
gentlemen, tattermedallions
Scum and scourge of the
hemisphere,
Who looted the loot of the stately
galleons,
Led by Morgan, the Buccaneer.
— BertonBraley, 1934