Is p2p the culprit for sagging music revenues?

Microsoft researchers have authored a paper saying that it is "pointless" to fight peer-to-peer networking. They were specifically referring to music swapping, but the key factors in their conclusion - the decentralization of peer-to-peer networks (and subsequent lack of a single entity to pursue through litigation), rising adoption of broadband Internet connectivity at home, the proliferation of CD and DVD burners, and the ubiquity of instant messaging - make this warning almost equally applicable to any form of digital content. Since this would, by definition, include Microsoft's entire portfolio of software, it's probably safe to assume that this isn't the company's official position.

That this technological 'arms race' between copyright holders and copyright violators is unwinnable is not news; still, the long-term implications don't have to be as bleak as long as so-called "old media" solves an old problem - quality content at affordable prices.

Sure, the RIAA says that music revenues are declining, and I believe them. I don't believe that it's piracy that's hurting them, though. In my opinion, there are several social and technological factors at play.

Free music culture. The RIAA has profited for a long time from giving away free samples - first via the radio, then MTV and its ilk. Now that they've given away music for entire generations, is it any wonder than people think that they don't need to pay for songs?

Singles. The aforementioned samples, released as singles for radio airplay or developed as music videos, were often the best (or at least most broadly appealing) songs on their respective albums. Now, many consumers feel that the single(s) are the only good song(s) on an album, and don't want to pay the RIAA's extortionist rates to get an entire CD for only those 1-2 songs.

These are problems with price and quality - two things that p2p file sharing has nothing to do with and the RIAA has every ability to control. Exacerbating this problem are the technological factors:

MP3. The ever-popular file format made near-CD-quality sound small enough to transport over computer networks and to load onto personal music players. It's quick and easy to download an individual song with a broadband connection. The MPAA is also concerned about p2p file sharing, but for the moment they've got a highly effective anti-p2p-piracy mechanism - enormous file sizes.

No differentiation. Serious audiophiles notwithstanding, music for the masses sounds just as good on a decent set of computer speakers as on their home or car stereos. Movies have got a leg up here, too - a THX-certified movie theater offers a different (and arguably more compelling) experience than a DVD on your home television which is in turn a different, more compelling experience than a bootleg MPEG on your computer. The decidedly non-niche home theater market proves that a reasonable number of consumers are willing to pay significantly to enhance their movie-watching experience. Let's also not discount the fact that Chamber of Secrets and The Two Towers are likely to be #5 and #6 in terms of films generating over US$200 million in their American theatrical release this year, which would make 2002 the most profitable year ever (in terms of box office revenues) for the movie industry - they're clearly not hurting.

The movie industry isn't alone in dealing with the digitization of content better than the music industry; television may be outdoing the both of them. Despite the fact that advertisers are losing interest in commercials due to the rise of TiVo and other DVRs, they plan to refocus that money toward product placement considerations and show sponsorships - not much money lost from the networks' point-of-view. And the networks, while annoyed at the drying up of one revenue stream, are most assuredly rubbing their hands with glee at the video-on-demand revenue options that digital content and broadband distribution give them.

The moral of this story? p2p file sharing is out of the RIAA's sphere of control - but better, cheaper content isn't, and cheap goodies beats free crap any day.

Posted by Dan on November 25, 2002 at 02:48 PM | TrackBack