med122 digital disruption music industry

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“American businesses lose $250 billion every year, and we have lost more than 750,000 jobs because of intellectual property theft.”-Introduce Intellectual Property Rights Enforcement Legislation, 24/7/2008

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“According to the Institute for Policy Innovation, more than $58 billion is lost to the U.S. economy annually due to content theft, including more than 373,000 lost American jobs, $16 billion in lost employees earnings, plus $3 billion in badly needed federal, state and local governments’ tax revenue.” - 16/12/2011

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“Of the total $6.1 billion in annual losses LEK estimated to MPAA studios, the amount attributable to online piracy by users in the United States was $446 million”- Cato Liberty, 3/1/2012

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Context

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Vivendi-Universal $12.5 billion loss in the first 3 financial

quarters of 2002

(Economist, 16 Jan 2003)

EMI £54.4 million loss in the first 2 quarter of

2001 (£138.4 million profit over same period in 2002)

(Economist, 18 Jan 2003)

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E.M.I. R.I.P?

2002EMI sack MariahCost = $28 million

2004EMI sack 1,500 staff

2007Axe boss, Alain LevyProfits -10% on ‘06£50 million loss

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E.M.I. R.I.P?

2007 Terra Firma pay £4.2

billion for EMI Citigroup provides

loan of £2.6 billion

EMI’s death throws

2009

£412 million net loss

Global economic crisis

Problems restructuring debt

2010

£1.56 billion net loss

Forced to write down the value of its catalogue

£1.04 billion impairment charge

Debt of £2.6 billion

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EMI today?

Recorded music

Back catalogue

Music publishing

Improving top-line operating profits from £56m to £163m

Overall profits: ~£300 million

Source: Pratley, 2010

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EMI reborn?

2011-12

Business broken up

EMI + Universal = 36% of recorded music sales globally

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Percentage of total global music revenues

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Causes?

The Internet

Peer-2-Peer (P2P) transfer

Digitisation of music as files

Broadband growth/penetration (up 23% since 2006: IFPI, 2008: 5)

2002: 1 billion illegal files (Sanghera)

2007: ratio of illegal-legal tracks: 20-1 (IFPI, 2008)

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Industry voices RIAA (Recording Industry

Association of America) http://www.riaa.com/

IFPI (International Federation of the Phonographic Industry) http://www.ifpi.org/

BPI (British Phonographic Industry) http://www.bpi.co.uk/

UK Music http://www.ukmusic.org/

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About IMPALAIMPALA was established in April 2000 to represent independent music companies. 99% of Europe’s music companies are small or medium sized enterprises (SMEs).

Known as the “independents”, they are world leaders in terms of innovation and discovering new music and artists - they produce more than 80% of all new releases.

The independents also produce 80% of the sector’s jobs.

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UK Singles market

1970s until 1999: annual UK singles sales = 70 million Since 1999, this has more than halved.

(BPI, 2005: p8)

2008: growth of 33% 115 million + sales

(BPI, 2009)

Album market

Down 3.2% in 2008

Digital albums = 10 million sales 65% increase on 2007 (= 7.7% of market)

Optimism? UK Grammy success (Radiohead, Coldplay) New digital services?

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UK music market 1997-2013 (millions)

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Singles

Albums

UK music market 1997-2013 (millions)

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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UK music market 1997-2013 (millions)

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Singles

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Streaming

Yet…

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usic to save the industry?

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UK music industry growing!

Revenues up by 4.7%

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UK music industry growing again!

Revenues up by 5%

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UK music industry levelling out?

Revenues down by 4.8%

Global decline of 11%

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The new marketplace?

UK album sales (2008)

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The Long Tail (Anderson 2004)

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The Long Tail (Anderson 2004)Power law distribution curve (aka Pareto

curve)

20%head

80% tail 46

The Long Tail (Anderson 2004)Selling more of the ‘tail’ may be the

future for the music industry business modelValue no longer in the hits but in the

volume of contentSpreading revenue even thinner?

80% tail

20%head 47

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HistoryHistory

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HistoryHistory

1970s: home taping and organised crime

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HistoryHistory

Early IRCs 1990-94 Evolved into the P2P

networksNapster Gnutella Morpheus KazaaGrokster

Leyshon et al (2005: 180-1) a ‘musical gift economy’

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Business model

To ‘find, fund, record, promote and market music. Record companies fund that process by retaining the rights in the artist’s sound recordings’ (BPI, 2005: 27)

stop piracy, increase profitability?

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What changed?

‘a set of broader cultural forces … have changed the role of music within society, and relegated its immediacy and importance among many of its consumers’ (Leyshon et al, 2005: 181)

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Scale of music industry

‘no more than 10 percent of records actually recoup the money the record industry invests in its production’ with some companies stating that the real figure is closer to 3 % (Leyshon, 2005: 187)

How does this fit against sales/profits?

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Attitude shiftsAttitude shifts

1. Recent developments within the music industry Context (clubs; festivals; merchandise)

1. Synergetic marketing of music Cross platform tie-ins (X-Factor, Pop Idol)

1. The inability to sustain consumer attention Competition for income (games, DVDs, mobiles,

Internet subscriptions)

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The blame game?

Industry business model has been in trouble at least since the 1980s. Temporary delay via CD back catalogues (Breen, 1995)

It is easier to blame an external process (piracy) than to admit the industry itself made a series of errors

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Responses

‘Instead of exploring P2P exchange as a business opportunity, they defined it as a piratical threat. In doing so, they inadvertently implied that they had the right to determine how people apply after-sales use of intellectual property by re-asserting commercial copyright in a set of relations that were effectively deregulated.’ (Rojek, 2005: 359)

Metallica vs Napster (April 2000)

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Name and shame users Maximum fine of $150,000 per mp3 downloaded

2007: OiNK.cd and TVLinks closed down 2011: Mega Upload taken offline

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One down, another appears

May 2003 Kazaa: 230.3 million downloads

New user uptake of 13 million a month(Teather, 2003)

BitTorrent protocol

1 in 3 broadband users are pirates? Torrentfreak, 3 Feb 2009

uTorrent user base: 28 million monthly users Torrentfreak, 25 Dec 2008

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Busted?

RIAA PR own-goal: prosecution of 12 year old Brianna LaHara (BBC, 10/9/2003)

Illinois Senator Dick Durbin: ‘Are you headed to junior high schools to round up the

usual suspects?’

Sue your customers?

61File-Sharers Buy 30% More Music Than Non-P2P PeersSource: American Assembly, via Torrentfreak, Oct 2012

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Digital Rights Management (DRM)

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Apple’s CEO

“DRM’s haven’t worked … to halt music piracy … In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on the CDs by the music companies … So if [they] are selling over 90 percent of the music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system?” Steve Jobs, 2007

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Conclusion

The traditional music industry business model is under threat and forcing the industry to react: prosecute major uploaders prosecute downloaders randomly develop anti-piracy measures, such as DRM pressurise ISPs (3 strikes?) new innovations?

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The industry has been partially responsible for its problems: it didn’t adapt to change quickly enough multinational business interests are split into

smaller divisions which are partially responsible for the encouragement of consumer banditry

hardware/software advances destabilise the traditional role of the industry

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Selected sources BBC, 10/9/2003, ‘Music firms target 12 year old’ at http://news.bbc.co.uk/1/hi/entertainment/music/3096340.stm

BBC, 21/02/2006, ‘Broadband growth speeds forward’ available at http://news.bbc.co.uk/1/hi/technology/4736526.stm

BPI, 2005, Illegal Filesharing Fact Sheet

BPI, 2009, ‘UK reports resilient music sales in 2008’ press release http://www.ifpi.org/content/library/full-year-2008.pdf

M. Breen, 1995, ‘The End of the World as We Know it: Popular Music’s Cultural Mobility’ in Cultural Studies¸ 9 (3): 486-504.

‘Lights! Camera! No profits!’,  Economist, 00130613, 1/18/2003, Vol. 366, Issue 8307

‘How to manage a dream factory’,  Economist, 00130613, 1/18/2003, Vol. 366, Issue 8307

Malcolm Gladwell, 2000, The Tipping Point: How Little Things Can Make a Big Difference, Abacus

IFPI, 2007, ‘Digital Music Report’ available from http://www.ifpi.org/content/section_resources/index.html

IFPI, 2008, ‘Digital Music Report’ available from http://www.ifpi.org/content/library/DMR2008-summary.pdf

Steve Jobs, 6/2/2007, ‘Thoughts on music’ available at http://www.apple.com/hotnews/thoughtsonmusic/

Andrew Leyshon, 2003, ‘Scary Monsters? Software formats, peer-to-peer networks, and the spectre of the gift ’ in Environment and Planning D: Soceity and Space, 21 (5): 533-58.

H. Parker et al, 1998, Illegal Leisure: the normalization of adolescent recreational drug use, London: Routledge.

H. Parker et al, 2002, ‘The normalisation of “sensible” recreational drug use: further evidence from the North-West England Longitudinal Study’ in Sociology, 36 (4): 941-64.

Chris Rojek, 2005, ‘P2P Leisure exchange - net banditry and the policing of intellectual property’, in Leisure Studies, 24: 4, 357-367.

Sathnam Sanghera, 2002, ‘Rock ‘n’ Roll Suicide: How Napster, TV-created Pop and a Dearth of Talent are Killing the Record Industry’, Financial Times, 15 November, p19.

David Teather 23/7/2003, ‘Music firms on pirates’ tails’ in The Guardian, available at http://business.guardian.co.uk/story/0,,1004030,00.html

Sarah Thornton, 1995, Club Cultures, Cambridge: Polity.

Griffin Mead Woodworth, 2004, ‘Hackers, Users and Suits: Napster and Representations of Identity’ in Popular Music and Society, 27: 2, 161-184.

Richard Wray, 13/01/2007, ‘EMI sacks music boss as profits drop’ in The Guardian, available at http://business.guardian.co.uk/story/0,,1989490,00.html

Image sources

P1,2, 5, Automania, 2005, “Christmas Music”, http://www.flickr.com/photos/automania/74037479/

P6, hc gilje, 2007, “EMI Electola”, http://www.flickr.com/photos/hcgilje/501769056/

P7, 8, aus_chick, 2006, “EMI”, http://www.flickr.com/photos/hcgilje/501769056/

P10, 25, 34, myuibe, 2008, “copyright and digital culture”, http://www.flickr.com/photos/myuibe/2132305949/

P11, 12, 16, 17, _ambrown, 2006, “Music Millenium, Portland Oregon”, http://www.flickr.com/photos/dietpoison/195288442/

P18, p_kirn, 2007, “Handmade Music 8/23/07 with Etsy Labs, CDM, and Make”, http://www.flickr.com/photos/p_kirn/1218971167/

P31-3, karola riegler photography, 2009, “Vinyl kills the mp3 industry”, http://www.flickr.com/photos/karola/3639759076/

P35, 37, Ferrari + caballos + fuerza = cerebro Humano, 2009, “Musica comprimida – Compressed Music”, http://www.flickr.com/photos/gallery-art/3497849677/

P38, GabryPk, 2008, “Music Is My Drug pt. 2”, http://www.flickr.com/photos/gabrypk/3107000631/

P47, Selma90, 2009, “Apple” http://www.flickr.com/photos/selma90/3675162262/

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