Business

PLYING THE PIRATES

Now that even Napster has gone legit, will the music industry stop picking fights withans and embrace the Net?

JONATHAN DURBIN July 19 2004
Business

PLYING THE PIRATES

Now that even Napster has gone legit, will the music industry stop picking fights withans and embrace the Net?

JONATHAN DURBIN July 19 2004

PLYING THE PIRATES

Business

Now that even Napster has gone legit, will the music industry stop picking fights withans and embrace the Net?

JONATHAN DURBIN

Guess who’s back, back again? Napster’s back, but will you spend?

THAT’S A QUESTION executives at the Los Angeles-based on-line music service—and their counterparts in New York offices of the major music labels—want answered, and fast. Because if a cleaned-up, corporatized Napster succeeds with consumers, maybe there’s hope yet for the record business.

Once virtually synonymous with digital piracy, and the prime cause of the industry’s howls about impending doom, Napster is working hard to alter its image from the brand you know,

the name you distrust, to the labels’ loyal partner. Under its new owner, Roxio Inc., it is minding the letter of the law, offering consumers on two continents the opportunity to download music without fear of reprisals. But there is a price: the songs are no longer free, and the music library is limited.

While Apple’s iTunes Music Store was the first—and remains the largest—international subscription service to be sanctioned by music’s Big Five labels, Napster’s transformation packs a more powerful cultural punch.

After all, the Web service’s launch by university dropout Shawn Fanning in 1999 shook the record business to its foundations, and spawned predictions of the industry’s imminent demise. Will teaming up with its former Public Enemy No. 1 allow the music business to finally turn the Internet to its advantage?

It’s been seven weeks since Napster arrived in Canada, a week after it was introduced in the U.K. (it went legit stateside last October). Offering a free week-long trial—and a clever Flash animation depicting Canadians

skiing, drinking beer and waving hockey sticks—the service archives some 300,000 songs (less than half the number available to Americans) from the five majors and assorted independents. While it’s more expensive than its exclusively Canadian rival, Puretracks, its launch caused a buzz, trumpeted in major newspapers and on T.V.

The quick adoption of legal music-download services suggests that fans, given the opportunity, are willing to pay to get their songs and albums on-line. iTunes expects to reach 100 million downloads worldwide this week, while Puretracks passed the one-million mark in Canada four months after its launch. According to a recent survey, traffic on paid music sites in the United States tripled last year from the year before.

Yet, despite this evidence, the record industry continues to spend much more time and resources fighting on-line music fans

than providing them with what they want. Since September, the lobby group Recording Industry Association of America has sued more than 3,400 Americans sharing songs on-line for copyright infringement (average settlement to date: US$3,000). Here, the federal court ruling in March that quashed the Canadian Recording Industry Association’s attempts to identify and sue people for downloading music produced threats and wails of outrage from officials. The industry lost another one late last month when the Supreme Court ruled Internet service providers don’t have to pay royalties for music files swapped over their network lines.

None of this has been good PR. Now that the labels are finally harnessing the Internet, the question is, will these initiatives prove too little too late to gain the good will of Net-sawy music fans? While the threat of lawsuits did cause some music pirates to seek safe

harbour—one recent study found that 14 per cent of American Internet users, or some 18 million people, have stopped downloading music files—the fear may be wearing off. Illegal download figures are starting to creep back up, and Kazaa, the peer-to-peer software that took up where the old Napster left off, boasts more than 350 million users.

What’s more, it is increasingly obvious that free-for-all file-sharing is only one factor behind the industry’s ills. Boring artist rosters, changing economic conditions and competitive shifts within the business have contributed to the downturn as well. Some observers go so far as to argue that the flood of Internet downloading is a red herring. Earlier this year, Felix Oberholzer-Gee of Harvard Business School and Koleman Strumpf of the University of North Carolina released a controversial study about file-swapping, using figures from 2002. They concluded that downloading had no overall effect on the sale of popular CDs, and that for the top quarter of albums released, it actually had a positive effect: 150 downloads increased sales by one copy, suggesting that the Internet serves a promotional function similar to radio play.

The labels’ fierce battle to protect their intellectual property has had some impact. Between selling music to the on-line community and blasting the message that free downloading is unethical, the industry has registered a small rebound. After a steep four-year slump, sales of CDs are up slightly in 2004, in part because of a drop in retail prices and U.S. consumers’ fear of lawsuits. Still, the industry admits that sales

; knock-offs, weightless hip-hop and otherwise neutered pop music acts is likely one cause of lacklustre sales and the public’s negative perception of the majors. An emphasis on marketing singles—with many albums containing two or three quality song buttressed by filler—actually encourages consumers to download. Increasingly well-informed fans see little point in dropping $15 on a CD when they only want one hit song. (Some

it easier to move units. Although a dour few claim there will never again be another I Want to Hold Your Hand moment of fan consensus, that doesn’t mean the music industry can’t ride—or even help engineer— another hit wave. Now that the labels are grudgingly co-operating with services like Napster, we only have to wait for musicians to reinvent pop again. The game isn’t over, only the rules have changed.

THE RECORD INDUSTRYcontinues to spend much more time and resources fighting on-line music fans than providing them with what they want

were so low before, almost any rebound would look spectacular. Also, the market has been buoyed by recent successful releases from such artists as Norah Jones and Usher; both sold more than a million copies within their first weeks out of the gate.

Strong sales by name artists indicate that there is demand—backed by cash—for music, so long as that music is perceived to be valuable. Many critics believe, however, that to regain fan loyalty and willingness to spend, the industry has to rethink many of its practices. The focus on churning out easily cloned teen pop stars, Pearl Jam

enterprising artists are turning this equation to their advantage. In mid-June, reunited rock act the Pixies released their first new song in 13 years on iTunes. Bam Thwok quickly went to No. 1, using the on-line service for both distribution and promotion.)

Fractured markets present another problem for the music business. It is difficult to galvanize consumers when there is a fierce competition for attention in the larger pop culture arena. During eras energized by movements—be it Brit pop in the ’60s, disco in the ’70s, hair-metal in the ’80s or electronic music in the ’90s—the majors found

And they will keep changing—look out, Hollywood! According to an Ipsos-Insight poll, as of the end of2003,21 per cent of Americans had downloaded a feature film off the Internet. The music industry’s experience over the past five years should serve as a lesson to others in the entertainment business, and it’s not a new one: adapt and give them what they want, or risk extinction. Otherwise, “the death of music” may soon be replaced by “the death of movies” as the gloomy forecast of Internet-pirate fighters. CH

Derek Chezzi