The New Pirates: Downloaders Force Music Industry to Walk the Plank

Oct. 1, 2003

Josh, a 22-year-old construction worker from Grand Traverse County, hasn‘t bought a new CD in three years, but he‘s listening to more music than ever. In addition to downloading thousands of songs off the internet on his iMac, he got a new CD burner last Christmas and has been swapping discs with friends.
“I‘ve got about 80 hours of music on my hard drive and I‘m planning to get an iPod this year so I won‘t even need CDs,“ he says. Some of his recent downloads include The Chemical Brothers, Queens of the Stone Age, Staind, 50 Cent and Johnny Cash. He likes the fact that he can put his own mix of tunes together on a party CD, giving him at least the illusion of participating in the music as a mixmaster.
Josh, who doesn‘t want his full name printed due to concerns over lawsuits against downloaders, is one soldier in an army of millions of fans who are pounding the music industry to its roots. In fact, 60 million Americans are now using file-sharing software and equipment to copy music, films, text and other applications -- more than voted in the last presidential election, according to the New York Times.
And that revolution has sparked radical changes in the wake of a 15% drop in CD sales this year due to downloading. Last month, Universal Music Group, the biggest record company in the world, announced that it will slash prices on CDs to $12.98 from their current rate of up to $18.98. Other distributors are expected to follow suit or go under.

IT‘S ALL GOOD
“I think it‘s the best thing that ever happened because it will deter downloaders,“ says Mike Parshall, owner of New Moon Records in downtown Traverse City, speaking on the price cuts. “These big music executives have seen this coming for two or three years now and the price cuts are the light at the end of our tunnel. They‘ll provide reasonable prices on CDs.“
Parshall says the music industry is long overdue for reform, considering that CDs cost about .25 cents apiece to manufacture.
“I have a friend in Mt. Pleasant who made his own CD, sent it to New York for 3,000 copies including the art work, liner notes and shrink wrap, and paid .48 cents apiece for them,“ he says. “If a company like Capitol is running off millions of CDs, it might cost them a quarter apiece, but still comes to me at $12.79.“
Once Parshall adds 30% to the CD‘s price for the profit needed to keep his store afloat, the cost to the customer is $18-$20. The high prices have been a deterrent for teen buyers, making downloading and file-sharing all the more attractive.
Nationwide, some 1,000 record stores closed in the first half of 2003 alone, with the blame laid on file sharing, reports Rolling Stone magazine in its Oct. 2 issue. Parshall says he‘s been able to buck the tide at New Moon by focusing on other music products such as used LPs and CDs.
“The reason we‘re still around is because we now sell a lot of vinyl, music collectibles, artwork and accessories, and not because we‘re selling a lot of new stuff.“
Will Britton, who manages Record World in Petoskey, also believes that lower CD prices will help independent stores. “I think it will help everyone out,“ he says. “It‘s certainly a step in the right direction.“
Britton knows a lot of locals who download music, but says Record World has been holding its own. Petoskey‘s geographical isolation helps -- there‘s only one other music store in town. The store also relies on the musical expertise of its staff and a deep catalogue to coax customers. Even so, he feels that lower prices on CDs will encourage more repeat business and possibly better music too.
“It will challenge the industry to do more product development and focus on the artists,“ he says. “A hot album doesn‘t always mean a good artist who‘s going to last.“

CROCODILE TEARS
Music industry honchos are crying crocodile tears over the hit they‘ve taken from file-sharing pirates.
“We‘re the first industry since the Industrial Revolution to be devastated by criminal behavior,“ says Universial chairman and CEO Doug Morris in Rolling Stone. “People are losing jobs, and stores are forced to close. It‘s a sad story.“
But in some cases, musicians are encouraging file-sharing because they receive little or nothing in royalties from the record companies.
“... few musicians ever actually receive royalties from their record sales on major labels, which managers say have accounting practices that are badly in need of review,“ claims an article on the front page of the Sunday, Sept. 14 New York Times. Incredibly, the article adds, “Even the Backstreet Boys, one of the best-selling acts of the 1990‘s, did not appear to have received a penny in CD royalties, their management said.“
Musicians don‘t make money on royalties because they‘re charged for expenses by their record companies, such as marketing and tour costs. Most musicians make their money on concert ticket sales and merchandise such as T-shirts, the Times claims.
Recently, the music industry fired a shot across the pirates‘ bow by filing 261 lawsuits against downloaders in what was supposed to be a high-profile warning. Those sued ranged from a 12-year-old girl, whose mother settled for a $2,000 fine, to a man in his late 70s.
In a survey of national media, however, few seem to believe the lawsuits will instill the kind of fear necessary to stop piracy, considering that CD burners are hot Christmas items and downloading aids such as Apple‘s iTunes are on the increase (see sidebar).
“Kids are being brought up with this sort of thing and taught on computers at school -- that‘s where everything is heading,“ notes Scott Wikle, manager of New Moon Records.

STAYING TRUE
“The people I see doing the downloading are the kids who buy a lot of rap and punk music,“ Wikle says. “Our rap and punk are probably our least-selling categories. But we do a tremendous business in our deep catalogue of acts like Led Zeppelin, Fleetwood Mac, the blues, jazz and country.“
Sales are driven by the age-old law of supply and demand. While some rock artists such as the Rolling Stones still get occasional airplay, Wikle notes that many classic country acts such as George Jones or Merle Haggard no longer appear on radio, forcing old fans (and new) to seek out their backlist of recordings.
Wikle says New Moon also does a tremendous business in vinyl LPs, with several thousand available at the back of the store, available for an average of $1.99-$2.99, and up to $20 for rarities. Some buyers use audio software to eliminate the skips, pops and clicks found on LPs, burning the music to CDs. “We sell a lot of vinyl to kids -- old jazz and country,“ he notes. “A lot are DJs doing that sampling stuff.“
New Moon also benefits from file-sharing to some extent in that CD buyers tend to burn their discs and sell them back to the store for resale.
Going in new directions is a matter of survival for independent music stores because it‘s impossible to compete with big box stores such as Best Buy or Circuit City which offer loss-leaders on popular artists such as Nora Jones or Christina Aguilera. Top pop artists are available at the big box stores for as low as $9.99 per album to pull in customers for other purchases.

BETTER TO BURN OUT...
In the age of Christina Aguillera, Justin Timberlake and Mary J. Blige, pop music has an extremely limited shelf-life.
“The music industry isn‘t about the music anymore, it‘s about trends and how much the companies can sell,“ Wikle says.
“Fifty years from now, you‘re not going to hear people say, ‘oh Eminem -- that‘s our song‘ like they would Simon & Garfunkel,“ he adds. “Their music stands the test of time, and you can always sell groups like the Beach Boys and Pink Floyd. But a lot of the new music is intended to sell for such a short time span. It will sell like gangbusters for a month or so and then it‘s gone. Britney Spears is a good example -- you couldn‘t keep her album on the shelves when it first came out. The same with the Spice Girls, but you can‘t give their music away now.“
Personally, Wikle enjoys listening to old school country artists such as Merle Haggard along with the Beach Boys, B.B. King and Motown -- acts he grew up with. He notes that his children have eclectic tastes as well: his nine-year-old son is into Neil Diamond and the Beach Boys; his older son likes Creed and Haggard; and his 16-year-old daughter is listening to Hillary Duff and teen fad music.
The only thing that endures is quality.
“When Johnny Cash passed away a couple of weeks ago, we had everyone from kids to people in their 70s looking for his music,“ Wikle says.

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SIDEBAR

Lexicon for the New Music:

(photo pirates)

Pirates
Pirates is a media industry term for downloaders, file-sharers and persons who make unpaid-for copies. The new piracy is a world-wide phenomenon, ranging from faux Gucci and Louis Vuitton purses and copy watches sold on street corners in major cities to bootlegged concert CDs and DVD copies of movies such as “Pirates of the Caribbean.“ Countries such as China, Mexioc and Russia run roughshod over copyright of books, CDs and films. Rock artist David Bowie predicted in an interview last year that the pirates will prevail in the long run: “I‘m fully confident that copyright will no longer exist in 10 years, and authorship and intellectual property is in for such a bashing,“ he said.

(photo ipod)

The iPod
Apple computer notes that its new 40GB iPod “holds up to 10,000 CD-quality songs (playing each song back-to-back takes a month) in a stunning enclosure that is lighter and thinner than two CDs.“ Introduced several years ago as a sort of file-sharing Walkman, the iPods are currently available in three models: a 10GB model for $299, the new 20GB model for $399, and the new 40GB model for $499.

(photo itunes)

iTunes
Another innovation offered by Apple, iTunes allows downloaders to legally purchase music off its website collection of 200,000 songs for .99 cents each. You can burn unlimited CDs of the stuff you buy. The catch is you need a Mac with an OS 10.2.5 operating system to make things happen. Look for the same service for PCs in the near future, with some industry analysts claiming that up to 40% of all music will be sold this way within five years. Check out www.apple.com/music/store/ for info.

(photo kazaa logo)

File-sharing
Napster started it, the song file-sharing invention of a 19-year-old college student. Although Napster was declared illegal three years ago, other Internet services have risen to take its place, including the popular KaZaA, along with Grokser, Morpheus, Earth Station Five and P2P United. On its website, KaZaA notes that its software was used to download 2.6 million files last week. Sometimes musicians fight back by posting fake copies of their songs to file-sharing services, or by asking fans to message sharers with a request to pull the tracks from the web.