Research: File Traders And Music Purchasing

An anonymous reader writes: "Like a TV preacher taking excerpts from the Bible to support a contrary thought, the results of research can be similarly interpreted in opposite ways. Edison Research just released a pro-record industry report stating '10.1% of 12-17s are actively downloading/not purchasing music.' Richard Menta over at MP3 Newswire noted that this also means 90% of file traders are buying music, a positive result that supports the virtues of trading. Menta then goes through the study's findings one-by-one, questioning Edison Research's conclusions. This includes their recommendation to the industry to fight the 'downloading problem.'"

Comments

It's a broken business model

[spongebob]

The interesting thing that came up in a conversation the other day was that there is an entire generation of people who are growing up not paying for music.

I come from a generation that has been totally used to paying for things. For me there is a "guilt" syndrome about knowing that the music is made with profit in mind. So I am more willing to make purchases or delete .mp3s

How do you stay in business when no one sees a direct reason to pay you for the information they can readily get for free? It's a broken business model for sure and they are really fighting to stay alive in more ways than the average guy realizes.... It will be interesting to see what happens.

Re:It's a broken business model

[alienmole]

These analogies miss an important point, which is that cars cost significant money to manufacture, and when someone "nicks" one, the original owner is now short one car. Neither of these things (the cost, nor the scarcity) is true of digital products. Like it or not, business models do have to take this into account - it's simple reality, not ideology.

Re:It's a broken business model

[Cody Hatch]

Actually...yes. Car showrooms are a horribly inneficient means of distributing cars. It's bad for the car companies, and bad for the consumers. It was a good idea originally because of problems both in tranporting the product to the consumer, as well as in communicating information about the product to the consumer.

Sound familar? Those same arguments are the ones used by the RIAA to justify their existence. Customers and musicians need the RIAA to make sure they know what CD to buy, and that it's on the shelf at the local store. Or so the RIAA says. :-)

Joy riding and stealing music have nothing to do with the problems either industry faces. Instead it's simply a matter of producers trying to collapse their distribution chain, both to cut costs and to allow more direct communication with the consumers. Musicians would like to know what their fans want (how many bands have released a great album, drawn the wrong conclusion about why it was popular, then released a crap album?). Car companies want to know what their customers want (nothings worse for profits than a lot full of a model nobody wants anymore). It's not just these two industries either - Dell has actually made a profit from selling desktop PC's from doing exactly the same thing.

The RIAA is a broken business model (or more accuratly, it looks like it's becoming one). The technology exists to allow them to be bypassed, and an ever increasing section of the population would like to, but the RIAA is fighting back with lobbying, legislation, courtroom battles, etc. Exactly like the car dealerships, incidentally, who have almost uniformly seen off all threats (although some car companies are making small headway in Europe, where dealership networks aren't quite as protected).

Re:It's a broken business model

[alienmole]

It sounds to me like it's pure ideology, not a 'reality.'

There are numerous real facts here that are not ideologically based:

• Stealing a physical product is not comparable to *copying* a digital product. I hardly think I need to belabor this point, but just in case, the point is that copying does not deprive anyone else of the original product.
• Physical products inevitable have a significantly higher cost of production than the cost of copying a digital product. This is a barrier to copying - not many people violate Ford's intellectual property by making copies of Tauruses.
• Humans - not just kids - will do things that they can get away with. This is a sociobiological and game theory imperative. Yes, we have evolved social constraints to avoid all sorts of behaviors agreed upon as undesirable, but most of these are in fact quite directly related to improving the survival capability of societies, individuals, and the species. It's questionable whether, in the presence of a cheap digital copying capability, the ability of Lance Bass to earn the money to fly into space by enforcing the non-copyability of his output is actually in society's overall interest.

If you consider the above three facts in combination, you find that the situation with digital media is factually different from that of physical products. In particular, it seems likely from the above that there will be less social stigma and more acceptance and support for copying of digital media than there will be for stealing of cars. At the very least, it puts price pressure on the products in question.

Business models do need to take these realities into account, and this is exactly what's leading to the current debate. No-one is debating whether it's OK to steal cars, because of the factual differences that I've outlined. Drawing a parallel between the two, as the post I originally replied to did, demonstrates a complete lack of understanding of the issues at work, or perhaps simply an attempt to confuse.

Either we adopt the ideology that intellectual property rights are wrong, and share away, or we adopt the ideology that intellectual property rights are fair

Not at all. You've set up a simplistic binary scenario with respect to intellectual property rights, treating them as equivalent to physical property rights on the one hand, and eliminating them on the other hand. There are an infinite variety of possibilities between those two extremes. You either aren't thinking very deeply about this, or have a vested interest in the current status quo.

Re:It's a broken business model

[alienmole]

Any and all 'physical property' is just the embodiment of 'intellectual property' into physical forms.

Certainly, but the question is whether the greater economic value is assigned to the intellectual "property" (an interesting and artifical ideological concept) or to the physical manifestation. Most of our markets have relied on the physical manifestation as a barrier to "copying".

When you purchase an automobile, all you are doing is 'leasing' somebody's intellectual property, in the form of the tools and know-how that transformed the raw ore into a vehicle.

You're oversimplifying - this ignores important distinctions. You obtain possession of a physical object which you are free to do with as you please, within reason. The intellectual property is secondary to the user of a physical object.

It happens to be far easier to make a facsimilie of a recording of music

It's that word "happens" that I'm saying has implications for business models, whether you like it or not.

the recording of the musical performance is really just somebody's IP forged into a recording that can be played back, the same as an automobile is somebody's IP forged into an automobile

You're the one pushing an ideology here: you've fixated on a single and specific meaning of intellectual "property" which happens to be very close to that of physical property.

I'm not arguing what's right or wrong, simply what's realistically likely to happen, given human tendencies and the facts of the situation.

Both are instances where you pay someone else to do something better than you ostensibly could.

Again, the question is how much you pay for the one-time invention of something like a car, vs. how much you pay for each manufacture of a car. You're assuming, without any basis, that the majority of the value is in the invention. I'm suggesting that the history of human valuation of each other's output does not favor your position.

Far be it for me to change your mind. But I don't have to change your mind. I can just nod approvingly when society as a whole agrees with me, and you are prohibited from acting freely on your beliefs.

I have no need or desire to copy music. I'm simply saying that in the long term, the ideology which treats intellectual "property" as having all the same rights as physical property, despite clear and obvious differences, is unlikely to survive in the marketplace. I don't doubt that in the short term, we'll get DRM and legislation crafted by people who share your views; but I'm equally certain that these measures are bound to fail.

Precision

[plumby]

Inappropriate precision really bugs me. The figure "10.1%" suggests that their reseach is accuruate to 0.1%. There is no way that that is true. Why don't they stick with "approximately 10%"? It just suggests to me that people are trusting the conclusions far more than they have a right to given the raw data that they started with.

Let's see an up-to-date business model

[stevens]

Blockquoth the poster:

How do you stay in business when no one sees a direct reason to pay you for the information they can readily get for free?

I'm with you. I keep hearing about the "outdated business model" that the RIAA are using. Ok, I'll stipulate that, so what's a model that works?

I'd like to see someone start a label that signs artists, gets music recorded, books tours, and gives away mp3s without worrying who copies what. If there is a business model in there somewhere that takes mp3 copying and makes it remunerative, then the first guy to do it will be well rewarded.

Plus, it'll end all this bickering as the RIAA members fall over themselves to be the first to copy it.

What are OUR solutions?

[dowobeha]

Before /. explodes into a massive frenzy against the recording industry and the senator from Disney, I have a question for the community:

What is OUR solution to the (perceived) crisis of "piracy" that is today's filesharing world?

Powerful lobbying interests are hell-bent on coming up with some sort of solution. We've all seen the laws being proposed to combat this and other DRM-related problems.

File-sharing may have a detrimental effect on sales. Then again, it may be helpful to sales. Either way, most file-sharing is theft - plain and simple.

I propose that if the online community can not come up with a way to deal with this issue, then the politicians and the lobbies will; and I am pretty sure that whatever they come up with will be a lot less freedom-friendly than what we'd like to see.

So moaning and complaining aside, what are our options? What can be done that is fair to artists and to consumers?

(steps off soapbox, slips on soap, lies unconcious for some time...)

Re:What are OUR solutions?

[evilquaker]

What is OUR solution to the (perceived) crisis of "piracy" that is today's filesharing world?

A three-fold strategy:

1. Cut prices in half...
2. Provide a value-add beyond just the music. Concept albums and/or albums with extensive artwork, liner notes, etc. are two ideas. Access to exclusive online content (keyed by UPC and revoked if used from more than 3 different geographic regions (just like the porn sites do)) is another.
3. Provide custom-order CDs with customer-selected tracks for $2 a song or so.

The bottom line is that you need to give people a reason to buy your content instead of downloading it.

No business model

[Mad Quacker]

Perhaps there isn't a business model to be had, that may be a better than any business model. How much money did musicians make before records that you could sell? Not much, but they did anyway, and we have a rich and diverse history of music. After the record industry got started, musicians still made almost nothing, just a few fatcats who had the money to invest anyway. With better contracts and sales of multi-million units, some artists have made a decent amount of money, but this is an infinitesimal number of all musicians. All the while some pseudo-anonymous fatcats with little talent but a large pile of cash, are making their pile larger.

The time for super-stars and immense amounts of wealth for the few may be at an end, at least for this industry. I welcome it. How many bands that have gotten silly, filthy rich produced a good album afterwards? Exactly.

Re:No business model

[omnirealm]

How many bands that have gotten silly, filthy rich produced a good album afterwards?

That's the funny thing about our capitalistic system. The possibility of becoming a monopoly is a powerful incentive for innovation and production in the first place. However, once a monopoly actually occurs, then the system begins to fail (specifically, that which follows leaves much to be wanted).

I submit that the dream of becoming a multi-millionaire superstar (in the area of music), or the dream of producing the de-facto desktop operating system (in the case of Microsoft) gives motivation to struggle in the market and to produce. Take away the mere possibility of ``striking it big,'' and you affect the number of people that are going to try.

Maybe people just aren't buying music + suggestion

[0x0d0a]

I never bought a single CD before MP3s...I just didn't listen to music. Now, I have some MP3s that I listen to. If those MP3s went away, I'd just go back to not listening to music.

Because "10.1% of people downloading music are not buying music" does not mean that the music industry is losing sales from all those (though I'm sure it is from some).

I wonder how feasible it would be for someone like Borders (trying to compete with Amazon as a music retailer) to directly sign for tracks with artists. Then they maintain at each location a fat data pipe (if this isn't economically feasible, it will be -- small credit-check data lines are already in place and data gets cheaper and cheaper, whereas CDs stay the same). Then they have a really fancy burner or press or whatever at the location. They download losslessly compressed tracks from the Borders central server and cache them at local locations (to avoid retransferring popular tracks). Then people can simply say "I want a CD and I want track X, Y, and Z on it". The money goes directly to the artist, aside from Border's profit.

So lets see why this makes sense:

* Artist gets money, users have less incentive for piracy.
* User gets to specify what tracks they want/don't want and get better quality than they would pirating MP3s.
* The user can buy CDs more cheaply -- by eliminating the middleman, they pay maybe $3 to Borders per CD (you automate the thing, with a little Borders card reader, and there's very little per unit cost) and 10 cents to the artist per track (hell of a lot more than the artists are currently making), and you get a full-quality CD where you're supporting the artist for $5 tops.
* Users would have a much broader selection, not limited to the few hundred titles that might be in the store.
* Borders makes money -- I suspect unit costs after amortization would be about 50 cents per CD, so they get a healthy $2.50 in profit per CD, which is probably more than they currently make.
* Borders risks far less than they currently do -- adding an artist to their central database is cheap cheap cheap. They don't have to risk warehousing and blowing shelf space on CDs that people don't want.
* New artists can break into the market easily -- they simply register with Borders, send in their music to the main server, and start getting money. They don't have to convince much of anyone of their music quality, since there's no massive production/warehousing costs for all the CDs.

There are two drawbacks. One, you don't get extras in the CD. You might be able to print out the cover and the CD label, if this "Borders mini-CD maker" machine was fairly capable, but you might not get other stuff jammed in the case. Second, even with a hefty local cache, Borders still has to transfer 300MB per full CD (assuming lossless compression averaging 2:1) for infrequently requested CDs. This may not yet be feasible -- however, data lines keep getting cheaper, and CD prices stay the same.

Finally, a $100 80GB HD can store about 160 fairly full CDs, and 300 with lossless 2:1 compression. That's a one-time cost -- like incredibly cheaply expandable floor space. At those prices, Borders can afford to have enormous local caches -- one sale of a CD much more than makes back the cost of storing that CD locally.

Lower the price

[Anonymous Coward]

Some young person earning $5 per hour at MickeyDees has to work 5 or 6 hours to earn enough after tax money to pay for a CD. That is absurd. Lower the price. A list price of $9.99 would go a long way to curbing piracy.

You know damn well that the artists are not getting much money from the sales. It's all gravy for the fat parasite executives.

Re:Interesting..

[Moofie]

No, you're not depriving content distributers of the revenue that they are "entitled" to: You are forcing them to provide a quality product, instead of a slickly-marketed one.

If I buy a stereo, take it home, and it sounds like ass, I can take it back. If I buy a CD, take it home, and find out the only good tracks are the two singles I heard on the radio, I'm screwed. That business model only works if the customers are forced to be ignorant (IE by limiting their exposure to a new band to the two singles that are "free" to listen to).

I don't care if it's illegal. (I happen to think that it is not) I will not pay $20 for a CD that some marketroid packed with crap because they wanted to save some "good" songs for the next disc. Not going to happen anymore, especially since I've got a superb alternative.

Re:Maybe people just aren't buying music + suggest

[handsomepete]

Overrated my ass. That's a quality suggestion. I'll bet someone from the RIAA modded it down.

Anyways, I really like the sound of that. Expanding it beyond the bookstore/coffee shop to radio station ID tags (i.e. listening to the radio if you can remember the time and station you can add it to a collection via the station's website and get radio station burnt CDs for a fee or something) is another possibility (whether it's feasible or not is another story).

I would say that your drawback regarding the extras of a CD (art, etc.) are actually incentives to purchase the actual product, not disadvantages to burning your own. That would justify a slightly higher price for the complete product. Hopefully by the time something like this could be implemented we'll have something that can alleviate those concerns about bandwidth.

Isn't 90% *more* than the general population?

[eschasi]

Hmmm...

What percentage of the general public buys music CDs? I bet it's significantly less than 90%. Combine that with 90% of the downloaders buying CDs, and you can make a case that downloaders are more likely to buy CDs than the general populace.

Now, admittedly that's a bogus arguement. Almost anyone who is downloading MP3s is doing so because they're a music fan, and therefore is not representative of the US as a whole. But it sure sounded good for a second, didn't it?

"There are lies, damned lies, and statistics." -- Benjamin Disraeli.

And for instructions on how to do it, see this.
--
"97.45% of all statistics are made up." - me

10% of 12-17 y.o. not buying music???

[pjt48108]

Heaven and ministers of fate defend us! When did our youth take such a sinister course in life? Where did we fail?

The record industry is obviously hoping none of us recall how, in the days of cassette tapes, those heady days of the 70s and 80s, MOST 12-17 year olds didn't pay for music. Lord knows I rarely did, if I had a friend with the tape or LP. Better yet, I'd ASK friends to dub tapes, because I lacked either the equipment or the ambition to do it myself.

Did I buy music, ever? Ohhh yes. But only if I'd had a chance to hear it on it's own merits without feeding the corporate WHORES who claimed to make it possible. That meant hearing music via non-payola avenues. If I liked what I heard, I bought it, and bought other albums by the same artists.

Unfortunately, it appears to this reporter that corporate execs are as ignorant of all-powerful 'word of mouth' today as they have always been of good talent and new and innovative approaches to music.

That is, unless it appears it could bring in lots of money for them and to PROMOTE and ADVERTISE that they, geniuses that they are, have reinvented the wheel, once again, and tht to buy anything else is evil and unpatriotic, dammit!

Grrr.

Loaded questions too.

[moncyb]

Those questions seemed very loaded. Like the one asking if there is nothing wrong with downloading music for free. What? Why should there be anything wrong with it? Maybe if they had asked whether or not it was wrong to download music without the copyright owner's authorization. It seems the cartel's FUD is working. Half the people said it was wrong just to download music from the internet--as if there is some moral dilemma just using the network reguardless of actually committing any illegal act!

Re:Hmm

[NanoGator]

"If the record labels make a concerted effort to get their artists to educate the public about how downloading takes money directly out of the artists' pockets, things may change." This quote tells it all. "

Yep Yep. What bugs me about all this is that the Music Industry makes music look like it's free, then acts surprised when you find non RIAA ways of acquiring it. For example: Go to the store, buy a radio, turn it on. Result? Music. There was no registration form to fill out, no subscription to pay, not even a warning saying "FBI Warning: This music is not to be copied." What people thought they were buying when purchasing a CD was the convenience of hearing a song whenever they wanted, not a 'license'.

What would have happened if people bought FM cards for their machines and figured out how to rip MP3s off them, as opposed to CDs'? What would the argument be then?

It just bugs me that they make music seem as free as could be, then they wait until we all adopt the idea of MP3's to overreact to it. It almost makes me want to use the word 'entrapment'.

If I were a conspirist, I'd believe that the RIAA intentionally turned Napster into a justification to submit the SSSCA. I know that sounds silly, but they really could have handled this whole thing better. I mean jeez, why didn't they set up a site where you could donate money to the artists in order to make up for having MP3s you don't have the CD for?