music piracy and cloud services
TRANSCRIPT
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Running Head: Music Piracy and Cloud Services
Music Piracy and Cloud Services
Streaming Music and Piracy
Patrick Parker
Temple University
Professor K. Flener
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Music Piracy and Cloud Services
Streaming Music and Piracy
Introduction
The easy accessibility of broadband Internet, both at home and on our mobile devices, has
created great interest in cloud-based music services. Apples domination of the music download
market for the past decade has recently seen new competitors arise using cloud-based services.
These services hope to revolutionize music consumption in the form of music streaming and
subscription services. Through recent agreements with major record labels and Facebook,
Spotify has grown to be one of the greatest challenges for iTunes.
With mobile device and affordable broadband, music fans now have the power to access music
on the go. Internet access companies such as Spotify, Rdio, and Pandora noticed this trend early
and began establishing powerful cloud-based services, designed to provide users with easy
access to their favorite music, without the need for local storage on a hard drive.
After years of losing money to piracy and other factors, record companies could possible see
some return from all the file sharing services, as users crave access to their vast libraries of music
from within the cloud. In order for the music industry to survive, music fans will have to pay one
way or the other.
The impulse to share information and common interest seems hard-wired into human beings and
file sharing is a natural progression of that impulse, combining timely advancements in
technology with changing attitudes on ownership. Music fans are beginning to accept that they
simply cannot consume all the music they want without contributing to the industry either by
traditional methods or by subscription services.
Through the creation of software that compresses and store music files, the relationship has
changed in the supply and demand chain. These technological advances have raised issues about
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the role of the record companies, the digital music distributors, and music sharing among Internet
users. This paper will address specifically the changes in technology and law, along with
behavioral factors, in order to establish trends and implications of a viable business model for the
future of the music industry.
Because Spotifys business model is so new, this paper does not present an in-depth examination
of the research data. Rather, its purpose is to juxtapose research findings with key observations
made in the literature. This paper argues that in recent years, cloud-based services like Spotify
are creating new socioeconomic structures for the music industry. The research suggests the state
of the industry is slowly becoming more harmonized through the development of new
institutional platforms and the commoditization of music as a cultural and socio-economic
process.
Background
For over the past 100 years, the music industry has come to be characterized by three major
factors: heavy concentration, vertical/horizontal organizational integration, and changing formats
for consumption. Through consolidation and acquisition, the major record labels have enjoyed
success primarily because of the way in which theyre internally integrated.
Before the Internet, copyright laws were useful in solving piracy problems because the piracy
could be attached to a physical product. Law enforcement agencies had physical evidence in the
form of bootleg CDs and cassettes to arrest offenders and enforce the laws. By contrast, when
you take an MP3 from a computer network, there is not one less CD that can be sold. The
physics of piracy of the intangible are different from the physics of piracy of the tangible.
(Lessig, 2004) In 1972, the Copyright Revision Act made the "willful infringement for
commercial advantage or private financial gain" of recorded music not even a felony.
Punishment included one year in jail and $10,000 for the first offense. In 1992 the law was
amended, and the stakes went up to 5 years in prison and $250,000 for individual offenders of
$500,000 for organizations. (Krasilovsky, Shemel & Shemel, 2006)
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As new inexpensive technology, such as cassettes and CDs, made it easier to copy and share
music, courts and lawmakers shifted to favoring property rights over the free exchange of goods
and information. Music sales were declining throughout the late 1970s until the compact disc
was introduced to the Japanese market in 1978. As the popularity of CDs grew, cassette tapes
and vinyl gradually became less significant, together accounting for less than 40 percent of total
market share in 2000. (Krasilovsky, Shemel & Shemel, 2006)
As CDs became cheaper, they became the dominating force in the market for all record labels. In
1990 the, CD-R (CD-Recordable) was introduced to the consumer market. This presented the
first opportunity for people to pirate music without losing sound quality. (O'Malley, 1998) Up
until the late1990s, the development and growth of music technology and law was under the
influence of key players in the industry itself, allowing for a period of self-regulation and
control.
With the topic of music piracy, it is important to address the MP3 file, which allows for easy
distribution of digital music over the Internet. The MP3 format was developed and patented in
1989 by the Fraunhofer Institute in Germany, and received a patent in the United States in
November of 1996. With this MP3 technology came the opportunity for music fans to download
and share copyrighted music with one another. (Schonfeld, 2009)
In 2002, the RIAA reported that CD sales had fallen by 8.9 percent and revenues fell 6.7 percent
over from the previous year. This trend has continued over the past decade. According to the
IFPI (International Federation of the Phonographic Industry), the recording industry lost sales
$4.6 billion worldwide due to piracy. (Krasilovsky, Shemel & Shemel, 2006) 361 million CDs
were sold in 2008, which was down almost 20 percent from the previous year. About 84 percent
of all album purchases were CDs, down from 90 percent the year before. (Stone, 2009) The
RIAA claims Internet piracy is responsible for the decline, though there are many other reasons
that could be responsible. Rising prices could account for at least some of the loss. From 1999 to
2001, the average price of a CD went from $13.04 to $14.19. Competition from other forms of
media could also account for some of the decline. As Jane Black ofBusinessWeekpoints out
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that, the soundtrack to the filmHighFidelity has a list price of $18.98, but you could also get the
whole movie on DVD for $19.99. (Lessig, 2004) Apples ITunes was also launched in 2001.
After a yearlong study on the effects of piracy and counterfeiting on the U.S. economy has led
the Government Accountability Office (GAO) to this conclusion that it is difficult, if not
impossible, to quantify the economy impact on the economy. While the report acknowledges that
piracy and counterfeiting certainly has some negative effects on the economy, the GAO found
that three commonly cited estimates of U.S. industry losses due to counterfeiting could not be
substantiated or traced back to an underlying data source or methodology for the research.
Because no quantifiable data was presented, the GAO concluded that the economy-wide impact
of piracy is pretty much unknown. (Government Accountability Office, 2010)
Attempts To Limit Piracy
Until the nineteenth century, all popular music was excluded from copyright protection. Without
a solvent market, no one could commodify or protect its ownership. When a market was
established and copyright laws set in place, an artist could sell their work just like any other
possession. However, once it was sold, it belonged to the publisher, who could market it as they
saw fit, with no possibility of the musician's opposing it. Copyright thus established a monopolyover reproduction, not protection for the composition or control over representations of the work.
(Atalli, 1984)
Sirois and Wasko (2011) points out that researchers must explore copyright because the downfall
of the music industry, for the most part, is based on the exchange of immaterial items. They
argue that we should research the music industry on three levels: the "corporate regime" of
consolidation, influence in production, and consumption; and the 1egal-Iegislative regime" of
ownership deregulation and the increased scope and duration of intellectual property rights.
When downloading sites first began, sites such as Napster and Limewire required only
registration information to gain access to all the free songs they wanted. Napster acquired over
10 million users within the first nine months. After eighteen months, there were close to 80
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million registered users of their service. (Lessig, 2004) A court case began in 1998 in attempt to
stop the sale of MP3 players using the legislation of the Audio Home Recording Act. In 2000,
the RIAA file suit against Napster and the legislation included the Digital Millennium Copyright
Act of 1998.
The RIAA (Recording Industry Association of America) is a trade group that represents the legal
interests of the recording industry, and the holders of music copyrights. When the RIAA first
realized the availability of free MP3s for download was a threat to the economic structure of the
music business, it attempted make accessibility to MP3s difficult. InRecording Industry
Association of America v. Diamond Multimedia Systems, the RIAA tried to prevent sales of the
first MP3 player, the Diamond Rio, claiming that a MP3 players would encourage piracy would
have a devastating effect on music sales. Previously, users who downloaded MP3s could only
listen to them on their computers, but the Diamond Rio made MP3s portable. Diamond was
charged for violating the Audio Home Recording Act by creating their portable MP3 recording
devices. The RIAA claimed that Diamonds players lacked a system that would verify the
copyright status of files on the device. The Ninth Circuit court found that the Diamond Rio did
not violate the Act and therefore its production could continue. The RIAA reacted to this defeat
by trying to sue the file-sharing systems themselves. (Zilkha, 2010)
The Digital Millennium Copyright Act, known as the DCMA, deals directly with issues related
to copyrights in the digital environment. (Krasilovsky, Shemel & Shemel, 2006) Napster did not
store its library of songs on servers, but rather was software that allowed users to connect
directly to others computers and download the MP3s. The problem was that the files that were
being shared were protected under copyright law. (Crews, 2001) The court determined that the
actions of Napster led to the loss of sales of CDs. As a result, the Ninth Circuit Court of Appeals
ruled on February 12, 2001 that Napster committed repeated infringements of copyright law.
(Krasilovsky, Shemel & Shemel, 2006)
While courts were able to quickly dismantle Napster, similar services soon take its place.
Although these other services, Kazaa, LImewire, etc., used different interfaces, they were not
very different functionally because each enabled users to upload content and make it available to
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any number of other users. With a p2p (Person to Person) system, you can share your favorite
songs with an unlimited number of people. (Lessig, 2004)
Based on 2003 survey that found 21% of the Internet population shared files over P2P networks
and that two-thirds of file-sharers were unconcerned about copyright laws, the RIAA could no
longer simply sue P2P systems and hope to end file sharing. The RIAA then set out to prosecute
individuals. The initial RIAA campaign was intended to educate college students and p2p users
against illegal file sharing. Following this campaign, on September 8, 2003, the RIAA began
suing illegal file-sharers while offering clemency to users who promised to stop file sharing.
(Zilkha, 2010) From September 2003 to February 2006, the RIAA had sued 17,587 people for
illegally downloading music. In December of 2008, the RIAA said it would no longer bring
lawsuits against individuals. (Sherman, 2011)
DRM
When Apple introduced the iPod in 2001, it wanted to provide its own music library service,
called iTunes, to allow users to buy new music. In order to ensure the music industry was going
to receive its share of the profits from this service, DRM (Digital Rights Management Software)
was imposed. Digital rights management systems aim to prevent unauthorized copying and to
reduce the overall rate of piracy. For the consumer, DRM meant only being able to play certain
files on particular devices. This caused frustration for consumers and resulted in the pirating of
DRM-Free music. (Lymburner, Pikas, & Pikas, 2011)
On January 6, 2009, Apple announced that it would no longer incorporate DRM in its music
files. In order to do this, Apple gained the permission of the four major music labelsUniversal
Music Group, Sony BMG, Warner Music Group and EMI, along with thousands of independent
labels.
Although without DRM people were able to freely share music, Apple was still able to gain
profits through the purchase of the songs. Based on what the music labels charge Apple, songs
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on iTunes are available at one of three price points: 69 cents, 99 cents and $1.29. (Neumayr &
Roth, 2009)
Apple also has another way to create profits to coincide with the release of the DRM-Free music.
ITunes users have the opportunity to upgrade their ITunes library of previously purchased songs
to versions of the same songs, but without the DRM lock and with better sound quality. But, each
song upgraded costs 30 cents, essentially asking users to pay for the songs in each library all over
again. Apples iTunes music store has sold over 6 billion songs, and at 30 cents per upgrade,
Apple can make an estimated $1.8 billion in upgrade fees alone. (Schonfeld, 2009)
Since the fall in CD sales continues and illegal downloading remains prevalent, the strategies
applied by the RIAA to stop piracy have failed. In order to address the issue of piracy, the music
industry needs to also research determinants underlying the behavior of a potential paying
customer, and that of a music pirate. At this time, file sharing has become the normal way for
users to acquire music. (Zilkha, 2010)
Current Measures to Reduce Piracy
In May of 2011, the PROTECT IP Act was proposed to curb access to websites that are
dedicated to infringing on counterfeit goods and copyrighted works. The websites targeted by the
PROTECT IP Act are defined as having no significant use other than violating copyright laws by
distributing copyrighted material, or for sites promoting or selling goods bearing counterfeit
trademarks. PROTECT IP Act requires non-infringing third parties to adhere to with the courts
order by cutting off access to the targeted website. (Sherman, 2011)
While is difficult to justify businesses that are designed to make a profit from counterfeit goods
or copyrighted material, this method could possible have negative unintended consequences.
There is potential for sites that conduct legal businesses could be targeted and shut down based
on the behavior of a single user. In a statement issued on May 12, 2011, Senator Ron Wyden of
Oregon suggests that the PROTECT IP Act may have serious ramifications for Internet speech
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and commerce and could trample free speech and stifle innovation. (Sherman, 2011)
SOPA, the Stop Online Piracy Act, is a bill that introduced to the United States House of
Representatives on October 26, 2011. It gives the U.S. government and copyright holders the
authority to seek court orders against websites that illegally traffic copyrighted works and
counterfeit intellectual property. Although SOPA is new, it builds on previous legislation. In
October of 2008, The PRO-IP Act was approved to increase civil and criminal penalties for
trademark, patent, and copyright infringement Supporters of the bill include the MPAA, RIAA,
Comcast, Viacom, NBC/Universal, and many more. (United States House of Representatives,
2011)
Why Music Fans Share
Factors contributing to the behavior of piracy in the music industry have been attracting the
attention of researchers and music business insiders for years. Recently, researchers have been
studying whether the creation of P2P networks is responsible for the decline of sales in the
industry (Peitz & Waelbroeck, 2004; Liebowitz, 2006; Oberholzer-Gee & Strumpf, 2007). While
most studies agree that music sales have decreased due to pirated music, a minority takes an
opposing view (Oberholzer-Gee and Strumpf, 2007).
Social norms are the main factor on one's behavior and can support or undermine a law. The
social norm of digital music file sharing has effectively prevailed over copyright law and market
alternatives. While several cultural, economic, and political factors can be explored to explain
piracy, one possible factor can be found using the theory of planned behavior (TPB). Social
networks and online communities, whether built by fans or for commercial purposes, provide analternative means of connecting with both music and other music fans. They also became a
means of connecting with artists themselves, via social networking services like Facebook, and
Twitter. (Jones)
TPB suggests that individuals behaviors are chosen by considering the consequences of their
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actions. TPB has been applied to a large variety of behaviors, some of which can be seen as
analogous to music piracy by their delinquent character. Kwong and Lee (2002) used TPB to
explain the intention to exchange music files on the Internet. The study found that beliefs in the
relationship between the record company and consumers and the discouraging effects of
copyright protection laws had a significant impact on the attitude toward music piracy. The study
also found an important factor in users intent to pirate music is based on the perception of the act
amongst their peers.
Spotify - Streaming Services
One of the most critical attributes of cloud music services is that software programs and data no
longer necessarily reside on our personal devices. Streaming services like, Spotify, Google
Music, iCloud, Pandora and GrooveShark are following in the footsteps of Napster. Except this
time, these services have been granted access to the music libraries of the major record labels.
Cloud music exists on large servers owned by various companies and allows users to access
stored data from multiple devices. Music cloud services allow users access to a collection of
millions of songs for a fraction of the price it would cost to acquire those songs individually.
This makes it increasingly easy for younger or newer users to familiarize themselves rapidly and
comprehensively with a particular artist or genre. The more music as software becomes a part of
the users experience with music, the more natural it becomes to view music as a service. (Morris,
2001)
Sean Parker, founder of Napster, former President of Facebook, and current board member of
Spotify has described Spotify as an attempt to finish what Napster started. (Parker, 2011)
However, while cloud services allow for improved musical experiences and easy access to
music, some of the conveniences overshadow many drawbacks. Cloud music services enter their
users into service agreements that rent music for a fee or control access to the music for certain
devices. One could see shift away from music ownership and towards music in the cloud is part
of a planned effort to organize and control digital music through technologies like DRM and
sophisticated user behavior tracking software. (Morris, 2001)
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Morris (2001) believes that music in the cloud is a threat to musics status as a social and cultural
good. With intellectual property laws, computer software, and user agreements constantly being
updated, music fans potential face a loss of consumer product protections, control and usability,
rights of first sale, and other rights and privileges.
Signing up for many cloudbased music services requires personal data to very the user. As a
result, these services expose users to various risks that arent associated with previous media.
With CDs or cassettes, the commodity itself could be lost or damaged. With cloud services, user
information potentially could be hacked or exploited. Users cannot simply optout of providing
this information though. Personal data then serves as the connection between various social
networking sites, interfaces, devices and songs. (Morris, 2001)
Spotify is a peer-to-peer music streaming (real time, not download) service that allows access to
music through a platform that allows users to easily find new music and create playlists of their
favorite songs. Spotify, developed in Sweden, was launched for public access in October 2008,
and offered free accounts to the public in February 2009 when it was launched in the UK. You
can sample on an unlimited basis. It costs nothing to make each additional copy. And you find
out about music primarily through your friends. (Parker, 2011)
Spotify is funded by paid subscriptions and advertisements played by the Spotify player at
intervals in between songs. Spotify, which launched in the U.S. in July after becoming popular in
Europe, offers a free, ad-supported streaming service and a paid premium version. Priced at
$4.99 to $9.99 per month, Spotify's paid version adds offline music access and other advanced
features. The service currently has 10 million active users and 2.5 million paying subscribers
worldwide. Spotify is currently the second largest source of revenue for the music industry in
Europe. Spotify has also seen a 25% drop in music piracy in Sweden between 2008 and 2011.(Ek, 2011)
However, as Spotifys user base has grown, its business model has been criticized, as
advertisements appear to be becoming longer and more frequent. In February 2009,
advertisements were reported as lasting 15 seconds, and playing at half-hour intervals
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(McCormick, 2009). By May 2009, the intervals between audio advertisements were not
consistent, and it is not unusual to hear an advertisement after every song. (McLean, Oliver &
Wainwright, 2011)
When asked if the platform would remain free, Daniel Ek, CEO of Spotify, replied, "We're
creating this platform knowing it's the early days, and we'll figure things out along the way," he
said. "Right now, there's really no monetization within this platform." (Ek, 2011)
The new platform offers a handful of applications from Spotify partners. A TuneWiki app lets
users read lyrics while listening to songs and aRolling Stone app brings playlists and articles into
Spotify. Another app from Songkick, searches users' music libraries and suggests local concerts
and events that might appeal to them. (Ek, 2011) The platform system takes a similar approach to
Facebook, a close Spotify partner. Facebook decided several years ago to open its service to
outside developers, transforming Facebook into an ecosystem of externally created apps and
features.
Conclusion
While recording technologies and record labels have changed over time, the capital
commoditization of the industry has remained the same. History shows us an ongoing battle
between the companies that produce playback formats and device, the recording industry, and
the consumer. Technology has provided a contradiction within the industry as it has both helped
the music industry grow globally while simultaneously seeking to destroy itself from within.
(Sirois & Wasko, 2011)
Attali (2004) believes eavesdropping, censorship, recording, and surveillance are weapons of
power. This eavesdropping allows institutions to memorize, interpret, control, and manipulate
the culture of a people. Musical distribution techniques are today contributing to the
establishment of a system of eavesdropping and social surveillance.
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In order for the traditional music industry to survive, it must contend with changes in industry
practices, social behaviors, and technological advancements. Music will have to conform to the
standards set by cloud services. The industry must be careful as music fans have more power
now than ever in deciding its future.
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