The Big Five Begin to Compete 5

CONTENTS

Abstract 3

Introduction 4

The big five begin to compete 5

Technologically 6

Legally 8

Against the provider s 8

Against the consumer 12

Socially 15

Against the parents 16

Against the children 18

The success of the big four 20

Bibliography 24

Websites 24

Articles 25

News Articles 25

Books 26

US Cases 27

UK Legislation 27

US Legislation 27

Appendix 1- Music consumer survey 28

Questions 29

Tabulated Results 30

ABSTRACT

The ability to download music online and the use of P2P[1] software has dramatically altered the music industry. This paper reports on how the major music producing companies have reacted to these developments. We find that the music industry focused their initial energies on protecting traditional roles and revenue streams, trying to eradicate the use of P2P software. It examines how the music industry unsuccessfully tried to use technology, the law and social powers in its aim to suppress the use of P2P software.

We find that the original technological steps employed were unsuccessful and that their legal battles, whilst originally harbouring success, are failing to prevent consumers using P2P software. We discovered how the music industry has, in tandem with its legal actions, released propaganda targeted at both parents and children with the aim to change their opinions about online copyright.

Finally this paper looks at how the industry is now succumbing to the use of P2P software, and the truce that looks set to arise between the music industry and filesharers.

INTRODUCTION

At this moment 1,778,257 internet users are sharing over 219,239,601 different music files on just one of the many free P2P software programs[2]. This software allows anyone with an internet connection to share their music files with others, enabling them to download any song they have ever heard of. Software such as the original Napster, and subsequently Kazza, have been freely available to download and use, allowing a net user to download unlimited numbers of MP3s at no cost. With cost not being a barrier, consumers have been able download any music they like, experiencing a wealth of artists they otherwise may never of heard of. As consumers amass large numbers of MP3s, they can then burn them on to CDs or downloaded on to portable MP3 players almost eradicating the need for people to purchase hard copies of music. It has been this versatility of P2P software which has seen it ride to success, offering far more then any traditional medium ever has.

All of this has resulted in the way people experience music dramatically changing. One result of this is that CD single sales continue to fall year after year, with there prevalence in music stores declining and at least 50% of people claiming not to have bought any in the last year[3]. Instead society has begun to enter the age of online music. Now even what are classified as “legal downloads”[4] from sites such as Napster II and iTunes have over taken the sale of physical singles[5] and in addition to this millions of tracks continue to be transferred through P2P software.

Conversely as the sales of physical singles decline the sale of albums has increased[6]. This increase in sales has partly been accounted for by CD album prices being at an all time low[7]. Despite this, the majority of evidence[8] and economic theory[9] suggest the use of P2P software and free internet downloading will damage the music industry if they fail to act. On the strength of this information the music industry began to take action.

The big five begin to compete

As the use of P2P software has increased the music industry has steadily become more worried leading to “a relentless series of wrenching headaches and embarrassing mistakes”[10]. Most notably affected have been the big four[11] record labels; Warner, Universal, Sony BMG and Emi[12]. Between them, these four companies represent almost all international and most local artists with recording contracts, and obviously have the largest stakes in the music industry. With them claiming P2P software was having an adverse affect on there businesses they have struck out with the support of the RIAA[13] and the MPAA[14]. Together they focused on protecting the tradition roles and revenue streams to which they become accustomed[15], aiming to eradicate the use of P2P software which shared copyrighted material and return customers to purchasing hard copies of music. With the P2P problem coming from advances in technology, this seemed to be the obvious initial area in which to begin a lengthy battle against filesharers.

Technologically

One of the earlier methods used by the music industry was to prevent new songs being available on P2P software. The easiest way to do this was to create CD’s which could not be ripped[16] thus preventing songs being transferred into the medium which allows them to be spread through P2P software. However, these did not provide the desired result and would often result in compatibility issues with some normal CD players. Additionally these protected CD would never prevent all computers from being able to rip the CD. Only a few rips would be necessary to make the music available in MP3 files, these would then quickly find themselves being distributed. This was one of the benefits to P2P consumer as the nature of P2P software requires only a few initial copies of the MP3s as when it is shared it can quickly spread and shared by everyone. Another flaw is that such CDs prevented consumers from legitimately playing their CD’s on home computers, making backup copies of there own CD’s or transferring the songs into MP3s for use or portable players. Consequently there were many disgruntled law-abiding customers resulting in the organisations ceasing to pursue this course of action[17].

Accepting an inability to prevent MP3’s being available, the music industry began an attack on P2P software. It began spoofing; that is releasing a number of bogus music files[18] into the P2P system with the aim of making it harder for P2P users to access a genuine copying of a music track, thus deterring consumers and encouraging them to but safe, hard copies. However there is a “continual game of one-upmanship between the music industry and the file-sharing services”[19] resulting in the creation of antispoofing software[20], which would allow consumers to filter out these bogus files. As the music industry began to appreciate they would be unable to beat the filesharing services on a technical level, a field that the filesharers were far more developed in, they began actions in a field that they were more accustomed to; copyright infringement.

Legally

With the big four unable to prevent MP3s existing they changed their aims. Now they endeavour to stop the use of P2P software that freely distributed the MP3s. In their attempts to succeed, the music industry originally set their targets on a lengthy legal battle to close down the main providers of P2P software.

Against the provider s

The first target was Napster, at the time the biggest and most well known of all the P2P software. It worked using a central operation system which allowed consumer to search a centrally held database that contained lists of all the files its users held[21]. A lengthy legal battle known as the Napster case[22] ensued which captivated the worlds press as decisions were continuously appealed before the case was agreed upon at the 9th circuit.

For Napster to be found as vicariously liable the courts needed to be satisfied that infringement was occurring, Napster had knowledge of this and Napster were responsible for a material contribution to the infringing. Napster argued that there were commercially significant non infringing uses for there software This was same argument which had allowed for the sale and distribution of VCR recorders in the Sony-Betamax case[23] and was a point the courts were willing to accept.

However, Napster was differentiated due to it holding a centralised database of all the files being shared. This meant Napster certainly knew it’s software was being used for infringing purposes and meant all the music industry had to do was notify Napster (or any other similar distributor) that a specific file that it advertised on its central survey was copyrighted. Napster would be then obliged to remove it and a failure to do so would make them liable for vicarious and contributory copyright infringement pursuant to 17 U.S.C. §§ 501-13 (2000), for which the Copyright Owners were entitled to monetary and injunctive relief. The result of this was the music industry quickly pointing out the vast number of copyrighted files being shared on Napster. Napster had no choice but to remove these files or pay the extremely high costs to the music industry. This led to a huge downturn in the files available and it was only a matter of time before Napster closed.

Similarly English applications were also being challenged under the Copyright, Designs & Patents Act 1988 which reserves to the owner exclusive rights to copy and to communicate their works to the public[24]. These rights include “the making available to the public of the work by electronic transmission in such a way that members of the public may access it from a place and at a time individually chosen by them”[25]. It would be inevitable that after the success of the Napster cases, similar technology in the UK would receive just as much media and legal attention. Rather than face expensive costs and fall into ruin the way Napster had, many providers voluntarily ended there services. For a while it appeared the big four had been successful.

However, computer users and programmers have always been keen to circumvent any obstacle and this would be no exception. A newer form of P2P software emerged which instead of holding a central database, used a decentralised index method where the consumer would directly search other user’s computers. Unsurprisingly the music industry again took legal action, but there previous victory in the Napster case would not stretch to cover this newer form of P2P software.

The Grokster[26] case began, and was yet another controversial case that has recently been decided by the 9th circuit but is set to be heard for a final time in Supreme Court later in 2005. The technicality which had allowed for the music industries success in Napster was no longer relevant. Without the centralised database Grokster[27] would have no liability, and this has been the decision by both the 8th and 9th circuit judges.

The situation can now be further likened to that in the Sony-Betamax case. Grokster has been able to show the commercial viability of the software, providing examples of artists which have been able to use the software to increase publicity and in some cases actual sales. This results in them not being liable for providing the means to do something, much like how the manufacturer of a knife can not be held liable for any murders committed by its use.

The courts noted, and quite correctly in my opinion, that it would be bad policy to create a new theory of liability just to satisfy an economic need of copyright holders. Instead it put forward the idea that these issues tend to resolve themselves over time in the market place. An example would include the film industry’s reaction to the VCR. In 1981, shortly before the Sony-Betamax case went to court, Jack Valenti, the leader of the MPAA and representing the film industry, stated “that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone”. He went on to say:

“"We are going to bleed and bleed and hemorrhage, unless this Congress at least protects one industry that is able to retrieve a surplus balance of trade and whose total future depends on its protection from the savagery and the ravages of this machine."[28]

Today’s successful film industry is evidence enough to say these statements were wholly inaccurate. The use of VCR copying equipment left no substantial dent on the film market and if nothing else this example allows us to understand a little of the rational in the judgements currently being supplied in the Grokster case.

Whilst not over, the Grokster battle has been a long one and the outcome has looked bleak to the music industry for a while, after having received a number of concurrent judgements against them. With the use of P2P networks showing no sign of decline[29] and an uncertain outcome it its legal battle against Grokster, the music industry again had to look at alternative options. With its claim against Grokster failing due to the indexing system being held on individual consumer’s computers it was only a matter of time before the music industry struck out with legal actions against these individuals.

Against the consumer

On June 25, 2003, the RIAA made a public announcement that it would begin suing the users of P2P software[30]. This course of action has, quite accurately, been referred to as a “legal intimidation campaign”[31] and has aimed to make an example of high users of P2P software to deter others.

The RIAA begin their court actions by sending an opening letter[32] clearly stating that the defendant may be liable for up to $750 for each file they have provided for others to download. This letter will often be sent before the RIAA have made any official proceedings. This letter makes it clear that the RIAA favours settlements. It also includes the presumption that should you not contact them within 10 days that you are not interested in settlement and they will continue there legal action. This last comment is likely to have been added to make the potential defendant far more worried, faced with an impending deadline and the offer to settle it’s no surprise to find that people are willing to settle then to combat an international corporation in the court room. [33]