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Tim interviewed in article on music piracy Print E-mail
Saturday, 13 September 2003
Originally published by the Sydney Morning Herald at (on Steve's birthday, Sept 13 !)

The fightback against pirate CD copying and internet song sharing may be too late to save the big music companies. But their demise may be a win for consumers and musicians. Kirsty Needham reports.

Sitting in his Glebe recording studio, Tim Powles, drummer with enduring Australian band the Church, didn't know what to make of a stream of emails from American fans.

Copies of the Church's yet-to-be-released album were turning up on the internet, months ahead of its scheduled launch. On, frantic bidding for the Forget Yourself CD topped $US320 ($485) two weeks ago. Then a loyal fan - concerned the music would end up in the hands of a pirate - swooped in with a winning bid under the pseudonym "forgetsellingthis".

The fan then wrote a glowing online review of the CD. On Thursday, another copy of the CD surfaced, and eBay bidding stood at $US65 with a day to go.

Powles doesn't know whether to be mad at his British record label for allowing the CD to leak out online, or pleased with the hype it has generated among fans willing to pay so much for a product that will sell in music shops in four months for just $US19.

"It is a little disturbing," he says. "Is it a good story or a scary story?"

In an extraordinary fortnight, the global music industry - its back to the wall with plummeting sales blamed on internet piracy and competition from new entertainment - has taken the drastic steps of slashing CD prices and suing a 12-year-old for trading songs online. It is a story that highlights how far consumer behaviour has swung since the days of Countdown.

An industry once synonymous with teenage rebellion now finds itself in mortal combat against a young generation that record company executives describe as thieves who have no concept of the value of music.

Analysts have tipped the downfall of a business that is already exhibiting the signs of decline: falling sales, price cuts, the laying off of thousands of workers, mergers and litigation.

Criticised for many years for sticking their heads in the sand and ignoring the internet's potential, the major record labels are fighting back with the introduction of legitimate paid online services. The Recording Industry Association of America's move on Tuesday to sue 261 consumers, ranging from 12-year-old Brianna LaHara to 71-year-old Durwood Pickle, is the stick to beat millions of users off file-sharing networks the RIAA has failed to have shut down.

"Actions like this clearly don't win hearts and minds and we don't expect to be loved for it," says the chief executive of the Australian Record Industry Association, Stephen Peach. "But the industry is in such a dire predicament in the US as a result of this activity that this becomes a necessity."

The industry is at the crossroads, says Ed St John, managing director of BMG Australia. The feeling is "deeply pessimistic and concerned", he says. "No one likes alienating their customers, the people who turn out in stores and buy your products. But I am not sure you would categorise these kids as consumers - I'm not sure they buy anything."

Silverchair's manager, John Watson, says the industry is facing a "major paradigm shift" that will take casualties along the way. "We are at that point where we are pushing off from the one side - which is crumbling - and no one knows yet what the other side looks like," says Watson.

Those who believe they do know the shape of things to come hold dire predictions for the survival of the traditional music industry.

Forrester Research analyst Josh Bernoff says the popularity of the controversial file-sharing technology Kazaa and Apple's iTunes service, which has sold 10 million legitimate songs in just a few months, spell the end of the CD. Global music sales have already dropped by 12 per cent in the past three years.

Bernoff predicts the major labels will end up simply promoting bands and wholesaling music to internet companies, while record stores will "close by the hundreds" and sell their brand names to the online music services that replace them. But artists will win, says the American analyst, as they are able to sell an unlimited trove of back catalogue or studio material direct to fans, and bands will reach new audiences.

This brave new world is already a reality for bands like the Church. Creative differences saw the band part with a major label a decade ago to go it alone. "We would not have survived without the internet," says Powles.

With a global following, the Church make enough in online sales of its back catalogue, limited edition jam sessions, T-shirts and new singles, to hire an administrator to run the website, and it is a major part of sustaining the band.

More crucial, says Powles, was the way several groups of hardcore fans in the US organised themselves online to run fan websites. When the band toured, the "Church Army" got together to go to US radio stations and make posters. "They wanted to spread the word about their band," he says.

Silverchair manager Watson has used the internet to strengthen audience relationships with bands. "I'm of the belief that digital delivery presents a once in a lifetime opportunity for the music business," he says.

Little Birdy, an up-and-coming band he manages, last month gave away free its first single, Relapse, as a download from the Triple J radio station website. It is more important to get the music out to audiences at this stage than to make sales, reasons Watson. Relapse shot into the top five of the audience-voted Net 50 Triple J charts.

Watson says the music delivery system has to be moved to digital. The reason it hasn't happened sooner is the difficulty in doing that "without destroying what now makes up 98 per cent of sales". TRADITIONAL music retailers are already being burnt by a massive shift in consumer behaviour. The loss-making Sanity music chain was forced to write off $14 million in unsold inventory this year, compared to $7.5 million last year. The Australian company has abandoned the British music market and will turn its music stores there into youth surf and shoe shops. Locally, 17 Sanity stores will close, and Sanity/Virgin Entertainment's general manager, Matt McCarthy, says the remaining stores will focus on DVDs. "Most of our stores are moving to 40 per cent DVD," says McCarthy.

The big five international music labels have all suffered dropping sales. Sony and EMI have axed 1400 and 1900 staff respectively, artist rosters have been rationalised, and BMG and Warner are in merger talks this week. Warner sold off its CD manufacturing and distribution business in July.

The decision by the world's biggest record company, Universal, to drop the price of CDs by a third in the US from next month came on the back of a 25 per cent slump in its music revenue in the past six months. It is a gamble designed to drive consumers back into music stores, fighting not only free internet downloads, but competing with spending on DVD and computer games.

BMG's St John says the move took the local record industry by surprise. "It is pretty frightening," he says. "Most people would say we would rather improve the value of the product. Once you drop prices, you can't put them back up."

Universal Australia reports to an international office in London, which says there are "no immediate plans" to change prices outside North America. "This new US initiative is a bold move ... We know everyone will be watching the results," said a Universal International spokesman.

Watson says: "There is no doubt there is more competition for the teenage entertainment dollar than back in the days of Countdown. When I was a kid, there wasn't DVDs or video games competing for my allowance. Music is now just one of several different options."

The cheaper Universal prices are coming out of the US retailers' pocket - record companies have previously paid $2 to $4 per CD for good placement in-store, he says.

The practice of record companies paying for US radio airplay has also been dismantled in the past six months by an industry facing lean times. But Watson says the Australian record industry has never had the same fat to cut as the US market.

Australian CD sales fell for the first time last year, with overall music sales down 8.9 per cent to $573 million.

St John says a consumer perception that CDs are overpriced can be blamed on a recent trend for major department stores to "loss lead" on music and discount savagely. A CD that BMG Australia recommends for retail at $30 can sell at Kmart for $20. Music chains, trying to compete, then ask for greater discounts from BMG.

"Why have we been singled out as being overpriced? How can you spend $100 on a pair of Levi's and not complain, but everyone finds it offensive that a CD costs $20 to $30?" asks St John.

"Making a record is incredibly expensive, signing an act is incredibly expensive ... I'm not sure how we deserved the terrible reputation of fat cats - it is not true."

But Charles Britton, policy officer for the Australian Consumers Association, says local record companies must follow Universal's lead and drop CD prices if they want consumers to buy more music. "They have to realise that annoying your customer is not a good business model."

Britton says copyright is a sanctioned monopoly, and when consumers are copying CDs, they are reacting to a market failure and high prices created by that monopoly. "To have a draconian response, and criminalisation, is a bit like hanging people for stealing bread. There are better ways to deal with starvation," he says.

Amid the wave of litigation, Britton says music consumer rights also need to be beefed up in Australia. Unlike in the US, consumers here do not have the right to make a copy of a CD they have bought legitimately to play around the house on the computer, or in the car stereo. ("I think that is ridiculous," says Powles. "Artists don't want that.")

ARIA will not rule out pursuing Australian consumers in the style of the American law suits to send a message about the impact of piracy on an industry that is being forced to "slash and burn", but Peach says "it is not a question we are considering at the moment". He defends the actions of his US counterparts to pursue a 12-year-old file-sharer, after a court ruled the internet services could not be held liable for the actions of their users.

"Children are becoming increasingly sophisticated. I have a 10-year-old and he would be capable of doing these sorts of things," says Peach.

After research found a third of the music obtained by Australian teenagers was sourced illegally, ARIA plans a lighter approach here and will target schools with an education campaign.

Controversial legal action by the Australian record industry has focused on older university students running music-swapping websites. The Federal Court has ordered three universities to hand over millions of computer files. The vice-chancellor of the University of Sydney, Gavin Brown, says the court action presents "an extraordinarily difficult issue", which is being fought by the university sector as a whole. "It is extremely hard to provide legitimate internet access to staff and students and to then police it without invading an individual's personal privacy," says Brown. SHARMAN Networks, the Cremorne-based company which operates the file-sharing technology Kazaa, has described the action against its users in the US this week as "random attacks on people's privacy" tantamount to a declaration of war.

Sharman says the decision by the major record labels not to provide licensed music to Kazaa - and thereby solve the piracy problem with a business partnership - "regrettably condemns the music industry to continued piracy and endless litigation against its own customers".

ARIA says the threat of litigation is working and has already scared off some Kazaa users. Sharman's marketing manager, Michael Liubinskas, says the dip is only a seasonal drop-off due to US college holidays.

Liubinskas says Kazaa (which was relocated to Sydney to avoid a court-ordered shutdown in the Netherlands) has been trying to build a legitimate business, and is already the world's largest provider of licensed digital content, with about 20 million copy-protected files - including games, movies and music - downloaded each month.

Sharman believes half of Kazaa's users are aged over 35 and would be willing to pay for content if it is presented in the right way, such as allowing them to sample tracks first. "We are part of the solution, not just the problem," says Liubinskas.

But it is an olive branch unlikely to be accepted by the major record labels, which preferred to see Kazaa's file-sharing predecessor, Napster, shut down before it had the chance to move its millions of users to a legitimate service.

The record industry says it will not support file-sharing technology, which creates networks of millions of home computers trading computer files of varying quality. Peach says: "File-sharing is very much the B-grade service ... It is rubbish in, rubbish out."

But great hope is pinned on the success this year of Apple's iTunes - a licensed online music store open to consumers who have bought Apple's portable MP3 player.

Repeated attempts by record companies to launch paid online subscription services have failed, says Peach, because the consumer wants a one-stop shop and collusion laws prevent the record companies from banding together. St John says they have failed because record companies are not retailers. They welcome the arrival of a third party.

"We hope legitimate services will wean people from file-sharing," he says, adding that iTunes has shown that if you provide a compelling alternative, they will pay for it.

Sony last week announced it planned its own music download service, also leveraging its electronics device experience. St John says it is critical these types of services become available to "anyone with a computer". The British retailer Virgin has launched a download service offering 200,000 songs for as little as 60p ($1.40) each.

Powles does not think that free music on the internet is damaging his career. But he is concerned to see teenagers, including his two sons, gaining 99 per cent of their music education over the internet.

"Teenagers will only learn to pay for art if they are brought around to thinking it's a reasonable thing to do. We need to explain that just like their parents need to make a living, so do artists. There is a direct relationship between buying a CD, and artists buying a meal."

Last Updated ( Tuesday, 28 December 2004 )
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