Peer-to-peer file sharing and illegal music piracy

¶ … P2P and the E-Music Industry

The focus of this work is on the impact that the development of the peer-to-peer (P2P) file-sharing model has had on the commercial e-music industry. Firstly, an overview of e-business and the evolution of the Internet are presented. This is followed by a short discussion and classification of business to business (B2B), business to consumer (B2C) and peer-to-peer (P2P) market types. The marketing mix elements of price, product, promotion and place for digital content e-music businesses are then explored. Customer value, implications for the value chain and related ethics are then considered. Finally recommendations will be presented. This report is based on a survey of recent literature and text books on the topic of P2P networks and the e-music industry.

Plain and simple: piracy is bad news. While the term is commonly used, "piracy"? doesn't even begin to describe what is taking place. When you go online and download songs without permission, you are stealing. The illegal downloading of music is just as wrong as shoplifting from a local convenience store & #8230; and the impact on those who create music and bring it to fans is equally devastating. For every artist you can name at the top of the Billboard music charts, there is a long line of songwriters, sound engineers, and label employees who help create those hits. They all feel the pain of music theft. The law is quite clear here, and frankly, legal downloading is very easy and relatively inexpensive and yet illegal downloading of music and music products is still occurring at an alarming rate. Record companies have licensed hundreds of digital partners offering download and subscription services, cable and satellite radio services, Internet radio webcasting, legitimate peer-to-peer (P2P) services, video-on-demand, podcasts, CD kiosks and digital jukeboxes, mobile products such as ring backs, ringtones, wallpapers, audio and video downloads and more. All of these services are attempting to curb illegal infringement by competing with free low quality copies that are prolific and in many ways dominant on the e-market, and in addition they all cost the provider money to create, offer and market to a public that by utilizing other means could get similar services, all be it lesser quality copies for free.

The high volume of illegal uses, and the low return to suing any one individual, make it more cost-effective to aim litigation at targets as far up the chain as possible. From the perspective of the music industry, it was easier and more effective to shut down Napster than to sue the millions of people who illegally traded files on Napster. (Lemley & Reese, 2004, p. 1345)

Early litigation of individuals may have provided a deterrent for some users, and yet these same users are now being ignored in litigation for the purpose of choosing defendants which bigger pockets, capable of actually paying lawsuit rulings to partly compensate for known and unknown losses on the part of the industry.

There are two categories to consider here: losses from street piracy " the manufacture and sale of counterfeit CDs" and losses from online piracy. One credible analysis by the Institute for Policy Innovation concludes that global music piracy causes $12.5 billion of economic losses every year, 71,060 U.S. jobs lost, a loss of $2.7 billion in workers' earnings, and a loss of $422 million in tax revenues, $291 million in personal income tax and $131 million in lost corporate income and production taxes. (Siwek, 2007, para#3) as you can imagine, calculating loses for online piracy is a difficult task as the occurrence of piracy events is largely untraceable, beyond broad estimations for different upload and download speeds as well timed traffic, and as technological advances in the speed and ease at which such events can occur estimates become even more far reaching. All the industry can do is estimate the number of downloads that have occurred and compare it to a legitimate P2P or other source sale. Though the legitimate services are both cheep, easy and guaranteed to provide quality copy, the lure of getting something for nothing, at least in theory is strong and only one "Peer" in literally millions need purchase a legitimate copy of a file to share it exponentially, and this doesn't even consider bootlegging at live events.

It is important to note that across the board, piracy is a very real threat to the livelihoods of not only artists and record label employees but also thousands of less celebrated people in the music industry from sound engineers and technicians to warehouse workers and record store clerks. Piracy undermines the future of music by depriving the industry of the resources it needs to find and develop new talent and drains millions of dollars in tax revenue from local communities and their residents. (Johns, 2002, p. 67) Some communities in fact rely so heavily upon the music industry that the ensuing changes caused by piracy could create bankruptcy situations for whole communities. (Gnuschke & Wallace, 2004, p. 18)

The ultimate goal with all any anti-piracy efforts is to protect the ability of the recording industry to invest in new bands and new music and to give legal online services a chance to flourish. That's why education is an essential aspect of change. Users must be aware that what may seem innocuous, when multiplied equates to millions and millions of dollars earned, and that there are very few "big guns" per say, in the music industry who earn enough to cushion the blow. That's also why record companies license music to legal services. And that's why, when necessary, enforcement of rights through the legal system occurs, at every level. (Lobato, 2005, p. 357) Just as we must hold accountable the businesses that encourage theft online, individuals who engage in illegal downloading must also know there are consequences to their actions. If you violate the law and steal from record companies, musicians, songwriters and everyone else involved in making music, you can be held accountable. With so many great legal music options available, there is really no excuse for music theft, other than intentional theft. Fans have a choice: pay a little now or a lot more later.

E-Business and Internet

The Internet and developments in e-commerce technology has made it possible to capture and share large amounts of information in real time, this has enabled greater collaboration and integration between supply chain partners. Almost all businesses have or an in the process of adopting some type of e-commerce technology to streamline their SCM activities. The Internet has now surpassed EDI technology with greater flexibility and relatively low costs. The direct impact of e-commerce technologies on supply chain performance is not clear, and supply chain executives should not expect to justify it investment based on immediate performance results, as such estimates are often misleading and non-inclusive of the whole picture. In order to receive strategic benefits, process re-design must be incorporated into the implementation of it, and all real and potential gains and investments must be accounted for. (Sevcik, 2002, p. 8) This is certainly the case with the music industry, as changing technology further challenges the workable revenue the industry and artists have to call upon to demonstrate further gains. At some point the music industry will ask itself, why they should invest in online services, i.e. licensing activities and legitimate download options when such sites could potentially feed piracy and therefore remove any realistic revenue they expect to receive. This is clearly where anti-piracy enters the scene and all involved must make efforts to ensure the strength of anti-piracy technologies and practices. (Schwartz, 2003, p. 163) (Godwin-Jones, 2005, p. 27)

Business 2 Business (B2B)

The realistic development of business structure change, as a result of technological advances is not something that should be curtailed, simply to develop better ways of protecting intellectual property rights. The real manner in which such systems, as business 2 business communications should instead be invested and protected with technology that exceeds the technology of piracy. B2B is an essential aspect of technology that has seriously changed the manner in which business communicates and exchanges information and resources. Materials ordering, file sharing and most importantly financial transactions over, encoded and encompassing communication systems that allow businesses the ability to much more rapidly and less labor intensely exchange information is essential to the way that the world does business in a global economy. (Tie, 2001, p. 49) B2B is the language of potential growth, and yet like anything else must be realistically weighed in association with increased cost and risk. The B2B systems that are already in place to ensure the safe transmission of goods and information may be an essential aspect of where the music industry looks for solutions to the piracy question. The challenge then becomes the need to balance exclusivity with availability to legitimate users, willing to pay the minimal fees to use the service, without feeling as if the work of getting through the system makes it worth it. (Kajuter, Baumgartner & Van, 2001, p. 37) (Hansen, Matthews, Mosconi & Sankaran, 2001, p. 33)

Business 2 Consumer (B2C)

The realistic and optimal development of the current e-music industry is the shift from illegitimate P2P exchanges to B2C exchanges that allow the artists, support systems and entire communities which rely on revenue from legitimate sales to ensure recovery of investment and potential profit. The potential for such a transition, which could ultimately reduce B2B and "middle-man" sales revenue must be balanced with other solutions but could be the ultimate saving grace of the music industry, the evolving multifaceted system of exchanges and challenges. (Dennis, Fenech & Merrilees, 2004, p. 2) Like was said in the previous section, B2C exchanges should be based largely on the technology that has driven B2B technology advances that attempt to ensure ease of use for both exchanging entities and still provide adequate security for both the businesses and the information. (Leamer & Storper, 2001, p. 641)

Price

The dissemination of legitimate, frequently B2C or P2P systems for music sharing, at very reasonable prices, the most common being about a dollar makes media downloads accessible to anyone seeking it. ("Tech-Tock: Is Time Up," 2005, p. D04) This leaves little in the way of excuses for utilizing services which curtail providing any resources to artists or those who support the music industry. Many may like to see high earning executives and others who are seen as unfairly riding the shirt or skirt tails of artists, but again this change in the industry might be seen simply with a greater emphasis on B2C and legitimate P2P downloads, and should not ever be used as an excuse for illegal downloading. (Hogge, 2006, p. 68)

Product

B2C and legitimate P2P exchanges will obviously provide a quality product, as the risk of downloading unsupported media and/or poor quality "bootlegged" files is reduced exponentially and while some users are willing to take this chance in a piracy situation (because they have expended no cash) none are willing to risk it in a paid venue. It is for this reason that product quality is ensured by user enforcers as well as legitimate business monitoring of the system at large and by complaint. Users will likely find more available services as well as greater ensured quality from legitimate systems than otherwise. (Benkler, 2004, p. 273)

Promotion

Marketing can be a shared experience, as artists, executives, business and legitimate P2P systems market new and emerging downloads, via their first logical availability, i.e. legitimate and legal release date. The speed at with downloads are available is a promotable component of the system that will ensure development of legitimate sources, as it has illegitimate. (Gillespie, 2001, p. 16) Promotion can be multimedia and should stress the fact that legitimate sources are the goal of all producers and artists.

Place

The Recording Industry Association of America the RIAA works to protect intellectual property rights worldwide and the First Amendment rights of artists; conducts consumer, industry and technical research; and monitors and reviews state and federal laws, regulations and policies. The Recording Industry Association of America (RIAA) is the trade group that represents the U.S. recording industry. Its mission is to foster a business and legal climate that supports and promotes our members' creative and financial vitality. Its members are the record companies that comprise the most vibrant national music industry in the world. RIAA members create, manufacture and/or distribute approximately 90% of all legitimate sound recordings produced and sold in the United States. In support of this mission, the RIAA works to protect intellectual property rights worldwide and the First Amendment rights of artists; conducts consumer, industry and technical research; and monitors and reviews state and federal laws, regulations and policies. (Gervais, 2001, p. 1363) the RIAA will likely contribute significantly to the development of a system that meets all needs and must be heeded with sincerity by all involved, including consumers, most of which will in the future be legitimate. The Recording Industry Association of America (RIAA) is located at 1025 F. ST N.W., 10th Floor, Washington, D.C. 20004. You can also contact RIAA at (202) [HIDDEN]

The Internet has now surpassed EDI technology with greater flexibility and relatively low costs.

Customer Value and the Value Chain

Customer Value

Promotion and other issues must interject ton the e-music industry to ensure that customers see the value in using legitimate sources, rather than illegally pirating music and other media. The limitations of illegal services must begin to show through and the nature and gravity of the theft must be enforced but more importantly the development of revenue producing systems that ensure industry investment and meet the customers broad expectations is essential. The customer must be persuaded to believe that supporting legitimate sources f music will both ensure the long-term viability of the industry and not doing so will in fact erode the current and future industry. Customer must understand that the value of using supported and legitimate systems far outweighs any perceived savings incurred from piracy. The industry must allow the customer a voice, but not full wielding power over the product offerings, as is currently occurring with the P2P illegitimate systems. (Abram & Hawkes, 2003, p. 32)

Value Chain Implications

The direct impact of e-commerce technologies on supply chain performance is not clear, and supply chain executives should not expect to justify it investment based on immediate performance results. In order to receive strategic benefits, process re-design must be incorporated into the implementation of it. Value chain implications are essential to decision making in the future as the current market is being driven by consumer demands that are not realistic in the long-term for the industry, i.e. free illegal access to products that do not compensate anyone in the value chain, including the consumer in the long-term. Rayport and Sviokla stress the need to develop and exploit the virtual value chain, rather than avoiding it in hopes of protecting the product, a standard which has not worked thus far and has in fact left the industry with its virtual pants down in the process of innovation and anti-piracy stresses. (1996, p. 21)

Ethics

The ethical situation is essentially being ignored by the consumer as theft becomes something of varying breadth and depth, in the privacy of one's own home. Realistically the consumer must be made aware of the seriousness of the problem, especially in the long-term and among those who have no excuse (i.e. being broke) to download music illegally for free there needs to be an ethical stress on the seriousness of the crime. Consumers must be made fully aware that the changes they might cause by illegally downloading music could ultimately cripple the music industry, to such a degree that no one is making enough money to invest in new or even longstanding artists and that the music industry could potentially become something that is entirely amateurish and never provides a living for anyone. (Cooper, 1998, p. 73)

Conclusions/Recommendations

As has been said before; piracy is bad news. It will likely continue to erase years of developed systems of compensation for literally thousands of individuals who rely on the music industry for a living. Additionally, the resolution of piracy is an ethical dilemma much worth resolving, as consumers have as of yet been very unaware of the issue's seriousness. Consumers need to understand that when they go online and download songs without permission, they are stealing. The illegal downloading of music is just as wrong as shoplifting from a local convenience store & #8230; and the impact on those who create music and bring it to fans is equally devastating and growing every passing day. For every artist you can name at the top of the Billboard music charts, there is a long line of songwriters, sound engineers, and label employees who help create those hits as well as thousands of emerging artists who like actors are working class if making money at all from their musical endeavors. They all feel the pain of music theft and consumers are likely to begin to feel it soon as well, when emerging acts start to be eliminated and new music begins to dwindle as investment by the industry does the same. The law is quite clear when it comes to music piracy and frankly, legal downloading is exceedingly easy and very nominal in expense. Despite these facts, illegal downloading of music and music products is still occurring at an alarming rate and growing daily.

Record companies have licensed hundreds of digital partners offering download and subscription services, cable and satellite radio services, Internet radio webcasting, legitimate peer-to-peer (P2P) services, video-on-demand, podcasts, CD kiosks and digital jukeboxes, mobile products such as ring backs, ringtones, wallpapers, audio and video downloads and more. All of these services are attempting to curb illegal infringement by competing with free often very low quality copies of music and other media files that are prolific and in many ways dominant on the e-market, and in addition they all cost the provider money to create, offer and market to a public that by utilizing other means could get similar services, all be it lesser quality copies for free. This investment has been essential to the development of subsystems that compete with illegal services, and yet are difficult to justify when losses are occurring exponentially. In many ways these legitimate offerings are a last ditch effort by the industry to save at least some of the traditional value and supply chain systems as they have been developed in the past, specifically to ensure artists receive adequate compensation for the work they provide the marketplace.

It is unlikely that the ethical and moral dilemma, through education or sanction will close the account on all e-music piracy but it will help. Additionally, the trend to litigate tertiary (support developers and encouragers) in the illegal trade should be redoubled, as well as at least a limited example setting litigation of individuals and/or class action like individual groups should be encouraged. (Lemley & Reese, 2004, p. 1345) Consumers must be made fully aware that the changes they might cause by illegally downloading music could ultimately cripple the music industry, to such a degree that no one is making enough money to invest in new or even longstanding artists and that the music industry could potentially become something that is entirely amateurish and never provides a living for anyone. (Cooper, 1998, p. 73)