Reducing the Problem of Piracy in the Term Paper

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Reducing the Problem of Piracy in the Brazilian Music Industry

Music piracy is a rampant problem that results in enormous losses on behalf of the international music industry. One of the countries hit hardest by the effects of piracy is Brazil, which is the world's third largest pirate market behind China and Russia, as outlined in figure 1 (IFPI, 2002). What measures can be taken that will effectively reduce music piracy and furthermore increase sales of Brazilian music?

World's Largest Pirate Markets (IFPI, 2002)

For the last decade, Brazilian music has soared in popularity both on the home-front as well as internationally. Contemporary Brazilian music is sometimes referred to with the acronym 'MPB', which stands for 'Musica Popular Brasileira', or Brazilian Popular Music. Paiano (1995) describes how MPB is pop music enriched with Brazilian rhythmic, harmonic and melodic elements. However, there isn't one pure type of Brazilian music. The above author also explains how Brazilian music has always been influenced by foxtrot, schottische, rumba and tango, and thus, it cannot be narrowly defined.

In recent years the Brazilian music market has taken a dramatic dive. In 2001, a 40% drop in sales had been reported by Brazilian labels mid-year, compared with the same period in the year prior (Gomes, 2001). This drastic drop in sales has been primarily attributed to piracy. The main reason for the recent surge in CD piracy in Brazil is the potential of higher profit margins offered by large-scale sales of illegal CDs (Lannert & Paiano, 1998).

Piracy is sometimes thought by some to be a victimless crime. However, the music industry would argue to the contrary. There are enormous economic losses incurred due to piracy, and the effects are felt through all levels of the music industry. Piracy affects artists whose creativity is dispersed without credit. Governments are also affected through the loss of several millions of dollars in tax revenue. In addition, economies are deprived of new investment and consumers are given less diversity and choice in the marketplace. Moreover, record producers are left with no choice but to reduce the number of artists they produce because of the losses due to piracy (IFPI, 2002).

The piracy epidemic worsened across Latin America in 2001, and in combination with economic difficulties, had a devastating impact on the music industry (IFPI, 2002). Brazil's worth as the biggest pirate market in Latin America is an estimated U.S. $215 million. Paraguay, although it's music market is small, has the highest piracy level of any country in the world at 99%. Overall, Latin America remains the region most severely hit by piracy, evident in the collapse of its two largest markets, Brazil and Mexico, which saw annual sales plummet 25% and 16% respectively.

Brazil is not alone in its struggle. Spain is another country that was hit hard with the effects of piracy. Spain's music market dropped 16% during 2002 (Llewellyn, 2003). According to AFYVE, the local International Federation of the Phonographic Industry affiliate, it is estimated that the piracy rate in Spain in 2002 reached 40%, with 24 million pirated CDs sold on Spanish streets. Piracy's effects were also felt in the U.S., where album sales fell 10.8% in 2002, and are down 10% thus far in 2003 (Benz et al., 2003). Most international markets also reported declines in sales in 2002. In the U.K., the value of music shipments was down 3.7% in 2002. In Germany, revenue from sales of recorded music was down 11.3% and shipments were down 7.6% in 2002. Japan also reported losses, with an 11% decline in shipments in the first 10 months of 2002. Interestingly, France was an exception among its peers, with a reported 4.4% growth in music sales in 2002.

The problem of piracy is rampant, and its containment seems improbable. However, the drastic effects piracy has on the music industry have necessitated certain actions on the part of the industry and government to try and stop this illegal activity.

It is suggested by the IFPI (2002) that governments have a responsibility to recognize the threat that organized piracy crime poses to their economies, international reputation and culture. There are a few key weapons that governments could use in the fight against piracy. Firstly, governments could enforce copyright laws that are in line with international standards. Secondly, governments could use optical disc regulations to control pirate CD manufacturing, including compulsory use of identifiers such as the SID code. Thirdly, governments could promote proactive and efficient law enforcement by police and customs in regards to music piracy. Finally, governments could promote aggressive prosecution of piracy crimes within judicial systems, which could include deterrent sentencing. It has been argued that the Brazilian record industry needs to see a greater effort from the government in order to conquer piracy. Since 1995, the Brazilian record industry has invested $15 million toward the goal of overcoming piracy (Gomes, 2001).

Any or all of the above measures could be put into effect but the question still remains - will the initial instance of music piracy be reduced? If not, what preventative methods can be employed that would encourage individuals to purchase legitimate CDs rather than purchasing illegitimate ones or simply pirating music?

Recently, two Brazilian CD manufacturers were ordered by a Brazilian court to pay record companies the equivalent of over U.S. $1 million in South America's largest ever damages ruling for music piracy (Strain & Meyer, 2002). Industry officials stated that p) iracy is killing the market for music in Brazil. Sales are down more than 60% in five years. This prevents record companies from investing in local talent and employing local people. The government loses vital tax revenue. The court's judgement shows that the industry is fighting back and will target anyone who is involved in supporting this flagrant theft (Strain & Meyer, 2002)."

The above mentioned authors argue that something must be done to contain music piracy in Brazil because it has destroyed the local industry and pirate recordings now account for over 50% of all recordings sold in Brazil.

Piracy is the biggest problem facing the music industry today. The record industry has outlawed Napster in the courts but other online music-swapping services have emerged in its place According to an article in the Economist (2003), music file-sharing on KaZaA was 1,491% higher in June 2002 than in June 2001. Moreover this surge in illegal activity resulted in an overall drop of 9% in sales of recorded music in 2002.

There are a few strategies that the music industry in general will utilize in the attempt to make up for the losses incurred by piracy (Economist, 2003). The first approach is consolidation. It is expected by some that the five big companies currently running the show in the music industry will become three. This, like all possible solutions, has its pros and cons. A merger may save a dying industry, but at the price of choice for consumers. A second possible strategy is to rely less on instant stars and more on long-term talent. Avoiding one-hit wonders may infuse more money into the music industry in the long-term. A third and final strategy is to broaden the narrowly defined role of record companies in order to capitalize more on revenues from touring, concerts and sponsorship. These revenues added approximately 40% to global sales of recorded music in 2001 (Economist, 2003). These band-aid type solutions may remedy the economic situation in the short-term, but the long-term well-being of the music industry in countries such as Brazil requires a solution to the piracy problem.

Basically, there are two different categories of prevention in the case of piracy: primary and secondary. Primary prevention would entail the utilization of a strategy to encourage people to purchase a legitimate CD rather than pirate it. Secondary prevention would include the cessation of piracy through legal prosecution of those found to be partaking in music thievery.

In an example of secondary piracy prevention, a judge ordered Verizon, a telephone company and Internet service provider (ISP), to respond to a Recording Industry Association of America (RIAA) subpoena for the name of one of its customers, who pirated an enormous number of songs online (Taylor, 2003). Verizon is appealing the ruling, but if it stands, the door would be opened to several more cases like this one.

However, the question still remains as to whether these types of prosecutions would deter would-be pirates from downloading music illegally. Would the threat of being caught discourage individuals from pirating music and encourage them to purchase legitimate CDs?

In a primary prevention approach, it has been suggested that the physical packaging of CDs may influence the likelihood of individuals to pirate CDs (Billboard, 2003). It is suggested that the inclusion of incentives and contests in CD packaging may entice consumers into buying a product rather than pirating it. This study will examine the self-reported likelihood of piracy among individuals in Brazil when CD packaging includes contests or incentives or when the threat of being…

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