Latin American Music Industry: Piracy, Digital Delivery & Future

Introduction: A Disrupted Industry

A recent television commercial for Honda motor cars concluded its dialogue of features and benefits with three words from the product spokesperson: "This changed everything," uttered in astonished disbelief upon discovering that the new products and services represented a breakthrough in the product line. The same astonished statement must be applied to the music industry in the wake of Napster's success, home digital recording equipment, and the Internet's ability to distribute music globally with the click of a mouse button — technological developments that together have empowered a new digital music distribution platform.

The music industry can no longer operate in a "business as usual" frame of mind. It must not only adapt but significantly create a new distribution system that includes the ability to regulate and profit from internet music distribution. Otherwise, the financial conditions of the industry could collapse, leaving artists and producers outside the revenue stream needed to repay them for the time and energy they invest in producing and distributing new music.

This research considers three different aspects of the technology and political marketplace that have negatively affected Latin American music sales. The first is the problem of widespread music piracy. The Latin American music market has seen a significant influx of pirated music and bootleg recordings of commercial artists. Pirated music is absorbing close to 50% of music sales in some countries. In addition to the financial losses felt throughout the recording industry, the presence of inexpensive pirated music is also changing consumer expectations. When consumers can pick up a CD for $2 to $3 on a street corner and receive the same quality recordings found on store shelves, a market-driven resistance to traveling to traditional retailers and paying five times as much for the same product is growing. The sociological complications of this phenomenon make change in the traditional marketplace distribution system even more urgent.

The second disruptive force is the Internet and the recent success of peer-to-peer (P2P) file-sharing systems such as Napster. The ability of end consumers to download music and create customized playlists is changing the marketplace through two sociological processes. The recording industry has traditionally produced records by bundling an artist's popular, heavily promoted songs together with those that receive less radio and media attention. As a result, consumers often purchased recorded products for just one or two popular songs. P2P systems allow the listener to become more selective and pursue only those recordings he or she enjoys. Without the necessity of purchasing entire albums, consumers are becoming more resistant to paying full prices for one or two favorite songs alongside a CD of filler material. The issue is not the quality of the music, but rather the ability to choose by individual song rather than by artist — a development that is creating a far more segmented marketplace.

Finally, home digital recording equipment makes it possible for consumers to copy CDs purchased in stores for friends and acquaintances. This reduces repeat sales that companies would otherwise experience. Home production eliminates the need for friends to purchase commercial or pirated copies of music when someone can burn them a copy at little or no charge.

The resulting changed marketplace has affected every aspect of the traditional business model for music distribution. Pirated music has flooded the supply. Home digital equipment has reduced commercial retail demand. And P2P internet distribution systems have realigned the expectations of the purchasing public, who are now able to pursue individual songs rather than complete CD collections.