Fighting music piracy in the courts has turned into a hopeless money drain for the labels. It turns out that the legal costs of chasing down music pirates is exceeding the benefits, as some have previously suggested it might.
EMI this week said that despite its prior threats to resign completely from the London-based trade association IFPI, it will stay on as a supporter but substantially cut its contributions to IFPI’s fund for antipiracy initiatives.
The four major labels reportedly spent over $130 million last year to fight piracy through the IFPI, the RIAA and other industry associations.
Ironic, isn’t it that it was the labels’ once seemingly unlimited coffers to finance legal actions – that did in Napster, Sharman Networks’ Kazaa and others – is now running empty. The funding allowed tens of thousands of economically unfeasible lawsuits to be filed against individuals, charging them with making copyrighted songs available for others to download.
The fact is that the labels strategy of using lawyers to combat Internet piracy did not work. There are not enough courts and judges and now we learn, there’s not enough money for all those high-priced lawyers.
Every college age kid that we know pirates most of the music that they have. It’s ingrained in them from an early age. This publication once predicted that the threat of being sued over their child’s piracy would cause parents to take action. No prediction has ever been more wrong.
The labels’ revenues are declining as CD sales drop and the surge in sales of digital tracks comes nowhere close to replacing the lost revenue. The labels have been forced to terminate thousands of employees and artists. Now it’s the lawyers’ time to get pink slips.
When the private equity fund Terra Firma Capital Partners bought EMI in 2007, for about £3.2 billion ($6.28 billion), it said it would cut costs through job reductions and by consolidating marketing and advertising functions at EMI’s London headquarters in London. It promised to cut costs by up to £200 million ($392 million) a year and do that by terminating 1,500-2,000 jobs from the 4,500 EMI employees.
EMI’s new president Jean-Francois Cecillion said the new agreement with IFPI would reduce the amount EMI contributes to IFPI.
‘We undertook to work with our colleagues in the other major labels and with John Kennedy (IFPI chairman and CEO) on a cost saving plan for the IFPI and together we have been able to find solutions that we believe are achievable whilst maintaining what the IFPI does best in representing our industry,’ Cecillion said. ‘I am glad to say that on the basis of those discussions we have been able to confirm our continued membership in the IFPI and we look forward to working with the IFPI on the crucial issues that our industry faces.’
IFPI’s Kennedy said it is ‘extremely valuable for us to have their (EMI’s) support in trying to address the many different challenges the recording industry is facing and addressing.’ No dollar figures were disclosed but both admitted it was a budget reduction for IFPI.
IFPI funding does not directly impact the budget of the US-based RIAA but the tremor that started in London may be a tsunami by the time it hits the States. It could even result in the IFPI and RIAA being consolidated just as the labels are doing – BMG and Sony Music becoming Sony BMG Music – and just as the record companies are doing with the many and various labels that they own.
The fact is the labels have not done what the studios did. The studios control the technology that is used to distribute their goods; the labels do not. The studios made a major investment in new technology (now Blu-ray) that will a) improve the quality of the product the consumer gets and b) makes it harder for hackers to copy it illegally; the labels have not.
In fact, the labels are headed in the opposite direction. They are now releasing music on the Net with no copy protection. The main beneficiary of that move will be the companies that make music playing devices.
The person that pushed loudest for the labels to remove copy protection from all digital tracks is Steve Jobs who runs Apple, the biggest maker of portable music players.
And in another idiosyncrasy, no label, except EMI, is making its better sounding tracks available on iTunes, the world’s largest online music store, at least according to NPD Group’s MusicWatch.
If the labels’ revenues continue to nosedive, they will soon reach a tipping point when they can no longer make the needed investment in technology that will improve their product and protect it from rampant piracy.