RIAA an undemocratic, unelected, overpowerful regime (Indepth report)

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[chance33_98]

RIAA an undemocratic, unelected, overpowerful regime

In Depth, Inquirer It's time for an investigation into its powers and claims

By €uromole: Thursday 08 May 2003, 08:23

THE RECENT CLAIMS by the New York Times that record companies are preparing software that will lock a computer system for a period of minutes or perhaps hours make it high time to call "Enough!" on the tactics of the RIAA and its members and to call for a thorough investigation of its powers and activities in regard to anti-piracy.

The most serious misgiving that I have with the RIAA is that it is a body that functions on behalf of its member record companies.

It is not an independent and duly authorised legal body and yet has acquired for itself the power to hack into any computer to examine the contents of the hard disk and the power to deposit new software or modify exiting software. On top of this, its degree of liability for damages for these activities is so minor as to be meaningless.

As things currently stand, the RIAA appears to have the power to download music files onto any hard disk, then to claim that those files were put there by the users of that computer and take due action against them. Whether you believe that it would take such action is up to you -- I only report how the situation appears.

I don't believe that any other industry-based organisation has such sweeping powers, not even the software industry with its attempts to deal with its own problems of piracy. In most countries even the police must show due case before making a search - and they operate under judicial proper authority and without vested interests.

It would be disturbing enough if the RIAA had credibility in its statements and actions, but it doesn't. It chooses to ignore many plausible reasons for a drop on music sales in 2001 and 2002, preferring to blame downloading from the web as the entire cause of the ills of the music industry. Having decided that downloads are to blame, it has put its own spin on the matter and then taken draconian steps - out of all proportion to the situation - to stamp out downloads.

One major problem with the RIAA's statements is that there is no independent verification of its claims about the effects of downloading. It has quoted the results of surveys, but as I have shown in a previous article, one survey on which it heavily relied was subjected to the bias of the questioner when user responses were put into different categories. And, of course, the survey was commissioned by the RIAA so its independence was already compromised.

In the Napster court case it presented as a witness a music retailer who said that Napster had caused a significant drop in his revenue. Only after a detailed examination by the defendants was it revealed that the retailer had relocated his shop to a position where there was less passing trade and that he had switched from selling CDs to selling vinyl records. He was forced to concede that perhaps these had a significant impact on his revenue and that he was making some assumptions about Napster.

The RIAA's attempts to blame Napster and other file-sharing services ignore some basic realities, so much so that one must question its competence.

The first factor is the downturn in the economy, a downturn that started late in 2000 and really could only be expected to appear in 2001 sales. The last few years have seen this downturn continue with rising unemployment, tech stock collapse and the scandals of Enron, Worldcom and others. Revenues and profits of US companies have taken a battering.

Table 1 combines information from Fortune magazine (here) with the RIAA's year-end statistics. It shows the year-over-year change in revenue and profit by the Fortune 500 companies and the change in unit music sales and the dollar value.

Year	F500 revenue	F500 profit	Music Units	Music Dollars
1999	+10.2%	+28.7%	+3.2%	+6.3%
2000	+13.5%	+8.4%	-7.0%	-1.8%
2001	+3.3%	-53.5%	-10.3%	-4.1%
2002	-6.3%	-66.3%	-11.2%	-8.2%

Table 1: Fortune 500 companies and the music industry

The drop in music units is interesting but is caused in part by a drop in the number of CD singles and cassettes being shipped. That the total dollar value of music sales was down by 4.1% in 2001 and 8.2% in 2002 should come as no surprise to anyone, not even the RIAA. The economy is down and people are more reluctant to part with their money, especially on items that are not essentials.

What's more, the picture is not looking bright for this year with current US unemployment at about 6% - or 8.8 million people - a far cry from the 3.8% in April 2000 when there were 5.5 million unemployed.

What the RIAA has not said so widely is that its member companies are more interested in revenue and profits than in the number of CDs sold. The average price of CDs has been rising steadily since 1990 and has been generally above the rate of inflation. Table 2 shows the CD price as calculated from the totals of units and dollar values provided by the RIAA, the annual change in that price and the inflation rate in the USA for the same year.

Year	CD price	% increase	US inflation
1999	$13.65	1.28%	2.2%
2000	$14.02	2.71%	3.4%
2001	$14.64	4.4%	2.8%
2002	$14.99	2.43%	1.6%

Table 2: Increasing CD prices compared to inflation

The increase in CD price has been significantly higher than inflation in the last two years. The reduction in shipments of CD singles and cassettes has taken away the low-cost options and we have seen an average price for a music unit rise from $12.57 in 1999 to $14.67 in 2002. Given these factors it is not surprising that CD sales to those on a low income (eg. age group 10 to 19) have fallen away.

Another major factor in the drop in music sales has probably been the actions of Clear Channel -- as it has built up a dominant, almost monopolistic, radio network across the USA. Clear Channel really took advantage of a 1996 decision to remove the 40-station cap on radio station ownership and by February 2002 it owned more than 1200 radio stations, with its nearest rival owning only about 205.

Comments from unhappy listeners indicate that the usual procedure for Clear Channel was to acquire several radio stations in the same city and then decide the music format for each, i.e. which would play pop music, heavy rock, gospel, middle-of-the-road and so on. Listeners have also claimed that playlists are no longer defined locally but in some central location.

The other aspect about Clear Channel was the involvement of independent promoters who were paid by the record companies to get airplay for their music. A report by Reuters (here) on 9 April 2003 said that Clear Channel would sever ties with these independent promoters and that the move came in response to critics in Congress who had questioned whether radio station contracts with independent promoters affect the amount of airplay given to songs.

Clear Channel said that it would lose $15 million per year as a result of this decision but, according to other sources, the RIAA claimed that its members would save $100 million per year.

This arrangement was an extra cost to the record companies but more importantly, these payments to independent promoters meant that the play-lists were being controlled by the agreements between these two parties.

The inevitable consequence of centralised playlist management and the attitude of "pay-for-play" is that the music tended to be homogenous across the USA and that it was biased towards the big name artists. There was little chance for an artist with less general appeal to be heard, a fact confirmed by independent artists who found it difficult to get airplay for their music. This narrowing of the range of music on radio more than likely contributed to a reduction in music sales.

The change in the US population has also surely had an impact on music sales. The correlation between the age-group statistics from the RIAA and the US census data for year 1990 and 2000 (available here ) is very interesting. Table 3 shows this correlation.

Age Group	% change in population	% change in music sales
10-14	19.9	46
15-19	13.9	-12.1
20-24	-0.3	-5.6
25-29	-9.1	-9.5
30-34	-6.2	-7.4
35-39	13.7	29.6
40-44	27.4	53.4
45+	24.0	167.3

Table 3: Change in population and change in music sales
for selected age groups

At the top end of the RIAA statistical scale, the number of people aged 45 and above rose by 24% and the music sales to those people rose by 167%. The census data also shows that the number of people in the 45 to 55 age group (i.e. born 1945 to1955) increased by 47.5% and it is this group of "baby-boomers" who probably account for most of this increase in sales because they have experienced most of the modern music era.

Those aged from 35 to 44 have also increased their music purchases out of proportion to the population increase. The 25 to 34 age group appears to have reduced its music purchases, but not by a significant amount, and this might be due to rounding of percentages by the RIAA.

The 15 to 24 age group certainly reduced its number of purchases but some of this could be due to a reduction in cassettes (for use in Walkmans) or being susceptible to other forms of entertainment such as computer games, DVDs and movies. I believe that high-speed Internet connections were only just becoming popular during 2000 and downloading music over slower modems was a tedious business.

The economy, the radio stations, the changing age of the population and the influence of other forms of entertainment have all had their part to play in changing levels of music sales. Despite all this the RIAA continues to assert that downloading is the principal cause of the fall, but it has done little to obtain independent verification of this statement.

Less biased surveys have suggested that the levels of music purchasing by downloaders does not significantly drop. The statement that most downloaders are doing so for the purposes of sampling seem to have been ignored.

There is also a strong suggestion - from Janis Ian and others - that the record companies are benefiting from downloading for sampling because it is resulting in more sales of back-catalogue material, those CDs that the companies probably thought they would be stuck with until doomsday.

The RIAA has been reluctant to assign any blame to the various record labels that it represents but these have surely had their part to play in not only a drop in music sales but in encouraging downloading.

The reduction in shipments of music singles has taken away a low-cost option for music purchases. The record companies claim that downloading of music tracks has removed the demand for CD singles. On the other hand the buyers say that they only want certain tracks, not an entire album, and when they cannot buy music this way, they turn to file-sharing. (Apple's current success with the downloading of music tends to confirm this demand for only specific tracks.)

It is very unclear whether the re-introduction of CD singles in large numbers would reduce file-sharing but perhaps at the expense of reducing the revenue from the sales of CD albums - it may do both, one, or neither of these.

More recently the attempts by the record companies to stop the illegal copying of music have surely backfired. Protection mechanisms built into CDs have prevented users making copies for their personal use (eg. to MP3 players), but this copying is quite legal under the Home Recording Act. Industry-backed downloading services have misfired because of the limited selection of music and again the fact that users cannot make copies for their own use. In both cases there are reports of dissatisfied users looking elsewhere for their music.

There is one fascinating statistic that is missing from the RIAA's public statements, namely the average number of music purchases by each US citizen. To do this we have to assume that its figure for shipments was the same as sales, but perhaps sales were lower than shipments. Based on the census data for 2000 and the shipments that year, the average number of music purchases in 2000 by each US citizen was 3.83, of which 3.35 were CD sales.

Using the RIAA's statistics and the census for 2000 we can break that down into age groups. Table 4 shows this data, with the assumption mentioned above and a further assumption that all age groups made a similar proportion of purchases for CDs as they did for the total range of music sales (which includes cassettes, videos, DVDs etc.).

Age Group	Average music sales/person	Average CD sales/person
10 to 14	4.68	4.09
15 to 19	6.89	6.01
20 to 24	7.11	6.21
25 to 29	5.90	5.15
30 to 34	5.16	4.50
35 to 39	5.04	4.40
40 to 44	4.62	4.03
45 +	2.65	2.31
All	3.83	3.35

Table 4: Purchases of all music products
and of CDs in year 2000

For all of the hours of music they might listen to in any one year, even the most prolific group of buyers only averages about one new music item every 7.5 weeks. Even if we assume this group hears just one hour of music per day, that is something less than one hour of purchased music for more than 50 hours of music heard.

We can take this further and say that only a few tracks of any CD usually get any airplay so over a year, fewer than 20 music tracks had sufficient appeal to the listeners hat they went out and purchased the music. Even that number may be an over-estimate because many buyers will purchase CDs by a favourite artist regardless of whether they have even heard any of the music tracks.

It seems clear that the RIAA's claims that its members are suffering from massive financial losses from downloading and piracy probably need to be taken with a grain of salt because it is abundantly clear that the listening audience buys very little of the total music that it hears.

On the same subject, is it any wonder that downloaders say that they are sampling the music tracks, especially when they may be getting to hear music that is not readily heard on radio? Is it also any wonder that the sales of back-catalogue music have increased?

In its most recent venture, the RIAA took court action against four students who were providing indexed lists of music tracks that others have made available within the local networks. The students were using a SMB file spider to catalogue the shared files and the SMB protocol was developed by IBM and used by Microsoft in its Windows products. Rather than using a system like Napster as the RIAA claimed, these students were using no special software to create their indexed lists and just as with Grokster and Morpheus, this technique would have had legal as well as illegal uses. (see here).

The RIAA's court filing (see links near the middle of this page) shows lists of what it alleges are sample tracks made available by the four students and notably it is rare within these lists to find two or more songs from the same album. It really seems that the students were almost providing an alternative radio service rather than an alternative to purchasing CDs, especially given that CD singles are almost extinct.

If they were providing an alternative to radio then it could be argued that these students were performing a marketing role for the record companies because they were giving people the opportunity to listen to a variety of artists who may have rarely been heard on radio.

Did the RIAA bother to examine sales at local music stores? There is nothing in its court filings to suggest that this was the case and yet it might have been truly enlightening. The only action it seem to have taken was to raise the spectre of the maximum damages for copyright of $150,000 per copyright item infringed - a total of over 97 billion dollars.

While alleging that the defendants copied some material themselves, the exact amount is unclear and is purely assertive. Invoking the maximum damages for what the RIAA describes as "contributing" to unauthorized copying but was mainly indexing and cataloguing seems rather like attacking a sparrow with an elephant gun.

It is also worth noting that one of these cases involved the Michigan Technological University and that for some time it had been working in cooperation with the RIAA to stamp out illegal file-sharing (see here) . In the months leading up to when the RIAA took action against the student it ignored a number of requests for information from the MTU and did not advise the MTU which could have immediately applied its established procedures.

The result may have been a success in the eyes of the RIAA but taking legal action against students without the resources to defend themselves and terminating cooperation with a university that was trying to help the RIAA has been a sure-fire way to alienate even more people.

Whichever way you look at it the RIAA has become a law unto itself. It doesn't serve the public but only the record companies that it represents. Its powers have become excessive and the validity of its assertions that downloading and music piracy are to blame for the drop in music sales are dubious, to say the least.

Just as a government investigation of payola in the 1960s was justified on the grounds of it being in the consumers' interest so too, in my opinion, is a review required into the activities of the RIAA. µ

* FINDLAW HAS, just today, published a commentary on the Grokster and Morpheus case and its implications for the anti-piracy tactics of the RIAA. Here.

See Also
RIAA piracy arguments just don't add up
It's time for the RIAA to sing a different song

[chance33_98]

Ping

[Paul C. Jesup]

If you think the drug cartels are bad, the music and movie cartels (RIAA and MPAA) make them look like amateurs.

[HHFi]

My personal opinion is that record sales are down because 99.9% of the stuff being played on the radio today sucks harder than a pro model Oreck vacuum cleaner. On the rare occasions when something worth buying comes out, I buy it. In fact, I just picked up Amy Rigby's new CD, "Till The Wheels Fall Off," and it's terrific. Of course, it's also on a small, independent label, which is where almost all decent music can now be found.

John Stossel did a "Give Me A Break" segment on "20/20" last night about the file-sharing controversy. He asked about the ridiculous lawsuits against the students, and the designated record industry weasel said they didn't really expect them to pay those big amounts, that was just "legal stuff." But then, Stossel reported that one of the students had to pay them a settlement of $12,000, his entire life savings, so it might as have been $97 billion to him. I'm sure the college tuition money he'd worked his whole life to save bought a couple of toots of really primo cocaine for a couple of these poor, staving record industry SOBs.

BTW, the same charming music industry spokesman claimed they were just going after distributors, but when Stossel asked if that meant they wouldn't sue his own teenage son who just likes to listen to songs off the Internet, he refused to say no. Nice bunch. They make the Sopranos look like the Osmonds.

[NoControllingLegalAuthority]

As the recording industry continues to sue college students, an organized boycott among students of all music produced by major labels would be a reasonable response. Another option would be a huge, class-action lawsuit against the major recording labels for the kind of software hacking they plan to implement.

Major labels have been operating as an organized crime syndicate for a very long time. Payola is rampant and music quality has very little to do with what is played on the radio. The radio stations are programmed by a few individuals who make music-playing decisions for huge numbers of stations at a time. A handful of so-called "consultants" are making music taste decisions for millions. The whole system is absolutely rotten to the core.

In the heyday of popular music, individual disc jockeys would play records THEY liked and lo and behold, many newcomers got the break they needed and deserved and many STARS were born in that way. What a concept!

[Moby Grape]

Why are there some in our country who see "freebies" as a "right", simply because those who own something are rich? There are welfare freeloaders and now the new class of "give me something for nothing" little whinning piggies at the tit, art welfare recipents.

[Paul C. Jesup]

Why are there some in our country who see "freebies" as a "right", simply because those who own something are rich? There are welfare freeloaders and now the new class of "give me something for nothing" little whinning piggies at the tit, art welfare recipents.

This is a strawman arguement. If you ask most p2p users, they will likely tell you something to this effect.

That they will NOT buy ripoff prices for crap from people who treat them like they are the enemy. But they will pay a fair price for crap from people who treat them with kindness and respect.

[Paul C. Jesup]

buy=pay

[strela]

That they will NOT buy ripoff prices for crap from people who treat them like they are the enemy.

Honest people have one option when confronted with "ripoff" prices - not to pay them. The option of stealing the product thus priced is not one that an honest person has.

[TechJunkYard]

It is not an independent and duly authorised legal body and yet has acquired for itself the power to hack into any computer to examine the contents of the hard disk and the power to deposit new software or modify exiting software.

'scuse me? The Berman Bill died in committee, and Berman said he would not re-introduce it. So where did RIAA get this new "power"?

What did I miss?

[strela]

What did I miss?

When you find out, please let me know too. The author of the piece made some fairly astonishing claims about these alleged new "powers" of the RIAA.

Hmmm, lessee, they supposedly have been granted permission to frame poor, honest computer users ("... the RIAA appears to have the power to download music files onto any hard disk, then to claim that those files were put there by the users of that computer ..."). Can't any 13 year-old eL3Et hAx0r d0oD do that already?

Guess I need to sue RIAA for that unsightly ring of flab around my waist, stinky feet, waspish personality, and ho-hum love life as well.

[RayChuang88]

In my opinion, the RIAA cartel is just as bad as OPEC at its height of power in the 1970's.

Because the RIAA can often dictate what records get sold and what music gets played on the air, they could effectively shut out any musical act that is not "approved" by RIAA member music labels. Take for example a lot of really great techno or house music heard in discoteques coming from Europe and Japan (and are extremely popular there); you'll rarely hear it on radio stations here in the USA except in a select few very large markets, and even in that case it's not played commonly. RIAA are more interested in the latest boy bands, rap artists, country & western artists, contemporary adult artists, or long-time established acts; can you imagine the first-creative peak Elton John/Bernie Taupin of the 1970's surviving in today's musical marketing environment--I didn't think so.

[Paul C. Jesup]

You forget an honest person may download in just for the spite of it.

(sarcasm) How can you steal something that is just a microscopic chain of ones and zeros.

[Paul C. Jesup]

You forget that the RIAA has already been sued for price fixing and they lost that case.

[Paul C. Jesup]

You need to check out the online Anime stores, they sell a LOT of J-pop and J-blues/jazz.

[wizzler]

What do you get when you add:

- an inability to use logic
- an ignorance of the law
- an ignorance of basic economics
- a tendency to analyze the world in terms of one's own limited life experience
- a flourish of self-righteousness

??

You get a "file-sharing" advocate.

I suspect this is why teenagers comprise the bulk of the pro-downloading crowd.

[merak]

There is a price for anything which maximizes profits, and that is not the highest price you'd ever get for one or two copies. You learn that in basic calculus or business 103, and apparently everybody on this planet understands this other than for the RIAA. Those guys went from selling LPs for $6 - $7 to selling CDs which were cheaper to produce for $16 and in 18 years they've not dropped the price a single penny.

Absolutely no way can I feel sorry for them. They deserve what they're obviously going to get.

[merak]

Sounds like you own stock in the recording industry; I'd suggest you sell it, ASAP.

[myself6]

The beautiful thing about this is we can use this "new class" to our advantage in the fight against socialists and their financial machine.

[wizzler]

No, I own no stock in the recording industry. If I did, however, it would be a shame to lose money because some people have taken it upon themselves to steal from me and my fellow investors.

One of the funniest things about all this is how a lot of folks are suddenly record industry experts. We now get all this "incisive" analysis of the music business from people who three years ago probably had never even heard the word "RIAA."

And not only do people now fashion themselves as experts -- which is fine, whatever -- they're so passionate about their analyses. The minutia of the record industry is suddenly the stuff of emotionally charged diatribes.

Now, why would that be? In 1998, there weren't tons of people fashioning themselves as music biz experts. There was no collective outcry against "overpriced CDs," no constant chatter about record labels' fiscal books. People gave about as much thought to the music biz as they did the inner workings of the train industry.

What changed is that "file-sharing" came along. Or, more specifically, file-sharing came along and was challenged by those whose stuff was being stolen. And so the freeloaders needed to concoct a host of justifications. Thus the rise of the Armchair Record-Industry Expert, arming himself with a set of increasingly convoluted rationales for use in his mission to keep getting free music.

The Armchair Record-Industry Expert is everywhere now. He was first spotted mostly in teen chatrooms, but he has since moved into more legitimate arenas of discourse such as Free Republic. He strides into a room with an armful of arguments and assertions, many of them developed from the labor-intensive act of pure guesswork and speculation. His historical perspective is grounded in the four-year span since file-sharing arose; the broader, age-old principles behind copyright and intellectual property have no resonance for him. He has no grasp on the basic tenets of supply, demand and price.

But, man, is he passionate about the topic of file-sharing, often assigning a quasi-spiritual character to the Internet. And, man, is he mad at that damned record industry.

Me -- I'm passionate about the topic because I find the phenomenon to be one of the most distressing developments I've ever witnessed. To watch something transform into this wide-scale disregard for morality, honesty and the law has been utterly sad.