Although dragging ISP liability issues back into the
copyright debate is unlikely to generate much support, the music lobby
event, which took place complete with a mini-concert, helpfully placed
the broader copyright issue at centre stage. Unfortunately, three
critical issues were lost among the frantic claims of damage from music
downloading.
First, the side effects of the industry-supported copyright reform
proposals were not addressed. The U.S. experience, surveyed in previous
columns, is instructive. Should Canada adopt a similar model, the
proposed reforms are likely to result in the loss of millions of
dollars for the Canadian education community, create a chill over
research and small business innovation, adversely impact personal
privacy, and establish a barrier to new creativity for millions of
Canadians.
Moreover, eight years of U.S. experience suggests that the laws will
do little to stop file sharing, which despite tougher laws remains as
popular as ever. The U.S. courts, which are not subject to intense
lobbying campaigns, have increasingly sided against the industry,
recently dismissing lawsuits against Grokster, a leading peer-to-peer
provider used to access online music.
Second, by emphasizing copyright reform, the industry failed to focus
sufficient attention on government support for Canadian music, which is
the real engine of Canadian music creativity. The federal government
provides tens of millions of dollars each year through programs such as
the Canadian Music Fund to assist the industry.
. . .
Third, amid the claims of industry losses, the industry failed to make
the case that music downloading is significantly harmful to Canadian
artists as even Jim Cuddy acknowledged that it was hard to determine
whether music downloading has actually hurt his band. Careful
examination of CRIA's own numbers, along with industry data from
Statistics Canada, suggests that the financial impact of music
downloading on Canadian artists is greatly exaggerated.
The actual financial impact of music downloading has long been
difficult to ascertain. . . . .
. . .
While a $294 million decline may still hurt, the source of that decline
must also be examined. The uncertainty associated with the financial
impact of file sharing arises since the losses tied to file sharing are
only those that displace a potential sale, not all downloads. Moreover,
those losses must be offset against downloads that involve sampling
before purchasing, downloads of music that is no longer for sale,
downloads of music that is in the public domain or available with the
express permission of the copyright holder, and downloads that are
compensated in Canada through the private copying levy.
A recent Economist article reported that an internal music-label study
found that between two thirds and three quarters of recent sales
declines had nothing to do with Internet music downloads.
That view was echoed in a recent Ministry of Canadian
Heritage-commissioned report which concluded that "[t]he assumption by
the recording industry that demand for CDs is fundamentally strong and
that Internet piracy is to blame for falling sales is a simplistic
reaction to a complex problem . . . to place the burden wholly or
partly on illegal downloads from the Internet is to ignore a host of
other reasons."
The "other reasons" include the growth of DVD sales, which accounted
for zero revenue in 1999, but generated nearly $105 million in new
revenue from 2000 to 2003. The popularity of DVDs is surely related to
the decline in CD sales and the shrinking shelf space allocated to CDs
by music retailers.
U.S. census data actually indicates that the number of hours people
spend listening to music is declining. Its data suggests that people
now spend increasing amounts of time talking on cellphones, playing
videogames, watching movies or spending time on the Internet.
. . .
In Canada, Wal-Mart and Costco now account for 25 per cent of the
music retail marketplace, while in the U.S., Wal-Mart, Target and
BestBuy are responsible for over half of all CDs sold.
This shift affects the music industry in two ways. First, while
traditional record stores carry 50,000 or more titles, Wal-Mart focuses
primarily on new releases, featuring only 1,500 to 5,000 titles. The
decreasing availability of older titles hurts an industry that
traditionally depends upon catalogue sales for 25 to 40 per cent of its
retail music revenue.
Second, Wal-Mart has placed new price pressures on the retail pricing
of CDs — capping retail pricing in the United States at $9.72 (U.S.)
per CD. The pricing pressure has had a dramatic impact on the revenue
generated from each CD sale. According to CRIA's own numbers, revenue
from the average CD this year is $10.72, down 10.7 per cent from $12.00
per CD in 1999. The bottom line impact has been to shave $47.8 million
in revenue for sales in 2004 (through October) when compared with the
same unit sales in 1999. The per-CD decline in revenue in those ten
months alone is equal to 16 per cent of the total drop in revenue for
the entire 1999-2003 sales period.
In fact, perhaps the best evidence yet of the tenuous link between
file sharing and music sales comes from the music industry's
performance following the Federal Court of Canada's file sharing
decision denying CRIA's demand to disclose the identities of 29 alleged
file sharers at the end of March of this year. Despite the dire
predictions that the decision would decimate music sales, the six-month
period following the decision saw CD unit sales jump by 12.4 per cent
in Canada over the prior year.
