The Aftermath: U.S. Music Industry Loses $12.5 Billion in Music Piracy and 71,000 Jobs Lost Every Year…
Posted August 21, 2007 — in Music News
Mommy and Daddy were right when they told you “Nothing is for Free” — “Free” always comes with a price tag. In this case, its about 12.5 Billion…..
According to a report released by IPI, rampant global piracy of recorded music has cost the U.S. $12.5 billion in economic output and 71,060 jobs annually.
The damaging result of music piracy:
– The U.S. economy loses $12.5 billion
– U.S. workers lose 71,060 jobs
– U.S. workers lose $2.7 billion in earnings, including $1.1 billion in earnings from workers in the sound recording industry or “downstream” retail industries, and $1.6 billion in earnings by workers in other U.S. industries; and
– The U.S. government loses at least $422 million in tax revenues, including $291 million in personal income tax and $131 million in lost corporate income and production taxes.
“Piracy harms not only the owners of intellectual property but also U.S. consumers and taxpayers,” says Stephen E. Siwek, author of the report and principal with Economists, Inc. “Moreover, the impact of music piracy appears to be intensifying.” (YAHOO)
Except for the music business, no other business in history has been seriously inflicted by criminal behavior…
I’m just going to say that to blame the losses of entirely on Piracy is a ridiculous proposition. I love your blog, but I work for an indie label, dealing mostly with New Age & World music, and we’ve seen crippling losses to our CD sales numbers and layoffs…and our demographic wouldn’t even know what P2P is.
A large part of the problem is the lack of adaptation by the *recorded* music industry and music retail to changing consumer buying habits, but neither this, nor piracy is the whole enchilada.
I agree Piracy has had an effect, but to blame piracy (something, I might add, I don’t support nor have ever taken part in) for all of the industry’s loses is the kind of blinkered misrepresentation of the argument that got us into this mess in the first place.
Comment by Nick — August 21, 2007 @ 11:38 am
Nick is right.
It isn’t all about file sharing and piracy. The consumer just isn’t willing to shell out the bucks anymore.
When you look at media as a whole, music has maintained a much greater return on their dollar. Take television for instance, you can purchase the entire season of Six Feet Under for less than the cost of many good CD’s. However, it costs a couple million dollars per episode to create each show. The per unit cost of a SFU DVD is much greater, yet the price is lower than the average CD. The price of a CD has not dropped significantly, EVER.
Labels are still putting millions of dollars behind a CD, after a quarter mil to create the product, they then spend a million or more in music video, commercials, placement and production of the product. All this, not even knowing what the market is interested in hearing.
The record label model has changed. Big budget records, high cost production, supporting high-maintenace rock stars, is not the current working model. The only model that will work is DIY musicians willing to produce quality music on a budget, learn a greater amount in terms of distribution, market to the youtube, myspace demo and keep costs down. The musician is a middle-class citizen and that is hard for the labels to swallow, but it is the way things are now.
Comment by Blah — August 21, 2007 @ 12:33 pm
I’m sorry, but the numbers speak for themselves. This data reflects music piracy, not new technology. No one can prepare for criminal behavior as the New Orleans couldn’t prepare for a Category 4 hurricane. Looking back in Hindsight is easy..
Also, the labels models have changed. Rarely do labels make million dollar investments on new artists - instead they reserve big marketing budgets for superstars, rightly so.
To say the *recorded* music industry and music retail hasn’t adopted to changing consumer buying habits is a bit overzealous. We are living in fragmented society — every business is struggling to navigate through the consumer mind. This is a new era. Combine global piracy, the internet, and new technology — Its a battle!!
Comment by koar — August 21, 2007 @ 12:51 pm
How about the piracy of the record labels? We never got a discount when we replaced our album collections, 8 tracks, and cassettes with the format change to CD’s. We already paid the royalties and production costs the first time. How many artists cringe when they get their royalty check and see all the crazy charges from the label. Music is just too expensive today!(along with concerts)
Comment by Mark — August 21, 2007 @ 1:52 pm
maybe the fact our economy is in the shitter anyway and we’re so war-driven.
Comment by realmad — August 21, 2007 @ 2:03 pm
That last sentence of the article sounds a little bit like personal dogma. Where do you think technology and personal attitude on the CD will leave us in 10 years? I feel like the live show will become even a greater staple for the band, and would almost like to see if the creators of the study focused particularly on American pop-music.
Comment by Scott — August 21, 2007 @ 4:27 pm
The article was about GLOBAL downloading…so I don’t think country or genre is relevant to the study, but I don’t know.
Not all downloading that takes place is illegal, but the mentality seems to be the same across the board- acquiring music quickly with very little investment, either financial or emotional. It’s all temporary and it’s incredibly impersonal. THAT is a problem for the music INDUSTRY, which is both the cause AND the victim.
That being said, I don’t think its totally incorrect to believe illegal downloading is just one piece of the puzzle. Technology, in general, is moving incredibly fast and it seems as though social evolution is having a difficult time keeping up. That makes any business, particularly those so entrenched in social behaviors, struggle to cater to its customers. The customers have no idea what they want because they don’t really NEED to know. They can have anything at any time, and a system has been established that makes it near impossible to even pose the question and get an answer.
Do I have the answer? I wish. My advice to artists is the same now as it was before and will be in the future- put on a killer show and have bad ass songs. Downloading may hurt your financial stability, but as the great Frank Zappa said, “If people STOP copying my music, I should start to worry.”
Music should be paid for, but it should also be worth purchasing.
Comment by AJ-KOAR — August 21, 2007 @ 8:41 pm
Music should be paid for, but it should also be worth purchasing.
AMEN.
Comment by Jonathan — August 21, 2007 @ 10:27 pm
When we think about how music came to be recorded we can probably identify a root issue with much of what is recorded today.
Before music was recorded, the only way to hear music was to see it played live. Someone decided they liked the sounds so much that they wanted to save the sound and be able to keep the music on hand. It seems that bands are much more interested in recording their music than they are playing it. Even before there is a demand for te music. It seems a bit of the cart before the horse to me.
Piracy has hurt, but it is hardly the most important factor. Fact is, all media is in the toilet. People are spending their time online. Online they have music, video, and social gathering places. They join groups, are engaged in conversations and shop for shoes. The economy sucks, no matter what Bush-it has to say about it. And again, the model for recording music may have changed, but the price didn’t. The only saving grace I see for music is the Amie Street Model, there you can see the value of your music go up with demand.
Further, the iPod age is here to stay for at least a little while, until the broadband market increases and people no longer even feel the need to “own” music, because they will be able access it from an infinite number of onoline “stations”. That means the album is no longer viable, unless each and every song is a hit. I still buy albums. I don’t like one-hit wonders, but the masses are always gonna fall for the “achy-breaky-hearts” and then look back and realize how stupid they were.
Record labels made a lot of money for a long time. Now DIY artists are in a much better position. The FCC has made strides to level the playing field on radio. The computer era can put them in front of a ton of people very easily. Video technology has become cheaper and more people have become proficient at the shooting and editing quality music videos.
At the end of the day:
Our culture today is more interested in Paris and Lindsey than who is the hottest young talent in the music scene. In fact, talent has very little to do with popularity.
Comment by Blah — August 22, 2007 @ 8:40 am
It’s kinda funny to be reading this. I frequently will either burn a copy, or stream a cd, or something, to see if an album is worth buying. 90% of the time, the cd is thrown into a stack of others that never get listened to again.
I went to a meeting with Barry Leff, vp of beaver productions, who mentioned that the record industry killed itself when they went to cds. They basically put the mastered copies of songs in the hands of the people, and made it ridiculously easy to make copies of. People used to pirate cassettes, but it wasn’t as wide spread, because it wasn’t as easy.
Nowadays, I feel that piracy has more to do with people trying out music, moreso than people that just rip and listen. If people still feel strongly about a band, they’ll go out and buy the cd. Look at Nickelback and Daughtry. Look at Justin Timberlake. Yes, it’s going to hurt the new bands that are out, because people don’t know them. It means that bands have to do something SPECIAL to get recognized. I’ve been a die-hard Sevendust fan for years. Their most recent release, Alpha, had several different “editions” and I bought three copies of it. Bands have to get smart about this stuff.
In the past, people couldn’t test run albums before they bought them, so if they bought a tape or album for one song, and the rest sucked, they got suckered out of their money.
Either way, it is putting a major emphasis on touring bands to have a great live show. The concert industry is booming at the moment, and with ticket prices like they are (Nickelback, Daughtry, and Puddle of Mudd just sold 17,000 tickets at FedExForum in Memphis at $45.50 and $55.50 per ticket plus service charges), the artists are getting more than compensated for what they’re losing in cd sales.
Really, piracy is just cutting out the crap. People won’t buy things they don’t like. It’s up to labels, and musicians in general, to create what people like. When people don’t buy your record, don’t blame piracy. Blame yourself for not pushing the envelope.
Comment by Gary — August 22, 2007 @ 9:44 am
Gary, you seem like a smart guy, but you said the N-word waaaay too many times.
(The N word being Nickelba….I don’t wanna say it, for fear of soap in my mouth.)
Comment by Scott — August 22, 2007 @ 2:50 pm
Any artists worrying about this should check into DISCREVOLT.com
We’ve found it’s a much easier way to sell records.
Basically - you sell people cards that have a code on them - to be entered into a website for downloads.
People can buy 3,5,10, or 15 credit download songs.
Basically you sell an unlimited selection rather than 10 specific songs at a time. It’s brilliant. Check it out.
Beau
Comment by Beau Bretz — August 22, 2007 @ 10:14 pm
As a recording artist myself, I was initially intrigued by this claim. However, there was a study done by Harvard a few years ago that showed file sharing and other claimed issues did not have a huge impact on the declining sale of music (http://news.com.com/2100-1027_3-5181562.html).
At some point we have to admit to a few things - there are more, much more, players in the field now than years ago (artists, labels, etc.) People are discovering more music, a lot of it cheaper than what the majors had been selling it for, and better. Don’t get me wrong, I’m not directly bashing majors, but the truth is the internet has really changed the entire landscape of the music industry. Look at the CD duplication services; the prices keep going down because we can now do it all ourselves at a much more affordable price.
I like what the other reader said about ‘test driving’ albums; that’s very true. I really can’t tell you the last time I really liked an entire album by any artist (Breaking Benjamin came very close, though!).
When I listen to groups on myspace, it blows me away how good some of these bands are, yet are not signed. I buy their music, just as people buy mine, because I like it and the price is right.
Comment by Orlando Luckey — August 23, 2007 @ 8:38 am
Harvard and UNC Chapel give the middle finger to your study, Sanchez…
http://www.unc.edu/~cigar/papers/FileSharing_March2004.pdf
We find that file sharing has only had a limited effect on record sales. OLS estimates indicate a positive effect on downloads on sales, though this estimate has a positive bias since popular albums have higher sales and downloads. After instrumenting for downloads, most of the impact disappears. This estimated effect is statistically indistinguishable from zero despite a narrow standard error. The economic effect is also
small. Even in the most pessimistic specification, five thousand downloads are needed to displace a single album sale. We also find that file sharing has a differential impact across sales categories. For example, high selling albums actually benefit from file
sharing. In total the estimates indicate that the sales decline over 2000-2002 was not primarily due to file sharing. While downloads occur on a vast scale, most users are likely individuals who would not have bought the album even in the absence of file sharing.
Comment by Scott — August 23, 2007 @ 12:11 pm
IF the labels REALLY cared about all the illegal file-sharing/downloading, they should have lowered CD prices 5 years ago.
When best selling DVD titles are on sale for $9.99, it means that CD pricing has no more relevance in today’s marketplace.
The labels and the RIAA have done NOTHING to help solve their probklems except sue 700-800 people a month for downloading.
In the meantime, iTunes is past the 3 billion songs sold point and still counting.
What has the music industry done to secure its future? NOTHING.
Steve Meyer
Publisher, DISC & DAT - Weekly Edition - A New Media Newsletter For The Music Industry, Also available at http://www.freewebs.com/stevemeyer
President/CEO - Smart Marketing Consulting Services
Las Vegas, NV
Comment by Steve Meyer — August 25, 2007 @ 12:12 pm
There are many bones to pick about this study, particularly in methodology. First, they assume 20% of downloads “lost revenue” which appears to be picked out of a hat. (Although I’ll give them credit for not assuming a 1:1 relationship between downloads and lost sales.)
Secondly, the economy is like a living organism and you can’t assume one industry’s “lost jobs” are equivalent to “no jobs”. For instance, consumer electronics have been wildly popular over the past few years and are eating up the disposable income music used to command. Home theater systems, multiple home computers, and pricey video game systems have absorbed and extended the economy. Clearly music is an integral part of these markets, even if the recorded music industry has not benefited.
In short, there’s little value in complaining about piracy when you sue your customers, refuse to license music where it’s acquired on P2P, and lobby for legislative relief when your business model is outmoded.
Comment by aurous — August 27, 2007 @ 7:12 am