It’s a jolting figure: the US music industry is making less than half of what it made at its 1999 peak of $14.4 billion. It currently makes about $6.3 billion. Why did it drop so fast? Piracy, right?
Wrong. First of all, a fun little fact: that $6.3 billion figure is only album sales. Not ringtones, not licensing rights, not merchandise sales, none of that is included. Why don’t they include that? Because then you’d know they’re still making between $9 and $10 billion.
This kind of finagling of the facts is nothing more than par for the course for the last ten years. What’s brought the music industry down was not pirates, although Napster helped in a way. It was nothing more or less than the culmination of some painful economic karma that was richly deserved, and one company, Apple, seeing a weakness in an entire industry and striking like a cobra.
Don’t get us wrong, piracy is a problem in the sense that yeah, if somebody downloads a track instead of paying for it, the record companies are losing money. But as you’ll see, piracy is an amorphous problem in that it’s easier to pin the blame on than to accept that just maybe, they had all of this coming, and it reveals the current litigation for what it is: a very public and brutal hissy fit.
But first we need to understand why piracy is amorphous, and how that $14.4 billion figure came into existence.
Piracy: Impossible to Track, So Let’s Make Some Stuff Up
If you want to know how ridiculous, heck, stupid, the music industry is when it comes to piracy, look no further than the fact they literally demanded more money than exists on the planet Earth in damages in a recent case against LimeWire. But more interesting were the precedents the judge used in the case.
Accurate data on piracy is pretty much impossible to find — we’ve got no idea who downloads what, unless a tracking file is specifically introduced. But one case used as a precedent, Arista Records vs. Usenet.com, found 878 downloads. The Limewire case was over 11,000 “infringing” works, but the exact number of downloads isn’t really public knowledge.
What is possible to find is proof that the RIAA statements about actual monies lost and downloads are worthless. To say there’s been a lot of spin is understating the case; for example, in 2003, when the music industry was still making over $10 billion on album sales, they tried to pass off shipping fewer units as a loss. It’s widely accepted that the RIAA and the MPAA cannot be trusted for anything resembling accurate statistics on piracy or losses — not that this prevents them from making things up.
However, all of this turns on one crucial assumption: a song pirated is a sale lost.
Therein lies the problem. This isn’t to say people don’t pirate music — of course they do. But it’s not safe to assume that they would otherwise buy the song, especially since there are other, much stronger economic factors. Which brings us back to the era of AOL and Y2K panic.
Buying Music Like It’s 1999
To understand why the music industry choked so badly in the 2000s, all you really have to do is look at the ’90s. First of all, the music industry’s growth was unsustainable no matter how you slice it. Even if Shawn Fanning had decided to do something else with his life, if the iPod had never been invented, and digital music remained science fiction, the record industry still would have seen a precipitous drop. The ’90s music boom wasn’t because of some magic moment, it was for a fairly basic reason: people were replacing their tapes and records with CDs.
Secondly, the music industry had a death grip on the process, and everybody knew a lot of it involved breaking the law. For example, part of those profits, it later turned out, were due to a price-fixing scheme. But it goes deeper than that: the major labels had a level of control over radio, a key marketing tool, that had endured for years, and had similar control over MTV.
And albums were profit machines. A single sold from a buck to $3. An album sold, at minimum, for $15 in 1999. The record industry actually has royalty structures in place that pay more if you deliver above a certain number of songs on an album. It was in their best interest to keep hit songs off of singles and push albums instead. And, of course, once a song dropped off the singles charts, it could be locked in “Best Of” albums for eternity.
So, this is how it worked, in 1999: everybody was replacing their music collections with CDs being purchased at prices kept artificially inflated, and buying new music they were only exposed to by a tightly controlled marketing apparatus.
Enter the MP3.