This is sort of like the kiddie porn law that they’re trying to pass in Canada… it’s not actually going to catch any of the major offenders or those with any semblance of technical know-how.

Music industry
How to sink pirates

Nov 12th 2009
From The Economist print edition
The decline of music piracy holds lessons for other industries

Illustration by Claudio Munoz

YOU open a window on your computer’s screen. You type in the name of a cheesy song from the 1980s. A list of results appears. You double-click on one of them, and within a few seconds the song is playing. This is what it was like to use Napster a decade ago; and it is also how Spotify, another free online-music service, works today. The difference? Napster was an illegal file-sharing service that was shut down by the courts. Spotify, by contrast, is an entirely legal, free service supported by advertising. This shows how much things have changed in the world of online music in the past decade. It also explains why online music piracy may at last be in decline.

For most of the past decade the music industry focused on litigation to try to prevent piracy. Over the years the Recording Industry Association of America (RIAA) has accused 18,000 internet users of engaging in illegal file-sharing. Most of them settled, though two cases went to court this year. In both cases the defendants (a single mother and a student) lost and were ordered to pay damages (of $1.92m and $675,000 respectively). But the industry has realised that such cases encourage the publication of embarrassing headlines more than they discourage piracy, for as each network was shut down, another would sprout in its place.

Yet as piracy flourished on illegal networks, legal alternatives also started to appear. Apple launched its iTunes Music Store, offering downloads at $0.99 per track, in 2003. Many others have followed, including a new, above-board version of Napster. And in the past two years new music sites and services have proliferated. Spotify offers free, advertising-supported streams; paying customers are spared the ads and can use the service on smart-phones. Nokia’s Comes With Music scheme includes a year’s unlimited downloads in the price of some mobile phones. TDC, a Danish telecoms operator, bundles access to a music service with its broadband packages.

All of these different, legal music services offer the “celestial jukebox”—whatever you want, right away, from the internet—that made Napster so compelling when it appeared on the scene. True, revenue from these services will be less than from CD sales, but it is much better than nothing. The recorded-music industry will get smaller—but it will not disappear.

That is because there is growing evidence that this plethora of new services adds up to an attractive alternative to piracy for many (see article). In June a poll of Swedish users of file-sharing software found that 60% had cut back or stopped using it; of those, half had switched to advertising-supported streaming services like Spotify. In Denmark, over 40% of subscribers to TDC’s broadband-plus-music package also said they were making fewer illegal downloads as a result. In a British poll published in July, 17% of consumers said they used file-sharing services, down from 22% in December 2007. Music executives reckon people are moving from file-sharing networks to Spotify, though they may continue to download some music illegally.

To be sure, the carrots of more attractive legal services are being accompanied by innovative forms of stick. In particular, a new approach called “graduated response” is gaining momentum. As its name indicates, it involves ratcheting up the pressure on users of file-sharing software by sending them warnings by e-mail and letter and then cutting off or throttling their internet access if they fail to respond after three requests. Graduated-response laws were introduced earlier this year in Taiwan and South Korea, and were enacted in France last month. Other countries are expected to follow suit.
But mainly carrots

Yet in Britain music file-sharing seems to be in decline even though a graduated-response law has yet to be introduced. The country also boasts one of the broadest selections of legal music services: Spotify and Comes With Music were both launched there before most other countries, and two of Britain’s biggest internet-service providers have borrowed TDC’s bundled-music model. This suggests that when it comes to discouraging music piracy, carrots may in fact be more important than sticks.

All of this offers a lesson for other types of media, such as films and video games. Piracy thrives because it satisfies an unmet demand. The best way to discourage it is to offer a diverse range of attractive, legal alternatives. The music industry has taken a decade to work this out, but it has now done so. Other industries should benefit from its experience—and follow its example.

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Interesting stuff, but it feels like the Economist is a little out of touch with the deep stuff on this.