Piracy to hurt music firms?
September 19, 2000: 6:57 p.m. ET

Study: Artists, Napster-like systems, to drain $3 billion from firms by 2005
By Staff Writer Franklin Paul
graphic graphic
NEW YORK (CNNfn) - More than $3 billion in lost revenue will slip through the hands of major recording labels by 2005, due to artists independently distributing their tunes and fans sharing songs online through Napster-like networks, according to a study released on Monday.

The report, compiled by Cambridge, Mass.-based Forrester Research, also anticipates that book publishers will lose $1.4 billion in revenue over the same period. The losses will come despite vigorous legal and technological efforts by publishers and the recording industry to prevent piracy.

"Neither digital security nor lawsuits will stop Internet theft of content," said Eric Scheirer, media and entertainment analyst for Forrester Research.

"Regardless of whether they consider Napster right or wrong, traditional publishers must focus on beating Napster at its own game. They must create compelling services with the content consumers want, in the formats they want, using the business models they want."

In just a few years, advances in technology have made it more simple for Web-savvy consumers to easily acquire music they like, often for free. With sales of recordable CD-ROM drives in personal computers, enthusiasts can easily create their own disks of beloved songs, without paying the record labels anything.

Confounding the decades-old model whereby a few major companies graphicpackaged, promoted and distributed pre-recorded music, enthusiasts can now grab tunes they like using online services like Napster and Gnutella, or directly from the artists.

"Consumers will use sites like Napster to get content for free," said Scheirer.

The Recording Industry Association of America (RIAA), which represents the big record companies like Universal Music, BMG, Sony Music, EMI and Time Warner's Warner Music Group, have sued Napster, charging the one-year-old software maker with facilitating rampant piracy via its popular service, which is also called Napster.

The recording industry has argued that Napster and programs like it hurt sales of physical CDs. Napster has responded by saying its service encourages sales by allowing users to sample the songs that they eventually purchase.

Artists, authors will sell directly to consumers

Napster and services of its kind are not the only threat to the industry, the study showed.

"Also, musicians and authors will go outside of the major industries to speak directly to consumers," said Forrester's Scheirer. "That's starting to be a small trend now, but we see that becoming a very major trend within about two years."

For example, last week, punk band Offspring said it would give away a new album on the Web. Sony Corp.'s Sony Music, which distributes Offspring, told the band to cancel the giveaway but the band has refused, industry sources told Reuters.

Offspring, which says its first single "Pretty Fly (For a White Guy)" was downloaded over 22 million times in the weeks before the 1998 release of its album, "The Offspring's Americana," believes that making its new album available for free on the Web will boost sales when the new CD hits stores on Nov. 14. Furthermore, it will let Offspring identify who is downloading its music.

Notable artists such as Aimee Mann, Public Enemy and Prince, and author Stephen King have in recent years experimented with selling or giving away their product directly to consumers -- with varied degrees of success.

graphicScheirer notes that other high-profile artists, such as Courtney Love, and Smashing Pumpkins, have indicated they are mulling campaigns outside of the major label boundaries.

"In five years, if the industry hasn't responded to this, it's going to be a major problem for them," he added.

The money lost by the major labels and publishers will migrate over to artists and the service companies that help them go online, the report said.

According to the report, musicians will gain $1 billion, authors $1.3 billion, and third-party service companies $2.8 billion by 2005 in an "historic" transfer of revenue.

Media companies must focus on service

Scheirer suggests that labels and publishers halt the anticipated bleeding by transforming themselves into the conduits between artists and consumers. As the sole owners of the content, these companies now rely heavily on the law and anti-piracy software to protect their property.

"The most important message for today's media companies is to stop thinking of themselves as product-focused companies and start thinking of themselves as service-focused companies," he said.

But an executive for the Association of American Publishers, the principal trade association for the U.S. book publishing industry, says that while authors with brand-name appeal and reams of bestsellers under their belt may be able to bypass publishers and go straight to readers, most others will not be so fortunate.

graphicAllan Adler, the association's vice president for legal and governmental affairs, cites the results of famed horror writer Stephen King, who this summer released portions of a serial called "The Plant" on his Web site. King did so on the condition that those who download must pay $1 for the segment. If a majority of the users fail to pay, King vows to stop writing new chapters.

In August, King said payment had either been promised or received for an impressive 76 percent of the 152,000 downloads. In a statement, King estimated the downloads that are being paid for would bring him close to meeting his $124,000 in expenses, which included Internet fees and advertisements.

"When one looks at the results so far for Stephen King, it is something of a wash," Adler said. "He simply has made back the money it cost him to pursue this means of reaching his audience with his latest work. For authors who don't have the track record, reputation and built-in audience following of a Stephen King, obviously his example is one that doesn't necessarily encourage them to go out and dismiss their publishers."

"The role that publishers play in terms of helping to put together the product in a way that has market appeal, in publicizing the product ... that's something that Stephen King was able to forgo by going directly to the public, based on his reputation," Adler continued. "Most artists, and especially new authors, don't have that ability."

"So I think that some of the fears that people have posed about what this type of publication directly on the Internet will mean for the book publishing industry have been vastly overstated."

A spokeswoman for the RIAA was not immediately available to comment on the report. Time Warner, a member of the RIAA, is the parent of Back to top


Amazon, Microsoft team on digital books - Aug. 28, 2000

While Napster takes heat, copyrights are infringed - Aug. 2, 2000

E-books gets a new King - Mar. 8, 2000

Song swapping on Internet seen outliving Napster - Jul. 27, 2000


Justice sides with industry on key Napster issue - Sept. 8, 2000

Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney