Nov 10, 2013

Collapsing music sales: Blaming the wrong guys?

For almost fifteen years, the major movie studios and record labels have consistently blamed the so-called 'pirates' for declining sales.

How file-sharing affects box office revenues and music sales is an empirical question, and there is ample science published out there for people to make their own opinion about what is going on. For instance, a brand new study with a solid design and robust method shows that, after shutting down Megaupload, "box office revenues of a majority of movies did not increase. While for a mid-range of movies the effect of the shutdown is even negative, only large blockbusters could benefit from the absence of Megaupload." In other words, while a minority of oligopolistic players may be hurt by file-sharing, the majority of smaller-scale players are not — and even benefit from the reputational effects of information diffusion (this is good news for independent producers who make low-budget films, and this should prompt the Majors to rethink their blockbuster strategy, in line with the recent analysis by George Lucas and Steven Spielberg).

A key problem of the 'piracy' debate is that most people (on both sides) DO NOT CARE ABOUT THE FACTS. Some believe, as a matter of principle, that movies and music should be made available for free to the public. Sweet, but how do we do that exactly? (don't tell me "by selling ads on a streaming website", because in this case I am merely giving away my private data in exchange for music, and that's not called 'free' music). The other camp is populated by another kind of idealists who keep playing the same old tunes: "file-sharing is theft, file-sharing starves artists to death, file-sharing kills creativity, stealing a song is like stealing a car, piracy is evil, pirates must go to jail and pay huge fines," and blah, blah, blah.

When you show them facts, they usually find them irrelevant. For instance, film director David Newhoff, to whom we recently responded following his violent and insulting attacks, found the above-mentioned study "meaningless" and "irrelevant" on Twitter, because according to him, "nothing justifies piracy". Like many others, he prefers hammering moral judgments into people's heads rather than deal with reality reminding me of how Big Tobacco ignored cancer science to focus instead on the Smoking is Freedom "moral" stance.

Here are some more facts. The largest consumer segment for music and movies are the 15-25 year old. I remember being a teenager in the late 1990s, before the Napster and smartphone era. I used to spend most of the pocket money my parents would give me on CDs and movie tickets (perhaps something like $150 a month? I don't remember exactly). By contrast, nowadays, I see some teenagers spend $700 every year on the latest smartphone. And paying a substantial monthly fee to surf the web in 4G or LTE. And purchasing expensive video games for their PC, Xbox and mobile phone.

But let's get more specific. Between 1998 (the pre-piracy age) and 2013, the global video game industry grew by 70% in value, and is now worth $70 billion. Over the same period, the mobile phone industry grew by 400% (now worth $170 billion), and so did the mobile subscription industry (now worth $1,000 billion). In the meanwhile, the movie industry 'only' grew by 34% ($90 billion in 2013) while the music industry shrank by almost 50% ($29 billion this year). 

What does that mean? We did the math: in 1998, youngsters spent 31% of their disposable income dedicated to entertainment on music and movies. In 2013, only 9%. Put simply, new industries in the tech sector have successfully deflected a large share of youngsters' income away from the music industry. They did so by innovating A LOT. And note that, in the case of the video game industry, they also managed to achieve that in spite of piracy.

Now, before David Newhoff and his associates resume Operation Denial, let's play again their favorite (broken) record: Piracy has killed creativity, armies of pirate teens have destroyed the music & movie industries, and the burgeoning of evil Megauploads has undoubtedly caused the death of millions of artists (by starvation). And arrrrrr, only one solution: more DMCA! Good luck with that.

Piratically yours,

The Pirate Org


  1. So the Majors' toughest competitors are not pirate websites, but other media products and services on which people spend an increasing share of their 'entertainment budget'? Kinda makes sense.

  2. It's not that simple, but that's the idea... Of course smartphones are not the only 'new' thing that teens spend more money on than 15 years ago (in relative terms) -- think of videogames, laptops, and more recently, tablets. That clearly leaves them less cash to spend on music and movie tickets.

  3. Combine that with a globally shrinking middle class and the ever plummeting standards of rehashed plot lines and it all makes sense.

  4. Back when compact discs were new (ahem, koff koff!), they were priced at US$20 on average. Average. There was no reason to price them that high. Production costs were cited, but at that time discs costs around $4 to burn for mass production - $10 if you were burning less than 1000 copies. They did not cost anything more to produce than vinyl or tape, but record companies justified the higher cost. So stores sold LPs for about $15 retail, cassettes for about $12 retail, and CDs for $20. It took several years for CDs to catch on; once the players dropped down to the $150 price point, CDs were still expensive, but LPs were starting to drop seriously because CD prices boosted cassette sales.

    Record companies finally colluded and dropped CD price points five whole dollars. By this time mass production costs had dropped below $2 and you could produce CDs yourself for about $5 a piece in quantities under 1000. Nobody really started dropping their catalog prices, though, until Sony got behind one particular artist, a young singer who also happened to be banging the boss: Mariah Carey. Her debut CD was regular priced at $13.99 and we could sale price it at $9.99. guess who became a big star?

    Within one year record stores starting having massive LP buyout sales and then LPs disappeared from retail altogether. By the next year, there were two competing small footprint production machines patented that could accepted digital files from servers over the internet to burn CDs on location in stores, theoretically allowing a retailer to print any CD on demand.

    In 1991. The music industry could have enabled print on demand CDs by 1992 and they could have embraced the birth of the iPod, etc; instead they embraced Wal-Mart and continued mass production of CDs because they failed to understand the price point issue even though it had killed the LP--a product that had failed to undergo a price change in over 15 years.

    Do we understand now that "global music piracy" is a bunch of PR horse droppings?

  5. The anti-piracy folks seem to forget that during the 80's, most of us teens would listen to Casey Casen's American Top 40 with our finger on the pause button trying to make sure that the DJ's intro didn't end up on our favorite mix tape for our walkman ... getting hold of the sounds we wanted (for free) has been happening for at least 30 years ...

    Same goes for all those anti boy-racer folks, except the Ford Escorts we used to drive could only get into a drift on gravel. Go back another generation ... seen the movie American Graffitti?

  6. I think you cannot generalize, I mean... I don't know about stadistics but we all are not the same, I still spending money on CDs more than saving money for the next iPhone or whatever... I do download music, books and movies from the internet, but it's one of my passions have them in the 'original' way. I want megaupload back, HAHA.

  7. interesting article I remember back in the day we spent our money on CDs, back then the cool thing was having a CD Walkman, and it was even cooler if you had a Sony Walkman. basically the music industry and movie have been stuck in their old distributions methods, they have not been innovative therefore when digital internet age became mainstream they were not ready for the likes of naspetors and megaupload. it's 2013 now and they still rely on old dated methods to distribute. they should learn from services like steam.

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