COULD DIGITAL PIRACY EVOLVE INTO

THE NEXT MARKETING SUPERPOWER OF

THE MUSIC INDUSTRY?

(6,518 WORDS)


Hamlyn Deas
BAMP 0713-010


RP3001
Mark Pilkington


Deadline: 22
nd
April 2013






TABLE OF CONTENTS





Introduction 1

ONE: CHANGING TIDES... 3
How piracy has influenced and changed the way we consume media

TWO: FIGHTING FIRE WITH FIRE...... 8
Why piracy will never die

THREE: STEALING? OR SHARING? .. 13
How modern-day piracy is viewed from a consumer perspective

FOUR: SURVIVAL OF THE FITTEST.. 18
The future of music distribution and how to adapt to it

FIVE: PIRACY AS A BUSINESS MODEL.. 23
How artists and labels can alter their marketing techniques to maximize profit

Conclusion 29

Bibliography. 30





"
INTRODUCTION


Piracy in its usual sense refers to the manufacture of unauthorised copies,
particularly for further distribution or sale
1
(Sterling, 1999). It is without question
that piracy in the form of seeking profit from another artists work is stealing, and is
morally wrong. Most people will agree on this, but every time someone is labeled
as a pirate is this what they are being accused of doing?

This dissertation will look at the causes and effects of digital piracy a
distributional technique that involves digital duplication of electronic files. This
new-age format has allowed those who specialise in profiting from unauthorised
reproduction of media the term classic pirates seems appropriate, in honor of
their likeness to the seafaring type to target a wider range of artists and media
distributors worldwide. However, this classic piracy is not the only act that falls
under the umbrella of piracy.
Many free and easy-to-use distributional systems are available to the
average web user, whether they be file-sharing services such as Dropbox, email,
and even (legitimate to an extent) P2P systems, or torrent and tracking sites such as
the world famous ThePirateBay. As such these systems make it incredibly easy for
anyone to obtain content, sometimes in a way that infringes copyright. Many of
these acts are innocent cases of sharing music with friends, some actions require
more thought such as downloading an entire album for free. However, not all piracy


1
Sterling, Adrian ([1999]/2008). World Copyright Law. 3rd ed. London: Sweet & Maxwell.




#
is classic piracy, with many modern-day pirates simply downloading content for
their own personal use.

It should be noted that when the term piracy is used in these texts, the context is
not that of classic piracy. This is a concept, which is fundamentally wrong, and is
understandable to consider a criminal offence. Instead, piracy should be
understood as a term that encompasses the free and open distribution of information
(sharing), regardless of how the legal interpretations of these actions such as
copyright infringement etc. are taken into account.
Therefore it is fair to say that piracy has evolved to encompass a range of
activity that blurs the line between stealing and sharing. With modern day
digitalisation, are these definitions of piracy out of date? After all there are some
historic accounts of music piracy that have changed the industry. How much time
does it take for a pirate system to become innovative?

The aim of this dissertation is to discuss the past and future of music piracy, with
focus on digital piracy. The learning outcomes of which will be applied to the all-
important question: Could digital piracy evolve into the next marketing
superpower of the music industry? It is clear that this question has been asked
before, with a range of artists, media distributors and even corporate companies
using their knowledge of pirate systems to give newfound efficiency to their
business models. But despite this level of engagement with the pirate way of life,
has the industry learnt everything there is to know about the pirate system, or are
there still stones waiting to be turned?




$
- CHAPTER ONE -
CHANGING TIDES

HOW PIRACY HAS INFLUENCED AND CHANGED THE WAY
WE CONSUME MEDIA



Contrary to popular belief, the term piracy - in the context of copyright
infringement - is not new terminology. In fact, the term pirate has been used to
describe acts of unlawful distribution or use of creative material since before
copyright law even existed as it does today.
In 1906 Thomas Sousa, one of Americas most prestigious composers of the
time, was among the first to declare that pirates were endangering the future of
music, appealing to congress about a defect in thelaw; referring to the lax
nature of their (at the time) non-existent distribution guidelines
2
.
The reason for this was that a new phenomenon was shaping the way music
was consumed, brought about by Thomas Edisons development of machines that
were capable of recording music the phonograph. Although theses talking
machines were designed with the intention of changing the dynamics and future of
business workflow (as Edison referred to it: the paperless office
3
), Lisa Gitelman
points out that it was in fact the audiences who directed its use towards the
consumption and enjoyment of music:
Audiences were vital in constructing the logic of recorded sound. [] The
social meanings of new media are not technologically determined in any
broad sense. The technology in this case proved to be a fertile ground for
reinterpretation.
4



2
They Ask Protection, The Washington Post, June 6 1906. 4
3
Millard, Andre (1995). America on Record: A History of Recorded Sound. New York: Cambridge
4
Gitelman, Lisa (2006). Always Already New. Cambridge: MIT Press. 56-57.




%
Since the phonographs arrival in the late 1870s, a lot had changed for music
listeners. This was the first time anyone, not just the super-wealthy, could afford to
listen to a piece of music on demand. By the time Sousa appeared in front of
congress in 1906, composers had experienced something rather strange that could
not have happened before the arrival of such devices unauthorised distribution of
their music. Before the copyright law was developed into a system that provided
composers with royalties for recorded pieces of their music, a system of copyright
protection only existed for the buying of sheet music, the licensing rights to
perform that piece, and any further arrangements derived from said piece
5
(Lessig,
2008). As such, the protocol for taking a piece of music and making a copy on a
player piano or phonograph cylinder was non existent, to the dismay of many
composers of the time. This, in turn, made early instances of recording music quite
confusing in a legal sense, but eventually the system was adapted to cater for music
recordings after they started to inevitably outsell sheet music some years later.
In short these pirates, as Sousa had eagerly branded them, were changing
the way people obtained and listened to music. For many composers such as Sousa
the transition of music into a mechanical age was very intimidating, and history is
starting to repeat itself yet again.

Fast-forward one hundred years: to the 21
st
Century. Since Edisons phonograph
made waves in the United States, many more technological developments have
taken up the mantle as the favoured weapon of music pirates. In the 1980s it was
the audiocassette, with the campaign Home Taping Is Killing Music warning


5
Lessig, Lawrence (2008). Remix - Making Art and Commerce Thrive in the Hybrid Industry. New
York: Penguin. 23




&
people not to record their favourite songs off the radio. Andrew Dickson was one
blogger to put his personal experiences forward, stating that home taping was
actually a positive factor in introducing more music to young people:
As a 15-year-old music fan in 1980, I found that the trading of tapes at
school was essential to keep up with the latest music. If a friends older
sibling had a bands new album, a tape of it would do the rounds so that we
could have a listen before we decided whether to buy it. [] Then there was
the mix tape, the single greatest advancement in the enjoyment of music
since the ear. Home taping wasnt killing music. It was responsible for
getting more kids into more music than ever before.
6


But the case that can be most likened to the Edison/Sousa era of piracy is one
concerning a website that nearly every Internet user is familiar with today:
YouTube.
Uploading music to YouTube without the copyright proprietors permission
is a copyright issue and in addition, somewhat questionably, an act of digital piracy
that many artists would have faced in the early years of the site. The initial response
was for labels to seek removal of the videos from unauthorised uploaders, but now
things have changed. Despite the process of having a video removed often proving
a tiring and time consuming exercise, as new versions would continue to appear
within days, it took a surprising amount of time for labels to work out that there
was a different option monetise the videos through royalties.
YouTube has since developed into one of the primary outlets for consuming
and sharing music, with record labels such as Beggars Group admitting that their
artists (including the xx, Adele, and Jack White) accumulate 22% of their digital


'
Dickson, Andrew. (2 August 2005). Track back. Available:
http://blogs.guardian.co.uk/culturevulture/archives/2005/08/02/track_back.html (Last accessed 21
April 2013)




'
revenues through streaming alone
7
, with others such as Cooking Vinyl (The
Prodigy, The Enemy) claiming their label income can include an average of $5,000
per million views
8
(Lindvall, 2013).
With the only possible negative for consumers being a huge rise in
advertising content (which allows the monetising schemes of these companies to
exist), YouTube offers an incomprehensible range of music, new and old, at no
charge to the end user. With such a solid system in place there is even speculation
that the site may be unintentionally suppressing digital piracy due to the free and
instant nature of content availability, the only downside of which being the possible
cannibalisation of legal music sales
9
(TorrentFreak, 2011).

The similarities between the evolution of digital music and that of early-recorded
music show that new systems of distribution are not necessarily ones that are
engineered by the industry. In both cases it took some time before distributors
realised that the system could be changed to accommodate for a new way of
experiencing (and ultimately, making profit from) music.
It seems, then, that the efficiency of a new music distribution system
whether it is the recording, sharing, or instant access of music is something that
can often be overlooked, with the concern of a lack of monetary gain from royalties
rendering new methods temporarily impractical for the copyright holder. The only
proven response is to adapt to these new systems to create a way of profiting from
them, perhaps at the expense of an older form of distribution.


7
Lindvall, Hellenne. (4 January 2013). How record labels are learning to make money from
YouTube. Available: http://www.guardian.co.uk/media/2013/jan/04/record-labels-making-money-
youtube (Last accessed 21 April 2013)
8
Ibid
9
Unknown. (5 June 2011). Is YouTube Killing Music Piracy? Available: http://torrentfreak.com/is-
youtube-killing-music-piracy-110605/ (Last accessed 21 April 2013)




(
In Sousas day it was the sheet music that got left behind, maybe the
decrease in digital music sales is necessary in order to proceed to the next level of
efficient distribution. Regardless of the nature of how such progressions happen, it
is undoubtedly clear that the way people consume and enjoy music has evolved at
an incredible rate in the last century. With each step, from mechanical, to analogue,
and then digital, the pirates have been the innovators that have (albeit sometimes
crudely) defined new ways of experiencing creative content.
Despite the progress that distribution methods have made at the hands of
piracy and free culture, the campaign to eradicate online piracy is as strong as ever.
If the pirates are in fact shaping the way we consume media, why are the
distributors trying so hard to suppress them?




)
- CHAPTER TWO -
FIGHTING FIRE WITH FIRE

THE WAR ON PIRACY, AND WHY IT MAY NEVER END



The essence of pirate culture is to adapt to change. In many ways piracy has created
change (as discussed in the previous chapter), which in turn has shaped the
dynamics of the industry as a whole. It was established earlier that the term piracy
is not a new word when it comes to acts of copyright infringement, and since the
term has existed so has the so-called war on piracy.
Even though artists, songwriters, and record labels have fought against
music piracy since the early 1900s, it has endured, despite distributors constantly
investing in new ways to harness or extinguish it. One of the key expenses of the
industry has been the development of methods to reduce rates of unwanted
distribution, something that has suffered particularly in the digital realm of piracy,
with most digital security systems such as DRM simply failing to stand the test of
time.

Digital Rights Management, or DRM for short, is a form of content locking that
aims to limit the use of a digital product once bought. Although DRM systems care
capable of hindering piracy in some respects, they also restrict usage to consumers
who have legally purchased that media. Many legitimate instances of copying files



*
that do not breach copyright are not possible with DRM formats, such as making
backup copies to disc or the copying of those files for use on other devices
10
.
For a period of time music bought from the iTunes store carried DRM
copyright protection, requiring the username and password of the users Apple
account if the file was sent to another computer, an action which was limited to
only five separate machines. The system was understandably unpopular and Apple
has since abandoned this, with the standard of music available in 256kbps AAC
format (notably a higher quality than the pervious 128kbps), with no DRM
protection
11
.
It could be argued that the sheer presence of a DRM system presents a
challenge to experienced media pirates, and if anything gives more of an incentive
to find a way of circumventing that protective system (a process known to pirates as
cracking) and distributing that data. This is something which has been seen in the
gaming industry lately, with DRM protected games experiencing higher levels of
piracy than their DRM-free counterparts, possibly due to pirates seeing no thrill in
cracking unprotected software
12
(Griffiths, 2012).
Regardless of the questionable efficiency of Digital Rights Management, it
is clear that such systems do not fare well at the hands of pirates. Any system that
aims to control digital distribution has its flaws and will eventually be
circumvented. The fact that these systems hinder a products use by legitimate


10
Unknown. (7 August 2009). The pros, cons, and future of DRM. Available:
http://www.cbc.ca/news/technology/story/2009/08/06/tech-digital-locks-drm-tpm-rights-
management-protection-measures-copyright-copy-protection.html (Last accessed 21 April 2013)
11
iTunes Store. (5 December 2012). iTunes Plus Frequently Asked Questions FAQ. Available:
http://support.apple.com/kb/ht1711 (Last accessed 21 April 2013)
12
Griffiths, Daniel N. (18 May 2012). 'The Truth Is, It Doesn't Work' - CD Projekt on DRM.
Available: http://www.forbes.com/sites/danielnyegriffiths/2012/05/18/the-truth-is-it-doesnt-work-
cd-projekt-on-drm/ (Last accessed 21 April 2013)




"+
customers only further damages its reputation, forcing the industry to use other
methods to reduce rates of piracy.

Many institutions are quick to claim their losses at the hands of piracy, often
choosing their words carefully to appeal to the public about how piracy affects
them as part of the economy. The Recording Industry Association of America
(RIAA) points out that piracy creates a $12.5 million loss in US economy, as well
as accounting for 70,000 lost jobs and $2 billion in lost wages to working
Americans
13
- statistics which are no doubt designed to turn the average working
American against piracy.
These figures are stated as annual losses, with the statistics originating from
a study by the Institute of Policy Innovation (IPI). However, there is no data to
suggest that these numbers are consistent annual figures, with this specific set of
results dating as far back as 2007. It is also interesting that the fourth point in the
study was not mentioned to the public: the losses of US Federal, State and Local
Governments, which is shown to be a minimum of $422 million annually
14

(Siwek, 2007).
Despite efforts by companies to convince consumers that piracy is immoral
and causes damage to their biggest entertainment industries, consumers are still
capable of forming their own opinion about the effects of piracy (more on this
later). As piracy is a worldwide issue, it would be somewhat narrow-minded to only


13
RIAA. Who Music Theft Hurts. Available:
http://www.riaa.com/physicalpiracy.php?content_selector=piracy_details_online (Last accessed 21
April 2013)
14
Siwek, Stephen E. (August 2007). The True Cost of Sound Recording Piracy to the US Economy.
Available: http://www.ipi.org/docLib/20120515_SoundRecordingPiracy.pdf (Last accessed 21 April
2013)




""
consider how countries with developed entertainment industries such as the US
distinguish pirate culture.
It is easy to forget that piracy takes place outside the UK and USA, but
some countries are embracing the new wave of piracy better than others. In the
Netherlands, where file sharing is a legal activity, it has been recognised as having
an overall positive impact on the Dutch economy
15
. Although it is acknowledged
the industry makes some losses, the positive effects of file sharing ultimately
outweigh the negative, and are seen as a valuable system of distribution.

In order for the industrys campaign against piracy to be successful, it is important
that the worldwide representation of file sharing is the same. As this is not the case,
it is difficult for just one economy to influence how the rest of the world thinks
about copyright infringement, regardless of its size and significance.
But is the morality of piracy really the issue? The point of view that some
distributors may find distressing is that their methods of delivering content are
simply out of date, and that piracy is a system that is subtly warning them that they
are being left behind. Adam Singer builds on this in The Future of Music:
If you fail to supply on a technology thats convenient to the consumer, then
no amount of lectures on the morality of copyright theft is going to help
you, as the ghastly truth may be that online piracy is natures way of saying
that you are too reliant on the business models of historic technology. The
rising tide of piracy was telling the sector that we were doing something
wrong. Thats an unpalatable message for any industry to hear.
16




"&
Unknown. (24 December 2011). Dutch Parliament: Downloading Movies and Music Will Stay
Legal. Available: http://torrentfreak.com/dutch-parliament-downloading-movies-and-music-will-
stay-legal-111224/ (Last accessed 21 April 2013)
16
Singer, Adam. The Future of Music: What Piracy Did. Available:
http://www.prsformusic.com/creators/news/mmagazine/M19/thefutureofmusic/Pages/thefutureofmu
sic.aspx (Last accessed 21 April 2013)




"#
Singers point is one that can be applied to the history of media distribution, as was
outlined earlier in chapter one with the rise of recorded sound (see page 3,4).
Coming back to the concept of the war on piracy, it seems that the
foreseeable end is not something that can be brought about by brute force from one
side or another. Making a system illegal does not stop it from happening (the best
example of this being real-world crimes such as burglary or homicide), but simply
attempts to keep it at a level that is deemed acceptable. As such, the suppression of
piracy may never be achieved through the propaganda or criminal charges of the
industry, but instead by questioning why piracy is happening and perhaps admitting
that it may be time for the system to change once again. In a survey about piracy
carried out this year, less than 7% of candidates believed that piracy could be
successfully suppressed, with the overall opinion being that only partial suppression
was possible at 56%
17
(Deas, 2013).
In summary, the war on piracy may never end, but that is not to say that it
cannot get better. The efforts of media distributors and copyright holders, whilst
powerful, are still only one side of the argument that is the legitimacy of piracy. In
order to grasp the full perspective of the global marketplace and how piracy affects
it, the consumers point of view also needs to be conveyed. After all, how can the
viewpoints of the majority not be a significant factor in the outcome of any
conflict?



17
Deas, Hamlyn. (2013). Stealing or Sharing? Your Views on Digital Piracy. Question 9. Available:
https://docs.google.com/file/d/0BwEdVimBTE3ga1BRcXlpaXRsV3c/edit?usp=sharing (Last
accessed 21 April 2013)




"$
- CHAPTER THREE -
STEALING? OR SHARING?

HOW MODERN-DAY PIRACY IS VIEWED FROM A CONSUMER
PERSPECTIVE



It is important to remember that piracy does not just affect players in the industry,
but consumers as well. It is interesting then to find out exactly what ideologies
people commonly share about digital piracy. In terms of morality, its relatively
straightforward that stealing from an artist is wrong, but when acts of sharing and
free culture become acts of piracy, the peoples idea of right and wrong starts to
shift in correspondence to their own personal opinions.
The morality of piracy is a delicate and ultimately subjective matter.
Individuals who display antipathy towards piracy as a method of distribution
usually do so due to a financial reason - examples include artists, record labels and
other media distributors. On the other hand, consumers who use the current model
of digital piracy to obtain or share media are quick to defend it, outlining some of
the more beneficial aspects that piracy brings to the industry. In his blog, Eduard
Mead points out that pirate culture is not a black and white issue and can be seen as
a powerful tool for supporting and creating exposure for creative content:
It's [also] important to differentiate between a lonely teenager uploading
tens of thousands of tracks onto the internet in return for online kudos, and
genuine music fans sharing tracks between themselves - doing the
industry a service by introducing potential fans to bands with far more
precision than the record labels ever could.
18



18
Mead, Eduard. (12 August 2011). How piracy has changed the music industry for the better.
Available: http://pointlesseconomics.blogspot.co.uk/2011/08/how-piracy-changed-music-industry-
for.html (Last accessed 21 April 2013)




"%

Mead raises an interesting point: that when music fans are involved the sharing of
files becomes an accurate and effective form of music promotion - in a similar way
to how Andrew Dickson outlined the efficiency of sharing tape cassettes in the
1980s (see page 5).
Media distributors may find it hard to empathise with the consumers
opinion of piracy and may even overlook the viewpoint of the end user entirely. In
an age where digital distribution is the preferred means of legitimate music sales it
may be unwise to simply ignore the marketing potential of file sharing, especially
when anyone who is expected to buy music online is capable of downloading it for
free somewhere else.
Considering the positive effects file sharing can have on the exposure of a
release, it is surprising that the consequences of this type of digital piracy are just as
severe as any other. It is understandable then that some consumers believe the
charges copyright holders can press are too severe. In a recent survey of media
consumers (some including musicians and other media distributors), more than
45% agreed that the legal consequences for acts of digital piracy were too high,
with 22% stating that even though punishment for piracy is necessary the level of
severity should be adjusted depending on the case. Less than 5% felt that all acts of
digital piracy should be punishable
19
(Deas, 2013).
It could be argued that a lack of awareness about how much a copyright
proprietor can charge for infringement is a key reason for so many people engaging
in casual piracy. Though this seems a fair point, it could also be speculated that the
severity of such charges could generate interest or activity in pirate communities
this is in a similar fashion to the way DRM systems can attract pirates who seek a


"*
,-./0 !"#$%&' )$ !*+#,%&'- .)/$ 0%+12 )& 3%'%*#, 4%$#567 12-/3456 (



"&
thrill in cracking restricted material (see page 9), as oppose to the straightforward
distribution of an unprotected product.
Lawrence Lessig conveys his opinions about the criminalisation of pirate
culture with reference to the war on piracy, and how the aggression of copyright
holders may be detrimental to suppressing piracy in the long-term:
In my view, the solution to an unwinnable war is not to wage war more
vigorously. At least when the war is not about survival, the solution to an
unwinnable war is to sue for peace, and then to find ways to achieve without
war the ends that the war sought. Criminalizing an entire generation is too
high a price to pay for almost any end. It is certainly too high a price to pay
for a copyright system crafted more than a generation ago.
20


Drawing on ideas that were developed in chapter two, the demise of piracy may not
be possible without the industry rebranding and redefining it to mean something
else. Lessigs argument of an old copyright system is relevant in identifying how
consumers justify piracy on such a wide-scale. Perhaps the consumer opinion is that
it is just not that damaging to the industry, and the argument that media is being
distributed without the correct copyright protocol is one that has become tiresome
to many advocates of free-culture.

Focusing on the previously mentioned point about file sharing as a potential
marketing tool, it is interesting to see how consumers are quick to identify such
positive outcomes. When asked is exposure of an artist gained from illegal
downloads of their music is better than no exposure at all? more than 96% of
surveyed candidates (a group made up of media consumers and distributors) agreed
that it was
21
(Deas, 2013).


#+
Lessig, Lawrence (2008). Remix - Making Art and Commerce Thrive in the Hybrid Industry. New
York: Penguin. 18
21
Deas. Sharing or Stealing? Your Views on Digital Piracy Question 7



"'
With regard to the history of innovation through piracy (see chapter one), it
could be suggested that a similar innovation is taking place at this moment in time.
As with past examples the distributors havent yet realised the true potential of a
promotional system that utilises file sharing, yet even with a developed digital
platform to legitimately sell music there is still some room for improvement. The
impact of consumers and pirate culture on the industry is outlined by a quote from
Matt Masons The Pirates Dilemma:
Piracy transforms the markets it operates in, changing the way distribution
works and forcing companies to be more competitive and innovative.
Pirates dont just defend the public domain from corporate control; they
also force big business and government to deliver what we want, when we
want it.
22


This summary of how piracy can affect market dynamics is applicable to the case
studies from chapter one, but also develops on the subject of the consumers
definition of piracy. The point being that if piracy, or file sharing, is capable of
redefining the modern distributional system (one which has already undergone
much development), then how can it still be classed as stealing?

It would appear that the consumers opinion on piracy is not misinformed, nor is it
particularly inaccurate. One of the main reasons for this may be that all artists and
other media distributors that are using the connectivity of the Internet to promote
and market themselves are consumers themselves. It is important to remember that
large corporations and copyright investors do not necessarily account for much of
the creative community, and that consumer and distributor are not always two
different people. It is no surprise then that the consumer viewpoint is a relatively
down-to-earth one, with many of the points raised about the positive effects of


22
Mason, Matt (2009). The Pirate's Dilemma: How Youth Culture Is Reinventing Capitalism.
Penguin. 38



"(
piracy being conveyed with incredible foresight, most likely stemming from a
genuine care for the future of music.
So does this put the average consumer in a better position to decide what the
future of music distribution should hold? Even though distributors (although not all
of them are focused on money) are likely to be the deciding factor of such change,
they will likely be quick to label a future distribution system as impractical if it
does not bring them profit. This does not necessarily mean that consumers will not
strive to find a way of improving the efficiency of a future music marketplace
without taking the industrys quest for profit into account. Nor does it mean that
distributors alone will influence the way the future of the music industry unfolds.






")
- CHAPTER FOUR -
SURVIVAL OF THE FITTEST


IDENTIFYING THE FUTURE OF MUSIC DISTRIBUTION AND
HOW TO ADAPT TO IT


The subject of Internet evolution is majorly speculative, as no one really knows
exactly what the future will bring. In relation to the points brought forward in
previous chapters; there is great potential in the future of music distribution, that is,
if distributors can figure out what changes will benefit the entire media market
including its customers and not just themselves.
Fortunately, many of these companies are starting to see how digital piracy
has shaped the industry so far, and as a result can use this data to predict where
better marketing models are capable of taking them. Many things are still uncertain
though including the fundamental features of a future online platform, which could
possibly be different from the present if these companies so desire.

One of the Internets current features, which may change with its future, is Net
neutrality. It is the concept of the web as a level playing field, meaning that an
Internet user has just as much access to information as anyone else
23
(Mason,
2009). Although it seems sensible to retain this quality, as it is undoubtedly
responsible for the development of online marketing into such a diverse and
efficient promotional tool, there is worry that the system could be changed through


23
Mason, Matt. The Pirates Dilemma. 57, 58



"*
the lobbying of huge corporations into an unbalanced format of delivering
information.
In other words, the net would no longer be neutral, but designed specifically
to direct attention to the companies with the most money, making swift work of up-
and-coming web talent or underground communities trying to get their voice heard.
While this model would change the game for all types of business and not just the
music industry, it has been said that it is simply too late for such a well-established
system of connectivity to be changed and, in doing so, made more primitive
24
.

Another asset of music marketing that some feel is subject to change is the sale of
physical products. While many institutions such as the RIAA claim that CD sales
suffer due to file sharing, a recent study from Harvard Business School is among
the first to admit physical music sales are not affected nearly as much as the
industry claims
25
(Oberholzer & Strumpf, 2004). Instead, it is suggested that there
is evidence to support the argument that file sharing can boost exposure, and in
turn, physical product sales
26
.
Although the days of purchasing CDs as the primary way of consuming
music may be over, that is not to say there is no place for physical products in the
music industry of the future. In fact, simply rebranding the CD as merchandise
suddenly makes a lot more sense. If online distribution were used primarily as a
promotional tool to sell physical products, then distributors still stand a good
chance of securing profit. Not to mention the fact that physical products are not
vulnerable to online piracy - at least not yet.


24
Ibid. 58
25
Oberholzer & Strumpf (2004). The Effect of File Sharing on Sales. Harvard Business School. 22
26
Ibid, 3



#+
The Economist has made a similar observation about artists who have
already used digital platforms to promote themselves in other areas by stating,
Artists are not so much selling music, as using music to sell
27
. This simple
sentence outlines the possibility of a future system where the answer may not be as
complex as first thought, and it seems strange that such a model of promotion has
not been identified sooner.

Bringing the debate back to the sale of music online, many of the problems
distributors currently face is a simple case of supply and demand. In recent years
the supply of music has increased dramatically, not just in the case of availability to
consumers, but also the sheer quantity of artists providing creative content. The
demand for these products has also increased, but at nowhere near the same rate.
What the market is left with is a highly unbalanced plane whereby the supply of
music massively outweighs the demand for it.
It could be debated that piracy helps to push that demand upward, whereas
the industrys effort to introduce counter-piracy measures such as DRM (see page
9) can actually reduce it. Essentially, the only thing a war on piracy means in
terms of supply and demand is that both sides perpetually cancel each other out. So
how then can distributors reclaim control over the supply and influence the demand
to their collective benefit?
Tying in the learning outcomes of Net neutrality discussed earlier in the
chapter (see page 18,19), it is possible that corporations could attempt to take back
control of the supply of music by diminishing other creative content. In other
words: censoring and stifling other artists to lower the supply in order to meet


27
Unknown. (7 Oct 2010). What's Working In Music? In: The Economist. 89.




#"
demand. Despite sounding like an extreme outcome, not to mention fairly
dystopian, this is a possibility. However, such an act would not only be extremely
cost worthy but also incredibly unwise especially considering that large
distributor companies (such as the Big 3 record labels
28
) can only account for a
small percentage of artists and musicians.
It would be preferable then that the music industry - as a community of
artists rather than distributors seeking profit - will find a way of converting to a
newer business model and define a superior way to promote and sell their products,
thus better accommodating the ever-growing supply of music.

The other (and perhaps more obvious) reason for the low demand issue is that the
market has not adequately adjusted its rates to cater to the increasing supply to
put it simply: music is too expensive.
The majority of survey participants believed that music being too expensive
was the number one cause for digital piracy, the second being ease of access to
download it for free
29
. So as the supply level went up, why did the price tags of
online music not spiral downward in response? It does seem ill informed to charge
the same rate for a digital album and a CD album: one is a physical product that
required money to print and ship, the other can be duplicated an infinite amount of
times for free.
But that does not mean that consumers arent willing to pay money for
music, or for physical products. Michael Wong points this out as one of his
marketing tips:


28
The Big 3 refers to the 3 largest record labels: Universal, Sony, and Warner Music Groups
#*
,-./0 !*+#,%&' )$ !"#$%&'- .)/$ 0%+12 )& 3%'%*#, 4%$#560 12-/3456 %



##
Some musicians have learned that the money is not in selling their music on
CD, but in selling more concert tickets at higher prices. The pirated music is
merely a promotional tool and acts as a loss-leader.
30


Although physical products are not limited to live performances and CDs, charging
money for digital downloads still has a place in the modern music marketplace it
is just something that has been poorly calculated. If the cost of digital music were
much lower, piracy rates would decrease significantly and as a result the demand
for music would eventually begin to increase.

The future of music distribution is a blurry subject, but an assertive culture of
distributors and consumers have been able to identify what needs to change. The
challenge now is how to adapt successfully to that change, as no doubt whatever
happens to the marketplace the pirates desire to progress will always exist.



$+
Wong, M. Internet Piracy: Embrace or Die. Available: http://www.mikes-marketing-
tools.com/marketing-tips/internet-piracy.html (Last accessed 21 April 2013)




#$
- CHAPTER FIVE -
PIRACY AS A BUSINESS MODEL


HOW MEDIA DISTRIBUTORS CAN ALTER THEIR MARKETING
TECHNIQUES TO MAXIMISE PROFIT


Considering what has been previously discussed, there is undoubtedly room for
artists and labels to bring about change in the way they present their material. Some
artists have already made the first steps towards a new method of distribution
embracing piracy (or at least the concept of giving material away for free) to create
exposure and attention for their products. The dependence on social networking
within the current marketplace structure has greatly influenced the way distributors
create buzz about their content, and presents them with something artists never had
before: the ability to share their work on a global scale with the push of a button.
To say that social networking has not been fully embraced by distributors
would be unfair, as almost every media distributor on the planet uses these
platforms to communicate and spread information about their products. The
communicative nature of the Internet is inescapable, and is as much of a significant
force of legitimate marketing techniques as it is with the culture that surrounds
digital piracy. Given the predictions of the future of music distribution, how can
artists and labels make the most out of such a powerful broadcasting system?

Music industry veterans Radiohead provide a good example as one of the first
mainstream artists to offer their content up for free online, allowing fans to decide



#%
what to pay for their album In Rainbows in 2007
31
. The strategy was a success; with
approximately 1.2 million downloads on the day of release. Surprisingly almost
everyone paid for the download, with a speculative average of 1 per unit
32

(Colothan, 2007). Another wise tactic was the availability of a merchandise bundle
for 40 which was also made available through the official website. It was stated by
the band that the majority of fans chose this option, with the free nature of the
release also successfully preventing an online leak of the album.
Radioheads bold distributional strategy was not only a complete success,
but also proves that the model of free or cheap distribution is a system, which is not
exclusive to small-time artists or labels. By allowing fans to make their own
decisions about how much to pay, the demand of a pirated version of the album is
non-existent. The really important part of this particular example is the availability
of the merchandise package, which included the digital download as well as two
vinyl discs, a special edition CD and extras. The quality of the bundle gave loyal
fans the opportunity to invest their support, which is something that should always
be made available regardless of popularity.

The phenomenon of a leak can be a touchy subject for artists. While a leaked
album can be seen to harm any hype the distributor is attempting to create for their
product, there are examples to suggest that this is not always the case.
An example of this was seen recently in the publishing industry when a
childrens book for adults, aptly titled Go the F**k to Sleep hit the number one


31
Monaghan, Angela. (2 Oct 2007). Radiohead challenges labels with free album. Available:
http://www.telegraph.co.uk/finance/markets/2816893/Radiohead-challenges-labels-with-free-
album.html (Last accessed 21 April 2013)
32
Colothan, Scott. (11 October 2007). Radiohead sell 1.2million copies of 'In Rainbows'.
Available: http://www.gigwise.com/news/37670/exclusive-radiohead-sell-12million-copies-of-in-
rainbows (Last accessed 21 April 2013)




#&
place on the Amazon bookstore an entire month before its release. This was due to
the leak of the PDF online, which quickly circulated on file sharing sites
33
. Despite
the publishers initial efforts to stop the premature distribution, the book
accumulated staggering amount of exposure and was a major factor in securing
solid sales figures when the physical product finally hit the shelves one month later.
Although music and publishing may be different areas of industry, it does not
change the fact that the leak is not always a detrimental thing and could be seen
instead as a (albeit unpredictable) free marketing campaign for distributors to
promote their creative content.
The leak is something that is relatively out of the artists control, but despite
not being a marketing technique it is an aspect of online distribution that should not
be overlooked when attempting to maximise income.

The term maximise profit may sound akin to the psychologies of the Big 3, but
in the industry it simply translates to survival. Producing content costs money, and
while some distributors are more in it for the money than others, making an
income from media products is essential to the long-term creator not to mention
entirely possible in the current digital age.
Although most of the examples so far have highlighted the positives of a
free distributional system, it is worth noting that offering up content for free is not
the only way of securing success in the social circle of the marketplace. Louis CK,
an American stand-up comedian, released one of his live videos for a low rate of $5
online through a self-built distributional platform. Not only did he achieve


$$
Zax, David. (13 May 2011). How Viral PDFs of a Naughty Bedtime Book Exploded the Old
Publishing Model. Available: http://www.fastcompany.com/1753287/how-viral-pdfs-naughty-
bedtime-book-exploded-old-publishing-model (Last accessed 21 April 2013)




#'
impressive rates of sale, but enjoyed very low rates of piracy, claiming that things
would have been different if he had released the content through a major publisher
or broadcasting company.
34


As explained in the previous chapter, the value of content online seems to be poorly
judged, with many arguing that the retail price of digital albums is simply too high
to allow them to legitimately obtain all the music they want. But in recent years the
instant nature of the web has offered up a new form of currency: attention from
social media.
So how can artists use this as a marketing strategy? Instead of charging
money for a digital product, allow users to download the content for free or very
cheap but at the expense that they tell someone about it. One system has already
built on this idea: Pay With a Tweet is an interactive tool that distributors can
embed on their own websites and other platforms to offer up their content for free.
The only cost for the user is a tweet or Facebook post about their recent purchase,
which in turn generates exposure and can create Twitter trends if enough people
catch on. The site claim that their most successful clients product became the 3
rd

most trending topic on Twitter after just 13,000 downloads
35
.
It is easy to see how the use of social networks plays an important role in
creating exposure and, in turn, a successful product. It should not be forgotten that
digital piracy is a form of social networking in itself, relying on the communication
of information between peers with a focus on trending topics and high quality


34
CK, Louis. (13 December 2011). A Statement from Louis CK. Available:
https://buy.louisck.net/news/a-statement-from-louis-c-k (Last accessed 21 April 2013)
35
PayWithATweet. (2011). Pay With a Tweet - A Social Payment System. Available:
http://vimeo.com/19880705 (Last accessed 21 April 2013)




#(
content. In many ways, piracy is the most efficient social networking format
around.

All things considered, there are a sufficient number of case studies to suggest that
converting to a new model of distribution is entirely necessary, and can lead to
much success. In order for pirate culture not to threaten the marketing efforts of
distributors, it needs to be redefined into a legitimate way of accessing and sharing
data. A passage from Disney co-chair Anne Sweeneys 2006 keynote address
summarises this point perfectly:
Pirates compete the same way we do through quality, price, and
availability. [] The digital revolution has unleashed a consumer coup. We
have to not only make in-demand content but make it on-demand. This
power shift changes the way we think about our business, industry, and our
viewers. We have to build our business around their behaviour and their
interests.
36


As stated, piracy is a business model. By not respecting the need for change, as
the consumers and advocates of free-culture drive the market into the future,
distributors run the risk of being left behind.



$'
7./560 8"+ 4%$#*+92 3%,+::#0 &*



#)
CONCLUSION


Piracy is an important force in shaping the industry. From historical examples,
through to contemporary marketing strategies, piracy and the idea of sharing
information is a concept, which should be easily acceptable by distributors as a way
of communicating content.
As for the next marketing superpower, piracy as it exists today is still a
shady area. Piracy has its positive outcomes in creating exposure for popular
products, outlining the flaws of industry security tools such as DRM, and even
helping to increase the demand of music. But alas, copyright infringement is still a
huge issue for many companies and it is unclear how long it will take for big name
distributors to realise that monopolising the industry with copyrights and security
systems defiles the very nature of the online platform.
Conversation is the new currency, and although attention can be bought,
true buzz and excitement is much harder to forge. Digital piracy is the closest thing
to quality control that the world has: if its any good, someone will want to pirate it.
Therefore the only weapon the distributor can truly wield is their initiative to use
that tool to create hype. In the case of popular artists who do not need as much
exposure to promote content: a focus on high quality merchandises and live shows.
If it can be afforded and if the fan base is there why not try and make that the
business model of the successful artist? Selling music is old news.

So if the industry evolves into the next era of communication where file sharing is
the accepted way of delivering a product, and the success of creative content is a
careful balance of clever merchandising and a trending social presence, the pirate



#*
way of life will be hardly noticeable. No one will know until it is happening, and
even then the transition may be so smooth that the big change may not seem that
big at all.

It is unclear just how the definition of piracy will come to change, if at all (perhaps
music Robin Hood-ery would be a better term for now). But one thing is for sure:
if it does become the next marketing superpower of the music industry, it will not
be known as piracy anymore.




$+
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