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Concerns over lost revenue are intensified by the grim state of music industry economics in the post-compact disc era. According to data from the RIAA, the year that compact discs controlled their highest share of market dominance was in 2002, when CDs accounted for 95.5 percent of industry revenues. By 2010, CD sales had shrunk to barely 50 percent. This year, industry analysts expect digital music sales to eclipse CD sales for the first time.
Technological sea change is one thing. Hard data on the true economic costs of piracy are another — and due to piracy's illicit nature, they're hard to come by.
A good place to start: the aforementioned 750,000 lost jobs touted by the RIAA. The technology blog Ars Technica found that this oft-touted figure dates back to a 1986 Christian Science Monitor article concerning President Ronald Reagan's version of the PRO-IP Act, an anti-piracy bill signed into law in 2008 under President George W. Bush. Back when the CSM article was written, the recording industry was advancing an anti-piracy advertising campaign ("Home Taping Is Killing Music") that targeted abuse of blank cassette cartridges.
But even though the RIAA continues to tout these figures, a 2010 Government Accountability Office report found that they have no empirical basis.
"Three commonly cited estimates of U.S. industry losses due to counterfeiting have been sourced to U.S. agencies, but cannot be substantiated or traced back to an underlying data source or methodology," the report says. "First, a number of industry, media and government publications have cited an FBI estimate that U.S. businesses lose $200-$250 billion to counterfeiting on an annual basis. This estimate was contained in a 2002 FBI press release, but FBI officials told us that it has no record of source data or methodology for generating the estimate and that it cannot be corroborated.
"Second, a 2002 [Consumer Protection Bureau] press release contained an estimate that U.S. businesses and industries lose $200 billion a year in revenue and 750,000 jobs due to counterfeits of merchandise. However, a CBP official stated that these figures are of 'uncertain origin, have been discredited, and are no longer used by CBP.' "
Market research points an accusatory finger at legal download services like iTunes for a good chunk of this decline. In 2007, six years after its introduction and one year after the implosion of Tower Records, iTunes held only a 12 percent share of music sales in the United States. As of last year, the Apple service commanded 26.7 percent of the market, fueled in large part by the ease of piece-meal song purchases and the continued crash-and-burn of brick-and-mortar stores, which derive most of their profits from the sale of full-length albums. In 2010, the year CD sales dropped to barely 50 percent of revenues, digital download singles comprised nearly half that amount, at 20 percent.
In other subsets of the media industry, the issues are inherently the same. Gabe Newell, founder and CEO of Valve Corp., an electronic entertainment and distribution company, stated in an interview in November with online magazine The Escapist that piracy is a service problem, not a cut-and-dried matter of copyright infringement, which content creators must challenge head-on through innovation.
"We think there is a fundamental misconception about piracy. Piracy is almost always a service problem and not a pricing problem," Newell said. "If a pirate offers a product anywhere in the world, 24/7, purchasable from the convenience of your personal computer, and the legal provider says the product is region-locked, will come to your country three months after the U.S. release, and can only be purchased at a brick-and-mortar store, then the pirate's service is more valuable."
Newell went on to say that prior to launching his proprietary content delivery service, Steam, in Russia, he was told the move would prove a disaster due to the country's reputation for rampant software piracy.
And yet, "Russia is now about to become [Steam's] largest market in Europe," Newell said.
The implication, then, is that shifts in technology and the media industry's attempts to play catch-up have factored into the waning revenues of music companies as much as piracy. Even strong traditional content supporters such as Cooper acknowledge that "a bridge to new business models" is sorely needed in order to compete. But if that bridge is built with legislation that gives media corporations undue power and, in the process, stifles freedom on the Internet, the cost might be too high.
Google recently estimated that the percentage of so-called website "takedowns" by the Department of Homeland Security pursuant to the DMCA that are erroneous is just under 60 percent. Even without SOPA and PIPA, Homeland Security's chief Internet enforcement agency, Immigrations and Customs Enforcement, is responsible for the enforcing these takedowns, often without following the DMCA to the letter.
That ICE has jurisdiction over the Internet concerns Julie Samuels, who points to Schmitz's arrest and ICE's yearlong seizure of a hip-hop blog called Dajaz1.com without due process as disturbing signs that even without SOPA and PIPA, the government is doing what it wants anyway, whether or not it's in the best interests of content creators. Last week, Wired reported, U.S. authorities were able to shut down sports-wagering site Bodog.com — even though its domain name was registered with a Canadian company.
And, she warns, the fight isn't over.
"Let's be clear," she says. "SOPA and PIPA aren't dead. I would be shocked if they were retooled and brought out before the 2012 elections, but they are still very much in play. Sure, they won't have the same names of 'SOPA' and 'PIPA' when we see them again, but they'll come back. Bills like this always do."
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