Digital Music and Piracy Relationship

Introduction

The development of the digital music industry and the Internet is inevitably associated with the spread of piracy and illegal use of copyright materials. Major record labels have struggled with various platforms but often failed. They aimed to achieve maximum profit by protecting their materials with legal standards and creating their digital music retail services. However, Apple has managed to present iTunes as a revolutionary music distribution model, which has become a successful alternative to piracy. More advanced technologies have provided access to streaming services in the modern world, which, by subscription, give users access to an unlimited amount of music content. However, pirates also received enhanced capabilities, which led to the spread of stream-ripping and an increase in the download of illegal materials. Although iTunes is now also replaced by the Apple Music streaming platform, the service has managed to create a certain consumer culture which may be relevant in the modern environment.

Digital Music Industry Development

Napster and the Beginning of the Fight Against Music Piracy

The problem of unauthorized use of digital music files was raised in the early 1990s. Illegal downloading and distribution of music began in 1999 with the creation of Napster (McIntyre, 2018). This service allowed the easy exchange of copyrighted materials and attracted over 70 million users (Sun, 2019, p. 98). Napster used peer-to-peer technology, which was not innovative; however, the service focused specifically on music files sharing, which made it popular. Illegal distribution posed an immediate threat to the music industry. Therefore, after a year, the music record labels decided to eliminate the platform. Major industry companies, including Sony, Universal A&M, and others, filed lawsuits against Napster and other similar services, even musicians’ sites (McIntyre, 2018). In the case of A&M against Napster, the court declared that the platform “was liable for contributory and vicarious infringement of copyright” (Sun, 2019, p. 98). Despite the existence of the service to the present as a legitimate streaming service, it has lost its former popularity.

The new era of digital music distribution has set new challenges for record labels. Users who had already tried access to unlimited libraries with services such as Napster could no longer return to traditional ways of consuming music. Thus, the music business had to find ways to expand its control in the digital environment. The labels sought to eradicate piracy through legal measures, including lawsuits against services and users, as well as public relations campaigns (Sun, 2019). Various technological protection measures have also been used to defend music copyright owners. However, these measures did not have a significant impact on the illegal distribution of materials. Thus, the labels tried to develop their legal standards for the regulation of the digital market, as well as to introduce their services. These approaches were aimed at preventing digital platforms from replacing record labels.

Legal Standards

An attempt to establish legal standards dates back to 1998 when the Recording Industry Association of America (RIAA) filed a lawsuit against Diamond Multimedia Systems. The association claimed that the manufacturer of MP3 player RIO violates Audio Home Recording Act (AHRA). This act limited the mass copying and distribution of digital files. However, the court dismissed the RIAA’s claim because “the Rio cannot make copies from transmissions, but instead, can only make copies from a computer hard drive” (cited in Sun, 2019, p. 100). After an unsuccessful case with Diamond Multimedia Systems, the association decided to establish its methods of control over the digital music market.

In 1999, the RIAA formed a coalition that included record labels as well as electronics manufacturers and companies involved in IT. Together they developed and launched the Secure digital music initiative (SDMI), “aiming at developing open technology specifications that protect playing, storing, and distributing of digital music” (Lin and Abdulla, 2015, p. 177). The project included the use of special watermarks embedded in music files and devices for their reading for technological copyright protection. Thus, the use of any materials which are not approved by this initiative would be impossible. However, the desire for a monopoly over digital music distribution has collapsed due to the failure of all participants to consolidate efforts. Thus, the quest for legal control of the expanding market was unsuccessful, requiring record labels to develop a new approach.

Legal Digital Music Services

Major companies in the music industry could not just reject their ambitions. However, they decided to change their strategy, abandoning legal control in favor of their digital services. MusicNet and PressPlay were the first such platforms created by record labels. However, “nobody could figure out exactly what a legal digital music industry was supposed to look like” (Smith, 2018). New attempts were based primarily on the more complex technologies of the time, the principles of digital rights management, as well as the Digital Millennium Copyright Act (DMCA) of 1998. The DMCA was primarily aimed at protecting providers if users use unauthorized materials; it also focused on encouraging copyright holders to expand user access to files and protect them from illegal use (The Digital Millennium Copyright Act, n. d.). Although the act intended to limit digital music piracy, it met with criticism.

The main complaint about this method of protection is that it stifles innovation and research related to digital technologies (DMCA, n. d.). Nevertheless, the right of providers to be protected from monetary damages in the event of users posting unauthorized materials is an important milestone in the development of digital distribution. Copyright holders can quickly restrict access to information which is allegedly infringing on a copyright. Without this measure, many providers would be limited in the transmission of content. Moreover, the act assumed responsibility for the illegal use of materials, which also had a positive effect on the fight against piracy.

MusicNet and PressPlay were created by major labels such as Universal, Sony, Bertelsmann, EMI, and Warner. Thus, these platforms had an advantage in the distribution of the main catalogs of record labels. However, restrictions associated with digital rights management, as well as inflated prices, did not make them popular (Sun, 2019). There were also platforms EMusic and Rhapsody, independent of major labels, with much lower limits. However, major labels refused to work with them, which significantly limited the variety of catalogs presented in them. Thus, none of the platforms was viable and could not satisfy the needs of users. The main complicating factor in this struggle was the technological base in the form of competitors Microsoft and RealNetworks (Smith, 2018). Both companies developed streaming methods and provided various major labels services. RealNetworks received $ 761 million in compensation from Microsoft in 2003 (Smith, 2018). This conflict was largely responsible for the failure of early legal digital platforms. Thus, the competition of major labels and the focus on selling their digital content did not allow the industry to develop.

Apple’s Impact on Digital Music Industry

Steve Jobs became the first person to offer a solution which all record labels could agree with. It is noteworthy that it was a technology company, not a music company, which revolutionized the industry. Major labels turned to Apple after the growing popularity of their new development, the iPod (Sun, 2019). The technology also included an integrated iTunes library, which seemed promising. From the experience of the Walkman, a once-popular Sony product, labels realized that sharing a music catalog and a device could be effective. Thus, in 2002, major labels asked Jobs to help develop a technology which would be compliant with accepted standards. The discussion then did not bring the expected effect, but after a while, Apple returned with their proposals for the development of the industry. Together with Warner, they build a new infrastructure to provide access to all catalogs. Jobs considered all the problems which the labels faced during the fight against Napster and convinced the three major labels to license their products to iTunes. Sony joined later as it was still using PressPlay at the time and could be a competitor.

iTunes first launched in 2003 and was a great success with one million sold music tracks within the first week. First of all, the new platform offered a wide variety of materials, which included the products of major labels. It is also important that iTunes offered users more convenient ways to find and download files, which was also an advantage. Apple allowed transporting music to a variety of devices, which improved the user experience. Thus, an innovative approach to increasing the level of usability of the service is the reason for the success of the platform along with the wide choice. Apple thought not only about sales but also about user comfort, which was an extremely positive difference between iTunes and its predecessors.

An important aspect of the music industry, however, is the profit from the sale of tracks and albums. This factor has become the most important not only in the growing popularity of the platform but also in the formation of a new type of digital music industry. Labels forced consumers to buy music material from albums to boost sales. However, for many, the price became a significant reason for illegal downloading and use of files. Apple decided that “the pricing structure of the music store was pretty simple, they would charge 99 cents per song” (Carter, 2020, p. 15). Moreover, the company took 22% for retail, and 67% remained with the label, which distributed it to publishers and artists (Carter, 2020, p. 15). The pricing policy of iTunes began to attract a large number of users since a track for less than $ 1 “became an acceptable impulse purchase” (cited in Sun, 2019, p. 106). Despite label doubts about the effectiveness of such a solution, Apple soon became the largest retailer of digital music in the world.

The company’s unconventional approach has changed not only the behavior of consumers of music content but also the framework of sales of music material. Fig. 1 illustrates the shift in recorded music sales from 1973 to 2020 by format. The chart clearly shows that there has been a significant increase in sales of digital content since 2004. Moreover, album sales were gradually declining, while singles, on the contrary, dominated. Additionally, sales of CDs and ringtones have dropped significantly, as well as of vinyl. Thus, one can see a correlation between the launch of iTunes and the increase in consumption of legal digital music.

iTunes has long been the most influential and successful digital music retailer in the world. Apple has not only managed to connect the consumer with the artists but also shown labels that it is possible to make money from digital music effectively. While iTunes hasn’t stopped piracy entirely, the platform has given many people the ability to pay for legal content, which they have long lacked (Naughton, 2019). Apple saved labels from incompetence and futile attempts to promote their products but also gained colossal control over the industry. Naughton (2019) notes that music file-sharing has been a catalyst for the growth of the Internet, and the company has managed to get this segment. The labels had no alternative but to partner with iTunes, as the platform offered the only way to profit from digital music distribution.

Despite Apple’s significant success in the fight against piracy, iTunes also had opponents. The platform’s use of protection against unauthorized use of materials has attracted some criticism. Some have argued that the system discourages competition and leaves no choice to consumers (cited in Sun, 2019). However, the company replied that it would only fulfill the requirements articulated by labels which want to protect their content from piracy. These claims did not go unnoticed, as gradually, the share of protected music content in iTunes decreased by 80% by 2009 (Sun, 2019, p. 107). Additionally, Apple has also been accused of prioritizing the interests of major labels, even though iTunes provided a platform for promoting independent artists.

The closed system within which the service operated was also an obstacle to the distribution of iTunes. Thus, many people who did not use Apple products were left unengaged in the platform’s activities. This circumstance did not allow Apple to combat piracy and distribute legal digital music content fully. Therefore, the company was often accused of lobbying its interests and imposing its own devices on consumers. Given that iTunes was the only retailer of legal music at the time, the claims could be fair. However, this soon became the reason for the development of other platforms, which later evolved into more advanced and modern technologies.

The iTunes model in which people pay a small amount for each song has given way to a subscription with unlimited access to the material. People in the modern world download music less than buy physical albums (RIAA, 2018). The development of streaming services has made iTunes an irrelevant and obsolete platform. Until the closure of the service, Apple tried to add new features to it, which users accepted without enthusiasm (Roose, 2019). However, iTunes was once a revolutionary product which became simple and enjoyable for users and lucrative for labels. Apple’s efforts have been able to save the digital music industry by attracting people to buy legal content. The platform became an alternative to piracy, which the industry has fought for a long time. It managed to “consolidate the libraries of the major record labels into a place where people could access high-quality music without having to pirate it” (Callahan, 2019, para. 8). However, even its dominant position in the industry did not allow Apple to eradicate the illegal use of musical materials.

Digital Music Piracy

Stream-Ripping

Currently, streaming services such as Spotify, YouTube, Tidal, Deezer, and others are the most popular platforms for using legal music materials. In contrast to iTunes (which has now been replaced by Apple Music), users do not purchase individual songs or albums but a temporary subscription to all files presented in the catalog. IFPI (2020, p. 14) in Global Music Report notes that streaming revenue increased by 22.9% in 2019. Moreover, it currently occupies over half of the digital music market (IFPI, 2020, p. 14). Music downloads occupy just over 5% of the market, and revenues from it decreased by 15% (IFPI, 2020, p. 14). These numbers identify a shift in consumer habits which ushered in a new era in digital content distribution.

In this situation, when a user can get access to any musical material for a reasonable fee, piracy inevitably has to disappear. However, the proliferation of new technologies provides not only more comfortable access and wider choice but also new ways for the illegal use of materials. In 2018, about 38% of users downloaded and used digital music files obtained by illegal methods (Snapes and Beaumont-Thomas, 2018, para. 1). In recent years, the phenomenon of stream-ripping, a type of piracy specific to the content of streaming platforms, has become widespread. This term means “music piracy where users transform a file from a streaming site like YouTube or Spotify into a downloadable copy” (Kelley, 2019, para. 2). This type of illegal use of digital music occupies 32% of all music piracy, making it the most popular (Snapes and Beaumont-Thomas, 2018, para. 2). Despite the relatively low prices for using streaming platforms, many users find reasons for piracy.

Stream-ripping is currently a major problem in the music industry. The article by Music Business Worldwide (2019) provides figures illustrating the amount of profit loss from music piracy. The authors give an example of three albums created by Ed Sheeran, Kanye West, and Lady Gaga, which in total were illegally downloaded more than 1 million times in one month. In just one month, the music piracy of three albums was estimated to have caused the industry approximately $ 10 million in losses (Music Business Worldwide, 2019, para. 12). Among the main reasons for music piracy is unwillingness to pay for a subscription or the desire to download music for offline access. Most streaming services offer ad-free or offline music listening by subscription only, which may not be suitable for some people.

Most often, stream-rippers copy files from YouTube, which is impossible in the case of large streaming platforms. In contrast to previously widespread torrent sites, where users could download illegal content, this method assumes access to already posted materials and not a structured archive. About 35% of those who unsubscribe from streaming services cite YouTube as the top source of the content they need (Snapes and Beaumont-Thomas, 2018, para. 10). New amendments to the legislation of many countries oblige the platform to protect copyright at the request of the copyright holder. However, this measure is unlikely to stop the stream-rippers since they use the materials already posted.

The current situation is negative, as the pace of piracy is growing every year, contrary to expectations. In this situation, one should recall the experience of Apple and iTunes, which offered users not subscriptions but tracks and albums. This claim can be illustrated by the example of China and their digital music market. At the moment in the country, more than 96% of users listen to licensed music through streaming services, while in 2011, almost 99% of users used music piracy (Tsoi, 2018, para. 4). The Chinese market for streaming services is not as large as in the US, where most of the revenue comes from subscriptions. The peculiarity of Chinese streaming services is that users buy albums and tracks. Only 3.5% of Chinese people pay for a subscription to such platforms, while half of Spotify users in the US prefer this method (Tsoi, 2018, para. 20-22). Chinese “Tencent Music only derives about 30% of its revenue from online music services, and the rest comes from music-centric social entertainment services” (Tsoi, 2018, para. 26). Thus, this model makes music valuable, not content which users consume.

Tracks and Albums Instead of Subscriptions

Apple once offered an effective solution to the problem of piracy, but due to the limitations of its system, they were unable to distribute it. Perhaps the current situation can also be solved by applying the Steve Jobs model. The fight of labels with Napster, and later with other illegal services, was largely ineffective because they tried to impose their products on people. iTunes allowed listeners to communicate directly with artists through the purchase of their tracks and albums. Thus, the artist’s activity acquired a certain value for people. They could purchase digital copies of music for personal use and thus thank and support the musicians.

With the proliferation of subscriptions, users are purchasing content, not music per se. They have access to an unlimited amount of music, which devalues ​​it to some extent. Moreover, they only temporarily acquire materials without permanent access to them. These facts distance the listener from the musicians, which explains the spread of piracy. A subscription system is not a way to bring artists and audiences closer together but just a method to sell content. This circumstance was also relevant for major labels in the 90s when they were looking exclusively for profit. iTunes has become a popular platform precisely because of its attention to the needs of users, not only in the form of a user-friendly interface but also by providing a way of communication. People downloaded music to their devices and had constant access to it. The materials had a specific value in the form of a fixed price and a connection with the musicians. Apple has managed to create a consumer culture which respects digital content and copyright.

Conclusion

Digital music content is inevitably subject to illegal copying and distribution. Although the fight against this phenomenon has been conducted for a long time, only Steve Jobs has been able to offer an effective model for reducing piracy in this area. However, the proliferation of modern streaming platforms and subscription-based access to content poses a new threat to the music industry. Thus, in modern conditions, it is necessary to revise the approach to the existing distribution strategies. The iTunes example may be relevant in current circumstances, as it represents the most effective model for adding value to music materials.

Reference List

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