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RIAA piracy arguments, figures just don't add up

The Song Remains The Same (Led Zeppelin)
Sun Apr 20 2003, 21:08
ON APRIL 9TH the RIAA and its international counterpart, the IPFI released press statements with regard to music sales in 2002 and it almost goes without saying that the sales level had fallen from 2001. In this case the IPFI claims an 8% drop in units worldwide and 10% fall in US unit sales.

Not withstanding the fact that the RIAA itself says the drop in the USA was only 9% we still have the usual problem that, like an annoying tune that keeps running around in one's head, yet again the RIAA and IPFI have both blamed music piracy for all their ills - and yet again we question this assertion.

It is sometimes forgotten that these two bodies are "sales organisations" that act on behalf of their member companies. These two act to protect the interests of their members even if it means acting in opposition to consumers' desires, and like many sales organisations their comments are often a mixture of half-truths and distortions, sometimes even verging on outright lies.

In an earlier article here in The Inquirer we discussed previous statements of the RIAA with regard to lower sales and piracy. This article showed just what lengths they were going to in order to protect numerous external factors from impacting their business.

Their questionnaires showed deliberate bias in their target subjects and then applied bias to their responses. Their assertions of the impact of piracy were shown to be baseless as was their understanding of the impact of music downloading. They ignored alternative uses for recordable CDs and ignored the fact that concert sales were down, CD prices had risen, artists are deserting the onerous contracts with record companies and moving to independent labels, that other forms of entertainment were competing against them for the consumer dollar and that the slump in economy may have reduced the spending on CDs.

Some things don't change.

The latest IPFI press release ( here) about the global market starts with the paragraph "World sales of recorded music fell by 7% in value and by 8% in units in 2002. Mass downloading from unauthorised file sharing on the internet and the massive proliferation of CD burning continues to be a major cause of the fall in CD sales globally, combined with competition from other entertainment sectors and economic uncertainty on consumer spending."

Three paragraphs later they again acknowledged that the music industry was also having to compete with increased sales of other entertainment formats such as DVD films and new video game consoles, but then ignored these other causes in the remaining eleven paragraphs of their statement.

Unfortunately for their hypothesis, the fall in music sales were not universal with unit sales increasing by 4% in France and being essentially unchanged in Norway, Italy, Portugal and the UK. Singapore also saw sales growth when, as a technologically advanced country, the IPFI probably expected piracy there to increase.

On the other hand they asserted - without substantiation - that an estimated 236 million CDs were burnt in Japan during 2002 against legitimate sales of 229 million CDs. Very noticeably they failed to explain why CD sales in that country fell by only 9% when their estimated level of piracy would suggest a much greater drop.

The RIAA might also like to explain why their sales are falling but the independent record companies are thriving, as reported here here, in an article from the Christian Science Monitor on April 11th, a mere two days after the IPFI made their sales statement.

They might also like to explain why sales of country music albums climbed by 12.2% in 2002 whereas total sales of music fell. Are they perhaps claiming that people who like country music don't burn CDs?

At first glance the sales figures from the RIAA and IPFI may appear to be reasonable but other figures from the USA tell a different story.

Nielsen-SoundScan is an organization that tracks music sales from barcodes at checkouts. Depending on your source of information (as shown here) they either said that in 2002 the sales of CDs fell 8.8% to 649.5 million (from 712 million in 2001) or they fell to 624.2 million in 2002 from 688.2 million in 2001.

By contrast the RIAA says that the number of CDs shipped in 2002 was 803.3 million, down 8.9% from 881.9 million.

Even taking the highest of Nielsen-SoundScan's figures, that is a discrepancy of 153.8 million or almost 20% of the figure given by the RIAA. The percentage difference for 2001 is almost the same and yet there is nothing in the "source of sale" figures shown in the RIAA's 2001 Consumer Profile (see this PDF) to explain this difference; there is no obvious method of sales that Nielsen-SoundScan might not monitor that accounts for almost 20% of units sold.

The RIAA is trying so hard to assign the blame to external forces that they have not published the number of new releases for each year since 1999 and in fact even that earlier information is no longer available on their website.

George Ziemann of Mac Wizards Music published a lengthy criticism ( here) of the RIAA and in a subsequent follow-up report ( here ). He discovered those earlier figures for new releases from the RIAA but resorted to an article on the RIAA's webpages ( here) where it clearly states "Each year, of the approximately 27,000 new releases that hit the market, the major labels release about 7,000 new CD titles…" for his calculations. He concluded - not unreasonably in the circumstances - that this 30.5% reduction in new releases would go a long way to explaining the decline in music sales.

"Nonsense," said the RIAA " we haven't released an official tally of new releases since 1999."

It seems that the RIAA is expecting us to believe that music sales have fallen but they are not willing to indicate their level of commitment to new releases. Perhaps they fear that if we saw these figures we might draw unfavourable conclusions about the actions of their member record companies.

Fortunately we have the data for 2001 and 2002 from Nielsen-SoundScan to rely on, and so in the manner used by Ziemann we can look at the last 6 years of music sales.

CD shipments in million units (data from RIAA)
% change to prev col
New Releases (data from SoundScan)
% change to prev col

From this table it seems clear that new releases are not a significant part of the music business. In 1998 and again in 2000 a reduction in the number of new releases was accompanied by an increase in total sales. In 1999 a large increase in new releases was not matched by a large increase in total sales, but equally a drop in new releases in 2001 was not met with commensurate drop in total sales.

The conclusion from this multi-year study must be that it is unlikely that any piracy of new releases is having the kind of impact on total units shipped than the RIAA would have us believe.

Despite this, the RIAA and the IPFI continue to be adamant that music piracy is the cause of all their ills and they cite especially the case of people copying CDs for their friends or downloading music tracks from the internet.

Previous statements from these organisations have linked the sales of CD burners and recordable CDs directly to the level of piracy and they have refused to accept that these CDs have other uses.

They may well still be doing this in order to arrive at their estimates of piracy, such as the current claim that 236 million CDs were burned in Japan during 2002 against 229 million that were legitimate sales. Apart from this being inconsistent with their claim that the Japanese CD market fell 9% (when on their figures we should expect far more) it also ignores the fact that digital photography is big business in Japan and that the only practical way to archive these images is on CD.

Interestingly the RIAA's website contains an end of year report ( here) on the state of music sales in 1997 when the number of units sold dropped by 6.5% and the dollar value of those sales dropped by 2.4%.

"The industry is responding to a smaller, but healthier retail base," chortled RIAA President and CEO Hilary Rosen. "We're adapting to tighter inventory controls at retail, to a pipeline that can deliver product to stores faster than ever before, and to changes in direct and special markets. Our yearend figures show us that retailers are purchasing more efficiently and selling more consistently throughout the year. They're managing their inventories effectively -- the return of unsold product to manufacturers is down 5%. And, sales are clearly up."

Oddly enough when the declines in 2001 were almost identical to those in 1997 - 6.4% and 2.3% respectively - the RIAA claimed it was all due to the dastardly deeds of downloaders.

It really is very difficult to concur with the RIAA and IPFI that piracy is the cause of the drop in sales in 2001 and 2002. Personally I see just a few external factors as having some influence on the situation but most of the problem lying with the RIAA and the record companies that it represents.

In their recent statements these organizations have paid lip-service to the fact that the economy of most countries are not in good shape and that music must compete with other forms of entertainment such as movies, computer games, web-surfing and DVDs. These factors seem to be too ephemeral for the RIAA to attack and unfortunately for their own credibility they aim at their only target, the proliferation of recordable CDs and CD burners.

It is true that the economies of most countries are not in good shape, that many people have been retrenched and others have had to suffer a drop in salary. Spending on music is "discretionary spending", the kind of spending that takes place only after paying for the more essential things in life, like accommodation, food, clothes, electricity, water and so on. When income drops it is the discretionary spending that suffers first. The drop in music sales started in 2001 and this correlates very well with the general decline of the economy.

In particular this slump appears to have hit the 14-19 year age group if the RIAA's 2001 Consumer Profile ( here ) is anything to go by. Throughout the early 1990's this age group accounted for about 17% of total music sales but in 1999 this figure dropped to 12.6%, down from an already decreasing 15.8% the previous year. In a similar fashion the sales to the 30-39 year group have fallen from a total of 24% in 1998 to an almost constant 20.5% for the period 1999-2001.

By far the bigger factors appear to be caused by the RIAA and the record companies.

Since 1997 the decline of shipments of CD singles and cassettes amounts to $1.56 billion worth and yet in the same period the total music sales have only increased by $337 million. These two products accounted for 29.8% of all music sales in 1997 but that has slipped to just 4% in 2002. Certainly there is some degree of chicken-and-egg between the record companies and the consumers but certainly CD singles are a form of sampler which can induce buyers to seek out the full album.

It could also be that the introduction of CD anti-piracy methods have alienated the consumers. There is anectodal evidence that that some of the protected CDs do not play correctly even on normal CD players and there is consumer unrest that even when a CD is purchased it cannot be played in the format of choice or the medium of choice. Forget the ability to play the CD in the PC's CD drive while doing other computing; forget also the idea of transferring it to MP3 either for personal listening or playing in the car while travelling. In both cases the consumers are saying "Never again" and they are looking elsewhere for their music.

A common complaint in web-forums about the topic of web-piracy is that music has become bland, relatively uniform and unappealing. This might seem a subjective argument but there is good evidence to back up such a notion.

In 2002 the top 10 CD albums sold a total of 38.7 million copies, with sales figures for those 10 ranging from 7.6 million down to 2.7 million. This compares with 2001 when 40.3 million copies were sold and the corresponding range was 4.8 million down to 3.1 million. (see here and here.

By contrast the top 10 CD albums in 2000 ranged from 9.9 million copies down to 3.8 million. Apart from that 9.9 million seller a further 6 albums had sales exceeding the 7.6 million number one seller of 2002. The total for just these 8 albums that I have mentioned is almost 59 million copies and we can estimate that the top 10 albums for 2000 must therefore have been about 65 million - which is a far cry from the 38.7 million for the top ten in 2002.

The correlation between the number of new releases and the change in top ten album sales is very interesting. In 2001 there was a reduction in new releases of 10.6% and a drop in sales of about 25 million units compared to 2000. In 2002 there was an increase in new releases of 5.4% but a drop in sales of 1.6 million CDs.

Further to these sales figures, the top 10 albums for the period 1991-2001 range in sales volumes from 14.1 down to 10.3 and totals some 117.8 million CDs - but not one of those CDs appears in the top ten for 2001.

In a lengthy and realistic discussion of the issues facing music retailers the International Council of Shopping Centers commented ( here) in March 2003 that Nielsen SoundScan observed that up to 1 December 2002 the current album sales declined 11.7% while catalogue (more than 18 months in release) was down only 8.6% and "deep catalogue" (more than 36 months) was actually up by 6.5%.

On top of this, the RIAA's Consumer Profile ( here ) notes that the 40+ age group accounted for 34% of sales in 2002 and 34.1% in 2001, up from 26.4% in 1998 and even less in previous years. In fact across the 8 age groups noted in the table only this older group has registered any increase between 1998 and 2001.

There is no escaping it - young people are losing interest in the music that is currently on offer. It seems that the record companies are having serious trouble when it comes to picking winning albums, those with significant appeal.

Or perhaps the RIAA would have us believe that all would be rosy without CD burners and the decline in sales of almost 30 million albums is entirely attributable to downloads?

The record companies blather about the risks they take and the millions of dollars that it costs them to record and promote new artists but for my money that is their problem. If they elect not to be in that business then I am sure that the independent record labels will be more than happy to take over the role.

The galling thing is that the RIAA could do more to reduce costs if only they adopted the new technology. Their attitude to technology is simply inconsistent.

They were more than happy when CDs were first introduced. They worked hard to convince us to move to the new format, claiming in their accustomed sales manner that CDs were superior. They were more than happy to see us buy CD copies of all our old vinyl records but now that recordable CDs have become available they are singing an entirely different song because the medium is slipping out of their control.

As regards the internet, on its own web page ( here) it comments "Compression breakthroughs have made it easy to quickly download and distribute music files. This distribution can allow consumers to discover and follow new bands and to meet other fans with shared interests. This is great for the music industry: fans, artists and record companies alike." but having painted this picture, they then comment that it is crucial that the artists who produce the music are not taken advantage of.

Now the member companies of the RIAA must by their nature be involved with the logistics of distribution of the recorded material. They must produce the recorded material, maintain warehouses of it, extract the stock, package it and ship it to the distributors.

How much easier and cheaper it would be if the material could be downloaded from the web - perhaps even with the artwork - and let the consumers do their own packaging. No distribution logistics to worry about, no handling of the product, a library that could be held online for immediate access.

In an article reprinted on the IPFI website, Miles Coupland writes "The accusation that record companies have been slow to respond to the Internet may be a valid one, but there is good reason for this. We can't figure out how to make a business out of it, pay royalties (honor the contracts we already have with the artists) and not lose our shirts. The funny thing is, NEITHER CAN ALL THE INTERNET GENIUSES [his capitals]. They are going bankrupt, left, right and center."

By contrast, KaZaA has claimed that it can distribute music over the web and yet ensure that payments are made to the relevant parties. They say that they have achieved this with computer games and can do it for music.

Perhaps the solution lies with the RIAA and IPFI buying KazaA and using the technology for their own purposes. Perhaps however the members of those organisations would not be happy to see much of their infrastructure be made redundant.

One thing is for sure, we will see a lot more "spin" from the RIAA and IPFI before this is settled and the consumers are almost certainly those who will suffer.


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