NYTimes.com
Fighting the Idea That All the Internet Is Free
September 9, 2003
By STEVE LOHR
With the club of lawsuits and the olive branch of an
amnesty program, the music industry is waging a campaign against online piracy that relies on both public relations and economics to attack the idea that everything in
cyberspace can be free.
That will not be easy. The Internet sprang from a research
culture where information of all kinds was freely shared.
That mentality still resonates with the millions of
Internet users who routinely download music onto their
computers. But the emphatic message of the music industry’s two-step program announced yesterday is that the days of plucking copyrighted songs off the Internet without paying for them are numbered.
The Recording Industry Association of America said
yesterday that it had filed 261 suits against online music
pirates, and it promised thousands more. Under its amnesty program, contrite file sharers who have not yet been sued will be spared if they erase their illicit music files and promise never to do it again.
“These lawsuits certainly tell consumers that `free’
ultimately has a price,” said Michael J. Wolf, managing
partner in charge of the media practice at McKinsey &
Company, a consulting firm. “Originally, there was this
perception that consumers would not pay for content -
entertainment or information – over the Internet. But that
perception is changing.”
Mr. Wolf observed that in their own way all media companies will have to confront the overarching issue that the music industry is grappling with: how to respond to the challenge of digital distribution and find a profitable business model. “Nobody is immune,” he said.
For the struggling music industry, there are at least some
encouraging signs. Raising the price of illegal file
sharing, according to a recent research report, could have
an impact on the behavior of today’s carefree music
downloaders.
In the United States, about half of all young people ages
12 to 22 with access to the Internet have downloaded music from file-sharing networks like KaZaA and Morpheus, according to a survey conducted by Forrester Research in July. Of those, 68 percent said they would stop downloading music if there was a “serious risk” of being fined or sued.
“If the issue is, can you scare people? The answer
definitely seems to be yes,” said Josh Bernoff, an analyst
for Forrester Research.
Yet scaring the customers is a tricky strategy for the
music industry. Other industries, to be sure, have sued
customers who misuse a product or service. The software
industry, for example, has long waged a campaign against
people who illegally copy or use software, and the credit
card industry has aggressively pursued people who commit fraud with their cards.
But the problem group in other industries typically
represents a small portion of potential customers. In the
music industry, by contrast, young people are the most
active users of music file-sharing systems and they
purchase more CD’s per person than older music listeners.
In beginning the crackdown campaign yesterday, Cary
Sherman, president of the Recording Industry Association,
took pains to portray the step as one reluctantly taken to
protect the livelihoods of gospel singers, pit musicians
and record store clerks – not just record executives and
millionaire divas.
The music industry’s actions yesterday dealt with one side
of the economic ledger: raising the cost of illegal file
sharing.
But the industry, according to analysts, must pay at least
as much attention to its own economics if it is really to
address the challenge presented by Internet file sharing.
The industry, they said, must provide convenient,
reasonably priced and legal ways to download music
digitally, and reduce the price of CD’s. As positive steps,
they point to Apple Computer’s iTunes service, which allows users to download songs for 99 cents each; Real Networks’ Rhapsody online music service; and the decision last week by Universal Music Group, the largest record company, to cut wholesale prices on CD’s by up to 30 percent.
“The industry has to increase the price of illegal file
sharing and make it more attractive to download music
legally or purchase CD’s,” said Hal R. Varian, an economist at the University of California at Berkeley. “That is the economic gap the industry is trying to close.”
The music industry’s travails, analysts agree, are in part
self-inflicted – a result of reacting slowly and ineptly to
the challenge of Internet file sharing. Still, other media
industries face similar issues. Movies and television
programs, though nothing like music yet, are beginning to
be distributed over file-sharing networks.
“The movie industry and broadcasting is obviously watching
this playbook with great interest, wondering if someday
they may have to do the same thing,” said Harold Vogel,
president of Vogel Capital Management, an investment firm
specializing in media companies.
Hollywood has far more time than the music industry to
adopt business alternatives, like Movielink, which allows
users to download movies legally. Movie files are much
larger than music files, so downloading a film over the
Internet is still inconvenient and time consuming. But the
barrier to widespread movie file sharing will drop as
Internet connections to homes continue to get faster.
Part of the challenge facing not just the recording
industry but all media companies is how to deal with the
lingering perception that the Internet is somehow a free
resource. It never was, of course. In the early days, the
government and universities subsidized it. E-mail continues to be free to users, though one unintended byproduct is the spread of spam, an irritation to consumers and a costly burden to corporations and network operators handling Internet traffic.
Most commercial Web sites still do not charge for viewing,
though some do, and others charge for “premium” offerings.
“It was never really free,” said Thomas R. Eisenmann, an
assistant professor at Harvard Business School. “The hope
was that advertising would pay for everything. That’s not
necessarily a flawed model. It has just been a lot harder
than most people thought.”
