The RIAA Plays Whack-a-Mole

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It really shouldn’t be a surprise, the news this week. Having exhausted all the potential alternatives – save a thorough reexamination of its business model and specific value offering to customers – the Recording Industry Association of America (RIAA) announced this week that it intends to begin suing individual file swappers, AKA its members’ customers.

This move is the product of a gradual escalation of legal hostilities, beginning with the Napster suitand culminating in yesterday’sthreats that target everyday, ordinary people who download and swap files. RIAA plans to begin targeting ordinary users of P2P services, not just those offering up content on a massive scale, like the students prosecuted a few months back. Basically, it’s ordinary folks who use Kazaa, Limewire, or other like alternatives who are at risk here.

Before we look at the specifics on the announcement, RedMonk would like to be clear on one point. We in no way contend that artists should not be paid for their efforts, nor that file sharing is implicitly benign. Let us repeat that – ARTISTS SHOULD BE PAID FOR THEIR WORKS. But we also believe that the business model for music, and the pricing of it in particular, needs a major overhaul. As it happens, so did the Federal Trade Commission (FTC). The following is verbatim from a ruling on May 10, 2000,

The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years.

The FTC concluded that the Big 5 record companies – Universal Music and Video Distribution, Sony Corp. of America, Time-Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG) – all of which are RIAA members, colluded to keep CD prices artificially high. How ironic then, that these selfsame firms are now lecturing the consuming public about “stealing.” These “moral” crusaders for artists’ rights aren’t right all the time either – the RIAA was forced to apologize in May for sending inaccurate legal notificationsto organizations such as Penn State’s astronomy and astrophysics department.

But is suing the end consumer really the the end game for piracy, as some in the media and the RIAA would have us believe? In her BusinessWeek commentary piece, entitled “Play Taps for Music Pirates,” Jane Black compares the ongoing strife to the war in Vietnam, but concludes

“In this war, however, the RIAA will win. Spreading fear may not be good PR, but it gets the job done far more efficiently than suing faceless software companies.”

We won’t argue with that assertion particularly since some on Capitol Hill seem to believe that the best route to deter piracy is the destruction of users’ PC’s. Whether or not such an idea is technically feasibleit does make fear uncertainty and doubt all the more palpable. We believe the impact on P2P networks could be significant but sounding the death knell for file trading is certainly premature.

After all, haven’t we heard such a call before? When Napster was sued nearly out of existence, many of these record companies patted themselves on the back and concluded that the status quo could now be maintained. Well, unfortunately for them, demand was still there and therefore so was the supply to meet it, via alternative networks like Kazaa and Gnutella-based tools like Limewire. When the RIAA tried to sue these new players, Judge Stephen Wilson decided the defendants could not be held liable for content traded on their networks. Which brings us to today, when RIAA announced it will sue the only other people in the chain, consumers themselves.

But what’s really missing in all of this, as the Los Angeles Times notes, is a positive message, an alternative solution aimed at addressing consumer desires. Rather than understanding the motivations that drive consumers to download music – $20 discs with 2 good songs, for one – it’s their way or the highway. The highway, of course, being multi-thousand dollar fines.

It’s a simple matter of supply and demand. The demand for fairly priced content has not been vaporized along with the services that fed it. It’s still there, and more importantly people are willing to pay, as evidenced by the news that Apple’s iTunes music store had reached 5 million paid downloads. People will find a way, one way or another, to get the music they want. When they shut down Napster, the RIAA lost out on a massive opportunity to address a huge, centralized community of music enthusiasts. Instead their lawsuits spawned multiple decentralized networks which are harder to attack. If RIAA succeeds in shutting down these networks by suing individual file sharers, they might ultimately be killing not piracy – as many have predicted – but their own efforts to shut it down. The demand is still there, and the likely replacement candidates for Kazaa and the like will be some combination of Freenet-style anonymous networks and Waste-style encrypted private networks. All we can say is, if those become popular – good luck trying to shut them down.

So why is RedMonk concerned with this story, being an analyst firmthatspecializes in enterprise software? Well, besides our personal interests in the issue as consumers, we believe that enterprise software vendors like IBM and Microsoft are going to have a lot to say in this arena going forward as they roll out products with Digital Rights Management capabilities. These products have the potential to immensely change the world we live in, for better or worse. And if these firms arelooking for guidance in how to tackle the most controversial consumer technology issue in a generation, we’d rather they take a page from the Apple playbook than the RIAA. The RIAA’s lawsuit-oriented strategy is like a game of Whack-a-Mole, except that the only ones who win here are the lawyers.

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