Music File Sharing

Music File Sharing

HTM 304

Management Information Systems

CRN 42335

Fall 2007

Prepared for:

Fang Fang

December 11, 2007

By:

Caitlin Smith

Stewart Rutledge

Jess Culpeper

1 Music File Sharing

Technology over the past several years has brought a lot of benefits to society and especially to business. E- commerce is almost essential for a company to be very successful in today’s marketplace. However, technology has also brought a lot of drawbacks to society and business as well. People and business constantly have to adapt to the ever changing world and way of life. With the increase of interest in cell phones, personal media players, and laptops, there has come a new interest for new products.

Such products are digital music. Although the interest in digital music has opened many more doors to opportunity, it has also opened many other doors to problems. The music industry has to deal with music piracy and come up with actions on how to stop it. As well as society has to learn the legality of music file sharing and learn about what the issue of music file downloading is and in what ways is it legal and illegal to better protect ourselves as well as behave ethically as possible when purchasing digital music.

Introduction

To first understand why music file sharing is illegal, one has to understand the legalities that protect the music. When an artist or a group makes a song, they

2 usually get it copyrighted. A copyright is “the exclusive right to make copies, license, and otherwise exploit a literary, musical, or artistic work, whether printed, audio, video, etc.” When someone makes a copy for shares a copy of a song, it is breaking the copyright law. When breaking this law it is called piracy, “the unauthorized reproduction or use of a copyrighted book, recording, television program, patented invention, trademarked product, etc.” So how did piracy become such a problem?

Shawn Fanning, a Northeastern University student, created Napster which was a file sharing service that made the way for peer-to-peer file sharing for music. In July of

1999, Napster was made available to the public. People from around the world joined the site and at a rapid rate started downloading music, but never paid a dime. Less than six months later, the music industry wanted to take legal action for violating copyright laws. Metallica, Dr.

Dre, and Madonna all filed lawsuits against Napster. The claims were 1. That its users were directly infringing the plaintiff’s copyright. 2. That Napster was liable for contributory infringement of the plaintiff’s copyright. 3.

That Napster was liable for vicarious infringement of the plaintiff’s copyright.

3 Napster reached its peek with 26.4 million users in

February of 2001. However, in July of 2001, Napster was found against for all three claims and was forced to shut down. A year later, Napster declared bankruptcy and sold all its assets. Napster now is a pay service music sharing service similar to something like iTunes.

Over the years, music file sharing has become a hot topic. Napster is not the only file sharing service that has been an issue for the music industry. Several other sites, such as Kazza, limewire, WinMX, and others, have come about to make file sharing more difficult to crack down on, but they have been trying.

Who is the RIAA

An organization called the Recording Industry

Association of America (RIAA) has become the strongest fighter in the war against piracy, especially illegal music file sharing. The RIAA is an “organization committed to helping the music business thrive.” Their “goal is to foster a business and legal climate that protects the ability of our members.” The members of the RIAA are the members of the recording industry; musicians, producers, record labels, etc.

4 The RIAA is out there to fight piracy. The RIAA considers downloading music without paying or without the bands or artists consent as equally as bad as shoplifting from a convenience store or stealing a woman’s purse right off her shoulder. They are completely correct. Just because the crime does not exactly have an immediate penalty or the likelihood of someone being caught is less, does not make is a lesser crime. It is extremely illegal and someone can be penalized for it greatly, which will be discussed later. The industry is being greatly affected by piracy.

So how much is the music industry actually loosing.

Well according to the RIAA page, it is broken down into two categories. Losses from street piracy which is the manufacture and sale of counterfeit CDs and also losses from illegal online music file sharing. The RIAA estimates that approximately that the United States music industry loses more than $300 million per year to the street piracy.

Calculating the loses from online piracy is extremely difficult, the RIAA does know that the online pirated marketplace largely out numbers the legal marketplace. The

RIAA states “that means investment in new music is compromised,” and “piracy is a very real threat to the livelihoods of not only artists and record label employees

5 but also thousands of less celebrated people in the music

industry.” Basically, the people in the positions such as

the receptionist at the front desk of a record label

company or the record store clerks. “Piracy undermines the

future of music by depriving the industry of the resources

it needs to find and develop new talent and drains millions

of dollars in tax revenue from local communities and their

residents.”

Financial Impact

No matter what side you may be on in regards to this issue, whether you are the consumer, musician, the record label, or any other facet of this interesting issue, the main thing most people are worried about is, how is downloading and illegal downloading going to impact my wallet. Well, it is obviously going to be very different from party to party. The consumer is worried that the record company is going to get fed up with the somewhat out of control downloading and lack of CD sales issue, and either jack up the prices of legal downloads or come out guns blazing on illegal downloaders and levee either heavy lawsuits and/or even jail time. The Musician or Artist is scared that they are not going to make any money due to all their music being downloaded for free and they won’t be

6 able to live out their dreams in that Bentley and huge mansion. The record label is in the business of maximizing profit for their musicians and themselves. If you are taking their music for free, they are not exactly maximizing profit. The record label would like to charge whatever they want for their products, but without absolute power over their product, they are going to have to meet the consumer somewhere in the middle. All these players in this issue need to look at the financial impact of file sharing on them, now and in the future. The fact of the matter is that physical CD sales are down, and digital downloaded music up. Nielsen SoundScan reported that as of

July 2007 CD album sales were down 15 percent during the first half of 2007 compared to the first half of last years record sales. They also reported that the sale of digital tracks had increased 49 percent as compared to last year’s sales. You can see a definite trend there.

People are choosing to get their music digitally more and more. This is really illustrated in the sales figures from the first quarter of 2007. NPD Group reported that

Wal-Mart was number one in music sales with 15.8 percent of the market share, Best Buy came in second with 13.8 percent of the market share, and iTunes came in third with 9.8 percent of the market share. Although the numbers show

7 that a lot of people are still getting their music the old fashion way at Wal-Mart or Best buy, digitally delivered music, in particular iTunes, is fast on their heels. The financial figures are clearly not in the old CD’s favor.

Nielsen SoundScan reported that digital music sales were up

67 percent in 2006 and as we stated earlier are already up

49 percent through the first half 2007 and Strategic

Analytics believes we will see digital sales grow to upwards of 62 percent by the end of 2007 and account for about 2.7 Billion dollars in the music industry. By looking at the numbers from even just the last few years, you can clearly deduce from them that every year digital sales are increasing and the next year is generally bettering each previous year’s sales.

The financial impact of online music file sharing in the future varies, but most analysts say basically the same thing, digital online music is an industry that is going to keep growing. Jupiter Research predicts that by 2012 digital online music sales will account for a third of the music sales market share. They also predict that digital music spending will rise to 3.4 Billion dollars over the next 5 years and that CD sales will continue to decrease.

In-Stat predicts that digital music will account for 26 percent of music sold by 2011.

8 Experts and novices alike, can see financially the viability of the digital online music trend. Digitally downloaded music will definitely financially impact the music industry negatively and positively no matter what side you stand on, but it’s how you react and how one uses the advantages of online music downloading that will really prove one’s exact financial impact.

Impact to the Artists & Record Label

There is no one set impact to musicians throughout the music world, due to the fact that there are all kinds of different musicians at different levels. There are going to be different feelings about file sharing at each level.

There exists a wide spectrum of musicians in the music world, speaking from a financial and exposure point of view. This being the case it is probably easier to analyze the levels at the opposite ends of the music world spectrum. On one side of the spectrum you have an artist or band just starting out, looking for any exposure it can get to further it’s popularity. On the other side of the spectrum you have the mega band or artist(i.e. Metallica,

Aerosmith, Prince, etc.) who needs no exposure, because people already know full well who they are. These artists clearly have different needs. For the small time artist,

9 getting exposure through file sharing is a great way to drum up a “buzz” and to reach people with their music.

Although they may possibly lose money in the beginning of their career, they know that getting their music out will eventually equal success in the long run in a lot of instances. In one lawsuit in 1998, which is one of the many lawsuits the Recording Industry Association of America

(RIAA) has filed in response to digital music file sharing, one of the fans listed in the lawsuit felt he was unjustly being sued. Fred Cohen responded to this lawsuit by saying, "I never understood why they want to enforce those copyrights when it doesn't hurt them. It was great advertising for them," he said. "My site was mostly songs

[that the record labels] weren't marketing themselves.

Plus, I had links to record stores so people could buy the albums. I was never trying to take away sales or screw the record companies," he added, noting that according to a poll on his site, more than half the people who listened to songs on his site followed the links to stores and bought

CDs.

Since 1998, record companies generally understand this point, and realize that this is a good thing for smaller acts. Fans of smaller artists can really help with promotion by file sharing and promoting their favorite

10 bands. These types of activities can lead to more concerts, merchandise sales, ultimatley more revenue for the artist and the record label, thus generally file sharing for the smaller band or artist can have a very positive effect.

This however is generally not the case for the large more well known prominent artist. While they may need to promote their latest album, they certainly don’t want to give it away. They will still see some of the benefits of file sharing such as further sustained popularity leading to higher concert and merchandise sales, but ultimately they will be losing album sales. The bigger and more successful the artist with larger possible album sales, the bigger the threat of file sharing, because they will lose album and revenue sales on a wider scale. The end result is ultimately a potential larger loss of revenue and a potentially financially devasting impact to the larger group or artist.

Impact to the Consumer

Consumer beware! The RIAA has launched a full scale war on illegal file sharing in the form of lawsuits. The latest and most publicized lawsuit the RIAA has levied is against Jammie Thomas. Depending on who you ask, there are

11 many different opinions on this case. Some feel that this was a cheap attack on the consumer. Anticopyright copyright organizations and activists believe this was a viscious attack by the tyrannical RIAA and greedy music labels. While Jammie Thomas has technically illegally digitally shared songs, she is far from the worst offender.

She only had 24 songs available on Kazaa, which is one of the more popular peer to peer file sharing sites. Compared to a lot or file sharers, the amount of songs she had was very low. From the RIAA’s standpoint though, it doesn’t matter how many songs. If you have one illegally shared song, you are breaking the law.

Cary Sherman, President of the RIAA, feels that their lawsuits and efforts against illegal file sharing are really paying off. He feels that since the RIAA has launched their antifile sharing program in June of 2003, that they have yielded some very positive results. He cites several different items to substantiate this.

Sherman goes on to say that digital music revenues have have doubled from 2005 to 2006. In 2005 digital revenue was about 8 percent of the market, where as it was about 16 percent of the market in 2006. Sherman feels that they are also stemming the tide of the illegal consumer with the threat of the lawsuit. In 2003 there were an estimated 7

12 million households illegally downloading music. Today they estimate that there is about 7.8 million households illegally downloading. He considers this a success due to the fact that internet and broadband users have increased from 38 million of home users in 2003 to an estimated 80 million today. So, the number of households have stayed relatively the same, while the use of internet and broadband users have more than doubled. Sherman also feels that the lawsuits are getting the message out there loud and clear. He said that only an estimated 37 percent of users new what downloading music illegally was in 2003, whereas an estimated 73 percent of users understand now, and he believes this is in large part due to the lawsuits.

For the legal filesharer, this has made things a lot more cut and dry. New user friendly advents like iTunes and iPods have given structure to the file sharing issue.

Consumers now know where they can go to download music legally and by the growth of the financial numbers and the music market share, they are doing it a lot more often.

Ultimately, the impact to the consumer is this, if you want to acquire music digitally or otherwise, you’re going to pay for it. If consumer wants to illegally file share, they may get music for free, but they run the risk of legal penalties.

13

Methods of Downloading

Trying to figure out exactly how one would obtain downloaded music files, there is a simple question that person must ask themselves; do I want to download those music files legally, or illegally? There are many different options out there for someone to choose from, but it basically comes down to what type of cost that person is willing to endure, that should ultimately influence their decision. Whether it be paying for a monthly service to access songs, buying songs by album or individual song, or downloading song for free from a peer to peer program, one way or another the consumer will have to pay.

The first method that consumers have to choose from when downloading music, often involves running a peer to peer program. This method of file sharing has been found to be illegal, and poses many threats to the people who use this method. This allows people to share music from one to another via their personal computers. Many programs have exist that allow people to share their music, some no longer exist, but many still are very prevalent today, and are being used by millions. After the fall of Napster, people began to use a wide variety of programs to share music. Those programs include Kazaa, Kazaa lite, Limewire,

14 WinMx, Shareaza, Morpheus, Bearshare, Gnutella, eMule, and

Kademlia just to name a few. Through these programs, users have the ability to share their music files with other users. As well as browse other people libraries to downloading songs they might want. This is all done for free, or so the program users may think. There are many different cost associated with peer to peer file sharing, even though they aren’t immediate, they can be quite pricey in the long run.

One potential risk that can occur when sharing music illegally is that of malware. Malware is software designed to infiltrate or damage a computer system without the owner's informed consent. Some file-sharing software comes bundled with malware such as spyware, viruses, adware, or otherwise privacy-invasive software. Sometimes this unwanted software remains installed on the system even if the original file-sharing software is removed, and can be very difficult to eliminate. In many cases such malware can interfere with the correct operation of web browsers, anti- virus software, anti-spyware and software firewalls; can cause degraded performance on affected systems; and in some cases may secretly compromise a user's privacy or security.

In most cases it is possible to remove adware and spyware by running spyware removal programs. Such programs can

15 often remove malware without influencing the functionality of the file-sharing software. By downloading songs illegally over a peer to peer program, users run the risk of potentially downloading some form of malware. Often times when searching for a song, numerous results will come up. Unfortunately there is no true way in knowing who you are downloading from, and what their intent might be. The best-known types of malware, viruses and worms, are known for the manner in which they spread, rather than any other particular behavior. The term computer virus is used for a program which has infected some executable software and which causes that software, when run, to spread the virus to other executable software. Viruses may also contain a payload which performs other actions, often malicious. A worm, on the other hand, is a program which actively transmits itself over a network to infect other computers.

It too may carry a payload. Persons who decide to file share over peer to peer networks must seriously analyze these risks, and ask themselves if they are ready to accept potential hazards. Is the draw of free music really worth the risk of possibly having some sort of malware ruin their system? Forcing them to spend vast amounts of money to try and fix their systems, or just buy a new one all together.

16 The second threat that can be associated with illegal file sharing is that of possible lawsuits filed against downloaders by the Recording Industry Association of

America (RIAA). Since the beginning of file sharing, the

RIAA has been hard at work to prosecute those who would share music illegally. There are many different view points on how the RIAA has proceeded with their lawsuits, and whether or not they should even be prosecuting individuals. Some feel the RIAA has taken measures too far, that they are excessive and unfair with their litigation. Others still like the fact that their work is being looked after. Whether you feel the RIAA is doing the right thing or not can be a mute point. There are, however, many legal cases to try and back your claim.

One such case occurred September of this year. With assistance from the RIAA, Interscope Records sued Yolanda

Rodriguez over illegally sharing music files. The RIAA accused the defendant, Yolanda Rodriguez, of downloading and distributing copyrighted works, but did not offer any specific evidence or proof of its claims. The case took place in Southern California and was presided over by Judge

Brewster. During the case, defendant Rodriguez failed to appear in court. As such, the RIAA was to be awarded a default monetary judgment. However, Judge Brewster felt

17 differently. He deemed that the plaintiff’s must present at least some facts to show the plausibility of their allegations of copyright infringement against the defendant. Judge Brewster shocked the RIAA by not only denying a default monetary judgment, but also completing dismissing the case for failure to state a claim. Many of those who are against the RIAA felt this would be a record setting case, that the RIAA had lost some of it’s validity by constantly filing charges with no evidence. Those opposed to the RIAA felt this case could be used as precedent to deny the RIAA any future claims against those who file share music illegally. Little did they know how wrong they were.

The RIAA had an opportunity to redeem themselves a month later in yet another lawsuit of file sharing. The

RIAA tried another suit this past October when they filed charges against Jammie Thomas in Duluth Minnesota. This case was a little different then the previous one that took place in California. Instead of being ruled over by a single judge, a panel of twelve jurors was asked to bring down a ruling. In the case, the RIAA claimed that Jammie

Thomas had illegally shared 24 music files over a Kazaa file sharing network. Ultimately the jury found Thomas guilty of file sharing and ordered her to pay $9,250 per

18 song she illegally downloaded and shared. The total amount she has been ordered to pay the RIAA is $222,000. This is no small amount and should be seriously taken into account when someone might want to file share. The RIAA feels this case finally justifies the claims that they have been making throughout the years. They are expected to use this case and their precedent for future filings. Although some feel the amount ordered to be paid was a bit excessive, it doesn’t change the fact that the RIAA now has their launching point to continue litigation against those who choose to file share.

Malware and excessive penalties awarded through lawsuits should be more then enough deterrent to prevent people from file sharing. Fortunately there are alternatives in place that allow for music to be downloaded legally. These alternatives are by no means free, but they do offer the ability to acquire ones favorite songs over the internet and free of vicious malware. Such programs in existence are the very popular iTunes, the new and improved

Napster, Yahoo music unlimited, and MTV.com. Each provides the users with access to various artists and songs, but all come at a price. The most prevalent and used downloading program would have to be Apple’s iTunes. The program is free to download, and allows users to input their CD's into

19 the iTunes library for organizational purposes. Also, by accessing the iTunes store, a user can purchase songs to add to their library. The user has the option to buy individual songs for .99 cents each, or buy entire albums for various prices, usually around $9.99 each. One drawback to iTunes is that purchased songs from their music store, can only be accessed on four computers. Some might find this a displeasure if they wanted to play their iTunes library from their iPod on different computers. Other programs that can be used to download music are the new

Napster and Yahoo music. Each program requires a monthly bill, ranging from 9.95 a month for Napster, and 5.99 roughly for Yahoo music. Both programs offer unlimited downloads, with a small catch. To run and play the songs downloaded, you must download specific music players for each company. Furthermore, an active account must be present in order to play downloaded music. This could be a problem for some who might download music for a few month or year, be happy with their collection and stop their service. They would lose all access to their favorite songs unless they continued paying the monthly fee, which over time could add up to a pretty hefty bill. Yet another option out there would be MTV.com/downloads. This site offers free music downloads for anyone willing to resister

20 with the site. The problem here is that music selections are very limited, and most of the artist are unknowns or up and comers.

There are many choices out there when it comes to downloading. It all comes down to whether or not the consumer is willing to do it legally or illegally. Whether someone runs the risk to obtain music for free via peer to peer file sharing, or if they decided to use a pay site is completely up to them. The bottom line is though, one way or another it’ll cost you.

Conclusion

As complex as music file sharing can be, it can be done right and be beneficial to everyone that is involved.

Piracy only takes money from the industry and creates problems for the consumers. Treat the music file trading issues just as you would treat going into a store and purchasing a CD off the rack. If done correct and legal, then there won’t be any problems for either the consumer or the music industry. Technology will always bring more issues to the table with business and consumers, but hopefully we can all behave as ethically and legal as possible when it comes to using the internet as our marketplace.

21 Reference Page

• http://blogs.zdnet.com/ITFacts/?cat=10

• http://www.jupiterresearch.com/bin/item.pl/press:press_release/2007/id=07.11.19 -music-forecast.html/

• http://www.news.com/Court-RIAA-lawsuit-strategy-illegal/2100-1027_3- 5129687.html?tag=item

• http://www.news.com/Net-music-pirates-face-lawsuits/2100-1023_3- 211149.html?tag=item

• http://www.news.com/Recording-industry-shows-how-to-lose-by-winning/2010- 1030_3-6213830.html?tag=item

• http://www.news.com/Rights-and-wrongs-in-the-antipiracy-struggle/2010- 1027_3-6213649.html?tag=item

• http://www.news.com/Radiohead-album-bets-on-fast-release%2C-open- pricing/2100-1025_3-6212107.html?tag=item

• http://www.napster.com

• http://www.riaa.com/faq.php

• http://en.wikipedia.org/wiki/Napster

• http://www.lawyersandsettlements.com/case/kazaa-file-

sharing?ref=newsletter_bca_kazaa-file-sharing

• http://compnetworking.about.com/od/p2ppeertopeer/tp/p2pfilesharing.htm

• http://www.pcworld.com/article/id,138136-pg,1/article.html

• http://www.esecurityguy.com/p2p_file_sharing

• http://www.dailytech.com/RIAA+Loses+in+Precedentsetting+Case/article8884.ht

m

22