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RIAA Legal Fees: The Facts

July 30, 2010

There have been various bizarre reports about our legal bills and recoupments, with some estimates saying we spent upwards of $54 million to pay outside lawyers involved in our end-user litigation campaign, only to recover somewhere around $300,000. If you’re as confused as we are by the mischaracterization of these numbers and what they represent, we recently set the record straight with the ABA Journal who wrote a clarified story here.

Here’s the real story.

First, the numbers various reports have cited are from our 990 tax documents for 2008 and prior years, documents that have been publicly available for months or years which all similar organizations must file.

There is indeed a category for “litigation costs and recoveries,” but contrary to the assumption that all of these costs were related to our end-user litigations, that category includes costs for a whole variety of legal efforts:  major copyright infringement litigations against Usenet and LimeWire (and many other illegal operators in prior years), online investigations and DMCA notices, a multi-year rate proceeding for mechanical royalties (what record labels pay publishers), legal advice in connection with pending legislation, and numerous other matters beyond the end-user litigations.

Many of these litigations resulted in significant victories that are beneficial to the entire music industry and everyone who works in it, such as the Usenet and LimeWire multi-year litigations. In previous years, the music industry also secured major recoveries against numerous p2p services, including a $115 million settlement with KaZaA. In that instance, the settlement revenues went directly to the label plaintiffs which share the proceeds of such recoveries with their artists in accordance with their artist contracts. In other cases, where the recoveries are modest, the funds are offset against the legal fees expended in the litigation. There are also many instances where we secure an injunction or voluntary shutdown against an illegal site, the copyright infringement facilitated by site is stopped – which is always our primary goal –but we don’t necessarily recover money. Napster, Grokster, Aimster and Mp3Board are all examples of this.

What does this all mean? Attempting to draw some larger conclusion about the effectiveness of our anti-piracy efforts based just on that one line in our tax document is simply inaccurate and highly misleading. First of all, not only does it include litigation work that has nothing to do with anti-piracy efforts, but also it does not fully reflect the scope of the many different anti-piracy efforts undertaken, the nature of multi-year litigations, and the scope of revenues generated from settlement proceedings where monies may go directly to the label plaintiffs in the case.   

It’s still worth noting that we have said all along our anti-piracy efforts are primarily designed to foster a respect for the rights of creators – creating a level playing field for legal services, raising awareness and implementing enough deterrence so that fans will steer towards the abundance of legitimate platforms and services in the music marketplace today. That’s the real barometer. And on that count, we think our efforts have made a real difference (see here for more details). The truth is that the happiness that music brings, and the close connection that people feel to it, will never be measured by a price tag. Fortunately for the hundreds of label-supported free and affordable options fans have for accessing their favorite music today, it doesn’t have to be.

Illegal Downloading = Fewer Musicians

July 19, 2010

Professors Oberholzer-Gee and Strumpf now appear to offer a nuanced view of the impact of illegal downloading on sales.  Six years ago, with great fanfare but since discredited (see here and here), the academics concluded that the illegal downloading of music had no impact on the sales of music.  The professors now apparently allow for the fact that, yes, illegal downloading may undercut sales.  From their most recent paper (page 16), “The majority of studies find that file sharing reduces sales, with estimated displacement rates ranging 3.5% for movies (Rob and Waldfogel, 2007) to rates as high as 30% for music (Zentner, 2006).”

This is a well-tread debate, but a little digging and research on our part has unearthed an interesting and different way to examine the issue.  The professors cited SoundScan data which shows an increase in the raw number of albums released during the past decade:  “Since 2000, the annual release of new music albums has more than doubled” they write, suggesting that musical production, or the incentive to create music, has not diminished because of declining sales and illegal downloading.  But this data alone does not tell the whole story.  For example, this figure includes re-releases, new compilations of existing songs, and new digital-only versions of catalog albums.  Further, SoundScan has also steadily increased the number of retailers (especially non-traditional retailers) in their sample over the years, better capturing the number of new releases brought to market.  What Oberholzer and Strumpf found was better ability to track new album releases, not greater incentive to create them. 

More compelling, when data from the U.S. Bureau of Labor Statistics on the number of people employed under the category of “musical groups and artists” is compared with music sales, a strong correlation is evident.  See chart below.  What does this show?  Selling music is an important motivator to creating music, and that the decline in sales has correlated with fewer people making a living in music.

Source: US Department of Labor, Bureau of Labor Statistics; RIAA
Note: NAICS code 71113 “Musical Groups and Artists” full description available here

Yet another way to demonstrate that illegal downloading undermines the entire chain of creating and investing in music.

By Joshua P. Friedlander & Jonathan Lamy, RIAA

The Same Old Song, At A Better Price

July 02, 2010

With AOL’s WalletPop blog today including music CDs in its report on 20 products that are cheaper today than 10 years ago, we're pleasantly reminded of the value of this tried-and-true format, not to mention great music in general. The post notes that:

“Thanks to inflation, what cost just a buck in 2000 would cost $1.27 today. Happily, the price of some products has not kept up with that inflation; and in some cases, they are even cheaper today than ten years ago.”

For CDs the latter is true, as the average CD price in 2010 is $13.02 compared to $14.04 in 2000.  Adjusted for inflation, CDs are estimated to cost $17.83 in 2010, meaning fans today save about 25 percent compared to 10 years ago.  Since CDs represented more than half (56 percent) of the music sold in the U.S. in 2009, that’s no pocket change!

We’re also encouraged by the affordability of digital music services along with the growing number of options in the marketplace.  Today’s online marketplace boasts more than 400 licensed music services worldwide. A few examples of some hot steals: online retailers like Amazon.com featuring “Special MP3 Deals,” including its “100/$5” which prices 100 digital albums at $5.00 each through the end of July or its “Bestsellers at $7.99” offering popular new albums (think Drake’s brand new Thank Me Later, among others) for less than eight bucks!  Not to mention iTunes’ free singles and music videos of the week, or free music video streaming through major label-supported services like Vevo and YouTube, and Internet radio listening via popular sites Pandora and Slacker

Any way you slice it -- from CD loyalists and vinyl aficionados to our digitally-initiated music lovers -- fans today have a wide variety of ways to access music, often at lower than average prices.


Image Credit:
AOL’s WalletPop blog (http://www.walletpop.com/blog/2010/06/30/20-products-that-are-cheaper-today-than-10-years-ago/#ixzz0sRDtmF4K)

Liz Kennedy, Deputy Director, Communications, RIAA

Campus Downloading Rules Take Effect

July 01, 2010

Today not only marks the first day of July, but according to the Higher Education Opportunity Act regulations enacted last year, it also marks the first day that all colleges and universities are required to have a plan in place to address illegal file-sharing on campus networks. Higher ed organization Educause has a good and helpful webpage that lays out the specific requirements for each school, in addition to some “role model” schools that have taken proactive steps to reduce the problem on their campuses

Why is this law significant? It’s the first time ever in the history of dealing with the issue that Congress is holding schools accountable and requiring them to address the problem. Many schools have already taken necessary steps to deal with the issue, with great success and who deserve real credit. But there are some universities who are reluctant and perhaps prefer to remain on the sidelines without actually doing anything to proactively confront the piracy situation on their campus.  Here you have Congress saying ‘Get off the sidelines and help deal with the problem.’ It’s an important signal. Will it cause those reluctant schools to change their policies? We sure hope so. From what we’ve seen so far, the sea change in school administrators’ attitudes against piracy – even from just a few years ago – has been very encouraging.  We hope this law will give others the reason that they need to be proactive.

Cary Sherman, President, RIAA