Childress+J.+Final+Report

​​Childress J.

proximity  a next generation connection Proximity Research Report

**When Given Lemons, Make Lemonade: The Positive Side of Piracy** 

How the music industry can still come out on top in a world full of piracy

By: Jazmin Childress

Spring 2010

**Table of Contents ** Executive Summary ..............................................................1 Introduction ...........................................................................2 RIAA'S "Punishment" ............................................................3 New Business Model .............................................................4 Accepting Piracy ....................................................................5 Product Placement .................................................................6 Recommendations ..................................................................7 Attachment 1: Product Placement .........................................8 Attachment 2: Myspace Music ...............................................9 References ...............................................................................10

The music industry loses about $12.5 billion in economic losses each year due to global music piracy. The music industry has made several attempts to stop illegal downloading but none seem to be fully successful. In other countries such as Europe, there are bills being formulated to stop piracy. For example, France's proposal is called "Création et Internet". Once approved, the proposal gives users two warnings to stop illegally downloading. On the third offense, the user's internet provider will block them access to the internet. However in the United States, it is nearly impossible to propose a similar type of bill because the government doesn't control the internet. In the United States, to try to stop piracy, the method of choice is fear. For example, The RIAA attempts to take legal action against music pirates, yet this solution has still not reduced the amount of piracy. The reason why piracy is so hard to stop is because there are hundreds of online websites that promote free illegal music; which reduces the amount of Gen-y who actually purchases music. So the music industry needs a new to take a new approach; which is to accept piracy and find ways to take advantage of it.
 * Executive Summary **

Positive Side - 2


 * Introduction: Evolution of Piracy **

 The many reasons for illegal downloading...
 * Why Spend Money on Something Thats Free **

**Figure 1**: Reasons For Dowloading
 * Source:** <span style="font-family: 'Times New Roman',Times,serif; font-size: 10pt;">[]

<span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">**<span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">Demographics of Music Pirates ** Gen - Y is money poor but time rich...



<span style="display: block; font-family: 'Times New Roman',Times,serif; font-size: 10pt; text-align: center;">**Figure 2**: Age of Illegal Downloaders
 * Source**: <span style="font-family: 'Times New Roman',Times,serif; font-size: 12pt;">[]

<span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Peer to Peer file sharing was first observed in the 1990's on networking websites. It wasn't until the early 2000s, the record industry noticed drops in record sales. Overtime, P2P has been popularized by companies such as Napstar, Kazaa, and Limewire. Piracy is one of the top sources Gen - Y uses to attain music because its free and convenient. Researchers believe Gen - Y are heavy pirates because they are "money poor but time rich." With hundreds of websites providing free music files and other software programs offering Peer to Peer file sharing, the music industry has been greatly affected. With an estimated 95% of all downloads being illegal, the music industry loses about $12.5 billion each year due to global music piracy. Not only is the music industry facing an annual lost, many record stores are also continuing to go out of business and more than 70,000 jobs were reported to be loss in 2005 due to piracy.

Positive Side - 3 <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Are lawsuits fulfilling its purpose of detering Gen-Y from piracy?
 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">RIAA's "Punishment" **

**Figure 1:** Percentage, by age, not worried about the repercussions of illegal downloading. <span style="display: block; font-family: 'Times New Roman',Times,serif; font-size: 14pt; text-align: left;">
 * Source:** <span style="font-family: 'Times New Roman',Times,serif; font-size: 10pt;">[]

With records sales dramatically declining, the music industry has strategized to push fear against illegal downloader's in order to stop piracy. The Recording Industry Association of America (RIAA) has focused on more on lawsuits, while other countries such as Europe have taken further action by creating proposals to pass bills that will stop piracy. France, Britain and Korea have created these anti-piracy proposals. France's proposal is called "Création et Internet". Once approved, the proposal gives users two warnings to stop illegally downloading. On the third offense, the user's internet provider will block those affected access to the internet. On the other hand, the RIAA has filed several lawsuits against pirates and file sharing websites such as napstar, kazaa, and limewire. The RIAA has filed over 20,000 lawsuits against pirates; charging them several thousand dollars per songs. For example, Jammie Thomas was ordered to pay the big record companies $9,250 per song she shared online; which totaled out to be a sum of $220,000. In order to reach Gen- Y, The RIAA has increased the amount of copy infringement notices given to universities around the United States. These notices state that a student on that particular college campus has been "illegally distributing copyrighted songs, and requests that the university "removes or disables access to the infringing sound recording"." However, the lawsuits filed by the RIAA are not as successful as they should be. In a focus group session held by The Proximity, none of the participants seemed to be worried about people who have been sued or that they, themselves could be sued.

Positive Side - 4 <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">If the music industry wants to stop piracy, new business models need to be created by online music stores that benefit both parties. Business models that are most successful are online download subscriptions. Gen-Y doesn't feel that they get a value from individual tracks when they are online for free. There are two types of subscription models. One model is DRM free which allows users to download music. eMusic is an example of this model. In the second model users are only able to stream music. However, they are able to download music if they pay an additional fee. Napster and Rhapsody are examples of this model. If all online music stores were to provide some type of monthly subscription which allowed users to download/listen to unlimited music, the music industry would see a better feedback. All music downloader's typically want is affordable pricing and convenience. Other than downloading music, most music fans like to stream and listen to music. Streaming services allows the music industry to learn what type of music users are listening to. Myspace music and Lala.com are popular music streaming sites. By creating these models, the music stores are able to increase the amount of users that view these sites. This will help in a marketing perspective, making it easier for the music industry to target fans.
 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">New Business Model **

Positive Side - 5 <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">With all the different attempts made worldwide, it is still almost impossible to completely stop piracy. The music industry needs to accept that illegal downloading is the most popular source of attaining music. So the best approach for the music industry is to use piracy as a marketing strategy. According to Josh Deutsch, CEO of Downtown Records, "the buzz generated by kids sharing music online actually helps long-term sales." There is also research that suggests that a large percentage of illegally downloaded music does in fact eventually transfer into actual legal sales. (Loz Cliffe) Just because pirates aren't purchasing music doesn't mean that they aren't supporting artist in other ways. Visits to music events have increased by 21% in the last year. Pharrell Williams, Grammy Award winning singer and song writer, considers piracy as taste testing. By allowing users to sample artist's music, it will make them want to become fans of these artist and support them in the long run. Without the ability to listen to free music, listeners may never get a chance to listen to what could be their favorite artist.
 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">Accepting Piracy **

Positive Side - 6 <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">**Product Placement** <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Once the music industry learns to accept piracy, they can begin to create new strategies to reach fans and get them to spend money elsewhere. Also by using product placement in music videos and songs, the music industry can cut their losses in piracy and begin to receive funding by advertisers. Recent examples of product placement are Lady Gaga and Beyonce's video "Telephone" and Chris Brown's song "Forever". In the video telephone, there were numerous of advertisements by Miracle Whip, Wonder Bread, HP, Virgin Mobile, Polaroid, Plentyfish.com and etc. The video received more than 17 million views in the first four days of its release. In addition, Plentyfish.com was said to have seen a 15% increase in searches on their website. By using product placement, Lady Gaga was able to receive about $300,000 to $400,000 in funding for her music video. In the next example, Wrigley's paid Chris Brown to make a song using their old jingle in the song "Forever". The song reached #3 on the Billboard Hot 100 Chart. After releasing song, Chris Brown was then featured in a Double Mint commercial dancing to the same song.

Positive Side - 7 <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;"> <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">My recommendation to the music industry is to stop being so focused on making a profit from music sales. With technology constantly changing and innovating, there will always be a way to find music for free. In order to transition fans from stealing music to purchasing music again, the fans must receive benefits such as affordability and convenience.
 * Recommendations**


 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Make online music stores standard business model subscription based
 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Use piracy as viral marketing
 * <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Invest in alternative funding through product placement

<span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">This report recommends that Proximity clients target Gen-Y on subscription based websites and through product placement. Through subscription based music stores, Proximity will be able to determine the demographics of users and know what type of music they are listening to.

Positive Side - 8

<span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">**Attachments 1: Product Placement** <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;">Examples of Products used in Lady Gaga and Beyonce's video Telephone <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">
 * Source:**[]

Positive Side - 9

<span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">**Attachment 2: Myspace Music** <span style="font-family: 'Times New Roman',Times,serif; font-size: 14pt;"> Myspace Music's homepage where fans are able to stream music. <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;"> <span style="font-family: 'Times New Roman',Times,serif; font-size: 12pt;">**Source:** []

Positive Side - 10 <span style="font-family: 'Times New Roman',Times,serif; font-size: 16pt;">**References:**

<span style="font-family: 'Times New Roman',Times,serif; font-size: 12pt;">Agrawal, Mohit. "Business Models to Fight Music Piracy." //Telecom Circle.// 21 Feb. 2010. Web. 16 May 2010. <[]

Cliffe, Loz. "Loz Cliffe - Music Piracy As A Marketing Strategy." //Loz Cliffe//. 26 Sept. 2009. Web. 15 May 2010. <[]>.

Fisher, Marc. "Download Uproar: Record Industry Goes After Personal Use." //The Washington Post// 30 Dec. 2007. Web. 16 May 2010. []

Mckay, Matt. "How Does Downloading Music Affect the Economy?" //eHow//. Web. 15 May 2010. <[]>.

Moya, Jared. "Pharrell Williams: Illegal Downloading is “Just Taste-Testing”." //Zero Paid//. 25 Jan. 2010. Web. 16 May 2010. <span style="font-family: 'Times New Roman',Times,serif; font-size: 12pt;">[]

Pawsey, Glen. "Students not worried about risks of illegal downloading." //Insight//. 24 Mar. Web. 15 May 2010. []

Pfanner, Eric. "British Put Teeth in Anti-Piracy Proposal." //The New York Times//. 14 Mar. 2010. Web. 14 May 2010. <[]>.

"Music Consumption Statistics." //IT Facts//. 17 June 2008. Web. 17 May 2010. <[]>.

"The Lady's Gaga for Product Placement in Her New Telephone Music Video." //X17online//. 12 Mar. 2010. Web. 15 May 2010. []

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