Copyright 2004 Newsday, Inc.


Newsday (New York)
April 11, 2004 Sunday
ALL EDITIONS
SECTION: FANFARE; Pg. C13

LENGTH: 690 words

HEADLINE: Piracy is not the problem

BYLINE: GLENN GAMBOA

BODY:


The researchers kept thinking they were doing something wrong.

Every time Felix Oberholzer-Gee of Harvard Business School and Koleman S. Strumpf of the University of North Carolina at Chapel Hill checked their findings, the answer came out the same: Downloads don't hurt CD sales.

"[Our findings] are inconsistent with claims that file sharing is the primary reason for the recent decline in music sales," say the researchers in their recently published paper. What makes these results so interesting - other than the fact that they fly in the face of music industry-sponsored studies - is that Oberholzer-Gee and Strumpf have no dogs in the downloading fight. Oberholzer-Gee's previous research includes competitive business strategy. Strumpf's recent research centers on Internet betting and teen smoking.

Based on their study of 1.75million downloads in the fall of 2002, the researchers estimate that for every 5,000 times an album is downloaded, the music industry loses one legitimate sale. The rest of the downloaders either end up buying the CD anyway or would never have bought the album in the first place.

In other words, the dramatic, double-digit sales drops in the music industry from 2001 to 2003 were not caused predominantly by downloading, regardless of what the industry argues. The researchers also note that a similar drop in record sales occurred in the late 1970s and early 1980s, and that record sales in the 1990s may have been abnormally high, as individuals replaced older formats with CDs.

"At most, file sharing can explain a tiny fraction of this decline," they conclude. "This result is plausible, given that movies, software, and video games are actively downloaded, and yet these industries have continued to grow since the advent of file sharing."

The drop was more likely caused by the poor economy, growing competition from other forms of entertainment, radio consolidation and "possibly a consumer backlash against record industry tactics," they conclude.

Sure, the music industry has gotten a lot of mileage out of painting America's file-sharing youth as soulless demon spawn robbing virtuous artists of their well-deserved pennies. The truth, after all, is far scarier. The major labels are killing themselves.

Instead of finding the enemy in music-loving teens, the major labels should focus their still considerable resources on battling radio consolidation and doing what every other business does - crafting a better product. That won't happen if major labels continue to slash workers from their payrolls and artists from their rosters. All that does is ensure that future growth will come from somewhere outside their companies.

As Mark Cuban, the controversial dot-com billionaire and owner of the Dallas Mavericks, told South by Southwest Music Conference attendees last month, "I think there's four companies in trouble, and everybody else is doing great."

There are signs that a music-industry recovery has begun. Both Norah Jones and Usher recently sold more than 1 million CDs in their first weeks - a feat that didn't happen at all in 2003.

Though Jones' massive sales were expected, following the sales of her Grammy-sweeping, chart- topping debut "Come Away With Me," Usher's success with "Confessions" was more of a surprise.

After all, the R&B crooner has had hits before, but never anything that suggested this sort of mania. For example, his previous album, "8701," has sold about 3million copies since its 2001 release. It's an amazing accomplishment, considering the uneasiness at his label, Arista - which no longer exists; its artists were absorbed into other parts of the BMG conglomerate, and many of its workers, including those who toiled on Usher's record-setting debut, were fired.

How did Usher do it? Did he include lots of sexy DVD add-ons and interactive bells and whistles? Did he push up the release date to foil pirates? Did he drop the price? No, no and no.

Usher did it the old-fashioned way: He had a hot song, "Yeah," No. 1 for seven weeks running. And he followed it up with other hot songs.

What a novel idea.

Contact Glenn Gamboa at 631-843-3434

or glenn.gamboa@newsday.com.

LOAD-DATE: April 11, 2004