Your topic is HBS NIGHTLINE HAPPY MEDIUM NLNE000020040928e09o00001 3579 Words 24 September 2004 ABC News: Nightline English (c) Copyright 2004, American Broadcasting Companies, Inc. All Rights Reserved. graphics: friday night special CHRIS BURY (VO) The battle lines are clearly drawn. JEFF TWEEDY, MUSICIAN We don't look at people listening to our music as people out to rip us off. CHRIS BURY (VO) The billions of music files shared on the Internet. ERIC GARLAND, BIG CHAMPAGNE ONLINE MEDIA MANAGEMENT In recent year, 12 billion unauthorized downloads worldwide will be a very conservative estimate. CHRIS BURY (VO) And the billions of dollars in music sales. MITCH BAINWOL, RECORDING INDUSTRY ASSOCIATION OF AMERICA If you steal the music and get it for free, you're probably not gonna buy it. CHRIS BURY (VO) After all this time, can these two sides ever live together? JEFF TWEEDY Our experience has been that, that the more we've embraced this technology, the better things have gone for us. CHRIS BURY (VO) Tonight, "Happy Medium." Music and the Internet. graphics: happy medium graphics: abc news graphics: nightline ANNOUNCER From ABC News, this is "Nightline." Reporting from Washington, Chris Bury. CHRIS BURY (OC) Not so long ago, swashbuckling pirates like Napster ruled the world of on-line music. Now, Napster has gone legit, even Wal-mart sells songs on-line. And other corporate giants, including McDonald's, Pepsi, and Sony, are pitching the promise of free music. That is, if you buy their french fries, soft drinks, and televisions. But the explosion of the on-line music industry has not ended the debate over downloading and swapping files. Just this week, California governor Arnold Schwarzenegger signed a law making it a misdemeanor for anyone to trade songs or films without providing an e- mail address. The idea is to make it easier for police to track people who illegally download copyrighted material. And the recording industry continues its own crackdown. It has sued more than 4,000 people for swapping songs without permission. Record companies argue that on-line piracy has cost them nearly $2.5 billion, since Napster first came on the scene in 2001. The irony is, not all artists are convinced such behavior amounts to theft. Later, we'll hear from the lead singer of the band Wilco, which encourages its fans to download free music. But first, correspondent Robert Krulwich explores the current state of piracy on the net. ROBERT KRULWICH, ABC NEWS (VO) This data stream flashing by shows millions of people from all over the world privately and illegally trading music. So if you slow this way down, you can see that this person wants "Peter Frampton Comes Alive," this one "Limp Bizkit", this one "Janet Jackson." 20 million people hunt these sites every week. So what you're looking at is their secret list of desires. And because it is so simple and so easy to go on the Internet and find any one of these songs, any song at all, and with one click download that song right on to your own CD so now you've got your favorite music for free, no wonder the music industry is howling in pain. You know how many songs are downloaded every month, say? Eric Garland knows. ERIC GARLAND In a typical, recent month it would exceed one billion. That's nine zeroes. ROBERT KRULWICH (VO) A billion songs a month means 12 billion songs downloaded a year. The record industry argues that every time somebody downloads a song, chances are, companies lose a sale. MITCH BAINWOL There has been a, a massive impact as a result of piracy, on-line piracy. ROBERT KRULWICH (OC) And you're sure it's the, it's downloading that's causing this problem? There aren't, other explanations? MITCH BAINWOL Oh, I, I, you can have an argument about this. But I've seen plenty of data that tell us that when you go on-line and you steal music, you have, your, your, the likelihood that you're gonna then go out and buy it is reduced. ROBERT KRULWICH (OC) Is he right or wrong? KOLEMAN STRUMPF, THE UNIVERSITY OF NORTH CAROLINA Well, I would say largely wrong, largely wrong. ROBERT KRULWICH (VO) This spring, Coleman Strumpf of the University of North Carolina, and Felix Oberhover (PH) of Harvard Business School produced a study. And startlingly, they found the effect that downloads have on music sales ... KOLEMAN STRUMPF Is virtually zero. ROBERT KRULWICH (VO) Virtually zero, like no effect at all? KOLEMAN STRUMPF That's our basic -our basic conclusion, yes. ROBERT KRULWICH (OC) But like 12 billion songs stolen, it has no affect? You sure there's not something wrong with you, or with your data maybe, or maybe ... KOLEMAN STRUMPF Well we thought there was something wrong, and that's why we've spent about two years analyzing our data. And every single time it just came up the same way, not much affect. ROBERT KRULWICH (VO) The professors looked at a sample of all musical downloads worldwide over a 17-week period in late 2002. And they found, this is the quote, "it would take 5,000 downloads to reduce the sales of an album by one copy." Could this be? Well, it has been true that the singers whose songs get downloaded the most are also the singers whose songs sell the most. For example, take him. ROBERT KRULWICH (VO) He calls himself 50 Cent. He is one of the most popular musicians in the world. So popular that, according to Big Champagne, 30.73 percent of all the people who download music in America had a 50 Cent song. So his songs have been stolen about 15 million times. And yet, says Benjamin, a music lover from New Jersey ... BENJAMIN, MUSIC LOVER His albums have been sold millions of times and he's made a lot of money as a result. ROBERT KRULWICH (OC) This doesn't puzzle you? BENJAMIN Clearly not as much as it puzzles you. ROBERT KRULWICH (VO) Okay. But I still don't get this. If you can steal songs by 50 Cent, then why would you buy songs by 50 Cent? Well, sometimes, says Professor Strumpf, stealing leads to buying. KOLEMAN STRUMPF One way in which downloading could perhaps operate is people use this as a way of sampling, or learning about music. They find out new music that they wouldn't otherwise have learned about. And then the stuff that they like, they go out and buy. ROBERT KRULWICH (VO) And nowadays, with iPods and portable players that store literally thousands of songs, people are sampling more music more of the time. Take Benjamin. ROBERT KRULWICH (OC) You wake up and you're listening to music? BENJAMIN Yes. ROBERT KRULWICH (OC) Then what? BENJAMIN Then I take a shower and I'm listening to music. ROBERT KRULWICH (OC) Then what? BENJAMIN I get dressed, while I listen to music. I drive to school while I'm listening to music. I walk to class while I'm listening to music. I stop it during class. But then I bring it back as I walk to my next class. I go through the day like that. ROBERT KRULWICH (VO) All the way to bedtime, when he listens to what? BENJAMIN Something a little softer, sort of set the tone. ROBERT KRULWICH (OC) What, 'cause you couldn't go to sleep cold? BENJAMIN No, but it's more fun. ROBERT KRULWICH (OC) Okay. But during all that listening, there's a bigger chance that Benjamin and his friends will discover musicians, and not just Eminem and 50 Cent, but new kinds of music, says Eric Garland. ERIC GARLAND There is no question that at this moment in time, more people are being exposed to more music, and a greater variety of music, than at any other time in the history of popular music. ROBERT KRULWICH (OC) And with all of that music in our heads, even though we weren't intending to, some of us buy. ROBERT KRULWICH (VO) But wait, what about the fact that music sales did go down? MITCH BAINWOL Shipments are down about a third over the last three years. ROBERT KRULWICH (VO) If the music business suffered and downloading isn't the cause, what is? Professor Strumpf blames the '90s. The '90s were too good to be true, he says. KOLEMAN STRUMPF That the 1990s might have been the anomalous period rather than the current period. That in the 1990s you had all these factors that were boosting sales in a somewhat unusual one-time effect. graphics: then graphics: now ROBERT KRULWICH (VO) Because in those flush times, kids had more money for music, plus hip-hop was new and huge and a big seller. Plus, adults were replacing records with CDs. But after 2001, flush times were over so kids had less money for music, hip-hop is older and sales are flatter and adults have replaced their CDs. That's why sales have dropped. Now that the economy's up, sales are going up. But industry lobbyist Mitch Bainwol insists, no, downloading does hurt. MITCH BAINWOL The economy is not collapsed by 30 percent. Sales of physical product has collapsed by 30 percent. So there's clearly a disconnect and the change in the equation has been rampant on-line piracy. I, I don't have any question that that is the dominant influence on the decline. ROBERT KRULWICH (VO) The study has not yet been peer-reviewed by other scholars. So all this is very preliminary. But we could consider the radical notion here. What if stealing turns out to be the best thing that ever happened to the music industry? It's a notion that I will call, for reasons you will learn in a moment, the Chumbawamba hypothesis. CHRIS BURY (OC) What on earth is the Chumbawamba hypothesis? You'll find out in part two of Robert Krulwich's report, when we come back. graphics: nightline ANNOUNCER This is ABC News "Nightline," brought to you by ... commercial break graphics: happy medium ROBERT KRULWICH (VO) Yes, record stores are suffering and sales are still weak. But the record industry has seen worse. Lots worse. This is New York City's radio row. And if you look closely, you'll notice that everyone of these stores we see here as we ride down the street sells radios. In the 1920s and the '30s, radios were so new and so novel, people would gather on the sidewalk just to hear music being projected out onto the street. That's what they're doing here, listening. And once, lots of people bought radios, they could then go home and hear music for free. CHICK CRUMPACKER, RCA RECORDS (VO) And nobody had to go out and put down a dime to hear these things. And of course that did have an impact. ROBERT KRULWICH (VO) Chick Crumpacker, archivist for RCA Records says sales of phonograph records dropped 93 percent. A wipeout. The record companies blamed radio for the murder of music. They demanded royalties because the radio, they said, was copying music without paying and without permission. They sued, they complained to Congress with the same arguments you hear now. CHICK CRUMPACKER They were decrying the latest technology, and shaking their fist at it, and saying, "it's the end." And of course it wasn't. ROBERT KRULWICH (VO) In fact, 20 years later, radio had gone from being music's mortal enemy, to music's best friend, the number one way to promote new product to a new generation. And the question is, is the Internet radio all over again, a technology that first scares the industry, and then helps the industry? ROBERT KRULWICH (OC) Well, the argument for the Internet is that it gives the customers a voice, it lets them tell the companies, all right, here is what we want. ROBERT KRULWICH (VO) Case in point, Chumbawamba. ROBERT KRULWICH (VO) This is a band that had one hit song, this one, "Tub Thumping." If you wanted to buy this one song, it was tough. ERIC GARLAND This song was not available as a single, as an individual song. It was only available as part of an album. ROBERT KRULWICH (VO) Because once upon a time, record companies had what they called singles. ROBERT KRULWICH (OC) You may remember these. These are 45 RPMs. They had one song on one side and then a "B" song, they called it, on the other side. And they cost, what, about 60 cents. So if you really liked one song, you could buy the song for almost nothing. However, about 15 years ago, the record industry pulled these records and now if you wanted to hear the one Chumbawamba song, you have to buy an album, which costs 17 or 18 bucks. ERIC GARLAND People bought that album. By the millions. ROBERT KRULWICH (OC) When you got the, the CD album, did you enjoy the other 12 songs that were on it? BENJAMIN They were awful. ERIC GARLAND And the problem is, we remember that. We remember that "I paid $18." And I really got more like a dollar's value out of that CD. ROBERT KRULWICH (VO) And this happens all the time. There are 19 songs on 50 Cent's breakthrough album. And only one, two, three, four, five, six of them get significant downloads. Most times, people only like one or two songs. ERIC GARLAND Yeah, precisely. I mean, the, the great lost opportunity here is that we took the single away and the Internet gave it back. The customer never tired of the single. The customer has been obsessed with collecting singles from the beginning. BENJAMIN Why spend $17 on a CD full of terrible songs if I can call one of my friends and have him download the song for me for free? And then play it for me for free, it's not like I was ever going to listen to the other 11 songs anyway. ROBERT KRULWICH (VO) Once the Internet, Napster, Kazaa showed that people wanted singles, business delivered singles. Apple's iTunes sells single songs for 99 cents each. So you pay, Apple sends the song directly to your computer, and it's all legal. So one could argue that the Internet forced the music industry to solve its Chumbawamba problem. Now if you want one song only, you can get one song only. ROBERT KRULWICH (OC) The final question is, if you've still got millions of people stealing, and you now have millions of people buying on-line at 99, 89 cents, which way is it going to tilt, towards commerce or towards theft? ROBERT KRULWICH (VO) I asked a professor who follows these things at New York University, Civa Lavinaten(PH) . CIVA LAVINATEN, NEW YORK UNIVERSITY I firmly believe that we are going to have to be comfortable with a commercial music industry with lowered expectations and digital file sharing with lowered expectations. We're going to have to live in a world with both. ROBERT KRULWICH (VO) Maybe Americans are stealing 12 billion songs a year. But surprisingly, they're also buying about 6 billion songs a year. Not bad. CIVA LAVINATEN And that's why we shouldn't be so alarmist. ROBERT KRULWICH (VO) Because buying, apparently, in stores and on-line, is not going away. CIVA LAVINATEN You know, the sky's not falling. ROBERT KRULWICH (VO) Well, maybe not. Or at least not yet. I'm Robert Krulwich for "Nightline" in New York. CHRIS BURY (OC) So how are the stars of rock 'n' roll adjusting to the new music marketplace? The lead singer of Wilco when we come back. commercial break CHRIS BURY (OC) They began as an alternative country band in 1994. They've become one of the most popular rock 'n' roll acts in the country. And joining us now, Wilco founder, lead singer, guitarist, and songwriter, Jeff Tweedy. And Jeff, as professionals, you and your colleagues in the band, through your own talent and sweat and blood and tears, have produced records that people are willing to pay money to buy. So why would you be willing to give that away for free? JEFF TWEEDY Well, because I think that music is, is above commerce. If you look at music as an art form, as something that really depends upon the collaboration and consciousness of a listener, then it's really hard to, to make the argument that it's something that belongs exclusively to you. I think the difference in the way that we look at it and the way that a lot of people that have a problem with it look at it, is that they're trying to treat music as if it were a tennis shoe, or, or -a coat hanging in a store or something. That's, and, -like it's exclusively a product. CHRIS BURY (OC) That's exactly what the courts have ruled, though, that music is intellectual property and, therefore, it's not all that different from a loaf of bread. And if someone wants to go in and sample a loaf of bread in a store, he or she is gonna have to pay for it. And if she doesn't, then they're gonna be arrested for theft. JEFF TWEEDY But I don't agree with it. I just, my, our philosophy has been that we don't look at people listening to our music as, as people out to rip us off. We look at them as patrons of the arts. Our experience has been that, that the more we've embraced this technology, the more that we've allowed downloading, and encouraged people to check out our music, -actually the better things have gone for us. We've actually sold more records. And have, our profile has increased in the last three or four years, probably in large part due to this openness, as far as sharing our music. CHRIS BURY (OC) But of course, that's exactly what the record industry is saying that they have lost because of all that free material available or the fact that people are willing to take it illegally, that they have lost billion of dollars and put thousands of people out of work. JEFF TWEEDY I, I don't believe that. I don't know. I just think it's a really cynical idea that everybody that really loves music is, is being kind of cast as a thief. And I think that if the record industry spent as much time, energy, and money, into looking at ways that this technology could be used to their advantage, as they do spend time, energy and money persecuting or prosecuting, I'm sorry, downloaders and their parents and, you know, kids, I think that they would probably rapidly come to terms with it in a way that was something, would be beneficial to them. CHRIS BURY (OC) You may love your fans and your fans may love you. But certainly you'd have to agree that not everybody is in it for love. I mean, some of those folks who are recording music are making, burning copies and selling it and making money off of you. JEFF TWEEDY I've never experienced that. I don't know. I mean, I've never seen that. This industry is traditionally terrified of any new technology. The entertainment industry in general, with videotapes, and cassettes, there's real fear that that was going to destroy the movie industry with videotapes. And, you know, of course, that's become like the predominant thing that supports the movie industry. It's grown exponentially. And it's the same with music. There's just more ways for people to get music. And that's not, that's not a problem. The music industry is not suffering because people don't care about music any more. It's actually because they -can't get enough of it. CHRIS BURY (OC) Jeff Tweedy, of the band Wilco, thank you so much for coming on tonight. JEFF TWEEDY Thank you. Thanks for having me. CHRIS BURY (OC) With two months to go, this hurricane season has been ferocious, so far, and Florida's bracing for its fourth one. Details on that when we come back. graphics: nightline ANNOUNCER To receive a daily e-mail about each evening's Nightline, and a preview of special broadcasts, log onto the Nightline page, at abcnews.com. commercial break CHRIS BURY (OC) Florida is bracing for its fourth hurricane, just weeks after Charley, Frances, and Ivan caused so much damage across the state, costing billions of dollars. And now Jeanne is on the way. graphics: map of southeast coast CHRIS BURY (VO) The hurricane that killed more than 1100 people in Haiti, is projected to make landfall on Florida's east coast and Georgia over the next two days. graphics: good morning america weekend edition CHRIS BURY (VO) ABC News will have continuing coverage of Hurricane Jeanne, starting with "Good Morning America" weekend edition tomorrow morning. Sunday on "This Week with George Stephanopolous," Secretary of State Colin Powell and his predecessor, Madeleine Albright, on Iraq, and a preview of the presidential debates. CHRIS BURY (OC) And that's our report for tonight. I'm Chris Bury in Washington. For all of us here at ABC News, good night.