The IFPI recently published their latest digital music report. Amongst their claims "illegal downloading" outperforms legal downloading by a ratio of 20:1, and that because of this, the recording industry has lost US$3.7 billion. Picking apart these ideas reveal that they may be very misleading.

The very idea that music sales are declining seems to leave record companies scratching their heads. They can’t understand why people who once paid $20 for an album are no longer willing. The industry seems to think that music should be valued similar to movies. Is an album, which costs little to produce, really worth the same as a movie, which costs a fortune, often 200x more, to produce? DVDs and music CDs are often very similarly priced.

The press releases put out by the recording industry focus solely on piracy for declining sales, while in reality there are so many reasons. Most have been covered so many times by the media and academics, but we’ll re-iterate a few here.

The Decline in Music Sales

The CD format has now been around for over 25 years. Back-catalogues have been re-released on the medium and consumers lapped it up, replacing their analogue copies of music they own. However, there’s only so many back-catalogues to buy, leaving consumers either only purchasing new music or none at all. A decline in CD sales is an indication of saturation in a market where innovation is lacking. There’s also only so many “best of’s”, “greatest hits” and other compilation albums consumers are going to buy before thinking “I already own three copies of most of these songs, why would I buy another one?”

Format-shifting, the art of moving from one medium to another is on the rise. In the past consumers have moved their collection of music to different formats, usually because of quality improvements and convenience, and paid for the privilege. Now it seems consumers don’t think they should have pay to move their collection of music to their computers and media players, and especially not pay to receive an inferior quality copy of something they already own. It just doesn’t make sense. “Illegally downloading” seems logical. Digital copies of music, which were until recently usually DRM crippled, and are still poor quality in relation to CDs, are simply unattractive.

The thought also never seems to occur to the music industry that perhaps Avril Lavigne, Utada Hikaru, Rihanna, T-Pain and Akon (the artists behind the top 5 digital downloads in 2007) are simply unattractive to the public. How much manufactured pop can society take?

The Problems With P2P Statistics

There is no doubt that piracy is on the rise. This in in part due to the aforementioned, overpriced, inferior or non-existing alternatives. This aside, it is absolutely ridiculous to compare downloads with actual sales. Let’s sum up a few of the reasons.

Firstly, just because someone chooses to download music via P2P doesn’t mean they’re doing it illegally. The recording industry has stated numerous times that it will not sue people for format-shifting, whereby consumers would want a digital copy of music they physically own. Why go to the hassle of copying a CD you own to your PC/media player, when someone else out there has done it for you? There’s a lot to consider when digitizing music from CD, though the one-click approaches of programs like iTunes would let you believe otherwise. Indeed their exists numerous guides on how to best digitize music you own, most notably jiGGafellz’ guide.

Secondly, do these numbers include the antics of MediaDefender? They flood P2P networks with fake files, which unsuspecting users will often download. How many fake files does someone download before managing to get a genuine copy? Even when they have a real copy, how many times before they get one in a high enough quality to suit them?

Thirdly, what about those who download with the sole intention of improving their share ratio on private sites? Sites like OiNK were notorious for users downloading popular releases with no intention of listening to them, just to try and better their ratio. Similarly, users often download entire albums just to listen to one track. While BitTorrent clients have the ability to do selective downloading, broadband connections are becoming so fast that users don’t feel the need to. Other P2P networks where albums might be shared in archives such as .zip, .rar or .tar remove the ability to selective download.

Fourthly, a great deal of people seem obsessed with discographies. They would download an artist’s entire back catalogue of music just because they like collecting, often without listening to it.

A New Business Model?

The million dollar question of course is, what should the recording industry do? We know that there is no straightforward answer to this question, but we speculated about some of the options before. The Internet has changed the way people interact with music. Sites like OiNK made is easy to find and share virtually every piece of music ever produced. Services like last.fm on their turn made it easy to discover new artists, and interact with other fans.

The Internet and filesharing technologies make it possible to make production (of the copies) and distribution costs disappear, yet the prices still don’t change. Why? Because they cling onto their old business models.

Today, the average consumer buys approximately 3/5 CDs a year. Let’s say the labels make $25 a year per consumer. Now, what if the record labels decided to make their entire collection available online, and charge people $2.50 a month for a subscription. This way they could easily double their revenue. New business models will emerge, and I’m pretty sure piracy will pretty much cease to exist. The record industry can even outsource the distribution to online music services, who can even offer the music for free if they come up with other revenue streams to compensate the $2.50 a month per user. I’m just thinking out loud here, but there are tons of possibilities.

So, stop complaining about biased statistics, go back to work and do what you’re supposed to… distribute music to the fans!