It's Day 8 of The Pirate Bay trial and several entertainment industry CEOs take the stand. IFPI's CEO John Kennedy said that TPB was an extremely damaging force on the global music industry and what the site offers is just too tempting for people to resist. He also admitted to not understanding how TPB or even uTorrent works.

Today’s first witness is Tobias Andersson from Piratbyrån and later on the IFPI’s CEO John Kennedy will testify, although it’s not expected that he will respond to the open letter and peace offering issued yesterday by the ‘Kopimists’. Also up, Bertil Sandgren, a board member of the Swedish film institute, Louis Werner of IFPI Sweden and Per Sundin (CEO of Universal Music)

Tobias Andersson was briefly questioned about the speech Fredrik Neij (TiAMO) gave after the TPB raid in 2006. Andersson told the court that he wrote the speech for Neij, since speech writing isn’t Neij’s thing. Andersson’s appearance was over in a few minutes and by 9:15 John Kennedy was testifying in English, through a Swedish translator.

IFPI’s John Kennedy confirmed he was the CEO of IFPI and summarized his duties there, noting the group has 1500 members worldwide and it’s main aims were to ‘improve’ copyright laws through government lobbying and fight piracy around the world since “piracy has done immense damage to the music industry.” Kennedy says that IFPI takes up strategic litigation against various targets worldwide.

Kennedy said that for a long time the industry sold its product in physical form (and experienced a limited piracy problem) but with the advent of digital music this situation has grown worse, with some claiming that copyright didn’t even exist in the digital world. He noted that the main sets of previous litigation were in the US (Grokster) and Australia (Kazaa).

Kennedy then said how pleased the music industry was with the legal wins against these two companies and in the wake of their demise, The Pirate Bay took their chance to develop their business. Kennedy said he first heard of TPB in 2004 and it was quickly becoming the #1 source of illegal music and this was damaging to the industry.

Kennedy noted the transition to digital music was a great threat to them, and although more music is currently being consumed than ever before, “less is being paid for than ever before.” If music is available for free, says Kennedy, many people find that temptation too much to resist and new business models can’t flourish.

The discussion then moved to the claim for damages. Kennedy said the claims were “justified and maybe even conservative, since the damage is immense.” Talk moved to the link between the cost of downloading legally and the claim for damages. Kennedy said that for the industry, CDs were more profitable than digital downloads are today.

He said that artists, studio producers, songwriters, music publishers, studio staff and the marketing and promotion people all have get paid and the music industry spends more money than most other industries on R&D. It invests 20% of its revenue on finding new artists and although some suggest that this isn’t needed in the Internet age, they are wrong said Kennedy.

Kennedy went on to explain that music marketing is designed to take effect in “Week One” of an album’s release and in an ideal world a new release would chart at #1 and would reach its sales targets in that first week. But if products are made available on Pirate Bay during that time he said, “then purchases are taken out of the market and because of the illegal use of music, the legal use of music under-performs and in some countries that can have a dramatic effect.”

Kennedy was asked about CD sales in the last 10 years. He said they dropped from $27 billion to $18 billion. He said that the Top 10 CDs in 2001 sold 69 million units and the Top 10 CDs in 2008 sold 46 million units. 9 years ago the #1 record sold 13 million units but in 2008, Coldplay sold half of that.

Kennedy was asked what impact legal downloads have on these figures, but he denied they made up the difference. The music industry has always relied on young people for sales he said, and these same people have got used to using illegal sites. “Many legitimate sites have struggled to compete with free. It’s impossible to compete with free,” said Kennedy.

When put to him that some claim that illegal downloading promotes sales, Kennedy labeled this as old-fashioned thinking and said that people don’t think this way anymore. When asked about P2P providing live performance promotion, Kennedy said that every single live performance success is linked to a previously successful recording career/sales.

When asked about the differences between TPB and Google, Kennedy said there is no comparison. “We talk to Google all the time about preventing piracy. If you go to Google and type in Coldplay you get 40 million results – press stories, legal Coldplay music, review, appraisals of concerts/records. If you go to Pirate Bay you will get less than 1000 results, all of which give you access to illegal music or videos. Unfortunately The Pirate Bay does what it says in its description and its main aim is to make available unauthorized material. It filters fake material, it authorizes, it induces.”

Kennedy says TPB threat is growing all the time. “They are proud of this with their statistics – there are 22 million users, 1 million visitors each day, 1.6 million .torrent files and they say they are responsible for 55% of BitTorrent traffic. They pride themselves on the quality of what they deliver.”

When questioned about the IFPI’s 10X damages multiplier for pre-release material, Kennedy felt this was fair considering the damage it does to the launch of a product. Kennedy says they have teams of experts monitoring the Internet everyday for piracy.

He went on to say that people who download music from TPB spend much less on music than they would otherwise and if they didn’t get it for free they would buy it. “It is common sense, if they couldn’t get it for free they would buy it and when we ask them, they confirm that.”

When asked if downloaders have less money than others, Kennedy said that younger people have the money but just don’t spend it on music anymore. Kennedy said that the reduction in sales in the music industry is directly attributable to illegal downloading.

When asked about scientific research on the issue, Kennedy said that of several reports, only one said there was no causal link between file-sharing and lost sales – all the rest say there is. Discussion of certain reports on the issue took place, with defense lawyers questioning Kennedy on the details of the reports.

The defense lawyers pointed out that in one of the reports Kennedy refers to, lesser known artists appear to be downloaded a lot on TPB but Kennedy said although he is 56 years old, he recognizes nearly all of the artists in the TPB Top 100 list.

Carl Lundstrom’s lawyer asked about the profit on the industry’s $18bn turnover from 2008. “Terrible,” Kennedy replied. Of the big players “..only one company is making a profit.” Kennedy was pushed, if he knows the turnover, why doesn’t he know the profit. He said it was difficult to say.

He was also asked how much of this $18bn turnover is used to fight piracy, Kennedy said there are three main areas of expenditure. Funding the RIAA in US, IFPI globally and more local groups such as IFPI (Sweden). They all have budgets and a large proportion of this is used to fight piracy.

The global amount used by IFPI on lobbying and fighting piracy is £75 million.

Kennedy said he qualified as a lawyer since the 70’s but hasn’t practiced recently. He was asked if he understood BitTorrent. Kennedy said he did, but in “very vague terms.” When the defense lawyers asked more detailed questions, about uTorrent for instance, Kennedy said he’d heard of it but had no idea of the details. It was very clear he knew nothing about any remotely technical issues.

Kennedy was asked if IFPI has taken any action against the actual sharers of the music made available via TPB, as detailed in this case. He said he couldn’t say and didn’t know who these individuals are. He then admitted to not knowing how The Pirate Bay works so the defense lawyers put it to him – if you don’t understand how TPB works, how can you say they are to blame? Again he was pressed why he took no action against the actual sharers but he said he didn’t know and admitted “It’s probably unlikely we took action.”

Kennedy was asked why they haven’t sued Google the same way as TPB. He said that Google said they would partner IFPI in fighting piracy and he has a team of 10 people working with Google every day, and if Google hadn’t announced they were a partner, IFPI would have sued them too.

When pressed on the earlier reports that Kennedy referred to, the defense lawyers wanted to know if IFPI had commissioned any of them. Kennedy said he didn’t know.

The court then took a morning break.

After the break the hearings continued as Bertil Sandgren, a board member of the Swedish film institute took the stand. He was asked to explain what he knows about file-sharing, and told the court that he knew that some movies leak on filesharing networks before they premiere, that there is no copy protection on these files and that there are even subtitles available.

The court then asked to keep the questions relevant to the damages that are claimed. Sandgren went on to say that he believes that the impact of file-sharing on the movie industry started in 2002/2003. He claimed that there is statistical evidence that illegal file-sharing has affected the number of seats sold per film. In Sweden, the ticket sales between 2002-2006 have fallen by 31%, Sandgren explained.

“The reason for this drop is that the number of premieres have increased but sales have decreased. File-sharing has somewhat made the market thinner. The difference between number of sold tickets on average has dropped 10,000 per film per year. That equals between 800,000 and 1,000,000 SEK per film,” Sandgren said.

Sandgren further told that the damages they claim are based on a fictitious license fee. They have calculated the total number of movie downloads in a year, and use the film’s market share (4% for the movie “Mastermind”) to come up with the total number of downloaders . “If there were 1 million downloaders in total, it’s probable that 4% downloaded Mastermind,” Sandgren said. “Of those, 28,5% were downloaded from TPB. That gives 12000.”

After his explanation of how the damages are calculated, the defense lawyers questioned Sandgren. Most of their questions focused on the link between downloading and the decline in ticket sales. According to the defense lawyers there is research showing this link is not that straightforward, while stressing that 2008 has been the best year for the Swedish movie industry ever. Sandgren said that he didn’t want to comment on factors underlying the success year.

Around noon the court took a lunch break.

After lunch Per Sundin, CEO of Universal Music and Louis Werner of IFPI Sweden were questioned. Again, most questions dealt with the amount of damages the entertainment industry suffered, with the defense questioning whether the figures presented by the entertainment industry are justified. Werner told how music sales declined in 2002 and 2003, but as blogger Anna Troberg points out, IFPI’s own data seems to contradict this statement. Illegal file-sharing was the main reason of the loss in sales in recent years Werner stated.

When Per Sundin was asked whether the decline is sales could be fully attributed to illegal filesharing, he said yes. Sundin went even further and claimed that 50% of the loss in sales the music industry has suffered can be linked to The Pirate Bay. He had to admit, however, that he has no evidence to back these claims up. “It is what they see and experience every day,” Sundin said.

Pirate Bay’s Peter Sunde and Universal Music CEO Per Sundin bumped into each other after the hearings. Peter just Twittered “I just played the angry game with Per Sundin, Universal. Always fun at #spectrial! Oh, and I won of course.”

Sunde vs. Sundin (credit)

At 16:00 the court decided to end the hearings for today.