Music Biz Wants Crackdown

In the weeks leading up to tomorrow's speech from the throne, several music industry lobby groups have urged the government to prioritize intellectual property protection. Led by the Canadian Recording Industry Association (CRIA), these groups blame government inaction for recent sales declines, arguing that legal reforms are needed to support Canadian music industry innovation.

While the data suggests that peer-to-peer file sharing is at best only a minor reason for the decline (more significant is competition from DVD and video game sales and the emergence of big box retailers such as Wal-Mart who have pushed down retail prices and decimated sales of older titles), events over the past month have provided the clearest indication yet that musicians and music sellers are charting a new course that is leaving the major record labels behind.

Punishing best customers

In the mid-1990s, the industry focused on retaining its core business model by emphasizing two strategies. First, it relied on copy-control technologies, supported by additional legal measures, to curtail unauthorized copying. Second, it lobbied for the establishment of a private copying levy on blank media to compensate for the copying that technology could not control.

Ten years later, that strategy is now in tatters. The use of copy-controls have proven to be an abject failure -- not only do they do little to stem the tide of unauthorized copying, but they ultimately punish the industry's best customers who face a barrage of interoperability problems, security threats, and inequitable limitations on their personal property.

In response, digital music sellers are now virtually unanimous in their rejection of these technologies. Leading online music retailers such as Apple, Amazon, Puretracks, eMusic, Yahoo!, and Bell have all rushed to assure consumers that a growing percentage of their offerings are free from copy-controls. In fact, a Yahoo! executive recently brashly proclaimed that his company will not "invest any more money in consumer inconvenience."

Some music labels, including EMI and Universal, appear to have gotten the message. They have joined the many Canadian independent labels -- which are responsible for the overwhelming majority of homegrown releases -- in dropping copy-controls for some of their releases.

Dithering with failed approach

Despite generating more than $200 million in revenue for the industry and artists, CRIA also views the private copying levy as a failure. Last month, it asked the Federal Court of Appeal to allow it to intervene in the legal battle over the application of the levy to Apple iPods. Rather than supporting the extension of the levy, it surprisingly wants the court to strike it down, thereby reducing revenues to artists.

Why the change of heart? CRIA now admits in court documents that the extension "broadens the scope of the private copying exception to avoid making illegal file sharers liable for infringement." In other words, the levy creates a compensation system that legalizes peer-to-peer music downloads.

As the industry dithers with its failed strategy, musicians have begun to take matters into their own hands. Last year, the Canadian Music Creators Coalition, which includes some of Canada's most acclaimed musicians such as Avril Lavigne, Sarah McLachlan, Feist, Sam Roberts, Billy Talent, Sloan, Sum 41 and Barenaked Ladies, spoke out openly against suing fans and the use of copy-controls.

A growing number of international stars are following suit. Last week, Radiohead released its latest CD without copy-controls on its website under a pay-as-you like system (Canada's Issa -- formerly known as Jane Siberry -- has successfully employed a similar approach for many years).

Canada's red hot digital music market

The Radiohead announcement unleashed a stunning series of follow-up developments -- reports indicate that Nine Inch Nails, Oasis, Jamiroquai, the Charlatans, and Madonna have either left or are ready to leave their record labels in search of greater commercial success through live performances, merchandise sales, and other online innovation that may include free distribution of their music.

Other artists are exploring new distribution partnerships -- the Eagles are selling their latest CD directly to Wal-Mart, Prince distributed millions of copies of his latest CD for free in Britain in a newspaper promotion, former Kinks lead singer Ray Davies plans to do the same, and Nettwerk Records, one of Canada's leading indie labels, combined with a newspaper to offer free downloads of some of its most popular artists.

The rapid pace of innovation highlights the fact that artists and consumers are responding to the new digital reality. As Canada's digital music market continues to grow (last year it outpaced both the U.S. and Europe), Industry Minister Jim Prentice and Canadian Heritage Minister Josée Verner ought to remind lobby groups that it is the lack of innovation -- not government intervention -- that lies at the heart of their tales of woe.

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