As music adapts, consumers win

New record-industry lawsuits can't buck larger trend: Music will cost less and be in digital form.

The editors at Spin magazine weren't joking when they named "your hard drive" the best album of 2000.

Three years later, the volume of music downloading, legal and otherwise, continues unabated as a new generation of music lovers grows up without setting foot in record stores, their entire music collections collapsed into binary codes in the innards of computers.

Even the recording industry, which warned Monday that it is suing hundreds - and ultimately thousands - of music swappers for copyright infringement, knows that more and more of its customers want music that is both available in digital form and less expensive. That's what millions of young music lovers have been accomplishing through online piracy.

So the industry, in addition to filing lawsuits, is adapting in ways that, taken together, represent a dramatic shift in power from the record companies to consumers.

Not only is the Recording Industry Association of America (RIAA) adopting a we-want-you-back tone, but Universal Records, in a bid to win back its fast-disappearing customer base, is slashing the price of CDs by as much as 30 percent.

The industry is also rapidly making more music available to buy as a digital music file (significantly, the Rolling Stones recently announced that their entire back catalog would be made available for purchase online this month).

The industry, which is losing an estimated $700 million a year to file sharing, is clearly listening to the demand of their potential customers who currently engage in illegal downloading.

"They're losing the battle, and they know it," says Wayne Rosso, president of Grokster, one of the most popular online music file-sharing sites, which sees spikes in file-swapping traffic every time the RIAA announces its next move. By trying to scare consumers away from file-sharing sites, Mr. Rosso says, "they have just started to open up a Pandora's box, and now it's between them and the American citizenry."

CDs are so passé

Even the slashing of CD prices, industry analysts argue, means little to the 57 million Americans who get their music free - and who gladly opt for digital files over glossy CDs. Music in a plastic case, it seems, is fast becoming passé.

"The long-term effect is going to be to make any sort of physical media obsolete," says Josh Bernoff, music-industry analyst at Forrester Research in Boston. "CDs? On the way out. DVDs? Those shiny DVDs? The next format is, 'Send this to my computer or television.' "

No CD shelving needed

Nearly 50 percent of 12- to 22-year-olds downloaded music in July, according to Forrester's latest report on file-sharing trends, and one in five of this young generation of file sharers say they have begun to download movies as well. It is only a matter of time, Mr. Bernoff predicts, before movies are swapped as freely as the Beatles and Britney. Even books and newspapers, he adds, may not be far behind.

"The only way to win people over is to offer online downloading sites that have just as much flexibility," Bernoff says. "Ten different companies are planning Windows-based services.... This stuff is on a tear right now, and if 10 different companies can't among them somehow find the right model for selling to people, then I don't know if there's any solution at all here."

Even RIAA spokeswoman Amanda Collins admits that the industry relies heavily on the success of these services. "The ultimate measure of the success of our multipronged effort [to fight piracy] ... is the long-term growth and success of that legitimate online marketplace," she says.

All of these legal online subscription services - mp3.com, eMusic.com, and Listen.com among them - require users to pay a certain sum per downloaded song, and all of them are seeing a steady rise in users, according to comScore Networks.

Between March and May of 2003, mp3.com welcomed more than 200,000 new subscribers to its server. Since launching its iTunes online music store in April, 10 million songs by bands such as U2, Coldplay, and Bob Dylan have been purchased by customers.

Meanwhile, the only considerable dip in subscribers of the free servers has been Kazaa, whose users have become the target of the RIAA litigation campaign.

"We've been telling people for a long time that file sharing copyrighted music is illegal, that you are not anonymous when you do it, and that engaging in it can have real consequences," RIAA President Cary Sherman says. "And the message is being heard."

But Bernoff doesn't think the message is instilling a sense of ethics as much as it is instilling a sense of fear.

"The news is out there and people are nervous," he says. "The Recording Industry's best strategy is for [journalists] to write an article about it - even if they're only suing several hundred people."

A cautionary footnote

But the RIAA's promise to protect downloaders who don't share their music has an important caveat: It won't go after those "who provide a signed and notarized affidavit in which they promise to respect recording-company copyrights," the e-mailed announcement read.

Which is just another way to say you're not off the hook yet, Bernoff explains. "The message so far to people who download has been, 'If you download music we will come after you.' The message of amnesty is, 'If you don't stop downloading music we will come after you.' It's risky."

Rosso takes a more cynical view. "I thought Joe McCarthy was dead, but lo and behold, he's alive and well and running the RIAA."

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