The Music Industry: Globalised and Spinning

Richard Letts Music Forum 7/1 October 2000 In the new era of globalisation by digitisation, the music industry is at the fore. As in many other industries, global corporations have emerged to create and exploit global music markets. But the music industry goes further than almost any other: the entire transaction of purchasing and delivering music can now be completed in non-material form over the internet. It is possible that as a consequence, the structure of the music industry will change radically. This article is mainly about the music industry. The concepts ‘music’ and ‘the music industry’ are not, to say the least, synonymous. Music predates the industry and probably civilisation itself and in our own time there is an enormous amount of musical activity for which the music industry is of marginal relevance. It seems necessary to say that, because however the technological changes now flooding the industry impact upon corporate structures and profits and how we get access to music, the human need for musical nourishment will survive and will somehow be satisfied. The changes could, conceivably, for instance, end the reign of the enormous transnational record companies. This would be a matter of chagrin for the company executives but, who knows, might even enrich our musical lives. The recording industry The article is primarily about the recording industry, because it is the key sector of the ‘industry’ as a whole (see box). Here is a rough map of the recording industry. In the transient present something like 80% of world trade in recordings is conducted by four transnational companies (the ‘majors’), grown enormous by taking over a host of previously large and famous labels and themselves divisions of conglomerates reaching way beyond the music industry. The four are Bertelsman (more familiar as BMG) (Germany), AOL Warner (US), Sony (Japan) and Universal, owned by Vivendi which just took over the previous owner the Seagram drinks group (Canada). Among the labels absorbed by merger since 1986 are RCA, Chappell Publishing, CBS, Chrysalis, Island, A&M, WMG, Geffen, MCA, Virgin, Motown, Ricordi Publishing, Polygram and EMI. The majors divide the world into three regions: North America, Europe, and South East Asia/Pacific Rim, with a headquarters city in each. National branches are responsible to regional headquarters. Globally, the companies concentrate on Anglo-American pop music ‘acts’, although there is some scope for national branches to support local acts and local styles. Occasionally, non-Anglo-American acts or even musical styles penetrate the global charts. Production is directed to serve large transnational language groups. "Large companies seldom allocate significant resources to countries with a numerically small language community." (Bontinck and Smudits). The other 20% of the trade is in the hands of relatively small, local ‘independent’ companies. This is an industry that because of the history of mergers and takeovers is comprised of very large companies and small companies. The medium sized companies mostly have disappeared. The independents, and to some extent the local branches of the majors, are closer to local markets and have a role in discovering and bringing to the market new talent. They also cater for local musical tastes in musical styles which do not have an apparent attraction for the global audience, e.g. indigenous styles that have not been taken up by the ‘world music’ market. In Australia, the release on disc of local artists is split roughly 60/40 between independents and local subsidiaries of the majors. There is a symbiotic relationship between the local companies and the majors. The majors control the route to the global audience, and the locally based companies jostle to have their artists released beyond their territories through contractual deals with the majors. It should be noted that local release on a major label in no way guarantees international release. The share of the local recording market filled by domestic music varies enormously from country to country. It is high (more than half, commonly in the range 60-80%) in all regions except Western Europe and Australasia. Highest is China with 97% (IFPI in Botinck/Smudits). Countries with larger populations provide a better economic basis for exploitation of local talent. On the other hand, the poorer countries offer less financial attraction to the majors and their domestic music share also is very high. One of the big problems for a global market in recordings is piracy – the production and sale of unauthorised copies of copyright recordings. Pirated recordings contribute nothing to the creation of

the musical works or record production and pay no royalties. 5% in value of world trade in physical recordings (CDs, cassettes), and 20% in number of units sold, is of pirated recordings. The largest market is Russia, where pirate sales in 1996 accounted for 17% of the total value of sales and 23% of units sold. The other major incursions of pirated recordings are into the markets in China, India, Pakistan, Mexico and Brazil. There has been increased penetration of pirated recordings into Australia, now worth up to 10% of the market. The internet is the site of a new form of piracy, of which more later. There is a well-established sequence of intermediary functions that take a piece of music to the listener: music publishing (as noted in Music Forum 6/5, now ‘making a musical work public’ by exploitation of various types of copyright, rather than simply printing it), music production (e.g. recording), marketing, distribution, retailing, broadcasting, and royalty management. (The term ‘intellectual property rights’ (IPRs) is now often used instead of ‘copyright’.) These functions historically were in the hands of different types of companies: publishers, recording companies, distribution companies, retailers, broadcasters, royalty collecting societies. Increasingly, and especially in the case of the major companies, they are being integrated vertically into the activity of the recording company or its owner. As noted, the recording industry majors are divisions of conglomerates whose activities extend into other areas of the entertainment industry, the communications industry, and beyond. As information, education and entertainment have come to depend on the same digital platforms and networks, there is increasingly a blurring between previously distinct industries. Intruder! — the Internet The technological advances that have aided the transnational companies to consume and digest so many of their competitors have also brought a trade in music consummated totally on-line: the consumer surveys the catalogue, chooses recordings for possible purchase, may even sample some tracks, makes a final selection, pays for the tracks online and has them delivered online. The accompanying art work and texts also can easily be delivered online. There has been a rapid acceleration in online trade generally, and music has been a leader. For instance, 40% of online trade in Europe is in music. "E-tailers" at first offered sales of physical discs through online catalogues. Now, then with the invention of software to ‘compress’ audio recordings into smaller digital packages for faster downloading (MP3 is the currently famous software), they sell such recordings online. The industry seems to a degree mystified by the apparent non-response of the transnational companies to the possibilities of the Internet. Generally speaking, they seem not to have been aiding the development of the internet market. Later we will look in more depth at their actual response. At this point, we could note that the transnationals have nothing much to fear if record e-tailers are merely a variant of the retailers, selling discs from online catalogues. Of more concern would be a market for online downloading which could cut into their traditional businesses of physical recordings, and raises the spectre of unauthorised and unpaid-for copying. And suddenly, the spectre has become alarmingly tangible, perhaps in far worse a form than was ever anticipated. MP3 and Napster emerged; the game is up-ended. What is Napster? Well, firstly, what is MP3? MP3 is a software, a website and an online company. The software allows ‘compression’ of the size of the digital file for a musical recording so that it can be transmitted and downloaded online in much less time than could the original recording. There is some loss of sound quality. Napster is a company providing a service that enables ‘customers’ to search for the MP3 file of specific tracks of music held in the computer files of other ‘customers’ and to download them to their own computer. (New jargon: it’s a C2C (i.e. customer-to-customer) transaction. P2P – peer to peer. B2B -business to business.) No money changes hands. The swap, even the use of Napster, is free. (Napster earns income from things that flow from the file swapping, like sale of CD albums.) This ‘file-swapping’ activity has spread like wildfire. It is pursued with such enthusiasm by hundreds of thousands of American college students on their college computers that the systems were flooded. By last March 200 US colleges had attempted to ban or curtail file-swapping but ran into such a tide of student protest, they have modified their systems to cope with it. Downloading songs in this way is a form of copying and is claimed by the recording companies (although denied by Napster) to be in breach of copyright, a type of record piracy. The Record Industry Association of America (RIAA) has sued Napster and so far the courts have agreed. The Napster server doesn’t hold any music, but it stores the enormous list of tracks available on all Napster users’ hard drives. Users access this music through, and only through, Napster. This makes Napster vulnerable technologically as well as legally. If you close the file server, you stop the file

swapping. This is not the case for a number of other software packages such as Gnutella. Gnutella has no central server nor indeed owner, but works directly peer-to-peer, P2P. It is not confined to music file swapping and so, says its developer, is a search technology rather than a tool for piracy and is not legally vulnerable under US law. (Let’s forget that music file-swapping is its most popular use.) So it is impossible to sue Gnutella because it doesn’t have an owner and in any case it might not be legally liable. But above all, there is no way apparent that as a P2P system it could be shut down by anyone. It seems that file-swapping is here to stay. So what could be the consequences of runaway file swapping? There are those who claim that it brings about an increase in CD sales: people download a track, like what they hear, and go out and buy the album. One study purports to show that 45% of Napster users increased their purchases of CDs whereas only 28% decreased their purchases. Even some RIAA data seem to support this: it has announced a 6.0% growth in unit shipments of CD albums to the US market for the first six months of 2000, compared with the same period in 1999. CDs account for 86% of the US market. However, the RIAA also reports that the number of singles shipped nearly halved! Note here that fileswapping is exactly about single tracks, not albums (because the downloading process even with MP3 is so slow). Further, a study by a ‘digital rights’ group claims that CD sales in record stores around US colleges where students have been able to use high speed computers (thus speeding up the download time) have dropped by around 45%. With the spread of broadband and the relentless advance of technology, slow downloading will not be an impediment to online album swapping in the near future. If you see the effect as an increase in CD sales, you can regard file swapping as a wonderful gift, a free promotional exercise. Some say that file-swapping and other internet communication is terrific for the little guys because it spreads their name. It’s only bad for the big companies — assuming they do lose sales. Napster now has found religion: its website acknowledges the thrust of copyright law. But, having set up a situation which plainly will be and is being used to copy copyright music, Napster purports to put all responsibility onto the users: they mustn’t breach the law. It’s enough for Napster if the provider of a file can show that it is taken from a disc s/he has purchased and owns. This is a very curious formula. According to a recent article by Erica C. Barnett in the Austin Chronicle, "Napster’s range doesn’t extend far beyond what you’d find in the top 40 bin at your local Tower Records", so we are not talking about tracks made freely available by independent young musicians trying to gain exposure. This is music from large companies and famous bands with an obvious commercial motivation and desire for recompense. (For a discussion of some ethical issues, see box.) By the way, according to the Far Eastern Economic Review (August 17), Napster, despite its wild popularity, "hasn’t made a dime". Free file-swapping most certainly was not the marketers’ dream. Merchants have been and are busy setting up legitimate commercial activity on the internet, in which the vending company properly licenses recordings and pays royalties. The problem is that it has been difficult to get consumers to pay by the track for downloads — especially, now, that they can get them for nothing. The industry, faced with relentless change, tends to see a different solution by the month. Currently it has come to the belief that it is selling not a commodity (a recording) but a service. The service could include free downloading (for promotional purposes) and earn income from a variety of sources such as advertising, community chat sessions, webcast events, user-generated content and so on. Since pay-by-the-track hasn’t worked, the view is emerging that service income from consumers will be achieved through sale of subscriptions. The subscription payment would authorise downloading, presumably for a specified period. With this in mind, it is interesting that 42% of respondents to a recent Music Industry News Network survey which asked "What [monthly] price range would you be willing to pay for use of a file sharing software like Napster?" 42% said "Not willing to pay"! 17% would pay $1.00 — 5.00, another 21% $5.00 — 10.00. Only 2% would be willing to pay $20/month or more. Given the amount of downloading that could take place in a month, there wouldn’t be much return to the artists and record companies for these fees. When broadband cable is generally available, CD albums will be downloadable in a few minutes and must bring a decline in sales of physical CDs. The main current source of record companies’ income will disappear and, unless they can find a technology to prevent unauthorised downloading, they may find that they have little income from any source. The security technology is their hope and their basic strategy. The idea is to ‘watermark’ recordings: i.e. embed an identification in the digital file which is invisible, inaudible and uneraseable. The watermark would record the copyright holders and the authorised uses. It could identify a person who unlawfully uploads a work and so trace the source of unauthorised distribution and then inform rights holders of the breach. Best of all, it could be used simply to prevent unauthorised copying.

At the end of 1998, the RIAA organised a collaborative industry effort of some 110 companies to develop a secure digital music architecture, the Secure Digital Music Initiative (SDMI). At the same time, although they are part of SDMI, since the early 90s the major labels have worked independently of RIAA to the same end. While apparently there is some resentment about this, it seems acknowledged that if the majors wish to implement their solution, they will in effect roll over SDMI. According to the Webnoize Report State of the Musical Union, the security technology must be "useful on any platform or with any type of consumer electronic device. CDs, DVDs, portable music players, flash cards, Zips, downloadable music data files — no matter what form the music takes, no matter where the music resides, it must be traceable, and its security ubiquitous". The majors committed as long ago as February 1999 to a security format for DVD, and it is expected that the DVD solution will influence their proposal for other audio. Quibbles refuted There are those who insist that there is no problem. What’s the big deal? People make cassette copies from the radio. With internet radio, they can make digital copies. It hasn’t wrecked the industry. Ah, but there is an apparently crucial difference. Radio broadcasting delivers you the tracks of the broadcaster’s choice at the time of the broadcaster’s choosing. With file swapping or legitimate online purchases of the right to download, the buyer chooses exactly the tracks s/he wants exactly when they want them. If this were not important to them, US college students would be listening to the radio instead of spending hours with Napster. No-one really wants MP3. The sound quality is too poor. A year ago, there was a lot of wind whistling especially from the merchants of physical CDs: customers would quickly tire of the MP3 sound and come back to the true path. Now everyone is agreeing that the kids don’t care. "Quality is dead!" All they want is convenience, and access to their favourite songs. Large numbers like not having to pay and some even justify it with all sorts of ethical sophistry. The quality of MP3 is not so poor, in any case – somewhere between FM and the AM radio that still makes a fortune for some broadcasters. Downloading won’t work because who wants to listen to music only on their desk-top? True: people want to be able to take their music away from the desktop computer to the kitchen or the car or beach. Naturally there has been a techno fix. The Rio MP3 player, for instance, is the size of a Walkman, has 6 gigabytes of storage and can hold 150 CD albums in MP3 format. Casio has a wristwatch that can store about an hour and a half of music. Soon, there will be mobile phones capable of supporting the choice, purchase, downloading and storage of music files. The world according to the majors Before the Napster crisis emerged, Martin Kretschmer, George Michael Klimis and Roger Wallis issued a very thorough and insightful report on the recording industry, The Global Music Industry in the Digital Environment: A Study of Strategic Intent and Policy Responses (1996-99). This report was the outcome of a three-year research project financed by the UK Economic and Social Research Council. It is a symptom of the rapidity of change that even a basic description of the structure of the industry as it was a year ago now seems open to question. For the report, the online music industry was more prediction than reality; for us, it already is a substantial and noisy part of the scene. The report did not anticipate file swapping and its potentially revolutionary outcomes. However, it demonstrates that the recording industry was not, as supposed by many, totally asleep during the developments of the last decade. And for the short term at least, it seems basically accurate. Five defensive strategies While the scuttlebut among the artists and the little guys in the industry is that the transnational companies have been disastrously inert in the face of the growing digital distribution of recorded sound, the Kretschmer study found five defensive strategies were in play. Don’t force the issue. We’re doing well in our traditional business. We’re not going to threaten our old market by promoting the new one. We’ll follow the market. Tighten up control of rights. The majors will routinely set up contracts that include on-line distribution rights and internet domain names, and also encode security protection to limit unauthorised use. There is a trend to attempt to side-line the collecting societies, with the companies collecting and paying royalties themselves. Co-opt potential new entrants: especially the network operators such as phone companies, and cable and satellite networks. "Acting collectively, the industry has tried to seek control of the new means of distribution, by exploring strategic alliances in setting up a controlled infrastructure" – e.g. with

telephone companies, or IBM. Note that Warner has merged with the internet provider, America Online. Develop own procedural competencies in the new technology – e.g. on-line delivery, websites, digital data-bases, narrowcasting. Create brand as the music navigator of the on-line environment. The idea is that the record company will become an internet ‘gatekeeper’ for music provision, using its brand name to reassure customers of a "trusted sales environment". However, Kretschmer et al point out that it is really the artist, not the record company, that is the brand. Future scenarios According to Kretschmer et al, despite the five defensive strategies "The music industry will experience a dramatic restructuring… Already there is a shift from tangible to intangible distribution of music, both via an increase of traditional media channels and via the internet. The following supply and demand constraints are likely to determine the future structure of the music industry. On the demand side, the consumers will either opt for high interactivity and a large range of choice, or less interactivity and more trusted suppliers of packages. On the supply side, the options are either a centralisation of content in the form of IPR ownership in the hands of few players, or decentralisation with IPR creators retaining ownership. From these uncertainties, four scenarios can be mapped." I want my TV back. (Limited choice – centralised content) Consumers are passive. They skirt the inundation by content, attending to only a few of the possible channels. This means content is concentrated in the hands of only a few firms. The balance of power moves towards the networks. If the majors refuse to license them their catalogues, they may acquire content directly. There is at least one example of such refusal, followed a few years later by consent. Own-brand goods. (True interactivity – centralised content) Consumers are more active in searching for content. Artists trade autonomy for exposure by assigning IPRs to the record labels. The labels bypass the retailers, selling direct to the consumers from branded sites, so vertically integrating production and consumption. "Label-owned record clubs battle with one another for dominance while alliances are formed between labels with the purpose of achieving critical mass in specific genres." DIY (True interactivity – decentralised content) Artists retain their digital rights and sell directly to consumers – who are aided by search engines and intelligent agents. Stars will attract via their own brand-names. Other artists cooperate in building location- or genre-specific communities of interest. Give me your bond. (Limited choice – decentralised content) Media channels need ever more content for a musically insatiable public. Artists, understanding that record companies are becoming more like banks, realise there could be other sources of risk-finance – and there are, including not just corporations but individuals. …"(T)hird parties act as brokers for copyright to the media." "New distribution formats, and better enforcement of copyright leave the true value of music to the market, which decides the price of each song in real time." Roles in these scenarios Artists. Kretschmer et al agree that artists, whether as individuals or by setting up their own publishing company, record label or management, are able to get their music to market independently of the record companies. However, unless they have special star status, they are relatively weak players in an oversupplied market, and may need to trade IPRs for marketing power. Superstars are in the best position to retain their IPRs because they are their own brand names. The majors worry that they are not indispensable to the superstars. Publishers. Some smaller publishers may continue primarily to produce sheet music along with limited exploitation of copyrights, and adding electronic marketing and distribution to the traditional methods. A second type of publisher is an accounting subsidiary of a record company or broadcaster. As part of the vertical integration of the industry already mentioned, the record company may ‘encourage’ the transfer of IPRs to its publishing subsidiary. An even more contentious practice is "to channel foreign publishing earnings through so-called sub-publishers" which may take up to 50% of all revenues before passing the remainder back to the original publisher which then takes its agreed 30% to 50%. It is through these publishing subsidiaries that the majors attempt to bypass the collecting societies. Record labels. The major record companies may be less invested in production of physical recordings

and be "re-positioned as branded media gateways, as digital distributors or providers of risk finance. In all these areas, they are open to increased competitive pressure from independents within the music industry (publishers, labels, artist management), from network operators (telcos, IT firms) and from financial institutions (venture capitalists, investment banks specialising in securitization)." Retailers. Kretchmer expects that record store margins may come under pressure from e-tailers (although one notes that the latter mostly are not yet profitable despite, in a few instances, high sales volumes). His observation that traditional retailers have the advantage over record company or artist websites of offering a wide selection of goods is being overtaken already by history as large multi-label catalogues are offered one way or another online. The real threat to the physical store comes not from online sales of physical recordings but from the prospect fast downloading over a broadband system. Of course, some of today’s retailers may become successful e-tailers. Media groups. "If media groups control the main communication channels through which new acts are promoted, they may command commodification, globalisation and delivery functions – and thus substantial transfers of IPRs." Already in Japan, broadcasters trade broadcast time for a share in rights. Collecting societies. The collecting societies collect and distribute royalties from the multitude of users of copyright material in their home territory and, through reciprocal arrangements with societies in other countries, extend their reach to the international sphere. This system of managing a very complex situation has had its failings but is nevertheless financially effective. However, the societies are losing their cost advantage. Combine this with the technological ability of multinational rights holders to monitor and collect royalties themselves, and the position of the collecting societies is under threat. The multinationals now try to force the copyright societies into offering special discounted terms. The principles of reciprocity and solidarity are undermined. The three collecting societies in the US "have all but abandoned areas where royalties are expensive to collect". They actually are adding A&R functions (i.e. signing new talents early in their career) and offering individual deals to high turnover superstars. We might note that recording companies and media organisations are known more for their exploitation of artists than their defence of artists’ interests. If they are able to bypass the collecting societies in the administration of IPRs, we lose the voice of the one major player with any financial interest in supporting the artists’ position. Kretschmer advocates a universally applied system of statutory guarantees. Strategies Kretschmer Klimis and Wallis make some developmental or defensive recommendations pertinent to the existing UK industry. These include: institution of a statutory universal service system of IPR collection; blocking the spreading practice of passive royalty-milking over the full copyright term by publisher-broadcasters and sub-publishers; limiting by legislation the assignment of IPRs to specific (active!) exploitation periods, after which they fall back the to the creator. They propose that forced divestments should be considered where there is vertical integration of creation, exploitation and user activities under one roof (e.g. multinational publishing, recording, broadcasting). (This probably is not effectively within the power of the governments of small economies such as Australia.) They make a number of recommendations designed to foster a national music industry in the UK, most of which seem already to have been a part of the Australian scene. For instance: grass-roots performance activities (clubs, pubs) and informal distribution networks (cassettes, fanzines, internet communities, MP3 sites, local radio). Australia’s success has been partly attributed to the live music scene in pubs and clubs, opportunities which however have been in serious decline, with inroads from gambling and such problems as inequitably applied fire regulations. They also suggest promoting access to new media channels and technology in local centres of music activity; regulating broadcasters to require a minimum local content (indeed, the success of the Australian industry dates back to the introduction of such regulations here in the 70s); educating artists in the basics of IPR skills. Some final thoughts It seems to the writer (who is an observer of rather than a combatant in the commercial industry) that, while it is actually impossible to predict the course of the recording industry, unless effective digital security measures can be made to work, its economic base is at least in question. It is true that multibillion dollar companies are applying their resources to finding a solution. But they have been spectacularly wrong in the recent past on a number of strategies — e.g. in introducing digital tapes as a

format to replace the disappearing analogue cassette tape. Curiously, for all their insight, Kretschmer and colleagues do not seem to anticipate some of the problems that now seem so stark. This probably should alert us to the probability that in a situation of such volatile change, we can speculate about but rarely will predict the future. Many in the music industry take comfort that the file-swapping craze demonstrates that there is still a large and passionate audience for music and, they say, if this is the way to energise that audience, let’s go with it. This sentiment is born in part from a growing uncertainty that music could retain its audience against competition from the ever-expanding menu of entertainments. While file-swapping seems now to be a phenomenon mainly of the popular music sector, any music once in recorded form can be made available without permission of the IPR owners unless protected by security devices. This seems to me to mean that all existing recordings could be pirated indefinitely via Gnutella type software. That’s a lot of recordings that could satisfy a lot of musical appetites. What they would not satisfy is the desire for novelty or fashion that is a driving force of the popular music market as we know it. So there could be a continuing demand for new popular recordings, and they could be security-protected, unavailable for free file-swapping and so a means to sustaining or reestablishing a market. This might rescue the record companies. If file-swapping actually removed or seriously damaged the economic base for the record companies, what would our musical world be like? Would recordings be made anyway? How would they be paid for? If there isn’t a rich global market for recordings, would the majors lose interest? If that happened, would the populace transfer its interest away from music and towards other more heavily marketed entertainments, or would it perhaps recover an interest in musical diversity? If recorded music became less important because its financial basis was hazardous, would attention switch back to live music performance? Live performance cannot be file-swapped and its economic basis remains relatively straight-forward. Oh yes. Before we go: some of our customers are asking does the record store have a future. Most people in the business seem to agree that there will be a culling, but that some stores will survive by turning themselves into ‘entertainment’ sites. What exactly that implies is not clear. From what I have gleaned, I have the impression that I for one would not be very much entertained. I do recall a few years ago being virtually unable to get into a New York record story because of the crowd for a live performance by a punk band. Presumably, discs were sold. But I’m not sure that that is in the minds of the Australian retailers. It is predicted also that stores will manufacture discs with customised content on demand — as already happens in Japan. Since the ordinary consumer can already do this online at home — and shortly through and onto the portable phone, this might not be a powerful defence of the record store. 8 References Bontinck, Irmgard and Smudits, Alfred : "Music and Globalization", prepared for the Annual Report of World Culture and Development. Paris: UNESCO, 1997 Gross, Robin D.: Right Here, Right Now: The New Music Industry. 1998. Kretschmer, Martin and Klimis, George Michael and Wallis, Roger : The Global Music Industry in the Digital Environment: A Study of Strategic Intent and Policy Responses (1996-99). Economic and Social Research Council, United Kingdom Napster Copyright Policy. Napster. The State of the Musical Union, Parts 1, 2, and 3. Webnoize Report. Dick Letts is the Executive Director of the Music Council of Australia A SET OF BOXES FOLLOWS Box 1 SIZE OF THE INDUSTRY The world music industry as a whole was worth about AU$78bn in 1997 (Kretschmer et al). This probably does not include such activities as music education. In 1999, the recording industry alone accounted for AU$65 billion(International Federation of Phonogram Producers (IFPI)). 86% of the financial value of the recording industry in 1998 was generated by North America (37%), Western Europe (32%) and Japan (17%). The market grew by 1.5% from the previous year. Australasia was the highest growth region in the world in 1999, with an increase of 5% in value, for a share of about 1.8%. Australia is the ninth largest recording market in the world. However, Australia’s peak sales year was 1996, worth US$815m. 1999 sales were worth US$742m.(about AU$1,280m). Box 2 THE THE VS. THE CORPORATE MONSTER Matt Johnson, leader of the band The The, is very, very unhappy with his treatment by one of the

majors. The following is from a longer letter published on his website It might be noted that Johnson claims a loyal following of 750,000. An implication of his letter is that the majors are now so enormous that even an audience of that size is regarded as unimportant. …Vivendi have just swallowed Seagrams who took over PolyGram and merged it with Universal who had bought Interscope who control nothing Records (home to Nine Inch Nails, Marilyn Manson and TheThe). In order to get the green light for the Universal/PolyGram merger, Seagrams promised their shareholders a return on cuts, not profits. They have a huge artist stable raped from three established major labels and two thirds has got to go, bringing it down to a trim, wealthy machine made up of just the plump ripe sellers. Millions of sales are now required to cover the increasing overheads at these labels. Overheads increase through ludicrous executive bonus payouts, inflated expense accounts and the quest for the Porsche. The artist is put to work harder and faster, in order to feed the machine. Vivendi Universal Sony AOL Time EMI Warner BMG, all represent a basket of share dividends to holders who are quick to move on when the coming gets tough. After a 7 year lay off I recently released NakedSelf, an album that is generally considered one of the best of my career to some of the best reviews I’ve ever had (check the website). I’ve also been on tour since November 1999 selling out shows by word of mouth across Europe and America to fantastic audience response. Yet the reaction from Interscope/Universal has been destructive and negative in the extreme…Seagrams bottle drinks and music using the same machine and the sheer incompetence of this conglomerate just beggars belief… It’s also a sad fact of life that the general public are still fairly ignorant as to how unfair most record company contracts really are. The artist pays for everything yet owns nothing. To receive fair and accurate royalty accounting he/she has to be able to afford to send in a team of auditors every few years to examine the books and this costs thousands of dollars to do properly. Most artists with more than a couple of years experience now sadly accept that the industry is run by principles of institutionalised corruption. The record company position is this; if you want your money you can come and find it. If you can afford to find it then you’ve obviously earned so much that we can afford to give you some. As Universal/Interscope seem either incapable or unwilling (or both) to distribute and promote my album properly, and as they’ve refused to give it back to me… I have therefore decided to offer free downloads of NakedSelf on a song by song/week by week basis from my official site [despite his previous opposition to Napster and free downloading.] By doing so I hope more people (including the bulk of my audience) will finally get the chance to hear this album and hopefully support me by purchasing this CD and future releases… Through their short sighted arrogance and greed the major label media conglomerates are sowing the seeds for their own destruction. Artists are now poised to come off the nipple of the major labels and finally stand on their own two feet. With this greater responsibility will come a greater workload but artists can finally become masters of their own destinies. New technology, both in cheap, high quality recording equipment and the tremendous potential of the Internet, mean that it’s possible for musicians to fund their own recordings, own their own copyrights, distribute their own music and control their own careers. The audience will begin to deal with the artist direct and the middle men will be cut down to size. Box 3 A PRINCIPLED POSITION If you are the Music Council of Australia, from what position do you attempt to assess the ‘Napster’ situation? The MCA would want citizens to have easy and equitable access to the music that they most value. On the "supply side", the MCA would want the musicians who produce the music to be able to work in a context which supports their activity and remunerates them fairly. It would want record companies to have adequate access to the resources needed to support our musical life by producing recordings and making them accessible to an interested audience. While file swapping enables citizens to have easy access to, and choice from, potentially a vast array of music for virtually no cost, it does not remunerate the musicians at all. Nor does it provide the funds which might be used to produce the next recordings, nor the funds which will sustain the record companies that produce, manufacture and market the recordings. The means by which such income has been assured legally is copyright law. Under copyright law, the creator of intellectual property such as a musical work owns the right to decide the terms under which the creation can be "copied" into various tangible forms such as a live performance, a print publication or a recording: hence, copy-right. The rights can be leased or sold whether to those who purchase a recording to use for private pleasure or to those who will invest to produce a recording and bring it to

market. The law slightly blurs the edges of copyright ownership because it sees that there is a counterbalancing issue, namely the public benefit from the free flow of ideas. Hence, the ‘fair use’ concept which permits, for instance, copying not specifically authorised of a small percentage of a print publication. There is some argument about the limitations of fair use in the Napster case. However, that is not the main issue. There is nothing to prevent a creator from authorising free use of his or her intellectual property. If an artist or record company sees a marketing advantage in allowing free copying of their work over a Gnutella or Napster, they can authorise, indeed promote it. The problem with the file-swapping services is that the artist and the recording company effectively are deprived of the opportunity to refuse to allow free use. Their copyrights are stolen from them. Due to the technology (especially in a system like Gnutella), file-swapping escapes copyright law - not the precepts of the law, but its effective imposition. With technology advancing in ways that escape copyright regulation, some start to talk about the desirable weakening or collapse of the copyright regime. Is this an ethically-based position? Readers should be on the alert for self-interest.