Rampant trading of songs means that record labels will lose $3.1 billion in potential record sales by 2005, as online music piracy increases and as artists continue to break away from labels and go independent, according to a report released today by market watcher Forrester Research.
|Content out of control: why lawsuits won't end music piracy|
"Right now, most traditional (record) companies are focused on providing security and using security to protect and control distribution of content," said Forrester analyst Eric Scheirer. "That proposition has no future in it. Content won't be controlled. Content can't be stopped legally."
At the same time, Forrester found that movie studios and video game publishers have less to fear and more time to plan a profitable digital media strategy.
Recording companies that follow a strategy based on controlling content are doomed to failure, Scheirer said. What they need to do to better compete against Napster and music-swapping sites like it, he said, is to create services providing the content the way consumers want it and using the formats and business models consumers want.
In recent months, the record industry and Napster have been facing off in court. In the 9th U.S. Circuit Court of Appeals in San Francisco, Napster is seeking to overturn a lower-court decision that threatens to shut down the company.
The Recording Industry Association of America (RIAA) submitted a brief two weeks ago, largely supporting a district court's July decision. In that ruling, U.S. District Judge Marilyn Hall Patel ordered Napster to block any major-label songs from being traded using its service.
For its report, called "Content out of Control," Forrester interviewed executives at 50 entertainment companies that produce a range of content, including music, movies, books, video games and TV shows. They say they will use digital rights management (DRM) technology to stop file sharing, the technology on which Napster is based, and will sue similar online sites and consumers that do not respect their copyrights.
After speaking with several makers of DRM technology, Forrester believes this strategy will fail.
DRM allows a content provider to set restrictions on the use of material, such as the number of copies customers can make and the number of CDs they can "burn," or fill with songs recorded from a computer.
Forrester argues that DRM can't prevent file sharing. In addition, lawsuits will only continue to drive consumers underground to other file-sharing Internet services such as Gnutella and Freenet, according to the report.
"Consumers don't want business rules or restrictive technology...and it only takes one person to break down the security barriers and share content on the Net," Sheirer said.
Fate will be kinder to movie studios and video game publishers, at least for the time being, according to Forrester. Consumers have less of an urge to catalog and collect video games and movies than they do CDs or books, the report said.
"The important difference between the music and movie industry comes in the way the consumers want to use the content," Scheirer said. With music, he said, "consumers want to build up a collection. They want to make custom playlists...For film, it's not nearly as much of a driving force. For films, if I want to watch a movie, I'm more than happy to go to Blockbuster (to rent a movie) or watch it on pay-per-view."