Intellectual Property Music/DVD

By: Megan Haskin

COM 2500
December 2, 2014

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I did my project on the Intellectual Property of music and DVDs and there is a
huge problem with music and movies being pirated aka copied and sold to the public
illegally. There are two beliefs about music piracy one that it hurts record sales. Second
the only copyright regime is that is can help the music industry eradicate music piracy.
Goes along with the same laws as in the movie industry. This paper will explain while
the first belief is right while the second is wrong; as the music industry overlooks the
complementary effort of music piracy on products such as MP3 players. While a regime
in which Apple pays royalties to music producers for legalizing music piracy benefits
most students and music producers at the expense of Apple.
People pirate music on the Internet because of the cost of doing so is low. If the
cost is even lower, more people would pirate music. Recent advancement in Internet
connection speeds has reduced the time cost of pirating music over the Internet, which
has led to the growth in music piracy. The marketing research from Big Champagne find
that there in an increasing trend of people searching, clicking, and pirating music. The
average simultaneous users of P2P software in the U.S. has increased from 3.5 million in
August of 2002 to more than 6 million in October 2006. This growing munber of music
pirates translates into a large number of pirated song.
Music is important to Americans. The average American enjoys almost an hour of
music per day. Before Napster, a major source of this enjoyment was music records.
Record sales almost quadrupled between 1990 and 1999. The 1990s were a heyday for
the industry. However, once Napster appeared the scene in 1999, record sales declined

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by $3.6 billion. The music industry believes that music piracy hurts record sales; actions
taken by music industry representatives reveal this belief. In 1999, the RIAA sued
Napster, the lawsuit led to the shutdown of Napster in 2001. In addition, between 2003
and 2005, the RIAA sued approximately 11.700 individual pirates, despite the
reputation cost of suing its own customers.
They argue that there could be other more important factors leading to the
decline in record sales. First, there might be a shift in entertainment spending from
music records toward recorded movies. Second, people might have replaced their old
LPs with CDs in the mid 1990s, which boosted record sales them, but by 1999, which
was the year, coincidentally, the year Napster began to operate, people has finished their
replacement process. Also, the emergence of digital (online) music stores, like iTunes,
provides an even closer substitute to CDs. On top of these other factors, Oberholzer-Gee
(2007) argues that music piracy may in fact boost record sales since it allows consumers
to learn about music they would not otherwise be exposed to.
This has two counteracting effects on society. In one hand music piracy
minimizes monopoly distortion in the music market since P2P technology reduces the
marginal cost of distributing music to virtually zero. But in the short run, taking the
music supply as a given, people are able to pirate and enjoy more music using P2P
software like Napster. Society benefits from music piracy. But in the other hand, music
piracy hurts record sales, and reduces income to music producers, and stifles their
incentive to create new music. In the long run, music producers create less music, and
people have less music to enjoy. Society may suffer from music piracy.

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In the No Music Piracy Regime, the government increases the expected

punishment of piracy in order to eradicate music piracy. This provides music producers
enough income and incentive to create music. Eradicating music piracy is difficult, yet
possible if Internet Service Providers cooperates. Currently there are proposals in
France and Britain urging Internet Service Providers to voluntarily band together and
crack down on pirate subscribers. While the music industry loses income from
declining record sales, many complements of music, including MP3 players, have
experienced growth in sales and revenue in the era of music piracy. Apple, for example
the producer of iPods which is the dominant brand in the MP3 market, is no exception.
According to the revenue data from Apple Inc, revenue of iPods grew from $344 million
in 2003 to $7.6 billion in 2006. The Free Royalty Regime replicates the regime
proposed by Fisher (2004) and Natanel (2003). In this regime, music piracy is legal,
and Apple pays royalties to the music industry for the boosted iPod sales. The
implementation of the Free Music Royalty Regime beings about two effects on society;
In one hand if royalties provide enough incentive for music producers to create music,
this eliminates the wedge between price and marginal cost and creates a surplus gain in
the music and market. In the other hand, the royalty burden placed on Apple creates a
distortion and surplus loss in the iPod market.
Another piracy issue is File Sharing it has become one of the most common
online activites. Files sharing occurs in networks with allow individuals to share, search
for, and download files from one to another. A key property of these networks is that
sharing files is largely non-rivalrous because the original owner retains his copy of a

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downloaded file. These featues fuled the dramatic growth of the file sharing particularly
of copyrighted music recordings. While few particitpated in the file sharing prior to 1999
(the founding year of the now defunct Napster), there were more than three million
simultaneous users sharing over half a billion files on the most popular network in
2003. Each week there are more than one billion downloads of music files alone.
Participation in file sharing has also grown. Over 60 million Americans above the age of
twelve have downloaded music. File sharing is heavily skewed to youth. While a majority
of Americans under eighteen have downloaded files (Edison Media Research, 2003).
Among U.S. Adults at least eithteen years old, the number of downloaders has about
doubled since 2000. Because physical distance is largely irrelevant in file sharing
individuals from virtually every country in the world participate.
There is a tremendous interest in understanding the economic effects of the file
sharing. As file sharing becomes easier and faster, a greater variety of information
goods, including movies and software, are likely to be downloaded as well. The effects of
such downloads are likely to parallel the experience to date with sales of recorded music.
According to the RIAA (2002), the number of CDs shipped in the U.S. fell from 940
million to 800 million between 2000 and 2002 (though shipments continued to rise
during the first two years of popular file sharing 1999 2000). The record industry has
claimed this decline is due to file sharing. Such casualty , however, is unclear. While file
sharing is significantly reduces the financial cost of obtaining music, it has an
ambiguous theoretical effect on record sales. Participants could substitute downloads
for legal purchases, this reducing sales. Alternatively, file sharing allows users to learn

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about music they would not otherwise be exposed to. In the file sharing community, it is
a common practice to browse the files of other users and to discuss music in file server
chat rooms. This learning may promote new sales. Individuals may use files sharing to
sample music, which will increase or decrease sales depending on whether they like
what they hear. The availability of file sharing could change the willingness to pay for
music, either decreasing it (due to the ever present option of downloading) or increasing
it because music tacks have gained a new use, sharing with others. Finally, it is possible
there is no effect on sales. File sharing lowers the price of music, which draws in low
valuation individuals who would otherwise not have purchased albums. That is, file
sharing primarily serves to increase total music consumption.

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Works Cited
Bajpai, Yogesh and Parul (2011). Impact of Intellectual Property Rights on the
Music and Film Piracy: A General Study
http://www.ijodls.in/uploads/3/6/0/3/3603729/ijodl7.pdf
Edison Media Research (2003). The National Record Buyers Study III. Sponsored
by Radio & Records. http://www.edisonresearch.com.
Fisher, W. W. (2004): Promises to Keep. Stanford University Press, Stanford, CA.
Netanel, N. (2003): Impose a Noncommercial Use Levy to Allow Free Peer-to-Peer
File Sharing, The university of Texas School of Law, (009), Law and Economics
Working Paper.
Oberholzer-Gee, F.. and K. Strumpf (2007): Effect of File Sharing on Record
Sales: An Empirial Analysis, Journal of Political Economy, 115(1), 1-42.
RIAA (2002). The Recording Industry Association of Americas 2002 Yearend
Statistics. http://www.riaa.com
Wikipedia http://en.wikipedia.org/wiki/Copyright_infringement

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