[Infowarrior] - Music Industry Lures ‘Casual’ Pirates to Legal Sites

[Richard Forno]

July 20, 2009
Music Industry Lures ‘Casual’ Pirates to Legal Sites
By ERIC PFANNER
http://www.nytimes.com/2009/07/20/technology/internet/20stream.html?hpw=&pagewanted=print

PARIS — Record company executives say there are three kinds of music  
fans. There are those who buy music, and those who get a kick out of  
never paying for it. And then there are those whom Rob Wells at  
Universal Music Group calls “dinner party pirates”: the vast majority  
of listeners, those who copy music illegally because it is more  
convenient than buying it.

If those low-level copyright cheats could be converted to using legal  
music services, the digital music business would get much-needed help.  
Yet even industry executives acknowledge that until recently, they  
were not giving those listeners many ways to do what they wanted: to  
sample new music and to play it back anytime, at little or no cost.

Over the past year, however, as sales of CDs have continued to fall  
and paid-for downloads from services like Apple’s iTunes have fallen  
short of hopes, record companies have moved to embrace casual file- 
sharers. Legal services offering free, unlimited streaming of music,  
rather than downloads, are proliferating. According to a survey  
published last week, they are taking some of the wind out of the  
pirates’ sails.

“Consumers are doing exactly what we said they would do,” said Steve  
Purdham, chief executive of We7, a service that says it has attracted  
two million users in Britain in a little more than half a year by  
offering unlimited access to millions of songs. “They weren’t saying,  
‘Give me pirated music’; they were saying, ‘Give me the music I want.”’

The music industry has high hopes that the growth of sites like We7,  
whose investors include the former Genesis musician Peter Gabriel, can  
change the reputation of Europe as a hive of digital piracy. Similar  
businesses include Deezer, in France, and Spotify, which was started  
by two Swedish entrepreneurs and has grown rapidly in Britain and  
elsewhere. All of them are licensed by the music industry and hope to  
make money from advertising.

Last week, Microsoft said it, too, planned to offer a music streaming  
service in Britain, via its MSN Web business, though it provided few  
details.

Meanwhile, the survey by two research firms, Music Ally and Leading  
Question, showed that Britons were adopting such services in large  
numbers. Among British teenage music fans, 65 percent said they  
listened to streamed music at least once a month, with 31 percent  
saying they did so every day.

The survey showed a striking decline in the number of British  
teenagers who said they had regularly engaged in unauthorized file- 
sharing; only 26 percent said they had done so as of January, when the  
survey was taken, compared with 42 percent in December 2007.

Music industry executives say that does not mean the piracy problem  
has been solved. The survey results did not distinguish between  
licensed and unlicensed streaming services or others, like YouTube,  
where both kinds of music can be found. Illegally copied music still  
accounts for the vast majority of digital listening, they add.

Still, executives say there are some promising signs. Rather than  
cannibalizing existing digital businesses, they say, the new services  
are often attracting people who previously shared files illegally.  
According to research by one of the major record companies, nearly two- 
thirds of Spotify users say they now engage in less piracy.

Spotify says it has two million registered users in Britain and  
another two million in Sweden, Spain and France. Paul Brown, managing  
director of its British arm, said it wants to expand to the United  
States by the end of the year.

There, it would go up against a number of digital businesses that also  
offer free music in various ways, including MySpace Music, Imeem,  
Last.FM, Pandora and others.

While Pandora has said it expects to be profitable by the end of the  
year, analysts say most other free streaming services are still losing  
money. Some advertising-supported free music sites, like SpiralFrog,  
have already gone out of business.

“You only have to use these services for a while to realize that  
there’s not a lot of advertising on them,” said Paul Brindley, chief  
executive of Music Ally.

Analysts say the European services like Spotify, We7 and Deezer are  
different from most of the American streamed offerings because they  
focus on the music, rather than using it to build, for instance, a  
social networking service. They also give users more control than,  
say, Pandora, which is more like an online radio service, with  
preselected programming, rather than on-demand listening.

To try to supplement advertising income, Spotify offers users a  
premium service, priced at £9.99, or $16.32, in Britain, which  
eliminates advertising. The company also plans to add other  
enhancements to the premium service, including a mobile offering for  
Apple’s iPhone and other devices.

Mr. Brown declined to say how many users were upgrading to the premium  
service, but added: “Each new addition creates customers who say,  
‘Hey, I want that.’ It’s not just about the ads.”

Over all, he said, revenue has doubled every month since the company  
began its commercial operations in Britain in February.

Costs are rising, too, because Spotify and similar services pay  
royalties to rights holders, including music companies, every time a  
track is streamed.

Those payments are turning into a promising revenue source for the  
record companies.

In Sweden, a market where piracy has been rampant, Spotify is already  
the biggest digital revenue earner for Universal Music, even though it  
has been operating for less than a year, said Mr. Wells, senior vice  
president of Universal’s international digital operations.

Analysts say record companies have agreed to reduce licensing costs  
slightly in recent months, with the typical going rate dropping to  
about 0.8 cent a track from 1 cent a track. The labels are also  
striking different kinds of agreements, insisting on equity stakes in  
some cases, or a share of revenue from advertising or subscriptions,  
in an effort to ensure that they benefit from the growth of the new  
services.

“Now they have to turn these into sustainable businesses,” said Dan  
Cryan, an analyst at Screen Digest in London. “You can have 1,001  
start-ups, but if they all close down after two years, you’re not any  
better off.”