Despite 'Piracy,' CD Sales Up

Submitted by: Gamefreak_cd_copy

Source: http://www.wired.com/news/business/0,1367,35848,00

At the heart of two music recording industry trials is whether digital piracy will make people stop buying CDs. As the judge prepares to rule on the first of the lawsuits, statistics show that people are buying more albums than ever.

The world of brick-and-mortal retail looks to be in fine shape, which should be a big boost for everyone in the music business.

Soundscan sales figures -- which are measured by tracking purchasing by recording barcodes -- show that the music industry has grown about 8 percent over last year's first quarter. That's good for the digital music distribution businesses -- MP3.com and Napster -- facing down the recording industry in court, in part due to fears that digital music piracy would hurt sales of CDs.

For the Recording Industry Association of America, the news couldn't have come at a worse time.

"If you start looking at what MP3.com is doing, the company is providing the music from records to people who have already bought them," said digital music lawyer Whitney Broussard. "Even if this is illegal, what are the damages because there aren't really any lost sales? People still have to purchase the CDs.

That could prove damaging to the recording industry's chances in court against Michael Robertson and MP3.com this Friday. That lawsuit centers on whether Robertson violated copyrights when his company purchased 80,000 CDs and digitized the content on its servers. Users could then stream music from those servers by proving they had a copy of the same CD.

As part of their case, the recording industry has to prove that this distribution had caused consumers to stop purchasing CDs.

The bright side is that Robertson is arguing that his database falls under fair use -- a statute that allows individuals to make copies of information they already own for personal use. According to Broussard, that might make the rise in sales a moot point.

"There are certain things that are clearly non-infringing, such as a journalist quoting from a copyrighted work," he said. "Other things would not be fair use, such as bootlegging albums. There isn't a bright line that determines what is and isn't fair use. As a result, not many people run around using it as a defense unless they have to because each court and each judge can deal with the fair use issue differently."

Still, the industry has been claiming rather loudly this year that digital piracy would hurt music retail. Despite the fact that the issue might not come up as focal point in the lawsuit, the fact that people are purchasing CDs at a higher rate than they were in 1999 is going to have to be addressed in the court of public opinion.

Alex Walsh, the vice president of market research for the RIAA said that just because sales are up doesn't mean that its time to declare that digital piracy hasn't hurt the music business.

"If we grew 3 percent as an industry, maybe we could have grown twice as much," she said. "There is just no way to tell how much we could have lost. There is no scientific or empirical way to determine how much more music we could have sold."

She also said that using only one set of numbers posed problems in industry analysis since the music retail is so large and complex.

Regardless of the current litigation, the bump in music sales is a boon to retailers.

National Association of Retail Merchants (NARM) president Pam Horowitz said the Soundscan numbers do a lot to back up what retailers have known for some time -- that people are still going out to the store to buy the music that they like.

"We've learned that brick and mortar retailers are still very formidable," she said. "What we are seeing is that a whole lot of these little girls who are online might not be downloading music. Instead, they are talking about N'Sync in chat rooms."

Still, she said, the early anecdotal evidence NARM has been gathering has shown that MP3 files have been in a big factor in the college market this year. But not enough of a factor to drive down sales.

What the lawsuits have done, she said, is given the industry a chance to take a deep breath and figure out how to make sure that overall music sales continue to climb with the help of digital distribution.

"Most retailers are interpreting these numbers in terms of an overall percentage of change," Horowitz said. "The change in Internet retail looks like a tidal wave from where it started, but in terms of actual dollars this is just a drop in the bucket. We are still selling a lot of CDs in stores.We have time to figure out what the new business models are going to be. We just have to start now."