P2P is here to stay: Music companies must get real

The international music recording companies are spending millions of dollars in legal fees these days. Their target - the online file swapping business that is allowing consumers around the world to avoid buying CDs by downloading songs and even complete albums for next to nothing.

But the aggressive tactics of the record companies' lobby group, the Australian Recording Industry Association (ARIA) and its US counterpart in trying to close down file swapping of music seem doomed to failure. Until the music recording industry comes to grip with the fact that its product is too expensive, the file swappers - P2P traffic as it is called - will grow their market.

New research by the University of California, to be presented at a major global conference on communications in Dallas at the end of November, finds "The assertion of declining P2P traffic was in direct contrast to the constant increase of P2P activity over the last year and counterintuitive to the fact that P2P applications are still the top most downloaded applications (on) the internet".

The research paper, Is P2P dying or just hiding? is the most comprehensive analysis to date of the impact of the American recorded music industry’s attempted crackdown on free music downloading.

In spite of the millions of dollars that have gone into investigations, raids and court cases across America - over 5,000 people have been sued - in the past couple of years, this paper concludes “P2P is here to stay” and that the amount of P2P traffic for 2004 is equal to, if not more than the amount for 2003. The P2P providers are smarter than the recording industry, say the researchers. Providers are making their “traffic harder to identify”.

In the US, at least, the P2P providers are forcing a small reduction in the price of CDs - albeit only 50 cents.

But in Australia sales are down by 9 per cent in the first 6 months of 2004, according to a September 30 report in USA Today. Perhaps that’s because the price of CDs in this country remains outrageously high. As someone who reviews CDs for the Hobart Mercury each week, I know this all too well. Paying up to $35 for classical and jazz CDs, and between $25-$30 generally, is a fair hit on the hip pocket.

Being presented with the opportunity to download songs and whole collections free of charge, or at a nominal cost, is pretty tempting for many people.

That’s why Internet measurement firm Big Champagne has reported that the number of people using file-sharing services around the world is up to 6.8 million in August 2004 compared with 4.3 million 12 months earlier - a staggering 30 per cent increase.

But there is one music recording company that is making it less of an incentive to download free music - that’s Naxos. Naxos sells about 3 million CDs a year in Australia.

The founder and owner of Naxos, Klaus Heymann, who lives part of each year in New Zealand, has no fear of people downloading his music illegally and distributing it far and wide. Why would anyone take the risk when Naxos is always priced at $9.99?

Classical, jazz and popular musicians demand astronomical fees from recording companies that willingly pay them. That fact, coupled with the high cost of marketing and distribution networks throughout the world, keeps the cost of CDs prohibitively high for many consumers and makes the Internet such a life-threatening experience for many labels.

But Heymann has always paid artists less. He has figured rightly that too many orchestras, groups and individuals in the music business are paid more than they are worth and the critics seem to agree with him. The prestigious UK magazine, The Gramophone has awarded Naxos’ recordings almost 40 major awards. Heymann has also kept his costs down by keeping his distribution networks to a minimum. He has now bought out his Australian distributor, for example.

And the redoubtable Mr Heymann has anticipated the Internet’s potential to eat into his profit margins by looking at selling music directly to consumers over the Internet.

Naxos is demonstrating the most sustainable business model for music recording companies in the Internet age. It’s image among consumers and the media is overwhelmingly positive, unlike that of its more established counterparts.