Time Magazine Loses Journalistic Perspective

In the May 5 issue of Time magazine, it become very obvious that the truth is sold to the highest bidder. Interestingly enough, Time's story indicates that the RIAA is lying again. Or their story is wrong. One or the other. Their numbers don't even come close to jiving with the RIAA's 2002 End of Year statistics.

April 30, 2003

Dear Time Magazine,
I would like to reply to the story from your May 5 issue, titled, "It's All Free!"
I found this story on the Internet at the following address.
http://www.time.com/time/magazine/article/0,9171,1101030505-447204-1,00.html

As a musician and a recording artist, albeit unsigned, with 30 years of experience in the music industry, in one form or another, I take serious issues with the story you have presented. As with each and every story on this topic which I have seen in the major media, you have not provided one shred of empirical data to support the "downloading is theft" myth than "sales are down."

Let's start with Page one of the online article, paragraph 3.

"CD shipments last year were down 9%, on top of a 6% decline in 2001."

They shipped out 9 percent less product. Maybe. According to the RIAA's own 2002 Yearend Statistics (freely available at www.riaa.org), this figure represents net units shipped after returns. Did they ship less? Or did they get more back?

You did not answer this simple question. Without doing so, your analysis is based on assumptions, not facts.

Page 2 Paragraph 5
"Now that last year's numbers are in, we have the answer. According to Nielsen SoundScan, CD album sales slid from 712 million units in 2001 to 680 million in 2002. CD sales in the first quarter of 2003 were down 15 million units from last year. Or look at it this way: in 2000 the top 10 albums in America sold 60 million copies; in 2001, 40 million; in 2002, 33 million. Nobody knows for sure exactly how much of the decline is caused by piracy, but it's safe to say the answer is somewhere between "some of it" and "most of it." Sure, the economy had a down year, but people found enough spare change in their couches to boost sales of MP3 players 56% over 2001. And while consumers bought about 680 million albums last year, they purchased 1.7 billion blank CDs - up 40% from the year before."

This is particularly interesting in that the same 2002 year-end statistics indicate that in 2002, retail sales of ALL FORMATS COMBINED were 675.7 units. You say they sold 680 million full-length CDs. What happened to the other almost 200 million units that were shipped?

Likewise, in 2001, the RIAA reports that only 788.6 million retail units were sold, in all formats. Your story says 712 million units were CDs.
And do not forget that, in 2001, the industry shipped 968.5 million physical units. Only 733.1 million are reported as sold (all formats) by the RIAA. What happened to the other 255.4 million physical units?

In fact, using the average retail value provided by the RIAA, in the last five years, the industry has shipped out enough free goods to finance the war in Iraq. $20 billion. Don't try to say that they're in the record stores or may be coming back eventually. The missing units from 1997 still haven't turned up.

If the industry explains away more than half of these free goods, they have been lying to the artists for years, all of which are charged 15% off of their royalties for free goods. So we're looking at a minimum of $10 billion over five years, an average of $2 billion a year.

And speaking of lies to the artists, what about a 25% packaging fee which reduces a $10 wholesale base royalty by $2.50. I can buy CDs from www.discmakers.com for as low as 99 cents each. If I go with my four-color, fourpage insert, it costs $1.89. But if I run more than 1,000 at once, my cost drops. And Don Henley is getting charged $2.50 for the packaging alone.

Page 2 Paragraph 7
"Reality bit, and deep. In 2001 EMI brought in new top management, including chairman of EMI Recorded Music Alain Levy, to help navigate the brave new digital world. The administration promptly laid off 1,800 employees (20% of EMI's staff), which helped absorb the impact when sales fell 10% in 2002 - and created an executive position, global head of antipiracy."

Why doesn't EMI's 2001 end-of-year report say anything about piracy? What it DOES say is that EMI is one of the most efficient record labels in the world.

Remember, I can get CDs produced, fully packaged, screen-printed, four-page insert, jewel case, shrink wrap and barcoded for a maximum of $1.89 each. EMI's Cost of Goods Sold, according to Hoover's Online is currently 71 percent of revenue -- for a product that costs them less than a dollar to make and wholesales for $10 to $12. If this is the most efficient label in the world, it's no wonder that every label's stock price is currently about half of what it was last year at this time. I'm selling my CDs for $5 and I'm making $3 on every one.

I belong to ASCAP, both as a writer and as a publisher. I have my own label, MacWizards Music. It's very small, but it's a lot more efficient than EMI. I make my CDs one at a time. At home. On my Mac. On CD-Rs.

You want to know who is buying all the CD-Rs? Me. And the other 250,000 independent acts just like me. I've bought a couple of hundred in the last 12 months. I'm putting my music on it, not Sting's.

Page 3 Paragraph 5
The ruling is a stinging blow for the R.I.A.A. and the M.P.A.A., which brought the suit (and will appeal it), and it tells us a lot about how the war against piracy will be fought. If file-sharing services won't sit still and be sued, individual users will make easier targets. Case in point: lawsuits filed last month against students at Princeton, Michigan Technological University and Rensselaer Polytechnic Institute that seek billions of dollars in damages - $150,000 for each pirated song.

This was certainly a sound business decision, wasn't it? Sue the core market demographic and then complain when they stop buying CDs. And don't just sue people off the street. No, that's too easy. Sue the next generation of lawyers and technical-savvy college students. The RIAA already can't keep it's website running.

Page 4 Paragraph 1
But the legal fight is far from a sure thing. Copyright laws are slippery and subjective - the judge in the Grokster case made a special plea in his ruling asking Congress to fix gaps in the laws that cover file sharing.

Yes, please, let's fix the gaps. Because there is a lot more authorized music that is out there that we are begging people to listen to than there are those that are asking us not to. Ours is willingly given. We want you to listen to it.
www.dmusic.com -- 20,000 acts. More than EMI and Warner Music combined.
www.garageband.com -- Almost 2 million songs in the current catalog. All free. All authorized for public use.

And while we're talking about the legal fight, what about mp3.com? Let's see, it is stealing to download music. Vivendi owns mp3.com. Look at some of the people who have authorized music there:
Bon Jovi, Carmine Appice, Bacon Brothers, Christopher Cross, Cowboy Junkies, David Bowie, Eric Clapton, Foo Fighters, Four Tops, Godsmack, Gregg Rolie, Jerry Lee Lewis, Jimmy Buffett, Jimmy Eat World, John Mayer, Linkin Park, Little Richard, Mariah Carey, Pat Travers, Peter Gabriel, REM, Rod Stewart, Roger McGuinn, Sinead O'Connor, Spencer Davis Group, Wallflowers, The Who, Tom Jones, Van Morrison, Ziggy Marley, Michelle Branch.

If I want to post mp3s there, I can post one. Otherwise, stealing from me is not enough. I must pay Vivendi for the privilege.

This rule went into effect on January 15, 2003. On this single day, Vivendi unceremoniously deleted about 80% of the authorized free content which, until their acquisition of mp3.com, had been dominated by independent artists.

No one will acknowledge that there is ANY authorized music, much less admit that it comprised the bulk of the music available on the Internet. You just don't know where to look. And how do you tell the authorized from the unauthorized Eric Clapton or Bon Jovi songs? Until you admit that there is authorized music, you can't even approach this question..

"Still, you don't have to be Alanis Morissette to spot the irony in a zillionaire celebrity pleading for sympathy. "

Did you pay attention to the Napster hearings? Alanis argued that mp3s were a promotional tool. Don Henley said that the RIAA did not represent the artists.

"After a spoofed version of Madonna's new album, American Life, started circulating on the Net, featuring a recording of the Material Girl saying "What the f--- do you think you're doing?", a hacker took over the singer's website, Madonna.com, and posted real, downloadable MP3s of every song on the album."

Although it backfired, ask Madonna how much she spent creating that mp3 file. And how fast it went around the world.

Page 5
Pressplay and the other "legitimate" music services are more reliable than Kazaa and its ilk. For one thing, there's no porn and no spoofing, and Apple's new offering is expected to give the whole process a more streamlined, user-friendly feel. These services also give customers the peace of mind that comes with not breaking the law. It will be interesting to see how much that's worth. But for now listeners are staying away in droves; industry analysts estimate that the legitimate downloading services have fewer than 300,000 users in all.

The "spoof" files are placed the by the RIAA or people working for them, according to Hilary Rosen at the recent NARM convention where she was named Humanitarian of the Year. (Note to NARM -- the next generation of musicians is going to find something besides t-shirts to sell).

"Can copy protection stand up to a hacker army of teenage Jon Johansens? It's possible."

No it's not. I am an audio engineer. If I can hear it, I can re-record it. There is nothing you, or Hilary Rosen, or the FBI or anyone else can do to stop me. Ever.
Unless they start releasing blank CDs.

"But all this raises an interesting question: What if the pirates win? ... The major music labels would disappear; ditto the record stores that sell their CDs."

The major labels were created to connect the consumer and the artist. That was their initial purpose. Today, for the first time in history, I can reach a global audience without them. And also for the first time in history, the record label is the greatest obstacle between the consumers and the artists.

We don't need them any longer unless they evolve into some sort of service entity. And a service entity has no claim to my copyrights. Ever. Or 90 percent of the profit from my product.

"The age of millionaire rock stars would be over; they would become as much a historical curiosity as the landed aristocracy is today. Instead, musicians would scratch out a living on the touring circuit, since in an age of free music the only commodity they would control is live performance, along with any merchandise they could hawk in the parking lot after the show."

What you have described is the situation today. The Los Angeles Times recently featured a story about the band Incubus, revealing that a 30% royalty on a $10 wholesale price is $1.85. If that's not bad enough, the band sold 7 million copies but still owes on their $4.25 million advance.

Without a record label, Natalie Merchant believes that 50,000 copies of her new CD will earn her more money that her last major-label album, which was a "flop" at more than a million copies sold.

What aboout the free advertising potential? How many millions of dollars can each and every artist save by dropping one mp3 file on the Net instead of paying Clear Channel to broadcast it?

Yes, there is a matter of control. I'm allowing my first CD to be downloaded. All of it. If I'm successful, maybe the next one, I'll only want to share half. On the other hand, mp3s are NOT CD quality music. They sound worse than a transistor radio. They only contain 10 percent of the original data. If you think mp3s are a substitute for the CD, I'm not going to sell you a CD anyway. Your ears don't work well enough to make you a customer or a fan.

"The entertainment industry's grand plan for surviving piracy isn't just about the stick; there's a carrot too, a big one. The Internet offers a whole new way of selling music, and when music and movie executives are not expressing their outrage over downloading, they are salivating over a potentially massive revenue opportunity."

As I said earlier, the musicians of the world no longer need the major labels. Unless the RIAA successfully criminalizes the mp3 file for anyone's use but their own. Then they control the entire market. Again.

This is about control. Nothing more. Complete and total market domination.
They're going to charge you just as much to listen to inferior mp3 files as they expected you to pay for the CD. And they wonder why no one is logging on. Perhaps if the record labels started introducing something that people wanted to hear instead of suing their core market demographic, business would turn around.

Or maybe it's too late already.