10 Pushy Questions for Cary Sherman

According to IFPI, there are some 500 legitimate online music services in over 40 countries today. U.S. record companies have licensed hundreds of digital partners that offer a range of models: download and subscription services, cable and satellite radio services, Internet radio Webcasting, legitimate peer-to-peer services, video-on-demand, podcasts, CD kiosks and digital jukeboxes, mobile products such as ringbacks, ring tunes, wallpapers, video downloads and more. The range of these deals alone is incredibly exciting -- and there are no doubt many more to follow. And it’s a reflection of an industry that has become digitally literate and recognizes that the foundation of its future is the digital marketplace, offering music to fans when they want it and how they want it.

As you note, though, the digital marketplace, while making tremendous strides, is not yet replacing physical losses. That makes protecting the integrity of the digital marketplace all the more critical -- and our work there is not yet done.

Q 2: How, if at all, has consumer behavior changed over time with respect to unauthorized file-trading? Has the volume increased or decreased? Is it more or less widespread among demographic groups?

The nature and understanding of online music theft have changed dramatically since the RIAA first launched its individual user lawsuits in the fall of 2003. We have made great progress, both in holding responsible the illegal businesses profiting from copyright infringement and in deterring many individuals from engaging in illegal downloading behavior. Broadband penetration more than doubled over this period, while the number of users engaged in illegal file-trafficking has remained relatively stable. And, equally importantly, awareness of the law is now near universal.

On college campuses, though, the illegal downloading habits of students remains disproportionately problematic. Some data: a survey by Student Monitor from Spring 2006 found that more than half of college students download music and movies illegally. According to NPD, college students alone accounted for more than 1.3 billion illegal music downloads in 2006. While college students represented only 10% of the sample in one NPD study, they accounted for 26% of all music downloading on P2P networks and 21% of all P2P users. College students surveyed by NPD reported that more than two-thirds of all the music they acquired was obtained illegally.

Hardcore users are another group that continues to represent a real problem. While the number of households illegally downloading music has remained basically stable, data from NPD shows us that the number of songs illegally trafficked by those households has grown.

At the end of the day, the pirate marketplace online still dwarfs the legal marketplace. In 2006, there were approximately 900 million legal downloads according to SoundScan. But data from NPD shows about 5 billion illegal downloads from the most popular pirate P2P networks in 2006. We have made progress, yes. But this reality must change.

Q 3: The RIAA recently announced a new legal initiative aimed at curbing file-sharing on college and university networks and has sued more than 18,000 Internet users for copyright infringement. Apart from the merits of any individual case, is there data to indicate whether your legal efforts against file-trading to date have affected behavior in the aggregate?

Absolutely. Everything we have done has helped to impact attitudes, practices, cultural norms, awareness and the business climate for legal services.

Even in an environment where broadband penetration more than doubled since the spring of 2003, the number of users engaged in illegal file-trafficking is up just modestly -- from 6.9 million households in April 2003 to 8 million in January 2007, according to NPD. Awareness about the law has also skyrocketed. In June 2003, the percentage of those polled who said it was illegal to make music available for free from a computer was 37% -- and 29% actually thought it was legal. Now, the percentage of those who say downloading for free is illegal is 73%. The fear of lawsuits is one of the top reasons cited by consumers for reducing or stopping P2P file-trafficking (NPD).

There’s no question that a significant problem persists, one that compromises the industry’s ability to invest in the new bands of tomorrow. That’s especially the case on college campuses and amongst hardcore P2P users. But think about what the online music marketplace would look like had we done nothing. Illicit P2P use would be skyrocketing and the legal marketplace would not have had the oxygen to have any chance of success.

Q 4: As you know, Steve Jobs of Apple recently advocated the complete elimination of digital rights management software on commercial music downloads and blamed its continued use on iTunes on the record companies. What effect do you think his comments have had on the debate surrounding the use of DRM?

Ultimately, we all want to see this marketplace work and for fans to enjoy the music they have lawfully bought on various devices or services. It’s just a question of how.

We think an interoperable set of music services and devices can expand the market for everyone. But you don't need to throw out DRM to solve the interoperability problem. Apple could license its DRM to other technology companies. Apple could also participate in any of a number of worldwide standard-setting initiatives designed to make DRMs interoperable. Steve may have been advocating one particular point of view in his post, but he also elevated the discussion about viable alternatives in the process.

Ironically, he may have also energized a discussion about his motives behind the post as well -- a discussion some might say the post was meant to avoid in the first place.

Q 5: The use of proprietary DRM schemes has recently become a hot political issue in Europe. What is the RIAA’s position on mandating DRM interoperability?

We strongly believe that we should have interoperability. But we think this should be done in the marketplace, not by government mandate.

Q 6: The RIAA reacted sharply to the introduction of the FAIR USE Act in the House (HR 1201), despite what appeared to be efforts by Reps. Boucher and Doolittle to make their bill more palatable to copyright owners than previous versions. Why is the bill still problematic from the RIAA’s point of view?

Proponents of the bill claim it legalizes hacking only for “non-infringing” uses. But as Congress recognized when it enacted the DMCA, the difference between hacking done for non-infringing purposes and hacking done to steal is impossible to determine and enforce. That’s why Congress created a review process that takes place every three years to determine whether fair uses of copyrighted works are in peril -- and why Congress gave the power to the Librarian of Congress to take away DMCA protections in cases where fair use is in danger.

With billions of copyrighted works still illegally trafficked each month on illegal Internet services, Congress should be looking for ways to limit piracy, not facilitate it by undermining existing protections.

Q 7: The RIAA’s hiring of Mitch Bainwol was widely seen at the time as an effort to bolster the industry’s ties to the Republican leadership then in control on Capitol Hill. How will the Democratic takeover affect RIAA’s ability to influence legislation?

Mitch was hired for his skills as a supreme political strategist. Our issues really are bipartisan, and Mitch continues to lead our organization with great professionalism and talent.

Q 8: With the growing ease of recording and distributing music digitally, how do you see the relationship between artists and record labels evolving over the next decade, and what will that mean for the RIAA’s ability to speak effectively for the industry?

To start, it’s important to consider the purpose of the record label in full. We do more than simply provide a studio and turn out CDs. Record labels are investors, nurturers, promoters and more, with an essential role to play -- now, in the past, and in the future -- no matter the business model. The Internet has empowered many in the music community to find their niche, but record companies have and will continue to play a central role.

Q 9: How might a merger between XM Satellite Radio and Sirius affect the RIAA’s pending litigation against XM?

Well, Mel Karmazin has certainly made his views on this subject very clear. In fact, he recently stated in testimony before Congress that he supports paying artists for the ability to allow satellite radio subscribers to record music from their radios. And it is Karmazin who will be the CEO following any potential merger.

Q 10: It’s often remarked that the movie studios have had the luxury of learning from the record companies’ mistakes in responding to the Internet. What do you think is the most important lesson for them to learn from the music industry’s experience?

I would not agree with the characterization of “mistakes.” Yes, some might argue whether the industry transformed itself quickly enough -- it’s hard to develop new business models with multiple rightsholders overnight -- but whatever anyone’s conclusions about the past, no one can reasonably question the fact that we are fully embracing all forms of digital music now.

Certainly, the motion picture industry has been the beneficiary of our efforts to establish clarity on what you can and cannot do on the Internet. We often take some of the tough but necessary hits to establish some legal rules of the road in the online world that they benefit from.

We’re all in this together. It may be easy for some, with 20/20 hindsight, to sit back and critique, while benefiting from the hits we took. But with incredible growth of super-fast Internet connections, ultimately, any intellectual property industry will confront what the music industry has and will need to develop the right combination of business strategies, educational outreach and targeted deterrence.

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