Industry's Anti-piracy Efforts 'doomed To Fail,' Says Forrester

With the mainstream music industry having invested copious amounts of time and money in attempting to create a legitimate downloadable music market online—and having just started to roll out secured product in small batches—the assertion that it is "doomed to fail" in those efforts would understandably not play well in executive suites.

But that contention, laid out in a Sept. 19 report from Forrester Research, is also not coming as any surprise, according to several executives, who note that reports of the traditional music industry's demise at the hands and mice of Web pirates are not new.

"[Online analysts] have been trying to kill us off for years," says one major-label staffer who requests anonymity. "They haven't been right yet. We don't think they are right now."

The Forrester report does not suggest that the music business is doomed but does argue that its legal and technological efforts to protect itself from Internet piracy are "doomed to fail"—and that record companies will lose $3.1 billion in annual revenues to file sharing by 2005.

The report argues that digital rights management (DRM) technologies are too clunky to gain mainstream consumer acceptance and that peer-to-peer swapping of music tracks online is too powerful to stop via the courts.

Forrester analyst Eric Scheirer, author of the report, says that laws and litigation against companies like Napster and MP3.com can't stop file-sharing. Even if Napster is shut down, Scheirer says, decentralized, noncorporate services that are much harder to sue, like Gnutella and Freenet, will likely take its place.

"Trying to stop those kinds of services would require some kind of deep regulation of the Internet," he says. "And that's not going to happen."

That, in turn, only leaves the labels the option of more extreme legal measures against individual users and Internet service providers—a decidedly unattractive scenario.

"Draconian enforcement will only make things worse," the report states. "Server analysis can identify the worst Napster offenders, and watermarking can be used to identify people who make digital copies of analog output. But imagine the PR backlash that would result from sending teenagers to jail for stealing music—newspapers would run angry editorials and crazed hackers would demolish music Web sites."

Frank Creighton, senior VP/director of anti-piracy for the Recording Industry Assn. of America (RIAA), acknowledges the public relations issues involved in attempts to enforce copyright online and says the group has been "very sensitive" to that.

"But you know what?" he adds. "We've already lost that battle. The media has spun us as being anti-technology, anti-MP3, and [as] trying to maintain a choke hold on the distribution of sound recordings, when it's completely the opposite—we're very excited about technology.

"But we also know we need to be careful," he adds. "The record companies have billions of dollars of artist assets tied up in their current business plans, and they shouldn't just frivolously toss it into the Internet—particularly given the fact that there is almost no business successfully making money on the Internet."

On the same day that Forrester released its report, the RIAA announced its half-year anti-piracy statistics, which reveal its stepped-up efforts to protect those label assets online.

The trade group says it sent out more than 4,600 notices to music sites for allegedly illegally offering copyrighted material via commercial Internet service providers—a 200% increase over the total sent in all of 1999. Also rising sharply—from 360 in 1999 to 460 in first-half 2000—were the number of notices sent to sites that link consumers to unauthorized files. More than 1,600 online auctions of items such as pirated CDs or CDs of MP3s were shut down in the period, Creighton adds, compared with 375 for the same period last year.

"While there is plenty more to be done—and plenty more we will do—we are making real progress," Creighton says. "So there may be some naysayers out there, but we don't think it's a lost cause by any means."

Beyond its anti-piracy efforts, the music industry has also been working to keep copyrights secure via DRM technologies—something the Forrester report takes an equally skeptical view of.

Forrester forecasts that over the next two years, the major labels will try a variety of DRM-based proprietary services, all of which will fail. Ultimately the industry is expected to be left with no choice but to embrace the MP3 marketplace.

At the same time, Forrester predicts that artists will increasingly break away from the majors to distribute their content independently—a shift that will help increase the number of value-added subscription services, paid downloads, locker services, and ad-wrapped music content from both major labels and independent distributors. In the process, Forrester estimates that the content-service industry will grow to $3.3 billion; subscription services will generate $3 billion in new revenue; and content creators—musicians and authors—will see more than $2 billion in additional income.