What Happened to the RIAA’s Missing 3.5 Million?

The RIAA has highlighted research which indicates that its closure of P2P site Limewire has significantly reduced P2P levels in the US.  Unfortunately the evidence is not as clear cut as it may first appear.

According to the various sources the RIAA cites (mainly a combination of Nielsen and NPD data) the effects between September 2010 and September 2011 in the US of Limewire’s closure were:

  • 95% reduction in usage of Limewire by its users
  • Total P2P users declined by 9 million
  • Total legal downloaders grew by 5.5 million

An immediately apparent trend is that 3.5 million P2P users appear to have disappeared entirely from the digital music consumption landscape (i.e. 9 million ‘lost’ P2P users minus the 5.5 million new paid downloaders).  For argument’s sake let’s assume that 100% of those consumers that abandoned P2P switched straight to paid downloads. That would mean that 39% just dropped out of digital music.  But of course a 100% transition is improbable.  Also many (the majority?) of the new downloaders will not have previously been P2P users.  So what happened to the missing 3.5 million?  The answer is found in a combination of three factors:

  • P2P is a technology in decline for music piracy.  Consumers are going elsewhere, to what I term Non-Network piracy.  That is, activities such as Bluetoothing, harddrive swapping, phone ripping, darknets, binary groups, lockers etc.  Individually each activity is small but collectively this is where music piracy is heading.  I remember in my days as a JupiterResearch analyst that as we watched German P2P penetration decline steadily year-on-year in apparent response to music industry anti-piracy measures, we also saw Germany become Europe’s largest Non-Network Piracy market, actually exceeding P2P penetration.  And that is going back a lot of years now.  Today much more still needs to be done to better understand Non-Network Piracy, particularly so in the age of cloud-based music experiences.  Because the same arguments about ownership mattering less for legitimate services apply to piracy.  Downloading an MP3 file from BitTorrent may seem as incongruous to a Digital Native as buying a CD.  Measuring piracy effectively in the age of cloud means viewing illegal streaming services and even music blog streams in the same way as illegal downloads.
    Bottom Line: many of those missing 3.5 million will actually be happily sating their appetite for free unlicensed music via Non-Network Piracy.
  • People lie.  I’ve been tracking music piracy for long enough to know that it is unwise to draw definitive conclusions about year-on-year trends.  In Sweden for example, in the early and mid-noughties P2P penetration dropped from 28% to 18% following the closure of a legal loophole and then again to 12% following government enforcement.  Within a couple of years penetration was back up in the mid 20’s%.  Furthermore the main ISP Telia reported that it had seen no noticeable decline in P2P traffic levels.  As Dr. House’s mantra goes ‘People Lie’.  On the one hand this proves that enforcement is effective in that it makes people conscious they are doing something wrong and don’t want to admit to it, until the heat dies off. But on the other it suggests that the impact can be superficial for many file sharers.  Though untruthful respondents should be less important for Nielsen’s panel methodology than NPD’s survey methodology, bear in mind that file sharers are often pretty savvy consumers who use dedicated computers for download.  So it is not unreasonable to expect many to switch their P2P activity from their metered PC for the same reason they wouldn’t admit to file sharing to a survey vendor.
    Bottom Line: surveys are better at measuring consumer attitudes to piracy than they are actual behaviour. 
  • Limewire is closed! A 95% reduction in usage of Limewire by Limewire users sounds pretty impressive until you consider that the site was actually been closed down by the RIAA in October 2010.  Limewire agreed to ‘stop supporting and distributing’ its P2P client.  A number of unauthorized spin-off clients (such as LimeWire Pirate Edition) were created but a visit to Limewire’s site reveals a message urging users to refrain from using these apps and to remove them from their computers).
    Bottom Line:the majority of Limewire users unsurprisingly stopped using the defunct client. 
  • P2P users are holding their breath. A significant share of the missing 3.5 million may well have stopped downloading illegally for now.  But if they are not buying downloads nor using Non-Network Piracy then they have markedly changed their music consumption behaviour,  perhaps increasing their use of YouTube, listening to more radio, watching more music TV.  For active music downloaders this means an effective dis-engagement from music, falling on the ‘supporting’ channels as their main behaviour.  This will have 1 of 3 long term outcomes: 1) they remain disengaged, casual music fans 2) they finally opt for legal services 3) they eventually go back to piracy.  Of the three, the third is the most likely outcome.
    Bottom Line: nature abhors a vacuum.

Whack-a-Mole Remains Firmly Game-On

The last factor is arguably the most important, particularly in the context of locker services running scared in the wake of the Megaupload arrests.  The demand for free music remains whatever happens to supply.  Closing most of the current illegal channels creates a demand vacuum that will unfortunately be filled, and the history of music piracy to date teaches us that what comes next will be even more difficult to enforce than its predecessor. However there is a fortuitously timed wildcard factor which may help aid the digital transition.  Since July 2011 Spotify has been available in the US, so many of those lost Limewire users may quench some or all of their free music thirst there.  But because we still don’t have any definitive data to suggest that Spotify is reducing piracy so we must keep Spotify as a wildcard for now.

The slightly depressing conclusion in all of this is that the Whack-a-Mole game is not over. But encouragingly the RIAA’s Joshua Friedlander states:

The single most important anti-piracy strategy remains innovation, experimentation and working with our technology partners to offer fans an array of legal music experiences.

I couldn’t have put it better myself. Of course enforcement remains an important part of the mix, but there is an increasing risk of negative ROI (both in financial and publicity terms) that the music industry can ill afford at the moment. Closing down sites hits supply not demand. The solution to piracy lies first and foremost in innovating to meet those clearly demonstrated consumer needs.

10 thoughts on “What Happened to the RIAA’s Missing 3.5 Million?

  1. There’s too much free music out there. All of the indie bands offer very incredible works for free yet so many people still want the stuff they have to pay for, which to me, is becoming more and more drab, lifeless, soulless. Only geared towards dollar signs and being the life of the party or radio.

    You know where I think those 3.5 million are headed, to the indie circuit. Where musicians are engaging with their fans and building small communities around their brand. Where musicians are making their fans feel important for supporting their talent and hard work. These days music lovers are willing to abandon their old habits of acquiring music for newer ones that are legal and offer can offer a product they can relate to as well as make money from. New music industrty Bands are getting their fans involved and offering them a chance to get paid for being supporters by spreading the word to others who are like them that enjoy the same music. As long as the record industry continues to view its artists and their fans as “The Bottom Line”, that industry will continue to decline.

    Serves them right…I suppose.

  2. Great blog post (as ever). I am with Joshua Friedlande at the moment. I am looking for the next digital innovation. It could be an intermediary technology as you previously suggested, or it could be an interface that actually has some soul to it. Music is sold much like white goods, but I think the buyer wants more. The record store had that certain something, which has been lost for now.

  3. Glenn – agree entirely. We are in the age of selling music experiences not audio products. If you haven’t already seen them, take a look at my ‘Agile Music’ and ‘Music Format Bill Of Rights’ reports. You can download them free of charge here: https://musicindustryblog.wordpress.com/free-reports/

    If you want to discuss further drop me a line at musicindustryblog AT gmail DOT COM

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  7. It is technologically possible to permit or deny the transmission of files. That is a fundamental concept in software and in network routing. The issue is that a very large group of influential technology business owners make a lot of money from not paying for content, and they take advantage of less technologically sophisticated people by saying that denying or allowing forwarding and transmission of files will “break the Internet.” Internet companies work together to block and limit spam and no one has any philosophical problem with that – because they don’t make billions from spam the way they make billions from selling ads on pages that offer free content.

    Pirate music consumption is not declining and is in fact growing. Limewire / gnutella usage just shifted to BitTorrent where now people just download an entire artist’s discography where they used to just take a song on Limewire. At its height, Limewire had 50 million users. BitTorrent has 150 million monthly average users today. Envisional found that BitTorrent is 11% of all worldwide Internet traffic and data volume on BitTorrent and other lesser used p2p technologies is forecast to grow at more than 20% per year through 2015 according to Cisco.

    The latest Cisco VNI forecast that 119,364 Petabytes of data were transmitted on the Internet in North America in 2011. Envisional found that 2.9% of BitTorrent traffic is used for music. 2.9% of 11% of 119,364 Petabytes is 651 Petabytes. If the average music download is 8MB, then that is 132 billion uploads and downloads of music files occurred on the Internet in the US in 2011, up from 40 billion worldwide in 2008 (IFPI). If this sounds unbelievable, just look at the top torrents on Pirate Bay, Isohunt and Demonoid. They are entire discographies and compilations like this weeks Billboard Hot 100 that download in a couple minutes. Hundreds of millions of people now steal music in 100 to 500 track chunks.

    Copyright is a proven business model. Music is worth protecting. It is completely possible to monitor, deny or permit the transfer of data on a file by file basis. The issue is that the gatekeepers, the ISPs, the search engines and the internet ad networks make far more money and wield far more political clout than the content industries. They also proactively disseminate disinformation to confuse less technologically sophisticated “artists.”

    Streaming is not the savior of the music business if people can just get the product for free. Google any song, movie, book, software or game with the word “download’ after it and you can have it in seconds for free with no consequences.

    Stealing and enabling stealing is not innovation. Society just needs to make up its mind what its priorities are, enabling one class to get away with stealing or protecting and promoting the creative working class, something that has been proven good for society for decades.

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  9. Piracy will always happen. Should it be blocked over the internet, then we will go back to the days of having syndicates sell disks in dingy shops.

    People who buy originals, buy originals (I own about 150 PS3 games, on bluray, and a whole lot of PSN content as well.)

    I for one am certain that all this screaming about piracy is nothing but a trojan horse to bring about internet censorship. The people behind all this are politicians (and other vested interests) seeking to destroy the free internet.

    Consider this: were ‘online activations’ cracked any slower than were disk-based protections? The makers of The Witcher will not be implementing DRM in the future – the sole effect DRM had was to mess up the lives of a great many people who actually went and paid for the game.

    Anyone still remember that cute little game that crawled into your kernel, installed the DRM code… and then you had to reinstall the OS? Thanks for that!

    Consider this: ‘online activation’ means that you do NOT own a game, you may merely play it as long as the registration servers are active… oh, also your computer must never ever crash – because if it does, you have to go and buy ALL THE GAMES again. Sure, !sometimes! you can email and beg, but who wants to do that for EVERY game you had installed??? How is this not INSANE?!

    Mmmm. What was that about people buying online activated music, and then having the server shut down, causing them to lose everything THEY HAD PAID FOR… I must have dreamed that.

    Here is the thing. Why should anyone pay for something, which has NO resale value, and which can be canceled at the whim of an EA executive (or similar)? Sure, I’ll pay – but maybe only a 10th of what I would otherwise pay.
    Apart from the people who play online war-games, the average human being will want to, for lack of a better word, ‘own’ the game. Hey, I might just one to play it again someday. And, hey, I might just want to lend it to a friend so that he could play it. And now piracy is literally the only avenue that allows these things!

    Piracy is flourishing because of that glitch in human nature, the one which detects injustice. These EA-bastards think they can trample it down with their socialist-like anti-customer practices. They are wrong.

    Here is the thing that EA has come to epitomize: for abject greed on the part of the corporations to succeed, it is necessarily required that there be no alternative to their INCREDIBLY customer-hostile activities. In order for them to be able to SQUEEZE… the free internet must be destroyed. And you expect sympathy for them? Are you serious?

    Oh. Shall we talk some more about the resale value of online-activated games? Which is ZERO? In one fell swoop EA-and-the-rest turned what was a physical asset you bought and owned, into… a system of… cr@p.

    THAT is what all this piracy nonsense is about: they want to be able to sclew you over as much as possible, and you must not be allowed any recourse.

    So please spare me this nonsense of ‘it is stealing!’ No, its not: the corporations are trying REALLY HARD to sclew over EVERYONE, and people are not playing along. Sorry if that bothers you, but they can no more cry foul than the mob can cry foul if someone should steal from them. They made their bed, and now that everyone with a normal intelligence HATES them, they are all like crying and stuff. Aw shame.

  10. If the industry had to work with there customers and not against them they could virtually stop piracy in it’s tracks, as it is now any block put in place and restriction will just encourage more and more sharing of content to be hidden, why do you think piracy levels are down, not because of limewire or any of the other closures but because there are now ways to hide what people are doing online, ways that can never be traced back to the source, yes the industry has done more to encourage everyone to think about there anonymity online , to think about who can track there activity not just illegal but also legal , Now it is at the stage where for a very small fee which could have instead gone to the industry going to vpn networks and proxy servers. and darknet systems. Or people just sharing through flash drives and hard drives, nothing is easier than transferring data, that is what the internet was designed to do, and anyone calling for file sharing to be stopped on the internet has absolutely no understanding of how the internet works, it is all about sharing files, nothing else that is what the internet does, every time you click a link you are loading another file, to stop people from transfering mp3’s for instance would mean noone , not even the studios could transfer or sell there content. And even then it would only affect a mionority of people as most now know how to get there entertainment from a multitude of places, free and legal. it is jsut not what the music industry is spiting out at the moment.

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