Original URL: http://www.theregister.co.uk/2005/08/08/oz_legit_downloads_fail/

Oz legit downloads fail, and fail again

The complacency, the expense

By Alex Malik

Posted in Financial News, 8th August 2005 09:59 GMT

Analysis Australian lawyer, academic researcher and music industry commentator Alex Malik presents the first of a two part look at the Australian market for digital downloads. His research has found that while IFPI are spinning the success of authorised downloads, the reality shows that at least in Australia, there are substantial gaps in available repertoire and a heavily protected market controlled by the majors. He can be contacted at Alex.Malik@student.uts.edu.au.

If you examine the behaviour of the international recording industry in relation to so-called internet piracy, you can classify its behaviour in one of three ways:

1. A campaign of civil proceedings (and where possible criminal proceedings) against individuals and companies they claim are involved in unauthorised downloading,

Here are some examples of record industry proceedings against: • P2P services like Grokster (in the US), Kazaa (in Canada, the US, the Netherlands, and Australia), and other services, • ISPs like Comcen and Swiftel (in Oz) and against international ISPs which dare to refuse to divulge the personal details of their clients, and • Individuals (in the US, Canada, the UK and other jurisidctions).

2. An education campaign aimed at discouraging individuals from downloading sound recordings from websites and services that they have not licensed.

Examples include:

3. A campaign designed to encourage music consumers to source their digital music files only from so-called authorised sites.

IFPI, the body that represents the worldwide recording industry recently proclaimed that “the legitimate digital music industry is expanding fast globally (and) single track downloads in the top four online markets in 2005 have more than tripled in the last year.” Strangely enough ,this press release also found its way onto some of its member websites. (For example – the Canadian version is here.)

It is apparent that IFPI view legitimate sites as websites where consumers can purchase licensed digital downloads of sound recordings, with a share of the revenue going to record companies. IFPI reports more than 300 legitimate websites around the world offe digital downloads to consumers. IFPI even publishes a list of approved sites on its por-music website – does this mean any site not on this list is a pirate site? (... another question for another time!)

So the legitimate digital music industry is booming. Excellent! Let us investigate this claim from an Australian perspective.

Australia is one of the world’s top 10 markets for recorded music by size, and is the source of international recording artists such as Kylie Minogue, Natalie Imbruglia, Catherine Britt, Ben Lee, Keith Urban, Jet, the Vines and Delta Goodrem. Yet in Australia, there are only three companies that offer downloads to consumers – HMV/Ninemsn, Telstra’s Bigpond Music and Destra (through a series of other companies such as Sanity).

Why are there only three major Australian services, when there are so many more international services? There is no definitive answer to this question, but it appears that Australian record companies have simply refused to support other services. Australian record companies appear to cling stubbornly to traditional business models. They accept that they can make more money by having consumers purchase physical CDs, rather than digital downloads. They hope that consumers will return to the CD purchasing habit … but why would they when digital downloads have proven to be so easy and popular for young Australians?

Out of iTunes

The best known licensed site in the international market place is iTunes.

Some of you may like or dislike iTunes, but few Australians have ever experienced iTunes despite the booming sales of iPods. This is because despite all of the hype, hysteria and promise, the iTunes download site continues to be unavailable to most Australian consumers. Despite the self- proclaimed importance of the Australian recording industry, Australia is not one of the first 19 countries to have an iTunes operation. Aside from countries like the US and UK, Australia has been beaten to the service by countries such as Denmark, Norway, Sweden, and Switzerland. Australian consumers can’t even access the US iTunes site without a US-issued credit card. In effect Australian consumers have been locked out of iTunes.

Why are Australians missing out on iTunes, when Australian consumers can access Amazon to purchase books from the US, and can view US based webcasts?

There has been a great deal of speculation on this point. Irrespective of the answer, it appears that the worldwide recording industry has artificially divided the world up into different markets so they can regulate new music releases and price downloads differently in each market, thereby maximising profits in each market. It sounds a lot like the ill-fated DVD zoning which as I recall cleverly zoned Australian DVDs as Zone 4, along with South America!

The inability of Australians to access iTunes in the US and other markets works as a prohibition on the parallel importation of digital downloads. Economic theory suggests that this prohibition may act as a price support mechanism, resulting in Australian consumers paying a higher price for digital downloads. In reality, this differential pricing in the digital music market already exists. iTunes and other US services typically charge US99 cents each (although Walmart charges less). So US consumers pay $1.30 per download (converting to Australian currency), compared to the standard Australia price of $1.89 per digital download.

This type of differential pricing would not exist if there was a single worldwide market for digital downloads. And yet Australian bricks and mortar CD retailers can import CDs from the US or elsewhere if they wish to do so. There have even been Federal Court cases about parallel imports involving Australia’s competition regulator, the ACCC! (Here is an example.

The inability of Australians to access iTunes in the US and other markets has had a number of other economic and social effects. The unavailability of iTunes imposes a significant brake on the use by Australians of internet shopping to acquire digital music downloads. Further, Australians have reduced choice of digital downloads. This breeds an environment of complacency for Australia digital download providers, who arguably have a lower market profile than their overseas based counterparts.

In any event, ARIA and its members (including the four “majors”) have made money from the bricks and mortar business of selling CDs (or cassettes, or vinyl in the past). It’s been a successful business model which has made record companies substantial amounts of money in the past. However, much of today’s youth have grown up with the experience of downloading music from the internet, rather than buying CDs. This has resulted in a substantial amount of illegal activity, as young music consumers download music without the permission of copyright holders. However, rather than embracing this model and looking towards the future, Australian record companies seem to be busy holding back the years. ®

Tomorrow, in part 2 of “Oz legit downloads fail and fail again” Alex Malik looks at how Australian consumers can’t purchase digital downloads of many of their favourite songs … leaving them with very little choice.

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