RIAA President to stop downloading, save the empire

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RIAA Press Conference

November 18, 2005

Moderator: We are pleased to welcome as our CPNewsLink guest this afternoon Mr. Cary Sherman, president of the Recording Industry Association of America (RIAA). The RIAA's member companies are responsible for creating, manufacturing, or distributing 90 percent of all legitimate sound recordings sold in the United States.

Moderator: As many of you know, the RIAA is an organization frequently in the news when it comes to issues of online file sharing and music piracy, and recent weeks have been no exception. The recent shutdowns of file sharing services Grokster and i2hub have generated headlines across the country.

Moderator: Today, we will have the chance to hear from Mr. Sherman on these developments and others affecting colleges and universities in the wake of the Supreme Court's Grokster decision this summer.

Moderator: Mr. Sherman, welcome.

Cary Sherman: Good afternoon. It's great to join you all once again in this forum. I very much appreciate the invitation. Before taking your questions, I have just a few opening remarks.

Cary Sherman: When it comes to illegal downloading, a great deal has changed since I last participated in an online chat with college reporters in April of this year: The U.S. Supreme Court has ruled unanimously in MGM v. Grokster that not only individuals but businesses that encourage illegal file sharing can be held accountable for their actions.

Cary Sherman: That decision was followed by a series of similar international rulings in Korea, Taiwan and Australia, where the Federal Court found Kazaa to be illegal.

Cary Sherman: Earlier this month, Grokster agreed to settle with the major record companies, movie studios and publishers, marking an important milestone in the continuing transformation of the online marketplace. And just this week, we saw reports that i2hub had gone dark.

Cary Sherman: What does all of this mean? Contrary to what you might think, it means even more options for enjoying music and movies online. These developments have given the legitimate online marketplace a tremendous boost - enhancing our ability to invest in new bands and new music.

Cary Sherman: This is, after all, about more than just the artists at the top of the Billboard charts. This is about the next generation of music. It's less about the musicians of today and more about the unsigned musicians of tomorrow. When you download a song illegally or burn a copy for everyone on your dorm, you are undermining the ability of the music companies to invest in the next great up-and-coming band you have yet to hear about.

Cary Sherman: The impact of these efforts is already being felt on college campuses across the country, with almost 80 schools now offering students a legitimate music service. This is tremendous progress from just two years ago, when this map was qute literally empty. Yet we recognize that there is considerable work still to be done, particularly in regard to addressing the emerging challenges of campus Local Area Networks or LANs as well as unauthorized hacks of iTunes such as myTunes and ourTunes.

Cary Sherman: We look forward to continuing our work with the university community on these important issues as well as our work with music services that respect the laws protecting creators.

Cary Sherman: With that, I am happy to take your questions.

Moderator: Let's begin with a question that's on everyone's mind... On a timely note, what do you make of the shutdown of the i2hub file-sharing network earlier this week? What does it mean for students and file-sharing on campus?

Cary Sherman: We've seen the same reports that i2hub has shut down. To the extent that this reflects their reading of the Grokster decision, we're not surprised. In fact, other p2p's appear to have read the decision the same way, as WinMX has also reportedly shut down, and other p2p's are in active discussions for how to turn their businesses into legitimate services. What this ultimately means is that venture capital money and advertising money will flow to licensed music services, which will give them the incentive to innovate and provide even better music experiences to their consumers. The winner will be music fans who want better and better online music experiences.

Moderator: OK, now we will turn it over to our participants for some questions. Participants, if you can, when asking a question, please state your school and newspaper name at the front of your question.

Moderator: And now we will move to take our first question...

UMass - Amherst, The Massachusetts Daily Collegian: Mr. Sherman, I am wondering what your thoughts are on the price of music to the public. In that what is the production cost of a CD and how much of the money goes to the musicians and the record company as profit. I feel that a lot of people cannot justify spending $15 on a CD to give more money to people that are already very wealthy.

Cary Sherman: It's a common misconception that when people spend $15 on a CD, they're simply paying ultra-rich megastars and big record labels. First, a lot of that $15 goes to the record retailer who is trying to make a living by selling music. But more importantly, behind the artist you've heard of, there are countless others who have contributed to that recording or to trying to make that recording a commercial success. Studio musicians and background vocalists, the members of the band, the studio engineers, the producers, the songwriters and publishers, the marketing and promotion people -- you wouldn't believe how many people get involved in the making of a CD from conception to distribution. They make their living by the revenues that are earned from the sale of the product. When people download it without paying for it, or get a burned copy from someone else, there's that much less money for the people who worked to make that recording. And there's also a lot less for record labels to invest in another artist tomorrow.

USC, Daily Trojan: Can you please briefly explain what i2hub is?

Cary Sherman: i2hub is (or was) a file-sharing network that was specifically configured to operate on Internet2, an ultra-high-speed network largely used for academic research purposes. Unfortunately, the major use of i2hub was copyright infringement, especially of movies and music albums, because they could be transferred in minutes instead of hours.

Columbia University, Columbia Spectator: With fears of illegal file sharing throughout the music industry, many companies have taken measures into their own hands. Within the last two weeks, there has been a great deal of discussion about Sony BMG's rootkit program. Does the RIAA condone such actions on the part of individual companies to protect their profits?

Cary Sherman: There is nothing unusual about technology being used to protect intellectual property. You can't simply make an extra copy of a Microsoft operating system, or virtually any other commercially-released software program for that matter. Same with videogames. Movies, too, are protected. Why should CDs be any different?

Cary Sherman: The problem with the SonyBMG situation is that the technology they used contained a security vulnerability of which they were unaware. They have apologized for their mistake, ceased manufacture of CDs with that technology,and pulled CDs with that technology from store shelves. Seems very responsible to me. How many times that software applications created the same problem? Lots. I wonder whether they've taken as aggressive steps as SonyBMG has when those vulnerabilities were discovered, or did they just post a patch on the Internet?

Cary Sherman: One other thing to point out: The music industry has been more permissive about copying of its copyrighted product than virtually any other industry. How many burns are you allowed of a movie? None. How many of a videogame? None. You get the idea. Even the CDs with content protection allow consumers to burn 3 copies or so for personal use. The idea is not to inhibit personal use, but to allow personal use but discourage (not prevent, you can never prevent) copying well beyond personal use.

University of Southern Mississippi, The Student Printz: History seems to show that anything done to stop files sharing will only create new methods and technologies to get around their controls. In light of that, should the middlemen (RIAA, et al) be thinking about ways to bring consumers what they want -- which they'll mostly end up getting in any case -- instead of futilely struggling to keep their finger in the dike, which ultimately only causes further public unhappiness with them?

Cary Sherman: History also shows that no matter what is done to stop bank robberies or shoplifting, some people will always find a way around those techniques. Does that mean we should simply give up and allow people to take what they should be paying for? Record companies ARE trying to give consumers what they want. Think of how music was available just a couple of years ago and how it's available now. You can buy an individual track, at any time of the day or night, and get it instantly on line. You can subscribe to services with a million-and-a-half tunes to choose from that you can listen to whenever you want, for an all-you-can-eat monthly fee.

Cary Sherman: And these models are just the beginning. Online offerings (as well as new forms of physical offerings) will continue to get better and better. That's the marketplace at work.

University of Southern Mississippi, The Student Printz: If gun makers are not liable for the public's illegal use of their products, why are p2p sites?

Cary Sherman: If a gun manufacturer encouraged a gun owner to use the gun in the commission of a crime, you can be sure that they'd be liable. The Supreme Court said that Grokster could be liable for actively encouraging or inducing its users to commit copyright infringement.

Moderator: A question submitted via e-mail... It has been said that since the lawsuits began a couple of years ago, the number of P2P users has doubled. It seems that the lawsuits are not really that effective at stopping the file-sharing problem. What can the RIAA do at this point to make a bigger difference in the ongoing battle against piracy?

Cary Sherman: There's a lot of conflicting data about the level of p2p file sharing. It's not easy to monitor what is actually happening on the Internet, so I guess it's not surprising that the data would be inconsistent. We've seen data that shows that file-sharing has remained relatively flat, and some that shows growth, but at far lower than the rate it was growing before the lawsuits. And relative to broadband penetration, which has gone way up, file-sharing has been either level or gone up only slightly.

Cary Sherman: Whatever we do, we know that file-sharing will continue, just as physical piracy will always continue no matter what we do. We all recognize that the most important thing we can do to deal with illegal activity online is give consumers a better alternative -- a legal service that they love. That's what lots of companies are now doing, and we hope that ultimately the legitimate marketplace will outpace the illegal downloads.

U. of Houston: What future measures does the RIAA plan against music piracy? Is it going to be protected so no one can make a copy of cds?

Cary Sherman: You've got to distinguish between what RIAA does and what individual record companies do. RIAA will continue to protect intellectual property rights in court, etc. But only an individual record company can decide to use copy protection on a CD. Record companies have different policies on whether to use such technology, but I know of no record companies in the US that have sought to prevent the making of any copies at all. Everyone understands that consumers want to be able to listen to their music in their car, in the family room, at the beach, and that allowing them to do that is part of giving them a great music experience. So even when a CD is protected, it will almost certainly allow personal use copying.

Moderator: And that leaves us time for one more question.

UMass - Amherst, The Massachusetts Daily Collegian: Thank you for your answer, Mr. Sherman. Is it not rather harsh of the RIAA to be suing college students that most likely will not have the ability to pay the fines imposed on them? And along those same lines will the RIAA still follow though with the lawsuits even after all the p2p networks are shutdown and college students get the point and stop downloading music illegally?

Cary Sherman: Obviously, anyone who has stopped downloading (or uploading) illegally will not get sued. Lots of college students try to justify taking music for free because they can't afford it. That, of course, is no excuse, any more than it would justify stealing a CD from a record store. And for generations, students have spent their hard-earned dollars on the music they love in the local college record store. How many of those stores are left now? Makes you realize just what the impact of illegal downloading can be, and why we've taken the actions we have.

Moderator: Mr. Sherman, any closing remarks?

Cary Sherman: I want to thank all of you for participating in this afternoon's chat. Illegal file sharing on college campuses is an issue that looms large for us, making it all the more important that we take opportunities such as this to help the higher education community better understand our positions and actions. Thank you for your thoughtful questions and for your time today.