It’s been a bad time for the music industry. The “Big Four” corporations that make up the RIAA have all posted losses or seen their shares plummet. Warner Music saw their shares drop by 74 percent in the fourth quarter of 2007, while EMI lost 260 million pounds in the 2006/2007 fiscal year.

How did they get to this point? If you ask the RIAA, they’ll point to rampant piracy online, cutting into their shares and stealing money from the artists’ pocket. There’s another cause, though, and it’s one the RIAA might be less willing to admit—they have simply failed to keep up with the times.

The RIAA first missed the boat with Napster. They created a spectacle, complete with a musician hand-delivering a cease and desist notice, and set off a war between themselves and the Internet. The lesson file-sharers on the Internet took away was not that file-sharing was wrong, but that there had to be a way to share files so that the RIAA couldn’t prosecute you. Ironically, the RIAA’s opposition has helped file-sharing technology accelerate substantially, leading to technologies such as Bittorrent and iTunes. At least with iTunes, the RIAA has seen the wisdom of collaborating with Apple, which has made iTunes extremely successful medium for buying music.

The never-ending war against file sharing has also hurt the RIAA in terms of public perception. From suing dead grandmothers to telling college students to drop out of school to attempting to force universities to install monitoring software, the RIAA comes across as less like a business protecting their intellectual property, and more like a draconian corporation beating down on defenseless citizens.

All that time and effort, though, seem to have been wasted. File sharing is alive and well, and EMI, Universal, Sony and Warner have seen billions of dollars lost. Partially, this is due to the economic slowdown.

The MPAA, on the other hand, has done a better job coexisting with piracy. They’ve done this not only through being less draconian than the RIAA, but also because their product is more difficult to pirate.

Next time you’re online, try to find a bootleg of a movie currently in theaters. )I know, I know, you’re a law-abiding citizen, but just try it.) Now watch it. If you tell me you got a pristine copy of the movie, with no flickering lights, no silhouettes of people in the front row getting up to leave and a decent sound quality, I’ll know you’re lying. There are no perfect bootlegs out there. Pirates know they’re getting an inferior product when they download a movie instead of paying $10 for a movie ticket.

Maybe, though, you found a pirated movie ripped from a DVD. That’s great! Sit back and enjoy. As you’re watching, though, try not to think about the features you’re not getting, such as subtitles, commentaries, featurettes and all the other goodies a DVD offers. Again, it’s an inferior product. You’re better off getting the DVD itself. Let me also suggest that if someone doesn’t want to pay money for the movie or the DVD, they’re not that interested in seeing the movie anyway. Blockbuster and Netflix may argue the point, but if someone watches a pirated movie they had only a faint interest in anyway and they like it, the odds of them being interested enough to watch more movies by the director/actor/special effects crew are increased.

Of course, the MPAA has the consumer paradigm working for it, too. Trading movies or taping them for friends is a lot less popular than trading songs. The RIAA, on the other hand, has let people tape songs from the radio and record songs for each other for years, letting the general public have the impression that it was okay.

So what happens now? As things stand, the “Big Four” are dinosaurs. When file-sharing first appeared, they had the chance to embrace it, make it theirs. Instead, they’ve positioned themselves as the enemy of file sharing, as the technology has gradually become extremely popular. They’re far behind the music distribution curve, now, relying on innovators such as Apple and Napster.

If the “Big Four” ever want to catch up, they’re going to have to cut their losses. Stop trying to prosecute everyone who has ever shared music files and suing them for hundreds of thousands of dollars would be a good start. Not only is it a public relations nightmare, it’s also one of the most inefficient ways to recoup your losses. Even after the RIAA wins the court case, which may take a year to complete, they still need to factor in their attorney’s time spent, as well as trying to extract exorbitant fines from people who simply cannot generate that kind of income in a year. It’s a poor profit system.

Instead, they’ll need to work with existing file-sharing companies. They could release exclusive iTunes-only interviews with the artists about their latest album or single, for instance. These could be audio or video files. Another great tactic would be to start translating the old CD and cassette tape liner notes to a format that would be included when consumers buy an album online. They might also want to think about including lyrics with the files. When you check album information on iTunes, there are a lot of blank information fields. With just a little work, a record company could include the lyrics, composer information, and even artist tidbits on the song itself!

On the file-sharing front, the RIAA would have to do a massive shift in thinking. Drop the file-sharing lawsuits. All of them. It’ll hurt a bit financially, but when comparing a couple hundred thousand to billions in sales lost, the pain is lessened. If anyone in the RIAA is reading, put up your own labels on bittorrent where you give away limited editions of singles by up-and-coming artists to generate more publicity, and work to convince the Internet generation you’re willing to play ball. Believe it or not, most people want to pay for a good product. Look to iTunes for proof.

Fortunately, some companies seem to be waking up to this fact. Universal Music, for instance, has started offering some CDs featuring classic artist’s greatest hits. Each CD includes a card that allows the buyer to go online and listen to a podcast about the musician, as well as a special music download offer, ranging from six tracks of the user’s choice to a full album. Universal Music is also looking to change the idea that artists need to make albums, instead getting artists to focus on singles that can be marketed via online stores such as iTunes. The record company EMI, is also catching onto the fact that selling music through iTunes that is not copyright protected sells better than music that is protected.

It’ll take some time for the Sony, Universal, EMI and Warner to turn things around. Hopefully it’s not too late. What I can tell you is that while jumping on the technology bandwagon will take a while, repairing their public perception will take longer.

Chris Gottschalk
Oxbury Research