Could a “three strike, you’re out” approach to piracy help wean Indian music aficionados off illegal peer-to-peer file sharing and downloading activities? It seems to have worked for France, South Korea and Taiwan.
Graduated response (or the three strike theory) purports disconnecting a user from internet connection after receiving a number of warning letters, informing them of their illegal activity. The initiative has been implemented in a number of countries with the cooperation of internet service providers (ISPs) by gaining the ISP addresses of the violating party.
According to a report released in July by PricewaterhouseCoopers (PwC) titled “Indian Entertainment and Media Outlook 2010”, in India, 64 per cent of music downloaded online is illegal. The report points to the “lack of any enforcing mechanism, weak laws and the large market for music” as the major sources of this rampant piracy.
The PwC report predicts that the music industry in India will grow by 28.6 per cent to Rs 2,650 crore in 2014. This will be on the back of mobile value-added services (VAS) which will increase by 55.3 per cent between now and 2014, to Rs 1,900 crore. During that period, the physical sale of music is forecast to decrease from Rs 400 crore to Rs 250 crore. Yet, with consumers accustomed to downloading music for free from sites such as raga.com, musicindiaonline.com and dishant.com, it seems that the digital boom may not be enough to save India’s music industry.
Although consumer choice has been revolutionised, with music companies licensing over 11 million tracks to around 400 legal music services worldwide, people are still opting for illegal music consumption. The International Federation of the Phonographic Industry (IFPI) report estimated that globally, only 5-10 per cent of online downloads are legal. This is despite the fact that people can buy music in a variety of ways: “From buying tracks or albums from download stores, and using subscription services, to using music services that are bundled with devices, buying mobile apps for music, and listening to music through streaming services for free.”
Music retailers are constantly innovating to retain their customers. One method that is identified in the report is the licensing of advertising-supported services that are free. Examples are Spotify (7 million users) in Sweden and Deezer (16 million users). These companies use “up-selling to premium content” to generate additional advertisement revenue.
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India is not alone in the digitisation era. The IFPI report stated that while digital sales increased exponentially (almost 10 times!) between 2004 and 2009, the overall music market experienced a 30 per cent decrease in revenues. For the first time ever, digital sales were responsible for 27 per cent of record companies’ revenues globally. Yet this strong showing does not compensate for the steady decline in sales of the physical format. In fact, global music sales decreased for the tenth year in a row in 2009.
It is in this climate that the IFPI report has suggested the gradual response method. A survey in France indicated that 90 per cent of consumers would desist from illegal activities on receiving a second warning from their ISP provider. Similarly, a 2009 study by Entertainment Media Research demonstrated that 45 per cent of consumers who downloaded music illegally would not continue if a graduated response model was used.
In 2009, South Korea, France and Taiwan adopted laws that embody the gradual response theory. In South Korea, the legislation became effective in 2009 and according to the IFPI report, a survey based on 1,000 interviews revealed that 45 per cent of South Korean users said they were illegally downloading less content. Once the legislation was passed, the awareness of the consequences of illegal downloading and file-sharing grew quickly and acted as a strong deterrent to illegal behaviour.
The UK, New Zealand, Australia, Brazil, Hong Kong and Japan are all joining the bandwagon to make it compulsory for ISP providers to disconnect repeated offenders from their services.
What lessons can India take from this?
The PwC report suggests that digital download will see explosive growth given that 3G services are imminent (now that auctions are through) and the exponential growth of mobile VAS (they contributed to 28 per cent of music revenues in 2009 and are expected to account for 70 per cent by 2014). Yet as the IFPI report demonstrated, the digital boom does not always offset the decline in the rest of the music industry, which is largely caused by piracy.
That is why India would do well to take the first step in this direction by rounding up ISPs to win their support for a gradual response initiative.