PROOF That File Trading Sells DVDs...Sort Of.

By Richard Menta 4/13/03

For the last couple of years, the entertainment industry has cried piracy. Open trading of music and movies on the Internet is destroying their business, they claim, and the record industry in particular had pointed to modest drops in CD sales to prove that.

The movie industry has not shown such numbers. There is a reason for that.


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This is how John Borland began his April 9th article for CNET. "Music industry: Piracy is choking sales".

Worldwide sales of music CDs, records and cassettes fell for the third year in a row, hit largely by rising Internet piracy in the United States, according to an international recording industry group.

In that article we hear the dire figures for 2002 for the record industry, "a 7 percent drop in global music sales and a 10 percent fall in units sold in the United States". The reason for that drop is all blamed on file trading by the record companies.

Many analysts, including myself, have suggested there are other elements that the drop can be attributed to from a slumping economy, to competition from newer media like DVDs, to a worsening public image of the record companies that has alienated buyers.

But the Big Five record labels go deaf and dumb when these other elements are brought up. File trading is the sole cause of dropping sales they cry and the proof is simple and obvious. That proof is the direct correlation between the rise in file trading and the fall of record sales. It's undeniable.

OK. If that is how they feel I have decided to capitulate to their logic... and use it against them.

Today I declare that file trading is solely responsible for the dramatic rise in DVD sales!

That is a heck of a declaration. OK stretch, how am I going to justify that statement? Well damn it, I have proof. Entertainment lobby endorsed proof. Proof from the figures on DVD sales that Borland mentioned in the same CNET article.

In 2002, retail DVD sales rose by 61 percent to $8.7 billion, or about $3.3 billion more than in 2001, according to the DVD Entertainment Group.

So how is that my proof? That proof is the direct correlation between the rise in file trading and the rise of DVD sales. It's undeniable.

What is really undeniable is the underlying problem with statistics. You can manipulate them quite easily to support disparaging positions. The entertainment industry has been manipulating them for years, the record companies by loudly pointing to losses and the movie Industry by remaining quiet about gains.

Don't try to tell me otherwise or I'll throw my hands over my ears and yell "La La La La La".

Every major DVD release has found its way to the file trading services, but people continue to buy DVDs in ever increasing numbers. Yes, the DVD arena is a new one with wide growth potential, but its nearly $9 billion in sales last year is already very close to the over $12 billion the seasoned record industry earned in 2002.

Motion Picture Association of America CEO Jack Valenti will immediately dismiss my arguments if he ever hears them. But Jack, how can you support this logic when it is conveniently applied to the record industry and then deny the same logic when it is inconveniently applied to yours?

Here is another question for Mr. Valenti. Why did DVD sales go up at all if file trading is so rampant (40 million US users and rising)? Shouldn't they also have dropped?

Knowing Jack - a cagey debater if I have ever seen one - he would probably look me straight in the eye and say, "We should have made $15 billion dollars last year". We LOST $7 billion.

yeah.

Here is my real opinion. I don't believe that file trading is alone responsible for a 61% increase in DVD sales. I also don't believe that file trading is responsible for the drop in record sales.

What I know can be expressed in this example; when I watch a repeat episode of Northern Exposure, or South Park, or Friends at the end of the show there is a commercial to buy the fist season of shows on tape or DVD. Here are episodes that I have just watched for free, that anyone could have taped for free from their VCR, yet somehow someone thinks people will spend money to now buy the episodes.

Guess what, they do. In fact, VHS sales of otherwise free TV episodes are quite profitable. It turns out free showings on television promote the tapes.

The companies that sell these episodes know this, just like the record companies know radio exposure sells records. These are the types of precedents I search for when I struggle with the grand issue of whether file trading hurts the record and movie industries.

I feel the effect of file trading has the same effect.

I know that CDs offer superior sound to MP3s. I know that DVDs offer far superior video quality than MPEG and AVI files traded on the Net (that quality difference is far greater than the one between a store bought VHS tape of an episode and a home recording of the same episode). There is both perceived and real value in going with the official products and consumers are spending money to get it.

So stop all this cacaphony. Stop trying to derail the Internet as a new distribution mechanism and give us compelling reason to spend money for your products. Stop playing with the numbers so you can use them to call consumers pirates and thieves.

Start adjusting your business to serve consumers better instead.

 


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