CASE ANALYSIS

Andy Decker and the Ethics of Downloading Music from the

Internet
Case Analysis: Andy Decker and the Ethics of Downloading Music from the
Internet

I. Viewpoint:

Hilary Rosen, Chairman and CEO-Recording Industry Association of America

II. Time Context:

2003

III. Statement of the Problem

The rampant infringement of copyrighted creative works.

IV. Statement of the Objective

To recover the 11% decline in sales in 2002 by the end of 2003.

To post a 30% increase in sales by the end of 2004.

To deter the possible incurrence of loss ranging from $8 to $10 B annually from file
sharing piracy.

V. Areas of Consideration

A. Internal Environment

Finance

 Nielsen SoundScan reported that CD sales fell by 11% in 2002.

 Recording artists, some of whom struggled to make a decent living,

were cheated out of royalties they deserved.

 Recording companies saw revenues from CDs decline sharply.

 Vivendi’s Universal Music Group dropped its wholesale price for CDs
from $12.02 to $9.09.

 In the first signs of industry consolidation, the EMI Group lined up

financing in a bid to acquire Time Warner’s music division while
Bertelsmann AG and Sony Corporation agreed in principle to combine
their music operations.

 Sales soared in the last decade because music lovers were replacing
audiocassettes and LP records with higher-quality CDs, but by 2003
that conversion process had been completed.
 Production/Operations

 RIAA members created, manufactured, and/or distributed approximately

90% of all legitimate sound recordings in the United States.

 Folk tunes that had been previously malleable, changing every time the
performer sang them, became fixed and exactly repeatable.

 The subsequent convergence of several technologies contributed to the

tremendous interest in the free distribution and reproduction of music.

 CD manufacturing improved the sound of recordings and created a durable

and easy-to-use format.

 Computers originally used for mathematical calculations and database

management became multimedia.

 Stereo sound systems and CD-burning software and hardware were added
as accessories. Perfect copies of music could be produced and enjoyed.

 Recordings became fluid: the sequence of tunes could be arranged, the

lyrics could be substituted with other lyrics, and the sound could be fine-
tuned to better suit the acoustics in one’s living room.

 The emergence of the internet and its ubiquity provided opportunities for
new applications, including P2P file-sharing software.

 Technological advances made the downloading of music from the internet

a popular leisure-time activity in 2003.

B. External Environment

Government

 Courts of law said that individuals who digitally transferred files of

copyright-protected songs and stored them on the hard drives of their
computers were breaking the law.

 The doctrine of “fair use” recognized that in some limited cases it might be
acceptable to violate the exclusive rights of copyright holders. The use of
parts of copyrighted works was allowed for new reporting, scholarship,
teaching and critique.

 Courts considered four factors to determine fair use: the purpose and
character of the use, the nature of the copyrighted work, the amount and
substantiality of the portion used in relation to the work as a whole, and
the effect of the use on the potential for or value of the work.
 A US District Court judge ordered Verizon Internet Services to provide the
names and addresses of two subscribers; one was accused of downloading
600 songs from Kazaa; the second was accused of downloading 800 songs
from Kazaa.

 The US Naval Academy seized 100 computers from students suspected of

downloading unauthorized copies of music files from the internet. The
students had violated federal copyright laws as well as the academy’s own
code of ethics. They faced loss of leave time, court-martial, or expulsion.

 A federal court judge ruled that the users, and not the networks offering
the software, were responsible for copyright infringement.

 A study by the US General Accounting Office (GAO) found that 56% of

the files on Kazaa included some form of pornography while 8% depicted
child pornography. Its researchers looked for titles containing the names
of Britney, Olsen Twins and Pokemon. Screening software that blocks
pornography from regular Web sites did not work on file-sharing
programs.

 In a survey of 100 popular Web sites, the US Federal Trade Commission

found that minors had easy access to online gambling sites and were
exposed to ads for online gambling or non-gambling sites.

 Many sites had inadequate or hard-to-find warnings about underage

gambling restrictions and had no effective mechanism to block minors
from entering.

Economics

 Recording companies were seen as being greedy, charging $20 per CD

when the costs of duplication were minimal.

 Only a small percentage of the retail price of a CD went to the artist.

 Other factor causing the decline in CD sales is the economic slowdown

which make the consumers more careful regarding how they spent money.

Task Environment

Customers

 Andy Decker in his compact disc (CD) collection at home, he owned most
of the albums with the eight song tracks he had planned to download.

 Many students did not accept the analogy that downloading music was
similar to stealing a CD from a store.
  Some argued that they were only downloading a song that they already
owned on CD or a song from an expensive album that they would not have
purchased anyway.

 Others said that they were just sampling tunes to see if they would want to
purchase the entire album later.

 Students maintained that they ended up buying more music when they
could sample it first.

 Other students felt that they were entitled to the free downloads to
compensate for the many years during which they paid high prices for
CDs.

 College administrators found that the frequent downloading of songs,

movies, and games overloaded campus computer networks, making it
harder for professors to use the internet for research and teaching.

 Four college students agreed to pay fines ranging from $12,000 to $17,000
each to settle lawsuits filed by the RIAA.

Competitors

 The most popular P2P file-sharing services were Kazaa, Grokster, and
Morpheus.

 P2P file-sharing businesses claimed that they were not responsible for the
illegal conduct of their members and reminded the public that there were
legitimate uses of their services.

 Kazaa, Morpheus, and Grokster did not distribute music; they merely
provided the software that enabled the exchange of files among members.

 Other forms of entertainment---DVDs, movies and computer games---

competed for consumer attention.

SWOT Analysis

Strengths

 The RIAA, a trade association, represented the interests of the US

recording industry. Among its members were the five largest recording
companies: Vivendi’s Universal Music Group, AOL Time Warner’s
Warner Music Group, Sony Music Entertainment, Bertelsmann’s BMG
unit, and EMI Group.
  The association had hired software developers to post files that consisted
of static, silence, and loops of a song’s chorus (“file spoofing”) and to
insert instructions in a file that triggered a Web browser to take the user to
a commercial music site (“redirection”)

 It had also developed software to overload a computer that shared pirated

files with a flood of download requests (“interdiction”), send viruses,
disable a computer for a certain amount of time, and search a hard drive
with the intent of deleting music files.

Weaknesses

 Fewer new titles were being released and lower numbers of talented artists
were being discovered.

 Public perceptions of the RIAA and its members were not favourable.

 Relationships between the recording companies and their artists had never
been good.

 Recording companies complained that chronic accounting errors made by

music companies prevented them from getting their due share of royalty
payments.

 Don Engel, a lawyer, complained that industry accounting practices were

“intentionally fraudulent” and resulted in underpayments of royalties by 10
to 40 percent.

 Artists lobbied for shorter contracts and better health care and pension
benefits.

 Relationships between recording companies, retailers, and consumers did

not fare well either.

 So far, efforts made by recording companies had fallen short.

 Of 40 media companies surveyed, only 43% made some content available

in digital form while another 43% made most of their content available in
digital form; 57% of the companies did not even have a process to
determine the value of their intellectual property.

Opportunities

 The Ninth Circuit found that the uploading and downloading of music was
not consistent with the doctrine of fair use because the music files that
were being copied remained the same; they did not assume a new purpose
or a different character and because the files contained creative (rather
than factual or historical) works.
  The firm suggested that media companies change their business models
and find ways to profit from digital music instead of spending so much
time combating piracy.

 Recording companies began to cut costs, lay off employees, restructure

their operations, and seek merger partners.

 Retail music stores, including the 513 stores operated by Wherehouse

Entertainment, which filed for Chapter 11 bankruptcy protection, struggled
to survive.

 A few musicians and bands (e.g., the Rolling Stones) who were previously
opposed to digital music opportunities agreed to make their songs
available for download from legitimate online music services.

 College administrators conceived of creative solutions to music piracy on

campus. They believed that recording companies should develop a service
that allowed schools to pay a flat license fee for the downloading of songs.

 In a similar fashion, licenses were granted for usage of software and access
to journals.

 P2P file-sharing services had an opportunity to diversify their offerings

and promote legitimate uses of their software.

 To make transition from rogue operations to respected business, P2P file-

sharing services needed to exert more control over the content of the files
being shared.

Threats

 MP3.com purchased thousands of CDs and copied them to its servers

without the permission of the copyright holders.
 At the same time, the Consumer Electronics Association predicted that
sales of blank CDs would rise by more than 40% in 2002.

 In a study done for her economics thesis, a Princeton University student

found that 46% of the students surveyed said that they would be willing to
pay for a legal online music service while 27% said they would not.

 An atmosphere of suspicion and mistrust might be created on campus.

 The use of new programming protocols like Gnutella, which enabled users
to search the music libraries residing on the personal computers of other
users who were logged on to the network.

 Meanwhile, the networks were able to stay in business and were able to
attract additional investors and advertisers now that the viability of their
businesses models was more certain.
  A study by the financial advisory for KPMG estimated that media
companies could lose $8 to $10 billion in revenues annually from file-
sharing piracy, but KPMG doubted whether file-sharing could be
prevented.

 Music piracy was not viewed as an ethical issue.

 A survey by the Pew Internet and American Life Project found that 60
percent of college student Internet users had downloaded music files
compared to 28 percent of the overall population.

 A national survey conducted by Edison Media Research found that 74

percent of teenagers (12-17 years old) did not see anything wrong with
downloading music for free.

VI. Alternative Courses of Action (ACAs)

1. Ask for the intervention of the government to strictly enforce the law
against piracy and impose unbailable punishment to those persecuted.

2. Do an extensive ad campaign over the television, radio, newspapers,

billboards, flyers etc. on saying no against piracy and infuse in the minds
of the people the worst things it brings not only to the recording
artists/companies but to the economy as a whole.

3. Encourage the Recording Industries to include in their websites a portion

were people can download music for a fee

4. Negotiate with all the internet providers to block access to copyrighted

materials without permission from the copyright holders and give them
incentive out from the revenues that will be generated.

VII. Analysis

ACA 1

All the efforts of copyright holders may turn out to be futile without the
assistance of the government which implements laws. Hence, the
presidents/ CEOs of the copyright organizations may opt to get a deal with
the government agency in terms of the strict implementation of laws
protecting the copyright holders. They may provide aids in the operations
of the government in combating piracy and ensure the imprisonment of
those found guilty for violating the law.

Advantages

1. May set a sense of fear to those who would want to engage in

any kind of infringement activity.
 2. Implementation of the full force of the law may result to
eradication of piracy.

3. Increase in revenues.

4. Financial independence of recording companies may be

strengthened brought about by the progress in sales.

5. Will boost the morale of the recording artists and everybody

involved in the production of copyrighted materials.

6. Less expensive.

Disadvantage

1. The possible connection of people behind the infringement

activities with some government officials would mean
protection from them hence, may remain
untouched/unpunished.

ACA 2

Media could do a lot in informing the public of the consequences of

violation of the intellectual property rights owned by the copyright
holders. An every hour commercial on television and radio on the effects
of piracy plus flyers, billboards and ads on magazines would go a long
way in helping the struggling entertainment industry.

Advantages

1. Increase in sales.

2. Informed/aware buying public/consumers.

3. Lessen the number of illegal file sharing activities.

Disadvantage

1. Costly.

ACA 3

Recording industries can include in their website a segment wherein

public can preview a portion of a song and then eventually download it but have
to pay for it online. Public have now an access to download songs without
violating any anti- piracy law or infringement of copyrighted works.
 Advantages:

1. Public can now download music directly from the Recording

Industries.

2. Public have a choice to purchase part of the album only.

3. More convenient to public in purchasing a music album because

it’s now online.

Disadvantages:

1. Cost of creating website to fit the downloading procedures.

2. Risk of not selling the whole album itself.

3. Extremely technical in nature.

ACA 4

The Presidents/CEOs of the creative organizations may direct the internet

providers to block all sort of unauthorized access to copyrighted works.
They must think of actions/software installation to be able to deny access
to copyrighted works without hampering the flow of all legal transactions.
As an incentive for the internet providers they will be given a certain
percentage on the increase in sales recorded after the blockage of
unauthorized access.

Advantages

1. P2P sharing/file and/or music downloading will be totally

abolished.

2. Increase in original CD sales.

3. Increase in tuition of university students for the proposed flat

license fee for a legal downloads in the internet will be avoided.

4. Closure of a venue for infringement practices.

 Disadvantages

1. Some internet providers may not be compliant.

2. Undisrupted flow of legal transactions may not be fully

guaranteed.

VIII. Decision Matrix

Criteria ACA 1 ACA 2 ACA 3 ACA 4

Organizational Benefit 5 2 4 3
Profitability 5 2 4 3
Manageability 4 3 5 1
Length of Benefit 5 2 4 3
Total 19 9 17 10

Legend

5 is the highest, 1 is the lowest point.

Definition of Criteria

Organizational Benefit – perceived impact of alternative to the organization/company.

Profitability – highest return on investments.

Manageability– controllable action.

Length of Benefit - effectiveness of the action and its long-run advantage.

IX. Conclusion

Based on the above decision matrix, the best alternative course of action to be
implemented to address the current problem being faced by the entertainment industry
is ACA No. 1, which is to ask for the intervention of the government on the strict
enforcement of the law against piracy and any form of illegal internet transactions.

X. Plan of Action

Activity Person/s in Charge Time Frame

1.Meeting with the Hilary Rosen and the 1 week
government agency in Head of the
charge of issue on piracy, government agency
laying down the current
situation being faced by
the industry brought
about by the rampant
infringement activities.
2. Plan raids on identified Hilary Rosen with the 1 month
distribution places of assistance of other
pirated creative materials organizations
and internet providers concerned and the
accepting unauthorized government team.
access on copyrighted
works.
3. Provide assistance in All the concerned Whenever there is an
whatever form on the copyright holders operation
conduct of raids and headed by Hilary
other lawful activities in Rosen.
stopping the further
growth of infringement.
4.Monitoring and Hilary Rosen and the Continuous
constant follow-up of Presidents/CEOs of
government operations. other creative guilds.