MP3 and the Music Monopolies: Holding Back the Waves

The growth of digital technology has put it into a direct collision course with the Intellectual Property Rights (IPR) regime. The monopoly conferred by Copyright Laws — for printed works, music, and other artistic creations — is now threatened if the works are in digital form. Thus an electronic book or music in digital form can be copied on the home computer by anybody having a PC and distributed through the Internet. This makes the enforcement of copyright laws and recovery of royalties almost impossible. This is the crisis that currently threatens the music industry, with music being distributed widely through the Internet in digital form: in the MP3 format as it is known. The Recording Industry Association of America (RIAA) is up in arms against the MP3 format — and has been fighting a legal battle on this count.

Before we examine the issue of MP3 format, it is important to understand the economics of the music industry. The music industry is tightly controlled in the US (which is the largest global market) by a few companies (called labels) dominating the industry. Fully 90% of the music released in the US are from companies who are members of RIAA. The music monopolies charge approximately $16 for a CD, whose actual cost including the medium (the physical CD) and the reproduction (copying the music on to the CD) is not more than a dollar. The rest of the price that the consumer pays for is promotion and advertising, royalties to performers, and of course super-profits for the recording industry. Thus the differential between the actual cost and the cost of music as sold is a huge one — the monopoly rent component guaranteed by the current copyright regime is the major component of what the consumer pays.

Apart from this fleecing of the consumer through the prices of CDs jacked up to such unconscionable heights, there is also an adverse impact on the artistic world. Thus, artists who have made it to the big labels and are well known, make the big bucks. The rest are condemned to sweat away in music halls and restaurants, playing more for love than for money, with little chance of being heard by the rest of the world.  The economics of the music industry encourage the winners take all syndrome, the winners as created by the big labels; the rest get zip.

It is this highly skewed nature of the music industry, where there are a few winners amongst the artists and huge monopoly profits by the music industry, which, coupled with the advances in technology, is now threatening the music monopolies.

Unlike earlier analogue music (actual voice, old LP records, tapes, etc.), digital music does not lose quality through copying. This, music, which is now sold as CDs, available largely in digital form, can be copied serially retaining all the quality of the original. Secondly, while the investment costs for copying for large scale duplication may be high,  every owner of a PC today can copy music individually if he or she has access to the same. Here, the Internet – the World Wide Web – emerges as a key element. It can be used as an effective distribution system that can reach all corners of the globe where there is a PC and Internet connectivity and therefore providing that access.

It is this alternated model of copying and distribution of music that the MP3 format uses. The MP3 format evolved to meet for the need of digital compression, i.e., information (pictures, music) can be compressed taking up much less space without losing quality or losing quality only marginally. The MP3 format is a particular file format that allows compression of music so that the resulting files can be downloaded into home computers through the Internet in minutes and do not take up huge disk space that music without this compression would otherwise take.
The MP3 format evolved from the need to compress moving pictures: MP3 means Motion Picture Expert Group1 Layer 3. A minute of recorded music on a CD takes up to 10 Megabyte (MB) of disk space and typically 45 minutes to one hour to download. In MP3 format the file is compressed to one tenth of its original size – one MB – and one minute of music takes about 7-10 minutes to download. Thus, to download an MP3 file with three to five minute playing time, takes about 25-40 minutes. This makes it possible for files in MP3 format to be exchanged over the net. To convert music on a CD to MP3 format is also easy. There are software packages (called “rippers”) that can convert music played from a CD to a stored file on the computer disk as a MP3 file.

The availability of MP3 format allows small bands and individual artists to bypass the big labels. They convert their music into MP3 format and put them on their sites, which then can be downloaded by anybody with a modem and a home PC., a site, which contains thousands of such pieces, (500 thousand as of today) is the premiere site for such music. Apart from this, MP3 files are available from a whole lot of other sites run. These sites are run by groups or individual artists, who support MP3 music and therefore allow music to be distributed in this form. Another site, called allows music in MP3 format to be exchanged by individuals but does not store any MP3 files.

The record companies have always been against technological advance, particularly in the digital age. One of the major battles they fought and won was over Digital Audio Tapes (DAT). In 1992, they forced an agreement that RIAA would be paid $2 for every digital audio-tape sold as “lost royalties”, thus effectively killing the DAT industry. The difference in CD players and DAT players are that CDs are recorded once and played many times, while the DATS are recordable. Their battle against MP3 started on a similar note. They went to court against Diamond — a company that was putting into the market a portable MP3 record player. This would allow the MP3 music to be played on the MP3 player even without being connected to the PC.

RIAA lost its case, as legally the copyright act bans copying for commercial purposes and not playing the copied music. As the MP3 player does not copy the music, it does not come under the purview of the Copyright Act.  Attempts to stop copying on PCs or put a  charge on CDs as “lost royalties” run counter to the interests of  the computer industry and are unlikely to be successful. Given this, RIAA has turned its attack on premier MP3 sites, hoping this will drive MP3 format out of the market. Meanwhile, they have patched up with Diamond, so that only music released through legal channels would be played on these MP3 players using special encryption techniques. However, the issues are complex,  as the US government has banned export of encryption technologies.  Also as a number of items that are required for such security are patented and this could push up the costs of such players to prohibitive levels.

The attack on — the premiere music site is currently in the courts. In a preliminary judgement, one of the services that provided, has been held to be a possible infringement. This was a service by which any CD owner could store his/her CD’s content in MP3 format in his/her account at This would then allow him or her to listen to it anywhere in the world through the Internet. The RIAA strategy is to claim hundreds of millions in damages for copyright infringement and hope to drive and similar sites out of business. They have also filed similar suites against and again claimed huge penalties.

While RIAA has won this round, it is unlikely that MP3 revolution in music, which is supported by artists outside the domain of the big labels and militates against the huge profits that the music industry makes, can be stopped. MP3 is becoming a future threat also to the movie industry. With a broadband connection (high throughput for downloading), the MP3 format can be used to download movies and play them on DVD players. Thus attempting to stop technological advance, particularly to preserve super profits, seem destined to failure.

The crucial issue in the digital age is that Copyright Act and monopoly super profits are coming up against popular resistance. The legal system is currently being used to ensure increased monopoly profits and threaten technological advance. People, joining hands across the globe, are fighting against such monopolies. In software, the Linnux community is a global community that is fighting the strangle hold of Microsoft on PC operating systems. They are not making any personal profits; it is a rebellion by the programming people against the control of a single company over the software world. Similarly, the MP3 community — artists and individuals are battling the music monopolies. On one side are the high profile bands and artists, the record companies and the MTV clones; on the other side are the people and advances in technology. Like King Canute, the music industry would like to hold back the waves of technological change. And like King Canute, they are destined to fail as technological advance batters down the obsolete structure of Intellectual Property Rights.