Slow CD sales, a lukewarm U.S. economy, and peer-to-peer downloading of copyrighted music have continued to hammer away at any chances for a quick turnaround. Meanwhile the music industry as a whole has lost $7 billion worldwide in two years -- from $39 billion in 2000 to $32 billion in 2002, according to the Recording Industry Association of America (RIAA). The group reports that product shipments to retail, direct, and special markets fell nearly sixteen percent in the first six months of 2003, while sales of blank CDs -- which it believes are being used by the public to illegally copy, or "rip," its merchandise -- in North America surged by more than thirty percent in 2002.
Much of the industry's woes, however, have been blamed on the continuing popularity of peer-to-peer (P2P) software systems, which are often used to download all forms of popular music.
Last June the RIAA began hunting down individual file sharers through their IP addresses under the Digital Millennium Copyright Act, exploiting a clause that allows it to expedite subpoenas, and then file lawsuits against peer-to-peer users. At one point the group was sending out more than 75 copyright subpoenas a day to Internet Service Providers (ISP), which are required by law to turn over users' personal information. "The RIAA is committed to protecting the copyrights of its members. These works are too often being stolen from the creators," says Amanda Collins, spokeswoman for the Washington, D.C.-based group. Then in September it announced the first of three waves of civil lawsuits against individuals who have been illegally distributing more than 1000 copyrighted files on P2P networks.
The lawsuits, which targeted a cross-section of Internet users that included minors and senior citizens, led to legal responses from ISPs and civil and technology rights groups. The American Civil Liberties Union filed a motion to quash one subpoena against a Boston college student, arguing that companies should not reveal an Internet user's identity without the person being able to challenge the order in court. Meanwhile a public outcry over the wide-ranging nature of the RIAA's lawsuits sparked an ongoing Senate probe of its methods, and in late December a federal appeals court ruled that the subpoena process was invalid without a judge's prior authorization. (The decision did not affect the subpoenas that had already been filed.)
As a result of the controversy, the RIAA announced that it would grant amnesty to defendants who voluntarily identified themselves, signed an affidavit promising to respect recording company copyrights, and pledged to stop illegally sharing music on the Internet. It also adopted a "kinder" approach: preceding its second wave of lawsuits last September 30 with letters encouraging the discussion of settlements. The trade association has since resolved more than 200 cases. But its attempts to fight illegal downloading may be as futile as the war against spam; they may lead to a consumer backlash against its strong-arm tactics and further damage the record companies' bottom line.
Wendy Seltzer, a staff attorney for the San Francisco-based advocacy group Electronic Frontier Foundation, says the record industry should be working with P2P software companies to create better online distribution systems for music, which so far have only yielded MP3 vendors like iTunes.com. (The group's Website, www.eff.org, has a database users can check to see if their file-sharing username has been subpoenaed by the RIAA.) She thinks that copyright holders should issue a blanket license -- similar to what radio stations have -- rather than seek permission for each song. "The peer-to-peer software makers have tried to license music from major record labels and have been turned away," she says, citing as an example the former version of Napster, which was shut down by a federal judge in 2000 and has since been revived as a fee-based company. She adds that when the music industry says no to these companies it is missing out on the technological revolution that is transforming the way people play recorded music.
Until the file-sharing debate is over, South Florida's artists and label owners are revamping their business models and holding their breath.
Sandy Fox, owner of Miami Beach-based Inversus Records, a tech and progressive house-heavy label that carries artists and remixers such as Origin, Funk Function, and Praha, says that the last two years have been less than profitable for him. "2003 has been a complete nightmare with sales," he says, adding that business has been down 50 percent over the past year as a result. Instead of retrenching, though, Fox has signed more distribution contracts for labels such as Roadhouse, Basswalk, Movim, and Xplosion. He also launched another label, Inversus Limited, and changed his A&R focus to main-floor house music. He'll test the new plan with his forthcoming Inversus release, Jerry Bonham's Version One.
Todd Greenhouse, a.k.a. DJ Hardware, downsized his five-year-old Boca Raton distribution outfit, Hardware World, in April, and made it a part of his Essential Groove record store. Hardware World does manufacturing and distribution for the DJ's Pure Music Label Group, a consortium of nine labels that includes Pangea, which releases the loungy progressive trance of Joshua Collins, and Amplitude, home of the hypnotic progressive act Da Freeks.
"It was definitely not doing well. It was mostly because everybody was doing the same thing," says DJ Hardware. "In general, I think distribution on a whole is suffering tremendously -- at the store level, at the buyer level -- and there's inconsistencies at the music level.... It's really unpredictable." As a result, he has cut down on manufacturing costs by limiting his press runs of new titles to the number of orders he has received for them. Like Fox, he has also picked up more distribution accounts for imprints like Hamachi Records. "It was a better move for us because we control the competition," says the DJ, pointing out that he now has a better position in the local progressive dance market.
Substance Recordings owner Greg Chin, a.k.a. Stryke, has earned considerable acclaim from dance music fans and the international press for his label, which has released tracks from tech-house DJ Raymond "Sheeno" Fong, DJ/producer Ant-Eye, and himself. But that hasn't saved his business from going in the red. So late last summer, he halted production and moved his imprint to Paris, where he hopes to have three new releases out by next April.
"There's a bigger consumer base [over there] to buy those kind of records," he says, adding that he plans to commute between South Florida and France. He also believes that the industry-wide decline in sales is less of a problem in Europe. "There's still a lot of people buying. The music is part of their culture," he says. "Even though the labels are having problems over there, it's not as much of a problem as it is here."
Stryke knows he'll get flak for abandoning the city that has supported him for so many years. "It was a difficult decision because I know I'm going to take heat for doing it, but I know why I'm doing it," he says. "If we were just doing it here, the label wouldn't survive."