File-Sharing: Still Unstoppable

The January 27 headline read, “Landmark case spells doom for internet music swappers.” Doom! They’re all doomed! Doom, we tell you!

Doom? Maybe for the music companies that think they can stop file-swapping by going into court. Not for the file-swappers.

The article was published in The Independent, a British newspaper. Note the key word: paper. Any information source that is tied to paper at the point of origin is equally doomed. How do I know? Because I read the article on the web.

In six months or a year, there will be some story on or some other techie website that reveals “startling” new data: the amount of file-swapping is still increasing.

In the meantime, we read:

Civil court proceedings were announced against the music fans in August last year.

Five individuals have been accused of between them making 8,906 songs available to millions of people around the globe.

Today’s announcement follows High Court action against two of the five who refused to settle with the British Phonographic Industry (BPI), the UK’s record industry’s trade association.

What is the key word buried in this report. There is one. Can you spot it?

The key word is “millions.” It is followed by the words “of people.”

There is another important word. Did you spot it? It’s the word “phonograph.” Any industry that is selling digits on pieces of plastic that is still called “phonograph” has a serious market-positioning problem. The word calls up an image of the RCA Victor dog, head cocked, listening to his master’s voice while sitting in front of a wind-up phonograph machine. It brings forth this image mainly among people over age 60, for whom it was decades out of date in their youth.

Executives in the British phonograph industry are terminally naïve. They spent hundreds of thousands of pounds to hire a team of lawyers to sue a few unnamed men who downloaded music from the web. They got two convictions. Imagine that! Two whole convictions.

Compare the word “two” with “millions.”


The recording industry thinks that millions of file-swappers are as naïve as executives in the recording industry are. First, hardly anyone who swaps files reads newspapers. They will not see the headline about their imminent doom, unless they read it on the web. People who read things on the web tend be way ahead of executives in the phonograph industry, digitally speaking. Second, hardly any of them care. They think to themselves, “They’ll never catch me!” They are correct. To catch millions of people and convict them, one by one, is impossible.

The record industry naïvely imagines that people who know enough about digital technology to upload and download music files are not clever enough to figure out that the record industry is bluffing. As for the news article, these people do not know what a “general counsel” is.

BPI general counsel Roz Groome said: “We have been very patient litigators. We have given these people every opportunity to settle.

“Only when they refused to settle did we take them to court, which has now found in our favour. These rulings are a massive step forward in the music industry’s bid to fight illegal filesharing.

“We would warn anyone else tempted to illegally upload and download music to cease immediately. The legal penalties can be significant.”

Patient litigators, indeed! Any firm can run up a bill of a few hundred thousand pounds in order to take a year to get into a court and get a convictions on two men, thereby having the court impose fines of a few thousand pounds, which the industry probably will not collect. The industry faces a challenge in mass audience persuasion.

Get this message to millions of file-sharers. Convince them that the courts will be able to extract blood (money) out of a turnip (the income of unemployed teenage file-sharers and young adults, millions of whom who are on the dole). Convince them that the odds are against them rather than the phonograph industry. Keep them from downloading files from millions of computers located outside the country. Convince fanatically dedicated technologists not to develop new schemes that foil the lawyers.


The record industry has raked in profits for almost a century because it controlled record distribution to retail sales outlets. It also controlled the distribution of effective information — promotion — for unknown artists. Today, neither of these technological bottlenecks operates to any significant degree. The web offers retail distribution for free. It offers word-of-mouse promotion for free.

The record industry today comes to the table with an outmoded distribution system that extracts 90% of wholesale revenues from performers, who no longer need the industry’s services. It also demands retail payment from consumers who no longer need the industry’s services.

It could move from selling digital music on plastic disks to selling live music in concert halls. That is, it could move from the mass-marketing of CD’s to arranging concerts for clients. This way, every pirated music file would help build up the audience. This would be a completely different marketing strategy: “Steal this file!” This would take different skills, a different reward system, and a whole new hierarchy of marketers.

The record industry as we know it is doomed, both coming and going. It is a middleman with nothing of unique value to offer either performers or consumers.

Performers make the big money by performing. The web gets them the exposure that leads to performances.

Consumers avoid paying money for services that can be delivered digitally.

Then what can the industry offer? Time. It can save file-swappers time. Sell a CD to people whose time is too valuable to waste on file-sharing. I am such a person.

Someday, the teenagers who download files today will be in an employed adult’s financial condition: short on time, long on money. But instead of devising long-run marketing strategies today to gain the loyalty of these kids, the industry threatens them with prosecution.

The industry is clearly run by marketing ignoramuses.

Of course, performers can sell their own CDs on-line. But, on the whole, performers are ignorant of how to sell anything. I have worked with some of them in the Celtic music circuit. Most of them are not interested in marketing. They are interested in playing music, until their wives call a halt to it because there isn’t enough money to pay the bills. This is why most music groups disband after five years — ten at the most.

The record industry, scaled down to a barebones minimum, could offer marketing expertise to these musically gifted kids, who know nothing about business. But any skilled marketer can do this. The record industry brings nothing unique to the table.

This is why the record industry is doomed in its present form. If offers no uniquely valuable service to the people it represents: performers and consumers. These middlemen are being squeezed from all sides by digital technologies.


So, in order to terrify millions of teenagers with no money, the industry writes checks to lawyers.

The BPI announced in October 2004 that 28 music fans would become the first people in Britain to be sued by the record industry for illegal file-sharing.

In March last year, it launched a fresh wave of action and announced that 23 of the initial tranche of people had agreed settlements of an average 2,000 pounds.

It is currently seeking settlements in a further 51 cases launched last December.

When any industry must resort to lawyers in order to survive, it will not survive. It will merely subsidize lawyers for a time, and then go out of business. The bankruptcy lawyers then wrap it up — red tape for red ink — and go on to the next victim.


Copyright laws worked for as long as what was copyrighted — information — was restricted to formats that could be policed on a cost-effective basis by the state: paper, ink, printing equipment, vinyl, record-stamping machines, and retail stores. Especially retail stores.

As I like to say, copyright has to do with atoms, not electrons. Electrons will eventually destroy copyright. It is close to destroying it today.

Don’t take my word for it. Ask the accountants of the phonograph industry.

February 1, 2006

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 17-volume series, An Economic Commentary on the Bible.

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