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1 1 INTRODUCTION Music file sharing and exchange of data via internet is not a new concept in world of virtual media and millions of users exchange multimillion bytes of data on a daily basis from one end of the world to another. Majority of files which is shared by users are music files or movie files which helps in spreading of music from one user to another in a matter of seconds. However biggest argument which is developing over the years against these music file sharing is legality of the business and impact it makes on the music industry. Some leading writers on the online music sharing and piracy are of the opinion that illegal music sharing is biggest obstacle in the development of music industry which is required for the continuation of the growth of culture and civilization. According to them it is vitally required that online music piracy is stopped and there should be a legalized model of music sharing via internet. This report is aiming to discuss the benefits and drawback of current file sharing concept and also identify solutions to legitimize the music sharing on internet (Levine, 2011). This report will also assess the impact music sharing on culture and music on a generalized basis and forecast the future of music industry if an immediate stoppage on illegal sharing of music is not done. Topic selected for this essay is contemporary in nature and it draws attention to one of the rapidly growing problem associated with rising usage and penetration of internet.

2 2 Contents INTRODUCTION... 1 FILE SHARING AND INTERNET... 2 LEGALITY OF THE FILE SHARING... 4 IMPACT OF FILE SHARING... 6 FUNDAMENTAL FLAW IN THE CONCEPT... 8 SUSTAINABLE BUSINESS FORM... 9 CONCLUSION REFERENCES FILE SHARING AND INTERNET File sharing is the process of allowing multiple users to give access to any information which is stored in a digital format in multiple servers located all over the world. Internet is used as the medium of information exchange in file sharing all over the world because it is universally present, easily accessible and highly cost effective in nature. Files which are generally shared using internet are software; multi media based files, word documents, books, electronic form of information, links of different websites etc. All though there are different modalities of file sharing in digital world like using removable storage media or using hyperlinks in the documents. Most commonly used method of file sharing for music and videos is peer based point to point sharing through a distributed sharing network. They also use centralized anonymous servers located in different parts of the world. Historically there were various attempts to develop a file sharing system like removable media of storages, FTP servers or internet relay chats etc but in real sense music file sharing was conceptualized by Napster in 1999 when first form of unstructured peer to peer networking took place. A peer to peer

3 3 network is a very simple and amazingly effective system of file sharing where a centralized server is used just to identify and discover different users with multimedia files and bring them to a common platform where they can share files (Peoples, 2012). Initially there were many legal complications which attacked Napster because lot of music companies sued the company for spreading and sharing of music without legal permission from their copy right holder companies. These cases destroyed Napster as a company and it was shut down by the court but it conceptualized a great idea of file sharing and there were many small to medium sized companies that entered in the music file sharing business. More advanced and dynamic version of P2P sharing were emerging like lime wire and bit torrent sites. A torrent site is a collection of many users which can act as a seed, peer or leech depending on their statuses. A seed is the user who is feeding the files which are being downloaded by multiple users. A peer is a person who simultaneously downloads and uploads files so that he can act as a conscious downloader and helps in spreading of the sharing network. A leech is a user who is just downloading files and such type of users are discouraged by the peer network. The entire system is a self fueling cycle where seeds and peers are encouraged and provided with a greater seed. As more number of peer and seeds would join the network it will grow in a exponentially mode. Currently biggest name is file sharing business using online network are websites like pirate bay, mega upload, shareza and rapid share etc. some of them are even shut down by the court of law and some are currently fighting litigations against music companies (Saroiu, 2002).

4 4 LEGALITY OF THE FILE SHARING Legal challenge which is associated with music file sharing initiated as soon as this concept started initializing and there were impact on the music industry. Music companies are those organizations that purchase the rights of music from their creators and sell it to the listeners by proper marketing with a substantial profit. Revenues are generated by music companies by selling music in form of CD S, DVD and magnetic tape recordings. There was some profit generations from advertising of other organizations as well (Schneider, 2012).

5 5 This entire model of business adopted by music organizations was undermined by the peer based sharing model. This business model doesn t require paying any royalties to the musicians or music companies and by purchasing only one copy a peer based network can spread it to entire world with a negligible extra cost. Demand of legal music copies and CD S were drastically reduced with evolution of sharing of music files. All though there are many people who resisted this development but there numbers were very less in comparison to the people who were enthusiastic about the benefits associated like cost effectiveness and ease of access. With peer based file sharing people can search, listen and download the music of their choice at the convenience of their seats and own the music without any cost in practical manner. Such attractions are very difficult to resist and it lead to a exponential growth of the file sharing. If we consider the legality of the file sharing using peer based network there was hardly any organization which followed all copyright and intellectual property laws to the letter. Infringement of the laws and legal bindings became a common occurrence in internet based file sharing. One of the prime reasons of such activities is in effectiveness and absence of any law enforcement policy which can govern the internet based file sharing. There are some forms of file sharing which is not illegal in nature. Some of the music artists and music companies provide their creations as a freeware which is available as an open source. Such support from artists will help in development of a free file sharing system without any infringement and breakage of copy right laws (Glenn, 2008). One of the famous lawsuits which determined the future direction of illegal file sharing using peer network was fought between the MGM music record company and Grokester a file

6 6 sharing website. Supreme Court of USA has ruled a very clear judgment on the legal issue between both companies where MGM has sued Grokester for illegally sharing music owned by them. in this case supreme court has ruled that any P2P sharing network will be held responsible even if their program do an indirect or direct form of illegal file sharing or even if their intent is to initiate such sharing in any form and it is breaking any copy right law. P2P NETWORKING SYSTEM IMPACT OF FILE SHARING File sharing has a very clear impact on the legalized form of music sales. Many economists and music industry experts has provided their opinion on this impact. A leading academician Professor Peter Tschmuck conducted an independent literature review and he chose 22 different studies to assess the impact (Tschmuck, 2010). He observed that majority of studies are concluding that impact of illegal file sharing are extremely negative for the music industry. Primary impact of illegal music sharing using internet is on the revenue of the music companies.

7 7 These companies have a very less number of clients who are ready to pay for the music because it is available for free on internet. It is also to be understood here that this entire impact have a snow ball effect and it rolls downhill from here. If music industries are not making money then musicians and singers are not getting royalties they deserve for their creation. Since profit margins for music companies are also slipping they will tend to invest in creation of new music and pay in such a manner that more people would be interested in joining music creation industry. As the industry is not lucrative any more there is an overall reduction in the new music development because people will tend to choose those careers which are financially rewarding as well. There are many people who are involved with the music industry like vendors, small to medium size traders, assistants and prop designers, music studio s and dubbing labs etc which will be impacted by these reduction in the music development and revenue generation. Another problem which is associated with the illegal music sharing is people s perception of this activity as a acceptable pattern and not condemning it and its impact. One study done in year 2004 estimated that 70 million people were indulged in online music sharing in that year and out of them 58 percent were agreeing to the fact that if a person owns a CD or a DVD he has the right to share it with his friends and peer group. In an age group of years this acceptance percentage reaches as high as 70 percent. What people fail to understand here is that there is no prime definition of a peer group and these circles are intermingled and following the natural law of growth and expansion within a few levels of peer circles one file can reach to any part of the world? In simple words if each person will believe that it s right to share music with their peer group then pretty soon each and every person would be receiving and sharing music in a uninhibited manner. This growing tendency and less regards for the copy

8 8 right law is a much critical and long lasting problem than reduction in revenue for music industry. It is observed in this argument that people don t find it ethically wrong that a person is sharing music with a large group just after purchasing a CD (Androutsellis-Theotokis and Spinellis, 2004). As a counter attack many independent studies also claimed in a controversial manner that there is not direct relation between internet based file sharing and music sales and they attempted to provide the evidence that music sales is growing on an annual basis and that shows that its users are increasing. What is failed to considered knowingly or unknowingly here is the fact that all entertainment and media based industries registered a growth of more than 500 percent in last 2 decades while relatively music industry grew at a much slower rate. This phenomenon indicates that there is a negative impact on the sales and revenue. None of these studies were able to provide any other conclusive proof to support their claim and subsequently their claims were discarded by the industry experts. FUNDAMENTAL FLAW IN THE CONCEPT The concept of file sharing on internet is legal and it doesn t impact in a negative manner is fundamentally flawed because this concept is evolved by the people who are keeping very short term benefit view on the entire development. It may be cost effective on per copy of music being downloaded or acquired but the cost of the loss we are making on the entire industry and the burden on the social structure because of less number of jobs in the industry are much higher than what we are saving here. Cultural deterioration and gradual destruction

9 9 of the music industry in its present form are inevitable if some new models of business and internet based distribution is not evolved on an immediate basis (Oberholzer & Strumpf, 2010). Another fundamental flaw which has been pointed out by a recent study on music sharing by internet based channels. A recent paper published in the international journal of management indicated that there is a differential impact of online music sharing on different form of music and artists. Artists which are already on a high level and ranked as top most artist of the industry are getting benefited by the online sharing and buzz in the market because their popularity increases with the growing reach of their music. They have alternate channels of generating profits like live concerts and music related merchandising. The negative impact is on the new and lesser known artists. There music is demanded by a niche group of listeners and they are more interested in getting music rather than live shows and other merchandising. In such case online sharing undermines the success rate of new and lesser known artists significantly which is a fundamental flaw because today s new musicians will be tomorrow s super star and if they are curbed at the budding stage then there won t be any in future. SUSTAINABLE BUSINESS FORM Since internet and internet based online sharing has reached a higher level it would be very difficult to revert it back and make people adopt the previous version of music collection. It would be prudent know to identify and develop business models which will be based on online sharing and also generate revenues for each concerned party. These models will be sustainable and profitable in nature. Some examples of such sustainable form of business models are online music retail stores opened by Apple incorporation known as i store or legitimate music

10 10 distribution sites like point2sho or payplay.com. Such sites provide music downloading links on a reasonable price and they pay royalty charges to the music companies as well. Many music companies have started their in house online music sharing website or made contract with the bigger portals. Here licenses are provided to the sharing website for a particular time period with a certain fees. This model is able to join millions of new customers for music industry who were previously not able to afford purchasing music in DVD and CD form (Ghosemajumder, 2002). Development of better polices and legal frameworks to curb cyber based crimes are another critical aspect which is needed to ensure that such practices are curbed. Biggest problem with implementation of cyber law is confusion in the law of land because online organization may have server in some other country and their offices are in other country. Users and providers might be present in a third country for that matter and in such situation it becomes very difficult for law enforcement agencies to frame charges against each party and it is also difficult to determine what charges would be applied on whom. It is required that an internationally accepted common laws should be formed which can be employed on any person involved regardless of his citizenship and country in which activity is done (Bhattacharjee, 2007). CONCLUSION Cultural impact of destruction of music industry is highly devastating in nature. Music and songs are the core attributes of many great civilizations of world and it is important for the society to safeguard and protect such a great tradition from our forefathers. Online music sharing is a very advanced development in music industry and with proper laws and regulations it can be

11 11 channelized into the growth of music industry rather than its destruction. All this industry requires is development of internationally applicable laws and their enforcement and a sustainable business model for online distribution of music. REFERENCES Levine, R. (2011) Free Ride: How the Internet Is Destroying the Culture Business and How the Culture Business Can Fight Back, Bodley Head. Saroiu, S. Gummadi, K. and Steven D (2002) A Measurement Study of Peer-to-Peer File Sharing Systems. Technical Report # UW-CSE , Department of Computer Science & Engineering, University of Washington, Seattle, WA, USA. Tschmuck, P. (2010) The Economics of Music File Sharing A Literature Overview, Vienna Music Business Research Days, University of Music and Performing Arts, Vienna,

12 12 Peoples, G. (2012) Business Matters: Pre-release File Sharing Helps Album Sales, Says a Study. So Why Not Replicate This Legally? Billboard. May 22, Oberholzer & Strumpf, (2010) "File Sharing and Copyright" NBER Innovation Policy & the Economy, Vol. 10, No. 1, Androutsellis-Theotokis, S. and Spinellis, D. (2004) A survey of peer-to-peer content distribution technologies, ACM Computing Surveys, 36(4): , December Ghosemajumder, S. (2002) Advanced Peer-Based Technology Business Models. MIT Sloan School of Management, p.45 Bhattacharjee, S., Gopal, R., Lertwachara, K. Marsden, J. & Telang, R. (2007) The Effect of Digital Sharing Technologies on Music Markets: A Survival Analysis of Albums on Ranking Charts, Management Science Glenn, D. (2008) Dispute Over the Economics of File Sharing Intensifies, Chronicle.com, July 17, Schneider, J. (2012) "Megaupload s Dotcom in Custody as New Zealand Awaits Extradition Request, Bloomberg" Bloomberg.com. Retrieved

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