Steal This Column

Faces are being attached to the list of names on the Recording Industry Association of America (RIAA) legal hit list. And let me tell you, some of them look just like your neighbors. One of them -- I swear -- is the spitting image of you.

Amidst enough mixed signals to freeze up a recording studio mixing board, we're down to a bloody battle that no one wanted. In filing suit against 261 citizens who have downloaded free music files from the Internet, the fortified music industry has essentially started shelling a galleon manned by 60 million pirates that look like you and me. As a result, the attackers have a daunting challenge on their hands. How do you sink the ship while saving the passengers? And, while we're at it, does anyone know how many olive branches it takes to craft a makeshift lifeboat?

You've got chain mail
Earlier this week, the picture of a 12-year-old New York honors student accused of unauthorized downloading sprees was a fixture on the America Online log-in page. It evoked an outcry of overwhelming public support for the young girl. Facing the first of many public relations nightmares in this fight, the RIAA scrambled to save face by quickly settling with the pre-teen's mother for $2,000.

It's easy to see why America Online threw gas on this incendiary topic. Challenged by stagnant subscriber growth, the Internet specialist is trying to juice revenues by upselling members into costlier high-speed connections. Why would folks pay the company roughly twice as much for its AOL for Broadband service? Clearly, downloading MP3s -- illegal ones, in most cases -- is the killer app driving DSL and cable modem growth. Sure, America Online would rather pitch legal alternatives, and it's clearly marketing the upgrade around its exclusive broadband content, but who are they trying to kid? The need for speed is almost exclusively driven by the demand for faster peer-to-peer file-sharing exchanges.

But here's the kicker: America Online, despite serving as a high-speed hub of P2P commiseration, is part of the same AOL Time Warner (NYSE: AOL  ) media giant that owns Warner Music, one of the five major record labels. It's a conflict of interest that became notoriously transparent when the RIAA's list of 261 violators reportedly didn't include a single AOL subscriber.

So as the names trickle in (including the likes of a repentant Yale professor and a 71-year-old man who claims he was unaware that his visiting grandchildren were loading up on song files), one has to wonder how differently this all would have played out if they had signed up with America Online -- or if Verizon (NYSE: VZ  ) owned a record label.

Out of harmony's way
It's not just Warner Music. Check out the HiFi Components page on the Sony (NYSE: SNE  ) website. Right now, the top headline reads "Burn Your Own CDs." Excuse me, isn't Sony also one of the five major labels that earlier this year took Apple (Nasdaq: AAPL  ) to task for its "Rip. Mix. Burn." marketing campaign? How is this any different? Sony makes sure that many of its audio systems and Walkman portable CD players can play compact discs filled with hours of raw MP3s.

So, sure, pre-recorded CD sales have fallen for three years in a row now. Everyone knows the music industry has been mired in a slump. But how much of those losses have been offset by major label endeavors that have picked the pockets of the file traders? When the same folks who are arming us with CD recorders and broadband connections are coming after us for using those tools for their most popular purpose, haven't we crossed the line into entrapment?

Pirates of the Scary Being
In a great thread within our Fool Community (subscription required) some of our members were debating whether or not the term "piracy" is an appropriate tag for MP3 swappers. You're welcome to share your thoughts if you'd like to, but I'm not much in the mood to pass judgment. Unlike the RIAA, I have no interest in cultivating 60 million enemies in an industry in which platinum success is measured a million fans at a time.

My point is that, regardless of what you brand it or where it falls within the Digital Millennium Copyright Act, does any of it matter if the collateral damage smells of hara-kiri? Alienation may have merit on an artistic level, but it's certainly not a welcome trait for an industry that is banking on the disposable income of the masses.

Scorched Earth, Wind and Fire
Isn't it obvious where this is all going? Sony and Warner, along with Vivendi's (NYSE: V  ) Universal Music, EMI and BMG, make up the five major labels. If this desperate legal salvo is a last ditch effort to save the kingdom, they'd better dig those ditches deep. 'Cause they're going in.

Yes, traffic to the P2P file-trading networks fell over the summer as consumers learned to respect RIAA's long arm of the law. However, the decline in music CD sales actually accelerated during the same period. The industry killed the pirate, but in so doing ripped out the soul of the once-ardent music fan inside. While the notion of 60 million people ripping off the industry was painful, at least they valued music as something worth pilfering.

The anti-label sentiment is only going to get stronger. There are many reasons why Apple has been able to sell 10 million digital downloads through its iTunes store over the past four months while the majors have struggled with their own Web-delivery ventures. One of them has to be that Apple isn't seen as the establishment.

The Song Remains the Blame
Like an errant drummer, the major labels have been prone to some real lousy timing lately. When Universal slashed CD list prices by one-third last week, it might just as well have engraved "Exhibit A" on the announcement. That's clear evidence that the labels have been ripping off consumers all along. All those years of whining while CD sales dipped...and the industry never saw fit to question the elasticity of its own beefy markups?

The labels are in the process of offering amnesty, but that's a double-edged olive branch. The RIAA is not qualified to wipe the slate clean on behalf of all potential litigants, so it's coming off like a pompous backstage diva.

Back in July, in my Download No Evil column, I outlined the seemingly radical opinion that the only way the record industry would survive would be to embrace the file-trading platform and learn to monetize it. Make the P2P networks redundant by manning the gates of digital distribution liberally, and work within their artist rosters to tap into mutually beneficial revenue streams -- like concerts and merchandise, which have actually blossomed even as the value of the pre-recorded CD has diminished. I guess the labels didn't take my free advice. That's fine. I'll hold onto it. It looks like I'll be needing it for five eulogies that are coming down the pike.

Rick loves music. His band was once signed to Sony's Columbia Records label. These days he still promotes unsigned artists and embraces the indie spirit at his site and as a member of the founders group. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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