The RIAA Wins, but What Does It Lose?

The recording industry won a legal victory Friday, when jurors found Minnesota's Jammie Thomas guilty of illegally downloading and then sharing music, and slapped her with a $222,000 fine. This victory is significant since it probably gives the industry even more justification to continue its crusade against music fans. 

The jury decided to fine Thomas $9,250 for each of the 24 songs (many looked like contenders for Really Lame '80s Night parties, in my opinion). That's quite a premium, since tracks go for $0.99 a pop on Apple's (Nasdaq: AAPL  ) iTunes or for $0.88 apiece on Wal-Mart's (NYSE: WMT  ) service, for example.

My Foolish colleague Anders Bylund recently noted a legal boilerplate change suggesting that the industry might back away from the idea that making a track available for downloading, even with no takers, was worth pursuing because so many of those cases had been thrown out of courts. In Thomas' case, it wasn't proven that anyone actually downloaded the files, yet she's being forced to pay anyway, so the RIAA may disappoint Anders and not back down after all.

If the logic sounds fuzzy to you, you're not alone. Some consider the whole idea illogical. The major labels -- companies like Sony (NYSE: SNE  ) and Bertelsmann's Sony BMG, Vivendi's (OTC BB: VIVEF.PK) Universal, and Warner Music Group (NYSE: WMG  ) -- are apparently pouring millions into pursuing music fans. Judging from comments at the trial, they have nary a clue how much they're losing from illegal downloading, among other details that point to utter cluelessness.

Those who own these companies' shares should think long and hard about this crusade -- spending millions to gain a couple of hundred thousand here and there (or settlements in the couple of thousand-dollar range) doesn't sound like the smartest use of cash, does it?

What short-term thinking and a short-sighted waste. The RIAA's "strategy" seeks to distract attention from its anachronistic business model, and an industry that goes out of its way to inspire fear in its customers strikes me as one that investors would do well to avoid.

Millions are spent on these punitive endeavors (instead of on innovation), and by winning, the industry's quite likely losing any remaining shred of consumer respect. The RIAA may continue beating up on its customers, but in the long run, I'll bet it will end up as stuck as a broken record on an endless loop of trouble.   

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