I thought yesterday that the recording industry might be starting to get it, but a recent headline has made me doubtful once more. An international recording-industry organization is prepared to sue the Chinese affiliate of Yahoo! (NASDAQ:YHOO) for copyright violations.
The organization firing off these fighting words is Britain's International Federation of the Phonographic Industry (IFPI), not the United States' Recording Industry Association of America. The major recording companies include EMI, Sony's (NYSE:SNE) BMG, Vivendi's (NYSE:V) Universal Music, and Warner Music Group (NYSE:WMG).
Here we go again. The music industry has often taken a heavy-handed approach to piracy, though it's often argued that some of its own practices -- and shortsightedness -- helped develop a consumer mindset that fostered an acceptance of lifting songs. (In addition, music swapping via mix tapes and CDs may have helped to build many bands' fan bases, ultimately driving album sales.) Diplomacy hasn't always been the industry's strong suit when it comes to this complex issue.
Meanwhile, consider that China remains a developing market for commerce. The same rules don't exactly apply there, although the country is rapidly becoming a lucrative marketplace. Many industries have taken issue with China's allegedly lax enforcement of copyright laws, although the country has been trying to crack down, especially since piracy has begun to affect its own companies. Some suggest that the Chinese people don't yet understand the importance of paying for goods like software, music, and movies; in response, the U.S. has set up an office in China specifically to address intellectual-property problems.
Although it's certainly a major concern, I still can't help wondering whether the recording industry is shooting itself in the foot once again -- and whether it's wise to alienate Yahoo! when piracy in China and other developing countries is a prevalent issue with plenty of government attention. (Yahoo! owns 40% of Chinese search site Alibaba.com, which comprises the Yahoo! China affiliate in question.)
The music industry association accuses Yahoo! China of providing links to pirated musical material. If these links result from simple search-engine queries, this kind of legal skirmish could also affect Google (NASDAQ:GOOG) and other search companies. (The IFPI sued Chinese search engine Baidu.com last year; that case hasn't been resolved yet.)
Here in the U.S., Yahoo! and the recording industry are allies; the search company has its own legal music-subscription service, similar to those provided by RealNetworks (NYSE:RNWK) and the now-legit Napster. When Chinese customers get used to paying for digital content, Yahoo! China could be a great boon to the music industry in the future; services like Apple's (NASDAQ:AAPL) iTunes helped American consumers become comfortable with legal downloading.
Given the prevalence of piracy in China (and the money that could be made if the Chinese were paying for all those illegal files), the music-industry organization obviously feels it's justified in lowering the boom. However, since governments are already trying to tackle intellectual-property protection problems in China, the IFPI's aggressive stance seems premature.
In the end, the recording industry has poorly managed its public face. Its slow embrace of digital innovation and heavy-handed tactics against piracy have often seemed greedy to many consumers. News like this does little to alleviate many consumers' perception that the music industry is too often out of touch with its own target audience.
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Alyce Lomax does not own shares of any of the companies mentioned.
