How the CDR nearly killed the music

Case #1: As Sheetal Mehta (not her real name) enters her first-floor office

in one of the most impressive commercial complexes in Gurgaon, she gets a wide

smile from several of her colleagues. Her claim to fame–she has a built a

music bank of around 5,000 songs in the past two years and, hence, is the ‘official’

supplier of music CDs to many in the 250-employee office. With her brand-new

8-4-32 CDRW drive, it takes her less than 15 minutes to "process" a

request, and presto, her colleague walks away with 120 songs of his/her choice,

promising to buy her lunch in return. The total expenditure incurred, Rs 10, and

that too on buying the CDR. Most of the songs have been downloaded from the

Internet and the rest have been copied from original CDs borrowed from her large

pool of friends. The benefit–assuming that the original CD had a minimum of 12

songs, a straight saving of Rs 1,490 that one would have spent on purchasing at

least 10 CDs. In reality, however, the spending would certainly have been higher

as one rarely gets all the songs one wants in a single CD.

Case #2: As they make their way through the crowd in New Delhi’s Palika

Bazar, a young girl drags her father toward a shop selling Video CDs. They ask

for a copy of the latest Shah Rukh-starrer Devdas. "Rs 90 for average

quality and Rs 150 for the premium one," declares the shopkeeper. Two hours

later, the family of five and two of the girl’s friends are watching the

blockbuster in the comfort of their home. The money on movice tickets saved–Rs

900.

While incidents like theseare often shrugged off as innocent attempts to save

cost, a Dataquest estimation of the impact of such ‘innocent’ acts suggests

a whopping Rs 10,420 crore loss for the Indian music industry. According to a

joint Ficci (Federation of Indian Chambers of Commerce and Industry) and Arthur

Andersen report, the Indian music market was worth Rs 1,350 crore in financial

2001-02, selling around 230 million music cassettes (MS) and around 15 million

compact discs (CDs). Ironically, while the Indian music industry ranks fifth in

terms of volumes, it is way down in value terms–at #19. This, according to the

Indian entertainment industry report by Khandwala Securities, is more because of

the dominance of music cassettes, where margins are low. However, the report

also points out that the growth in compact disk sales has consistently been

higher than cassette sales over the last few years.

What is piracy?



Piracy essentially is a result of bypassing copyright laws. Piracy is

rampant in films (by illegally screening films on cable networks) and in music–(by

the sale of counterfeit cassettes, CDs and MP3s and in broadcasting through the

unauthorized of pay channel signals).

The rapid development of new technologies, meanwhile, has compounded the

issue of piracy. When it comes to availing the benefits of piracy, consumers are

not averse to using the product and service in question, unlike the

pharmaceutical or food industry, where using counterfeit products could result

in personal bodily harm.

According to the International Intellectual Property Alliance (IIPA) 2002

Special 301 report on piracy, counterfeits, pirated copies and pirated CDs are

decimating the legitimate music business in India, as also the rest of the

Asia-pacific region and also the world. According to this report, counterfeits

can be defined as those products in which the inlay cards differ in quality and

color of printing. These products also do not bear the name of the company that

has the license to manufacture them.

Similarly, pirated copies are those in which the name and contact details of

the company manufacturing the cassette, the copyright owner and the year of

publication are missing. Also, the inlay card shows poor-quality printing and

usually bears an unknown brand-name. Compilations of ‘Hit Songs’ from

different albums under names such as ‘Top Ten’ or ‘Bollywood Hits’ fall

under this category.

Why the crossover?



According to a report by the Indian music industry (IMI) association, the

shift happened due to a change in the carrier format of music–from analog to

digital. What this also means is that the demand for audio compact disks, MP3

CDs and CDRs is higher than ever before. This has been triggered by the

availability of blank (read "recordable") CDs (CDRs) and an

astonishing drop in prices–from around Rs 200 in 1998-99 to Rs 10 in 2001-02.

The abundant supply of blank CDs or CDRs (over 200,000 units a day) has not only

fueled the preference for this medium in larger cities, it has also taken

smaller towns by storm. Unfortunately, almost all these CDRs are used for the

illegal recording and distribution of music.

According to the IIPA report, a large chunk of audio cassette piracy in India

happens at the street-vendor level. Retail outlets in major cities are

increasingly using CDRWs that enable them to deliver compiled music at the

request of a customer.

But CDRs alone are not to blame. Other than the change in carrier format,

India has also witnessed unprecedented growth in the availability CDRW and RW

combo drives, as well as MP3 and CD devices going into music systems. While the

CDD/DVD market grew from 110,000 units per month in January 2002 to 120,000

units in August, the demand for CDRW combos has grown from around 12,000 to

40,000 units in the same period.

According to Samsung Electronics India, while the total market for RWs stood

at just 22,000 in June this year, the market has doubled to touch 44,000 units

per month, barely two months later. Similarly, IMI suggests that the demand for

such cheap digital audio hardware–ranging between Rs 2,000 and Rs 4,000 and

with capabilities to play VCD, audio CDs, and MP3 CDs–is around 300,000 units

per month. What this also means is that with an installed base of 3.5 million

units in March 2002, the population of this hardware has already exceeded the

base of high-quality compact disk players built in the country’s metros over

the last ten years.

Ironically, this extraordinary growth of CDRW drives and such CD players has

hurt the music industry more than what should have been a normally expected

advantage. The consumer has substituted the purchase of music cassettes not with

music CDs but with pirated CDs copied by the like of Sheetal Mehta or by those

businesses that are out to make a quick buck at minimum investment levels.

According to IMI, music catalogue sales have also been severely dented by the

new wave–with pirated music CDs offering around 120 songs in MP3 format at Rs

50 per CD. In addition, pirated MP3 CDs of the latest new Hindi films (10 films

on one MP3 CD) are also released by these local operators, thereby causing a

massive loss–unimaginably high, in fact (see tables)–to the film industry.

How wide is the rift?



So what is the actual damage caused by this technology-led menace? According

to Dataquest estimates, the installed base for MP3 and compact disk devices in

white goods will increase from 2.6 million units in 2001-02 to 6.2 million units

in the current fiscal.

Similarly, the total number of desktops with CDD, CDRW and RW combos is also

expected to move up from 4.9 million units to 6.6 million during the same

period, taking the total installed base of devices capable of playing CDs to

12.8 million units. This is a massive growth of 72% over the fiscal 2001-02 base

of 7.5 million units.

Further, we assumed that 65% owners of the total installed base of these

devices–both in the PC and white good segment–would be active MP3 users, and

therefore, would be either purchasing ready-to-play pirated CDs or getting

someone in their immediate circle to duplicate it for them.

With a playing device in hand, and given the ready availability of low-cost

songs in MP3 format, we estimate that an average listener will buy, download or

share about 1,000-1,500 MP3 songs annually or pick up 10-15 CDs of MP3 songs at

Rs 40 each. To be able to listen to a similar number of songs, a user will need

to buy 100-150 legitimate CDs per year.

Also, unlike while cutting one’s own CD, a user may actually have to buy

even more CDs because not all numbers in an original CD may be of the users’

interest. At an average price of Rs 125 per CD, the music industry loses Rs

12,500 per user. Multiply this with the number of active MP3 listeners–an

estimated 6.4 million during fiscal 2002-03–and we can safely say that the new

CDR wave will bleed the Indian music industry to the tune of Rs 10,420 crore in

the ongoing year. And this is just the beginning.

While the total size of the legitimate Indian music industry during fiscal

2001-02 was about Rs 801 crore and is expected to grow by 8% to touch Rs 875 in

the current fiscal, the parallel market of pirated music is expected to grow by

almost 72%!

So what can the industry or the authorities do to tackle the menace? At the

personal, indivudual level–meaning those who download music from the Internet

and burn that on to CDRs on their personal equipment, not much. At the same

personal level, where close friends of colleagues exchange CDs or burn CDs for

one another, not much again.

It is only at the commercial level that some stringent action and policing

may achieve strong enough results (see box, What India Needs to do to Protect

IPR). Among the steps–establish a centralized body dedicated to intellectual

property protection, as there’s no national coordination body devoted to

enforcement of anti-piracy laws in India. Another, adopt an optical media law to

deal with increasing optical media piracy. A third, improve and strengthen

existing state level intellectual property police cells...

SHUBHENDU PARTH in new Delhi with

inputs from YOGRAJ VARMA

Player Prices Hit Rock Bottom: Good News or Bad News?

VCD

player prices have touched rock bottom and so have the prices of CDRs.

With all these commodities becoming cheaper day by day, the CD

Duplicator business has seen a sporadic growth. Business is simple,

import the chassis and controller card from Taiwan and fit it with

locally available CD writers and voila! You’ve got your CD duplicator.

Duplicators are also finding their way to the B and C cities where PC

penetration is low or negligible and this stand-alone machine can

duplicate a CD in three to four minutes. On an average, most movie

library owners in smaller cities are buying duplicators and multiplying

their collection of VCDs.

A CD duplicator can either be SCSI

based or ID based. SCSI duplicators are more expensive. The basic

component is the controller card that is imported from Taiwan. There are

four major players in the controller card segment–Acard, Ytron, Anchen

and Domex. Chassis is also imported from Taiwan. On an average, a dealer

can earn as much as Rs 1, 000 on a 1:7 CD duplicator, after the final

fabrication. Chassis is fitted with as many CD writers as is required.

These CD writers come with their independent warranties, thus the

assembler has nothing to do with the service part of the writers.

Chassis and controller cards come with their own warranty (which is a

replacement warranty).

Goldie Dhingra, Director, Simple

Marketing, has been assembling these CD duplicators for a long time but

states that sales have picked up tremendously in last two months.

"We sell the chassis and controller card. Local assemblers then

assemble these units on their own. On an average, the margin on a

duplicator matches a margin on a complete PC. This can go as high as Rs

1,000 per duplicator if he chooses the writers judiciously."

Dhingra has sold over 1,000 duplicators already.

Multilink Computers’ Saurabh Nagpal

compares the CD duplication business to a cottage industry. "I know

that this technology has worsened the problem of piracy, but technology

can always be used either ways. This is a low investment job. Buy a

duplicator and start churning out CDs. On an average, one can earn up to

five rupees on each duplicated CD. In fact there are some of our

customers who have as many as 30 duplicators working at a time to copy

CDs of the latest movies."

SHWETA KHANNA/Cyber News Service

Software Piracy: At least Half of the Overall Pie

Software

piracy is one of the biggest concerns of software vendors today. Piracy

leads to users using the intellectual property of vendors without paying

for it. According to IDC estimates, the money lost in 2001 from pirated

software is estimated to be close to $245 million in India, which is

almost half of the legal packaged software market. This loss in revenue

accrues from different types of piracy like unauthorized copying and

selling, bundling with hardware, Internet sales and downloads, end user

piracy, client/server piracy and enterprise piracy.

In the year 2001, the

loss in revenue was mainly due to piracy by unauthorized copying and

selling and unauthorized bundling with hardware, which together

accounted for 65% of the total loss. When a software application is

simply replicated into large batches of CDs and then distributed through

an underground distribution network at a fraction of price, it is termed

as unauthorized copying and selling. When a software application is

copied and installed onto the assembled machines and sold along with the

hardware, it is termed as ‘unauthorized bundling with hardware’.

These two types of piracy are easier to detect and prevent compared to

other forms like end user piracy but their contribution to the loss of

revenue is significant. This is due to a lack of proper legal framework

and implementation of existing laws. There is also little realization of

the intensity of piracy problem among enforcement agencies and hence

there’s no drive to curb it.

What India Needs to do to Protect Intellectual Property

Bollywood Piracy

The

Indian film industry loses about Rs 300 crore annually to piracy. While

efforts are on to curb the menace, the rapid evolution of technology has

made it increasingly difficult for lawmakers to keep pace with effective

anti piracy measures.

Indian film CDs (pirated)

reach India just on or even before the official release of the movie in

India. These originate outside India, mainly in Dubai where they are sent

a week before the release for the Censorship Board’s approval. This is

where the leak occurs and a single master CD or cassette is sufficient to

make enough copies to be supplied across the country.

The industry is worried

that while the avenues of piracy are increasing at an alarming rate and

the laws are either inadequate and where they aren’t, the problem is

enforcement. The fines charged from offenders are too minor to act as

deterrents and so is the punishment. Law enforcement agencies also cite

the non-cooperation of cable operators as a major handicap in their

efforts to curb piracy. The cable industry, on the other hand, finds it

difficult to check it on its own.

The nature of piracy in

the entertainment industry is such that since the consumer demands the

pirated product, the administration finds it difficult to check its

proliferation. If one operator does not showcase a pirated movie, the

consumer switches to the other. And since there isn’t strict enforcement

of laws, there is no incentive for anyone to stop beaming pirated movies.

Operators claim that even the film industry is not clear on which rights

are to be given to the cable operators and how to distinguish them from

satellite rights of movies.