Industry rhetoric is all it is


  • Letters
  • Sunday, 13 Jul 2003

By Bunn Nagara

RECORDING industry officials must have been bristling with anticipation to see Malaysia’s current anti-piracy campaign bite. With pirates walking the plank, the hope was that legitimate distributors could ply their wares with neither undue competition nor motivational prods. 

Consumers would be required to pay higher prices, but to the industry its interests would have to come first. Since piracy is illegal, disgruntled consumers would just have to pay up and shut up. 

But effective enforcement of anti-piracy laws, especially where piracy has long been rampant, requires more than frequent raids and harsh penalties. It also requires creating an environment that makes piracy unviable. 

When an epidemic strikes, the solution is not just tagging the carriers and placing them in quarantine, but also to ensure a cleaner environment and healthier lifestyles. But that involves more sociable and less self-obsessed priorities. 

Recording industry people, vocally proclaiming that piracy has become an epidemic, are reluctant to support a broader approach to tackling the problem. Perhaps vested interests are felt to be at stake with any change in the larger environment. 

For its part, the Federal Government decided on a two-prong approach: like Hong Kong, it would narrow the price gap between genuine and pirated recordings while hunting down the pirates, their operations and their distribution networks. 

This suddenly jolted folks like the Recording Industry Association of Malaysia (RIM) into a new bout of unease – while competition from pirates would be reduced or eliminated, the additional profits the industry had imagined would now be limited by price controls. 

Their solution: declare mass entertainment as “luxury goods,” to argue against inclusion in any price control list. But just how luxurious is a tiny shrink-wrapped piece of plastic? 

This dubious tactic fails to impress many consumers. A mass-produced optical disc from a factory assembly line containing common sound and picture recordings does not look remotely like a Lamborghini or even a crystal chandelier. 

Mass entertainment is so common and widespread today that to even think of it as a luxury item is plainly ludicrous, particularly in a modern democratic society. People are as entitled to entertainment as a public good much as they are to one rest day in a week. 

As for government price controls on software, the dissenting claim that it is also a luxury is even more preposterous. So much of work and educational activity today depends on software that to argue it is a luxury is to say that ordinary people have no right to education or work. 

This is particularly so for a country like Malaysia on the fast track to an IT nirvana, unlike, say, Nepal or Chad. That is why the reaction from the US Department of Commerce last Monday, threatening disaster for the Multimedia Super Corridor as a result of price controls, is wildly perverse. 

Once again, logic escapes the dissenters. What impact would a pullout of foreign IT investors from the country have on piracy? 

First, if it involved recording industry investors, this would create a vast void in the market for pirates to return and fill. The prize would be so huge, and the stakes so high that even tight enforcement and tough penalties would not stop an entire national market going to the pirates. 

Second, if an investor pullout could inflict any damage on piracy, the pirates would simply relocate. The trade is international across porous borders, and pirate operations can be set up quickly anywhere, even on a boat parked in international waters. 

Logic, unfortunately, fails to make the opponents of price controls look reasonable or sensible.  

Now consider the differences between genuine and pirated material to the consumer: 

z genuine recordings are legal, but pirated ones are not; 

z genuine ones are better produced, while pirated ones are of lesser quality; 

z genuine material is pricier, and pirated material (considerably) cheaper; 

z genuine recordings are available through fewer outlets from fixed release dates, but pirated ones are available more readily. 

Everyone should agree that people do not buy pirated goods because they are illegal (harsh penalties apply) or because they are of lesser quality. This means that pirated copies are bought and sold because they are much cheaper and more readily available. And yet, there are loud and self-righteous arguments that price differences have nothing to do with piracy.  

It may come as news to some in the industry, but if (appreciable) price differences do not exist, there would hardly be any demand for or supply of pirated goods. 

The Domestic Trade and Consumer Affairs Ministry has found that pirates tend to work on the pricier originals, not the cheaper ones. This is only commonsensical to many people, but some in the industry still do not get it. 

RIM argues that pricing should be left entirely to market forces. But it forgets that piracy has long been a part of the market and its forces. And so people voted with their wallets and opted for the “unauthorised versions.” The question now is whether RIM is ready to join consumers, the government and recording artistes in fighting piracy comprehensively through police action and price controls they would help determine. 

Just about everyone else favours more affordable pricing. To disagree vehemently seems like some powerful selfish interests must be at stake. 

Ultimately, it comes down to how profits are ascertained: through narrower margins but higher turnovers, or wider margins but lower turnovers. There are authorised distributors who favour the former, whereas a preference for the latter suggests impatience, greed, short-sightedness and a weakness for immediate self-gratification. 

Opponents of price controls lose their integrity when they distort and misrepresent the issues to a wider public. In a related industry news website for example, Malaysia’s consideration of price controls last month was hysterically headlined as “M’sia: Don’t buy original CDs and DVDs.” 

Opponents further weaken their stand with faulty and misleading arguments, such as inflated claims of losing massively through piracy. 

The sums cited are typically based on the amount of pirated material sold, multiplied by the price of the originals. But this amounts to false accounting, since if pirated goods were priced as much as the originals, none would be sold. 

I raised these points at a conference on intellectual property in the 1980s, after studying the latest data, weighing the issues carefully and interviewing various parties. A South Korean professor of business studies, working independently on the subject, came to similar conclusions. 

None of the points we raised posed a problem for conference participants, except for a US recording industry executive. He almost had an apoplectic fit, denying social and economic realities while offering nothing coherent in return. 

The blitz against pirates has benefited everyone, including cinema operators, except consumers – unless it is accompanied by controlled prices. Left to the industry, the consumers would be worse off while industry heads conveniently forget that their fortunes are built entirely by consumers. 

To see how consumer-friendly and deserving the industry is, consider the following hypothetical situation. Suppose the digital recording equipment seized from pirates is given to the industry as compensation, to produce cheaper versions of recordings for a lower-priced sector of the market. 

This would keep both producers and consumers happy, since affordable discs would remain available while piracy is wiped out and the industry serves both price sectors. What is then more likely to happen in the pricing structure? 

Would the industry retain prices at the same dual-tier levels as for genuine and pirated material, as the market had already determined? Or, in the absence of pirates as competitors, would the industry raise prices for both high and low ends of the market still further? 

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