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Some people use peer-to-peer (P2P) file sharing software to share music with others on the Internet. Record labels and movie studios don't like this. Does P2P file sharing software allow users to share music just like friends would share "mix tapes" of compilations of their favorite songs? Or does the Internet's massive scale and the ability to distribute such songs to people you do not know potentially do more damage to artists and record companies?  Some would argue that the music industry itself is at stake. Certainly, the way people enjoy or use music and movies will be affected.

What is Peer-to-Peer File Sharing?

The attention has been focused on peer-to-peer file sharing programs like KaZaA, Grokster and Morpheus that can be used to trade music between computers.  But peer-to-peer file sharing has also been used for other purposes.  Intel and Novartis have saved money and time by developing P2P programs that use the processing power of individuals' computers instead of expensive supercomputers.  Universities and other companies are using peer-to-peer applications to share documents and information from students and employees worldwide.

A March 2005 report, "Time For The Recording Industry To Face The Music: The Political, Social And Economic Benefits Of Peer-To-Peer Communications Networks," (PDF) from Consumer Federation of America’s research director Mark Cooper (cosponsored by Consumers Union, US PIRG, and Free Press) blames big music companies’ decision to eliminate CD singles in the late 1990s as critical to the growth of illegal music downloading - if you don’t give consumers what they want, in this case inexpensive single songs - then many will try to find it where they can get it.

The Fight Over File Sharing

The popularity of mp3 players (portable music players that can hold dozens of songs in a very small space) have fueled the industry's attempts to stop file sharing.  The music industry has asserted that the free file sharing of copyrighted music is illegal.  Groups like Public Knowledge and the Electronic Frontier Foundation  argue that there are legitimate uses of file sharing technology.

The music industry is alarmed that people have begun to use file sharing software to copy music instead of buying the music.  The Recording Industry Association of America (RIAA), which represents major music labels, cites surveys that show consumers who download music buy less of it. However, there are studies that have found the opposite to be true.

One of the biggest cases involved Napster, a file sharing service that became popular in 1999.  Members of the RIAA sued to force Napster to block copyrighted songs from being shared.  Napster was subjected to fines, and quickly folded. 

File sharing did not stop with the death of Napster.  (The current Napster 2.0 – a downloadable music store – has little in common with the original Napster except for the name and logo.)   Programmers developed file sharing technology that made downloading of music harder to trace. 

These systems are different from downloadable music stores like iTunes and Rhapsody, which were slow to develop.  These stores sell music to customers, and are selling millions of songs.  It appears that people enjoy downloading music, and are willing to pay for it. 

Is P2P Killing Music Sales?

The music industry argues that the decline in the sale of CDs and cassettes is due in large part to peer-to-peer file sharing. One study, by Rafael Rob and Joel Waldfogel, surveyed college students and shows that each download of an album reduces sales.

However, researchers at Harvard University and the University of North Carolina tracked music downloads, matching data on file transfers with the actual market performance of the songs and albums being downloaded.  In "The Effect of File Sharing on Record Sales: An Empirical Analysis" (PDF), Felix Oberholzer and Koleman Strumpf found that even among songs that were highly shared, sharing's effect on album sales was "statistically indistinguishable from zero." 

Dr. Ed Felten, a professor of computer science at Princeton University, who has studied music security, posted what he calls "A Grand Unified Theory of Filesharing" on his blog.  His theory is that the people who share files on P2P networks are not of the same mind.  Some are free-loaders, who don't buy new music after they download it; others are samplers, who download to try new music and buy what they discover they like.  

Consumer Federation of America’s March 2005 report (PDF) suggests that the recording industry created their own problem in the late 1990s by cutting off CD singles.  Some consumers just want one song, the hit single.  But the music labels stopped making CD singles, forcing consumers to buy the whole album to get the song they wanted.  That lead to temporarily increased sales until consumers found an alternative to get what they wanted—and they downloaded singles.  Electronic distribution, like downloading, could have given the recording industry new ways to profit from their music.  Instead, the paper argues, record labels tried to prop up their business model of only selling albums when consumers wanted individual songs.

Response From the Movie, Music and Software Industry

Now all major music companies and many smaller independent record labels are making individual songs and albums available on legal, paid services like iTunes Music Store or subscription services like Napster 2.0 or Real Rhapsody.

Music labels have also invested millions to discourage illegal file sharing.  They have created fake versions of songs and posted them to popular networks — allowing consumers to download what turned out to be worthless copies.  The software industry recently developed classroom educational materials to educate kids about the dangers of downloading illegal software. 

But the one response that has garnered the most attention is the lawsuits the music industry, and now the movie industry, have filed against file sharers.  The RIAA's Anti-Piracy page details their actions to stop piracy from threatening their industry. The Electronic Frontier Foundation lists how well-intentioned consumers can turn off file sharing programs and avoid getting sued.

Response from Congress

Some in Congress have tried to help the music and movie industry stem the problem of illegal file sharing.  They have launched investigations into P2P networks.  Congress is also debating new legislation to give copyright holders increased legal authority to stop file sharing.  To learn more about this legislation, go to New Legislative Fights within the Digital Content section.

The Senate Judiciary Committee and House Government Reform Committee both have looked at how P2P could endanger personal and national security.  That House Committee has also looked at how file sharing could make pornography easier to find.

Consumers Union's Legislative Counsel Chris Murray testified at a 2003 Senate Judiciary Committee hearing about the risks and benefits of peer-to-peer software and the need to better educate consumers about this issue.

Action in the Courts

In June 2005, the Supreme Court ruled on a landmark technology case, MGM v. Grokster. The Court’s ruling will impact technology that gives consumers new ways to enjoy their favorite music and movies.

In the case, the court ruled that in favor of music and movie companies, including MGM, which sued companies that make file sharing software, including Grokster.  But the court ruled only that the technology companies were liable if they had “induced” or encouraged consumers to illegally download music and infringe MGM’s copyrights.  Then the Court sent the case back to the Ninth Circuit Court of Appeals to decide if Grokster and the other software makers had actually done so.

The case was critical because the Supreme Court could have to overturn precedent it set in the 1984 decision in Universal v. Sony, better known as “Betamax” for Sony’s VCR that Universal Films said could infringe copyrights.  There the court ruled that as long as the technology had legal uses, then the technology makers are not to blame if people used it for illegal purposes.  Many credit the legal certainty put in place in this ruling for encouraging companies to create products like CD-burners, TiVo, iPods and other devices that play digital media.

The Supreme Court didn’t give either side exactly what they wanted - either a complete affirmation or overruling of the Betamax case.

Consumers Union, along with Consumer Federation of America, Public Knowledge and Free Press, filed a Friend of the Court brief with the Supreme Court on behalf of Grokster.  The groups’ argument before the court defended technology innovation, like VCRs and CD burners, not copyright infringement.

Privacy Risks to Consumers Using P2P Software

Consumers who use popular P2P software might be inadvertently sharing what they download — putting them at risk for lawsuits, and sharing highly sensitive personal information like emails, tax returns and checking account databases.  OnGuardOnline.gov, a website from the Federal Trade Commission, explains how to protect yourself from these risks. 

Researchers at HP Labs and the University of Minnesota discovered how easy the inadvertent sharing of files can be over KaZaA, a popular file sharing program.  In "Usability and Privacy: A Study of Kazaa P2P File-Sharing" they found that many people downloaded the mock-personal information and emails they posted to their dummy servers.  Consumers should check their program options and settings to make sure that they are not sharing something they wish not to share.