Polk Wagner and Eric Priest discuss the increasing problem of counterfeit CDs

Music piracy has existed for centuries, but it wasn’t until digital media came along that it really took off. Napster. Fake CDs. Pirate Bay. And even though the momentum in the industry appears to be headed away from buying physical media that hold your music in favor of digital downloads and streaming, the fact remains that an enormous number of fans still want to buy, own and listen to their favorite artists on CDs. Indeed, CD sales still account for about 40% of a $15 billion global music industry.

Counterfeit CDs
Image source: Wikimedia Commons
Counterfeit CDs

But millions of the CDs those audiophiles have been buying online aren’t any more legitimate than a $20 Rolex, and music fans are filling the pockets of pirates instead supporting the music industry, artists and record labels. It’s gotten bad enough that recently, the American Association of Independent Music warned its indie label members of a rash of Chinese pirates selling CDs on Amazon.

University of Pennsylvania Law School professor Polk Wagner and Eric Priest from the University of Oregon joined the [email protected] Show on Sirius XM channel 111 to discuss the latest iterations of the music piracy problem, and what the industry can do. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

[email protected]: Even though a majority of this problem seemingly is coming from overseas, it’s an issue that the U.S. has to address, is it not?

Eric Priest: Absolutely. A lot of people think that we’ve now moved to a completely online download or an online streaming music business. But in fact, in 2015, CD sales accounted for almost 40% of the recording industry revenue in the United States. So this is still a huge business. It’s still a $2 billion business. What we’re talking about is a prevalence of online counterfeit CD sales. That not only hurts the music industry, but it also hurts consumers, of course, because these people are buying CDs online because often they think it’s better quality than what you can get through a download. I know I certainly buy CDs online still because I’m a bit of an audiophile, and I prefer the quality of CDs.

But also, it affects the online retailers like Amazon or eBay and others, where these pirated CDs appear, because consumers really believe that they’re going to these sources because they are, first, getting legitimate products that are higher quality, but second, that they’re also supporting artists. This is actually something that really matters in the U.S.

[email protected]: Is a majority of this problem coming from outside of the U.S. or — outside of Amazon and other e-commerce sites being part of the selling process — is there an element to this still happening here in the United States?

Polk Wagner: Well, there probably is. I think what you’ve certainly read about and what was specifically discussed inside the industry these days is the so-called “Chinese piracy.” And I think that that probably has a significant amount of truth to it, in part because the Chinese economy has become extremely efficient at doing this type of thing: taking products and making high-quality, but not quite the same, imitations of those and selling them. Their distribution networks are always getting better; the transportation networks are getting better; places like Amazon are getting better at making it seamless for consumers to get these sorts of products. And because those efficiencies have been worked through over the last several years, the ease of selling counterfeit goods on places like Amazon and eBay is going to only increase.

I’m sure there are still counterfeit operations going on in the United States. It is still quite easy to create a counterfeit CD. These are digital copies — basically, the same thing as the original. Now doing it really well — having the booklet and the CD jewel case and those sorts of things be identical to what is sold in the stores — can be complex and takes skill.

But in terms of the basic piracy, this is not anything that’s difficult.

“These are digital copies – basically, the same thing as the original. Now doing it really well — having the booklet and the CD jewel case and those sorts of things be identical to what is sold in the stores — can be complex and takes skill.” –Polk Wagner

[email protected]: In terms of the problems with the licensing of music and the profits that come from it, we have to be talking about millions of dollars of lost revenue for the musicians and all of the people behind the scenes because of these pirated CDs.

Wagner: Sure. There’s a lot of debate about exactly how much this costs. Certainly, lost sales are lost sales. Now, whether some of those CD sales that are lost ultimately wouldn’t have been sold anyway is unclear. So there’s a lot to it. There’s also a school of thought that says something along the lines of, these sales of CDs often generate business in other ways. People listen to CDs, and then they want to go to the concert, or they buy merchandise, or whatever, so there are other ways that artists get paid as well.

So it’s not quite so simple as saying a lost sale is a direct loss. But certainly, this is not good. And I think you are going to see a further acceleration of the industry — out of necessity, as well as out of choice and convenience — moving towards different kinds of distribution technologies than the really old school.

Amazonhas perfected the old-school distribution network. It’s so easy now to buy physical goods from Amazon. Their delivery system works really well, and people really like that. But at the end of the day, it is still old school, and I think you are going to see an increasing move towards the digitization of distribution.

[email protected]: Is that what you expect to see from Amazon, Eric? Because part of this may be linked to the fact that it is an old-school distribution network.

Priest: Absolutely. You’ve already seen Amazon like other online platforms — Apple, etc. — for years moving toward more digital distribution. Both have moved not only to digital downloads, but now also to digital streaming, as Polk mentioned.

So there’s no doubt that that’s the trend, and consumption habits are changing rapidly to the point where the number of physical CD sales is dropping markedly every year. Having said that, again, for quite a long time, there will continue to be a market for CDs. It will eventually end up as a niche market. But there are people who just prefer to have the physical product for various reasons, whether it’s quality, whether it’s having the tangible product in-hand. So when people say that this isn’t as big of a

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