CD-Recordables - problems and solutions for the music and software business

The problem:

Recordable CDs, also called CD-Rs, are becoming very widespread and cheap - and are mainly used for the theft of copyrighted material. In 1998 there were around 100 Million CD-Rs sold in Germany and over 30 Million CD-Rs sold in the Netherlands alone. In Europe the sales have reached over 300 Million units. The sales of CD-Rs have more then tripled since their drastic fall in price in 1997.

Today a CD-R costs about DM 2.00 (equivalent to 1 Euro, US-$ 1.30, HFL 2.20, UK-L 0.75 etc) and a recorder as a peripheral to a computer can be bought from around DM 400.00 (200 Euros).

A huge number of these recorders is bought by or for kids - and small time criminals of all ages. In the USA, there have already been massive raids on flea markets and street vendors selling home-made CD-R piracy product and this new form of small time criminality has succeeded the traditional piracy in many countries. Catching these criminals is a problem because of the huge numbers of small criminals - which in some cases can not even be brought to jail because of their age.

Almost everyone concerned with the problem agrees that currently probably 90 % of the CD-Rs sold in 1998 were used for private - and usually illegal copies. It is symptomatic that the sales of CD-Rs in electronics stores go up immensely about one week after a new hit music album or a new hit game for computers comes to the market.

The financial effect:

For each copy of music, the following loss of net income occurs:

DM 2.00 for the composers
DM 1.50 to DM 3.00 for the recording artist
DM 2.00 to DM 6.00 label income (from which the marketing costs have to be recouped)
DM 2.00 distributors net income

for a total of at least DM 6.00 - even if we take out the distributor (and of course the retailer).

The loss of revenue in sales tax for the state at an average of 16 % sales tax for a typical CD costing about DM 30,00 (german price) before taxes is another DM 4.80. The state makes a little sales tax of about DM 0.30 per CD-R in exchange - everyone else does not get anything. The effect for Europe is missing sales taxes (with over 300 Million units sold in Europe) of at least 0.75 Billion Euro ! This alone should get some of the finance ministers thinking before they try to belittle the problem.

The manufacturers arguments

The manufacturers of CD-Rs - which are chemical companies and usually owned by asian conglomerates - have several arguments trying to avoid any fees:

1) Most copies are private copies - which are allowed under copyright law.

This is a flat-out misinterpretation of the copyright laws - and invalid in several ways.

The private copy was allowed with the analog compact cassette to enable people who bought a vinyl (or later CD) album to play the music they bought even in places where they do not have a vinyl player. The private copy permission became questionable even when the CD-walkman appeared, but was still partly acceptable, since not everyone has a CD-player in the car. The reason for the permission rest in the fact that someone buying a CD-album does not actually purchase the hardware CD, but the right to listen to the music whenever he wants (within reasonable limits). For a CD-R copy the whole reason does not apply at all - since the CD-R can not be played anywhere where the original CD can not be used.
The private copy is not allowed to make a safety copy (there is no need for one)
It was never allowed in any European country to give a private copy even to a member of you own household (since the right of the purchase only applys to the actual buyer). Actually it is not only a misdemeanor, but a serious copyright crime even to give a copy to a friend for free under the current law of most countries.

2) Most people use the CD-R for legitimate backup.

Just checking up on this by asking around will confirm that this is ridiculous. The maximum of legit use is about 10 % of the CD-Rs sold today - which were the numbers of sales when CD-Rs still cost about DM 12,- to 15,- about 20 months ago. This price made it very sensible to use CD-Rs as backup- or data-transfer media - and is for a volume of 650 MB (the storage capacity of a CD-R) actually very cheap. It is definetely enough to back up the data of a company several times. Todays CD-R recorders make it possible to easily record "multi-session" CDs - meaning that a CD-R can be used several times for backups. 650 MB is enough for at least 10 to 20 complete data backups of accounting and contact databases for a small company. Less then half a Euro per backup is actually already very cheap.

3) But there are also lots of copies of other things then music ..

Yes, of course - and in these cases the damage is even higher and copying not even allowed for a private copy. Examples are computer games or office/productivity software - here it is both a breach of contract with the seller as well as a criminal offence to copy onto a CD-R.

4) But Music-CDs have a copy protection built in..

No, there is a code in a CD that prevents the making of 2 copies by way of a serial interface between CD-players and DAT-recorders - but no protection at all against a copy to a harddisk and mass copies from this. Since most households in Europe have at least one CD-player today, there is also no way to introduce a system to prevent the playback of CD-Rs on normal CD-players.

5) There are also special music CD-Rs with a high fee for the music industry and only they can be used in CD-Recorders ..

Another blatant lie. The fact is that the CD-Recorders meant in this statement are special hardware recorders not linked to computers. It is true that these recorders have to be tricked into accepting standard-CD-Rs, but they are a small minority of the CD-Recorders available - and the sales of these special audio CD-Rs are so small that a huge CD-R distributor in Germany told me this fall that they are too small to be expressed in a percentage of the total CD-R sales. Only very few audiophile fans use these recorders - and they use them to create their own compilations or as toys.

Solutions:

Today there is really only one possible solution - short of a complete ban on this technology (which no one wants - the music business and the other business fields damaged are not against technology):

An blank media fee on each CD-R sold which is comparable to the damage done. This will not include the damage to retailers, since this can hardly be judged completely - and the distribution of the income would be practically impossible.
The fee has to be somewhere between DM 6,00 and DM 10,00 (about Euro3.00 to 5.00 - because the damage to productivity software/games is even higher then tone for he music business.
The associations of the music business as well as the software companies must sit down together and work out a distribution plan for the income. This could be according to the actual sales income, since it can be implied that the more popular a product is, the more often it will be copied.
The fee should be checked and re-adjusted every year.

After sleeping through the development of the problem, the music business finally woke up in the summer of 1998. In the Netherlands there is now a fee of HFL 1.08 per CD-R, which is rather low, but at least a step in the right direction. This fee agrement is only valid until the end of 1999.

In Germany massive pressure for acceptable fees is just starting - we can expect a first solution by the middle or end of 1999 if everyone continues to move on it. Similar movements are now under way in most european countries.

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Last Updated: 29.December 1998