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Record Label Lawsuits May Strain Consumer Relations Farther

Aired September 09, 2003 - 15:42   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


MILES O'BRIEN, CNN ANCHOR: The recording industry cracks down on downloaders. You might not feel so groovy as this all goes down. Those music fans are out there buzzing. No, not that kind of buzzing.
Anyway the Recording Industry Association of America has filed now 261 lawsuits against what it calls the worst offenders, people who are accused of using the Internet to swap thousands of music files. Reactions to the lawsuit include outrage, anger and fear. No one's cheering, really, except for the recording industry, I suppose.

Smart move? We put the questions now to Laura Ries, marketing strategist, sitting right beside me here in Atlanta. And in D.C., Eric Dezenhall, a corporate damage control expert who would like to get into hostile takeovers, but that's another story entirely. Good to have you both with us.

(CROSSTALK)

O'BRIEN: All right, Laura, you're first, ladies first, always. This is not the best way to present yourself before, potentially, your best customers, right?

LAURA RIES, MARKETING STRATEGIST: Absolutely. The record industry has a P.R. problem. People hate them.

O'BRIEN: In a nutshell people hate them.

RIES: They do. They actually -- they think they're dirty, they think they're robbing them. And the way to win back their customers is not by suing them, is not by going after them. There might be a point later on down the road to crack down on some of the piracy and illegal moves that are going on. But first the most important thing is they've got back their customers.

And their biggest problem with losing their customers is the pricing strategy. The price of a CD has remained almost the same for 20 years, we haven't seen a drastic reduction since the '80s. Yet the manufacturing costs of CDs has dropped dramatically.

O'BRIEN: Of course, that's just a small fraction. This is -- we're talking about royalties here and to -- making music is something that is intellectual property. The band should be compensated.

Eric, do you think nonetheless that lowering the prices is part of the solution here?

ERIC DEZENHALL, AUTHOR, "NAIL 'EM": Well sometimes a brilliant crisis management strategy is a lousy P.R. strategy.

(CROSSTALK)

O'BRIEN: Isn't that almost always the case, really?

DEZENHALL: Well, it is. And what you have to realize here is the objective of the recording industry is not to look good, it is to stop illegal downloading. Looking good will come later.

One of the biggest problems that the recording industry has had is people instinctively do not believe that sitting at home downloading music is the equivalent of shoplifting and they are trying to argue it is. So what you see with these lawsuits is a very aggressive attempt to hit people so that they stop illegal downloading.

But looking good is not on the table. That comes later. And what the industry will have to do once they get this stage over with is begin determining how to win back customers. But that's not even on the table right now.

O'BRIEN: Interesting. So you say, Get heavy first, look good later. You say, Look good now, get heavy later. You kind of got -- the timing is a little different.

Let me ask you this though, Laura. No one gets mad at a retailer when they vigorously prosecute shoplifters. What you're saying is it's a bad idea to go after e-shoplifters for a big record company. What's the difference here?

RIES: It's all relative. I men Consumers , there's been polls that show they know it's wrong to file swap, they know it's wrong to do all these things. But they do it anyway because they think in their mind it's worse that the record industry is ripping them off.

They're charging way more than the CDs -- it's costing them to make them. They haven't decreased sales in relation to the manufacturing cost. And they think that's much worse. And they said, You know, the heck with it. I'm going to file swap anyway.

O'BRIEN: All right, now what about if the record industry sort of took the DVD model here for a moment and put a little more value added on their CDs, you know, director's cuts, so that there would be some incentive to buy these disks, something you wouldn't get if you download it off the net?

DEZENHALL: Well one of the questions the industry has to answer is if you don't want us illegally downloading, what do you want us to do? And one of the problems is people don't want to pay $19 to buy a CD when they only want one song. And the current...

O'BRIEN: Is the album dead? The album as we know it?

DEZENHALL: It could very well be. The problem is after you hit people over the head, you have to then be able to show them what the answer is. And as to the industry's bad reputation, you have to remember, sitting here in Washington, it is the job of an industry trade association to look bad so that their members don't have to.

(CROSSTALK)

RIES: The Internet's been around almost ten years now. And they should have seen this coming. They should have seen that the wave of the future is distributing music over the Internet and they should have figured out a way to do it that makes sense for the artists, in a sense for the consumers.

Look at the enormous success of iTunes from Apple. Ten million songs have been download since just April. Consumers want this. They want low-cost, ease of use over the Internet and they're willing to pay for it.

O'BRIEN: So why not build it? they will come?

All right, Leo from Los Angeles has an e-mail for us. "I will not be downloading music anymore, but I will definitely not be buying CDs either. I'll just listen to the radio. These lawsuits are ridiculous. Somebody should tell the recording industry to fire their lawyers and hire some marketing agents."

Eric, sort of along will lines of what you were talking about a moment ago.

DEZENHALL: Well I think that they have to do both. That's the problem. I don't think that you can do both. Just like the war on terrorism you have to first defeat terrorists before you can get them to like democracy.

And the same situation is the case here. People have to be frightened away from illegal behavior. But the problem here is that the technologies to download illegally happen much faster than the technologies to buy music legally.

O'BRIEN: And you're never going to catch up with that. It reminds me of that -- remember in Vietnam, We've to burn this village to save it. It's kind of that.

All right. Kim in St. Louis has an e-mail. "Stop downloading music? I don't think so. It's about time we get paid back for all the overcharging of albums and CDs in the '60s, '70s, '80s and '90s. Do the music artists ever take the time to think about how much money they have made off the public overcharging for these things."

And I will add wrecking hotel rooms, and whatever else they do, right?

RIES: There's enormous consumer resentment against the industry, against the artists, in particular, with their over-blown egos. And wanting really to charge a lot to feel that they are important. When in the end, I mean, costs come down.

I mean think about cell phones. Initially they came out, they were $1,500 a cell phone. Now you get them $50 for free. I mean people expect those prices to come down. They haven't come down in music and people are fed up.

O'BRIEN: All right, final thought, it's a good one from Terrence in San Jose. "Don't download. Beat the RIAA back. Buy only used CDs. There's nothing they can do but crumble from their tyrannical P.R."

Used CDs, Eric. I don't know if that trend is going necessarily to hold. But in the case of digital music, used as good as new, right?

DEZENHALL: I can't imagine that used CDs will take over. Ultimately the solution will lie somewhere in technology. Right now we have to go through this very aggressive stage. The industry though is fighting for its life and has to do this to get to the next stage. And the next stage will be more reasonable alternatives than illegal downloading and $19 CDs. But it will take time.

O'BRIEN: All right, Eric. And at this point in our interview with time elapsing, we have to say happy birthday.

DEZENHALL: Thank you very much.

RIES: Yes, happy birthday, Eric, you don't look older, at all.

DEZENHALL: It's the gray in the beard, but I appreciate it very much.

O'BRIEN: A little shout-out from Atlanta. Eric Dezenhall, Laura Ries, always a pleasure to have our spin team here to bat around marketing issues of the moment. We appreciate it -- Kyra.

KYRA PHILLIPS, CNN ANCHOR: Look at that. They didn't argue very much. You wished him a happy birthday.

RIES: It's his birthday.

O'BRIEN: It's his birthday.

RIES: I actually had to be nice to him.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com





Farther>


Aired September 9, 2003 - 15:42   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MILES O'BRIEN, CNN ANCHOR: The recording industry cracks down on downloaders. You might not feel so groovy as this all goes down. Those music fans are out there buzzing. No, not that kind of buzzing.
Anyway the Recording Industry Association of America has filed now 261 lawsuits against what it calls the worst offenders, people who are accused of using the Internet to swap thousands of music files. Reactions to the lawsuit include outrage, anger and fear. No one's cheering, really, except for the recording industry, I suppose.

Smart move? We put the questions now to Laura Ries, marketing strategist, sitting right beside me here in Atlanta. And in D.C., Eric Dezenhall, a corporate damage control expert who would like to get into hostile takeovers, but that's another story entirely. Good to have you both with us.

(CROSSTALK)

O'BRIEN: All right, Laura, you're first, ladies first, always. This is not the best way to present yourself before, potentially, your best customers, right?

LAURA RIES, MARKETING STRATEGIST: Absolutely. The record industry has a P.R. problem. People hate them.

O'BRIEN: In a nutshell people hate them.

RIES: They do. They actually -- they think they're dirty, they think they're robbing them. And the way to win back their customers is not by suing them, is not by going after them. There might be a point later on down the road to crack down on some of the piracy and illegal moves that are going on. But first the most important thing is they've got back their customers.

And their biggest problem with losing their customers is the pricing strategy. The price of a CD has remained almost the same for 20 years, we haven't seen a drastic reduction since the '80s. Yet the manufacturing costs of CDs has dropped dramatically.

O'BRIEN: Of course, that's just a small fraction. This is -- we're talking about royalties here and to -- making music is something that is intellectual property. The band should be compensated.

Eric, do you think nonetheless that lowering the prices is part of the solution here?

ERIC DEZENHALL, AUTHOR, "NAIL 'EM": Well sometimes a brilliant crisis management strategy is a lousy P.R. strategy.

(CROSSTALK)

O'BRIEN: Isn't that almost always the case, really?

DEZENHALL: Well, it is. And what you have to realize here is the objective of the recording industry is not to look good, it is to stop illegal downloading. Looking good will come later.

One of the biggest problems that the recording industry has had is people instinctively do not believe that sitting at home downloading music is the equivalent of shoplifting and they are trying to argue it is. So what you see with these lawsuits is a very aggressive attempt to hit people so that they stop illegal downloading.

But looking good is not on the table. That comes later. And what the industry will have to do once they get this stage over with is begin determining how to win back customers. But that's not even on the table right now.

O'BRIEN: Interesting. So you say, Get heavy first, look good later. You say, Look good now, get heavy later. You kind of got -- the timing is a little different.

Let me ask you this though, Laura. No one gets mad at a retailer when they vigorously prosecute shoplifters. What you're saying is it's a bad idea to go after e-shoplifters for a big record company. What's the difference here?

RIES: It's all relative. I men Consumers , there's been polls that show they know it's wrong to file swap, they know it's wrong to do all these things. But they do it anyway because they think in their mind it's worse that the record industry is ripping them off.

They're charging way more than the CDs -- it's costing them to make them. They haven't decreased sales in relation to the manufacturing cost. And they think that's much worse. And they said, You know, the heck with it. I'm going to file swap anyway.

O'BRIEN: All right, now what about if the record industry sort of took the DVD model here for a moment and put a little more value added on their CDs, you know, director's cuts, so that there would be some incentive to buy these disks, something you wouldn't get if you download it off the net?

DEZENHALL: Well one of the questions the industry has to answer is if you don't want us illegally downloading, what do you want us to do? And one of the problems is people don't want to pay $19 to buy a CD when they only want one song. And the current...

O'BRIEN: Is the album dead? The album as we know it?

DEZENHALL: It could very well be. The problem is after you hit people over the head, you have to then be able to show them what the answer is. And as to the industry's bad reputation, you have to remember, sitting here in Washington, it is the job of an industry trade association to look bad so that their members don't have to.

(CROSSTALK)

RIES: The Internet's been around almost ten years now. And they should have seen this coming. They should have seen that the wave of the future is distributing music over the Internet and they should have figured out a way to do it that makes sense for the artists, in a sense for the consumers.

Look at the enormous success of iTunes from Apple. Ten million songs have been download since just April. Consumers want this. They want low-cost, ease of use over the Internet and they're willing to pay for it.

O'BRIEN: So why not build it? they will come?

All right, Leo from Los Angeles has an e-mail for us. "I will not be downloading music anymore, but I will definitely not be buying CDs either. I'll just listen to the radio. These lawsuits are ridiculous. Somebody should tell the recording industry to fire their lawyers and hire some marketing agents."

Eric, sort of along will lines of what you were talking about a moment ago.

DEZENHALL: Well I think that they have to do both. That's the problem. I don't think that you can do both. Just like the war on terrorism you have to first defeat terrorists before you can get them to like democracy.

And the same situation is the case here. People have to be frightened away from illegal behavior. But the problem here is that the technologies to download illegally happen much faster than the technologies to buy music legally.

O'BRIEN: And you're never going to catch up with that. It reminds me of that -- remember in Vietnam, We've to burn this village to save it. It's kind of that.

All right. Kim in St. Louis has an e-mail. "Stop downloading music? I don't think so. It's about time we get paid back for all the overcharging of albums and CDs in the '60s, '70s, '80s and '90s. Do the music artists ever take the time to think about how much money they have made off the public overcharging for these things."

And I will add wrecking hotel rooms, and whatever else they do, right?

RIES: There's enormous consumer resentment against the industry, against the artists, in particular, with their over-blown egos. And wanting really to charge a lot to feel that they are important. When in the end, I mean, costs come down.

I mean think about cell phones. Initially they came out, they were $1,500 a cell phone. Now you get them $50 for free. I mean people expect those prices to come down. They haven't come down in music and people are fed up.

O'BRIEN: All right, final thought, it's a good one from Terrence in San Jose. "Don't download. Beat the RIAA back. Buy only used CDs. There's nothing they can do but crumble from their tyrannical P.R."

Used CDs, Eric. I don't know if that trend is going necessarily to hold. But in the case of digital music, used as good as new, right?

DEZENHALL: I can't imagine that used CDs will take over. Ultimately the solution will lie somewhere in technology. Right now we have to go through this very aggressive stage. The industry though is fighting for its life and has to do this to get to the next stage. And the next stage will be more reasonable alternatives than illegal downloading and $19 CDs. But it will take time.

O'BRIEN: All right, Eric. And at this point in our interview with time elapsing, we have to say happy birthday.

DEZENHALL: Thank you very much.

RIES: Yes, happy birthday, Eric, you don't look older, at all.

DEZENHALL: It's the gray in the beard, but I appreciate it very much.

O'BRIEN: A little shout-out from Atlanta. Eric Dezenhall, Laura Ries, always a pleasure to have our spin team here to bat around marketing issues of the moment. We appreciate it -- Kyra.

KYRA PHILLIPS, CNN ANCHOR: Look at that. They didn't argue very much. You wished him a happy birthday.

RIES: It's his birthday.

O'BRIEN: It's his birthday.

RIES: I actually had to be nice to him.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com





Farther>