Not even ‘The Eminem Show’ is exempt from piracy

Despite extraordinary efforts to keep it under wraps, the eagerly awaited new CD from platinum-selling rapper Eminem met the same fate as every other recent release from a major artist: It went out for free on the Internet long before fans could buy it in stores.

“The Eminem Show” may still prove to be the year’s biggest-selling record, with well more than 1 million copies expected to be sold in its first week alone. Yet its vulnerability to pirates demonstrates vividly how ill-prepared the music industry is for a new digital era.

Executives at Vivendi Universal, the global media conglomerate that distributes Eminem’s records, held an emergency meeting Monday to discuss what further steps to take to safeguard sales. The company already had taken the unusual step of moving up the release date of “The Eminem Show” by more than a week, to today.

One problem for Vivendi’s Universal Music Group, and for every other record company, is that their established techniques for developing and promoting artists are threatened by the phenomenal growth of networks that let consumers download music for free.

Record companies typically incur millions of dollars in costs setting up superstar releases like “The Eminem Show” at radio and retail outlets. Labels execute lengthy global marketing campaigns incorporating several music videos and radio singles staggered over a two-year period with the aim of stimulating continued sales.

Such industry-standard campaigns, built upon gradual exposure to songs, are likely to become obsolete in a world where consumers can sample every track before a recording is even put up for sale.

“There are more than 3 billion downloads a month around the world,” said Interscope Group head Jimmy Iovine, whose Vivendi Universal company released the new Eminem CD. “The problem the industry is facing right now is a level of piracy never seen before, whether its selling burned CDs in school or on the corner. This is affecting not only the record labels and artists, but anyone who has an interest in earning a living through music.”

Iovine said piracy of Eminem’s new CD shines a light on a problem that is damaging the careers of other lesser-known acts every day.

Because “The Eminem Show” is so widely anticipated, many fans are likely to purchase the CD even after they download it. Where piracy really hurts, Iovine said, is that it is eroding the potential fan base of new acts with one or two hits under their belt.

Iovine and other executives say fans frequently download only the best songs of a developing artist and skip buying the record. This undercuts not only sales for the company, but the artist’s ability to record a second or third album.

But piracy can damage blockbusters too. Even if “The Eminem Show” sells more than a million CDs during its debut week, it is impossible to determine how many sales will be lost immediately as a result of digital pilfering--or even over the next year.

Because the profits from top-selling albums subsidize the 85% or more of the acts that don’t break even, any drop in sales for the likes of Eminem undermines the support for less heralded artists.

“The Eminem Show” is expected to break the 1 million mark faster than any record since last summer. Over the last year and a half, as file-sharing services reached the mass market, only one record has sold that many copies in its first week: ‘N Sync’s “Celebrity,” which was released in July.

With Eminem’s last record selling 8.7 million copies, his label, Interscope took great pains to keep the songs from hitting the Net before the CD was released. No copies of the CD were sent to reviewers, who had to listen to the songs in Interscope’s offices instead of on their own stereos.

Interscope flooded the file-sharing networks with bogus copies of the songs that played the same short segments over and over. Only after downloading would users realize they’d been had.

Nevertheless, the new CD hit the Internet in its entirety almost a month ago, and has been trickling down to the masses of file-sharing consumers ever since. The bogus files are still plentiful on the Net, but they’re gradually giving way to the real thing. Meanwhile, legitimate online services--including Universal’s own Pressplay--can’t make the new Eminem songs available to paying customers.

The head of the Recording Industry Assn. of America’s anti-piracy efforts, Frank Creighton, argues that the piracy problem can be minimized if the labels work closely with the RIAA and its international counterparts, as Eminem’s label has done. The RIAA has seized more than 100,000 pirated discs over the last two weeks from two dozen outlets, Creighton said, but less than 2,000 of them were “The Eminem Show”--a much smaller percentage than is typical for a major release.

Still, the relentlessness of piracy has the major labels contemplating more aggressive tactics, including releasing albums on discs with electronic locks that deter digital copying. They’ve also joined the Hollywood studios in lobbying for a federal law that would require computer and consumer-electronics manufacturers to alter their designs to combat piracy.

In addition, executives at several labels are kicking around the idea of suing some universities, companies and individuals that operate computer servers that allow storage of stolen songs that can be accessed by file-sharing services.

Other interest groups, including representatives of a leading file-sharing network and a tech-industry trade association, want to tax an array of hardware, software and services to compensate copyright holders for the rampant downloading. That approach “will be a very seriously debated counterpoint for the whole Hollywood agenda,” predicted Philip S. Corwin, a lobbyist for one of the file-sharing networks, Kazaa.

Global music sales declined to $32 billion last year, a 16% drop from the year before. While some in the music industry blame the overall economy and a shortage of high-quality releases, many label executives put the blame squarely on Internet piracy.

The RIAA has been battling piracy for more than 30 years, with most of that time spent on counterfeit products. Last year it seized nearly 3 million counterfeit or pirated discs, a 66% increase over the previous year.

On the Net, unauthorized digital copies of songs and CDs spread much faster and far more broadly than counterfeit discs. Although Internet piracy has been around longer than the World Wide Web, unauthorized copying has exploded in the last two years as more consumers connected to the Net at high speed and easy-to-use file-sharing services hit the market.

“What happened with the Eminem release can have a real impact on a company’s ability to do business,” said Sony Music Entertainment Chairman Thomas D. Mottola. “In instances where music is released on the Internet in unfinished form--which happened recently with [Sony rock act] System of the Down--artistic expression and sales can both be compromised.

“So it’s not just a matter of economics, it’s also a matter of protecting the creative process itself,” Mottola added. “There is no doubt that technology is going to have to be part of the industry’s response to piracy, but it’s important to keep in mind that attitudes toward piracy are just as big an issue.”

Champions of online music sharing often downplay the ethical and legal ramifications of consumers building huge collections of music without paying. Accusing music corporations of cheating artists and gouging consumers to sustain profits, they say downloading songs is a legal exercise of consumer rights that actually promotes sales.

Consumer advocates argue that it’s perfectly legal for consumers to make digital copies of the CDs they buy and to record songs from their collection on custom CDs for personal use. And stopping consumers from making easy digital copies won’t make much of a dent in piracy because there are other ways to “rip” songs from a disc, said Eric Garland, chief executive of BigChampagne, a company that monitors file-sharing networks.

“For most of us here on the ground, downloading the music is simply an expression of demand, of raw consumer demand, of a desire to hear it and have it,” Garland said. “We create a demand like that and we expect people to behave like good little consumers and wait until the big day” of the official release.