Got Warez? Twenty Years of Online File Trading

By Kaleb Kain

Warez. Where did the word originate? Since the start of the Internet boom, "warez" has been one of the top terms searched for on search engines. In the early 80's, the word "warez" became the slang term for trading software among others via online bulletin board sites, the precursor to the Internet. In those early days, the industry labeled file traders "pirates" which almost romanticized the act for young warez traders. As the size and popularity of the Net grew, so did the amount of warez sites and the desire to find those hidden treasures. Today "warez" is the underground term for all the software, music, and movies posted on websites or traded through peer-to-peer networks.

Despite threats and tactics by the gaming and entertainment industry, millions of people trade warez everyday, and most experts believe that it will always be part of our society. Most everyone agrees that the bootlegging of packaged media for profit is a serious crime. However, the non-profit trading or backup of media is considered fair use by the masses. Are the various industries losing money? Or is peer-to-peer trading the best promotion a music artist can hope for? There have been many myths about file trading and much propaganda, but in the end, the majority judges what is right or wrong. Industry now has to figure out a solution: Sue everyone or harness the marketing possibilities of millions of warez traders.

The three industries (software, music, and film) have approached the file trading world with different attitudes. The software industry has adjusted, the music industry is in a full panic, and the movie industry is becoming concerned about future income losses. A look at the different industries and the attitude and actions by their consumers/file traders, shows two things: The overall consumer trades files, and the overall file trader is still a consumer.

Software Industry's View: We've lived with warez trading for 20 years. Today, we make more money than the movie industry.

Before the late 90's, the trading of music and movies online did not exist. From the early 80's on Apple computers through to today, people have been trading software nicknamed warez. Early on, the software industry panicked, much like the RIAA is doing today. They didn't have a vision of today's Internet, but they foresaw a world of pirates making copies of warez and hitting the streets like drug dealers. They implemented copy protection schemes on disks, and launched many "Don't Copy That Floppy" TV ad scare campaigns to tell their consumers that they were bad people for backing up their software and that the Feds are watching them. That direction backfired as copy protections were defeated and people were determined to make backups of their games and applications that were on unstable media: magnetic disks and scratchable CDs.

In the late 80's and early 90's, computer technology was advancing fast. CPUs from competing companies and different video card standards had everyone wondering what software would actually work on their particular system. Full demos didn't exist, so warez trading helped users try before they buy. Trading helped many people discover games that they would have never bought. However, the industry still profited in some way, either from word of mouth promotion or from that once "pirate" who downloads version one of the game, but buys versions two through ten in the future.

Applications like Adobe Photoshop or Microsoft Office are so high in price, that students or small business startups can't afford them. Students download warez versions to keep learning. The industry now knows that it's those same students who will become the executives and workers that will buy or influence the purchase of many applications to come. Because of the help of a few warez, small businesses grow from a pirate employee operation into big businesses that buy hundreds, if not thousands of software titles.

While the software industry still will not tolerate the sell of fake packaged copies or the serving of mass warez over the Internet by a website, they are not directly attacking the individual nonprofit downloader who uses the software or trades it to a friend. However, in these times, it takes a very skilled downloader to avoid fake copies infested with viruses and spyware. Most users are fully satisfied with full demos that most makers offer for free now.

After two decades, the software industry has analyzed the trading of warez among peers and concluded that the growing online community is a wonderful thing for promotion, and that their profits are higher than ever. But don't expect a press conference announcing that.

The music industry's stance is somewhat different:

Music Industry's View: The trading of music is out of control! We can't think of ideas to harness this powerful revolution! Sue everyone now!

When Napster exploded onto the scene, the RIAA (the recording industry association consisting of the 5 big record labels) got scared and brought it into the media spotlight. Before 9-11, it was the number one topic. The media hype accomplished two things: 1) It introduced the uninformed world to the fun of peer-to-peer file trading. 2) It educated the world on the practices of the music industry and the amount of propaganda that is spread during the battle on file traders.

The first cry from the industry was, "the artists are losing so much money." However, the media reminded us that the label makes 95% or more on all CD sales, and the artist makes their money touring and merchandising their name. This made it hard for file traders to feel any sympathy after knowing how bad labels treat the artists. Interestingly, CD sales began to actually rise during the Napster hype as did the number of peer-to-peer users. CD sales did eventually start to decline, and the RIAA once again placed the blame on P2P trading. However, economists reported that declining CD sales were most likely the effect of the slumping economy.

Some people feel that online is just one of many ways of trading music. Since the dual cassette boom boxes of the early 80's people have been sharing music and making backup copies. Home stereos and computers have made it easy for years to copy music from CD to tape and now CD to CD. Mix tapes and CDs traded among friends were a way of life before P2P networks.

A lot of people download music they have already bought many times before. In the early 80's, cassette owners were told that CD quality was better than their analog tapes, and that CD's would last forever. I remember salesmen in those days pouring coffee on CDs, scratching them, and throwing them across the room to show how durable they were. Today, although the cost of making a CD is pennies, they now are made at a much lower quality. A slight scratch ruins the CD. The industry saves more money, but has never lowered their prices. The user ends up re-buying his favorite CD many times, while that old cassette still lives. Now the industry sells 24-bit DVD audio discs after realizing that 16 bit audio CDs don't sound better than your old analog tapes. After years of playing games with the consumer, the big labels need to do something big to gain any respect. Suing 12 year old girls for downloading songs may not be the best public relations move.

One of the main reasons people trade music is to discover new music from regions all around the world. In many instances, P2P downloading is the only place to experience new and exciting music. Instead of satisfying a demand by consumers to hear and buy a wide range of music, the industry stocks a very small selection of artists in stores, mainly only those they have chosen to heavily promote. Many people would like to go to a store to buy music they discover through online trading, but it's usually not there unless they live in a major city. While one may argue that almost everything can be bought online, it must be realized that the music industry's biggest buying demographic is 11-18, not exactly a big credit card owning group.

American radio is no answer either to discovering new music as one corporation, Clear Channel, owns a majority of the stations, a practical monopoly. They target music to the different regions based on "market data" analysis of what they feel the listeners want. They have quit playing music submitted by independent record labels. The independent artists overwhelmingly support the trading online of their music as it is now their number one medium for promotion. A few years ago MP3.com became a huge site for spotlighting independent and unsigned artists. Its popularity scared the music industry. It was bought by Universal Records, dismantled, and sold thus leaving struggling artists in the cold.

Through all of this, interestingly, people are still buying music and supporting their artists by attending concerts and buying merchandise. Total concert revenue is high year after year. A live concert experience is something that can't be traded online. Ironically, the big labels in their infancy set in stone a tradition that they will get most album sales money and the artist will get concert money, which explains why we see outcries by the labels regarding downloading but not from the artists. Occasionally, a big label will get a superstar artist to ask people to stop trading music. However, it becomes hard for people to sympathize with a super wealthy pop star.

During the past concert season, radio and the big labels received a big wake up call about the power of the Internet and how music tastes spread through online communities. Music festivals like Bonnaroo and Austin City Limits featured artists with practically no radio play or major store promotion. While most promotion and ticket sales were handled online, the festivals were a sell out attracting hundreds of thousands of people.

It's obvious that music will always be in high demand and that the people will not let anyone control what they should hear, how they should hear it, or even where they should get it. It's up to the music industry to find ways to romance this huge market instead of alienating it. The trading of music is a revolution that won't stop, and where there is a large group doing anything often, there are ways to make big money. The question is: Can the RIAA stop panicking long enough to see the light?

The movie industry sees the current actions of the music industry as something to go by:

Movie Industry's View: The music industry is panicking, so we may be panicking soon. We aren't losing any money now, but we may in the future. Let's start our propaganda now.

The movie industry has feared the copying of movies for years. Copyright protection was put on VHS tapes, but users found ways around it to make backup copies of tapes. The movie industry spent years perfecting a copy protection for DVDs before they were introduced. In no time, the encryption method was broken and software came available for people to backup their DVDs. However, DVD sales continue to increase despite the increasing methods people use to make copies of their DVDs. DVD copiers on computers and DVD to VCR machines are becoming more popular.

The big scare for the movie industry (MPAA) was when they discovered bootlegs of movies that were still in the theater or yet unreleased being traded over the Internet. The bootleg origin comes from either a screener on tape that is usually for inside eyes only but gets leaked to the street or from a tape made by someone actually filming the movie with a small camera inside the theater. Most bootlegs online are of the later type and the quality is almost unbearable to watch.

Online movie bootlegs have not put a dent in ticket sales. Movies are breaking money records and the industry knows that online bootlegs can never match the experience of going to a theater. However, technology progress frightens the industry into thinking that someday the user will be able to bootleg a movie and match the theater quality experience in their own home. If this happens, many feel that the movie industry must adjust their income methods or advance the theater experience. Where is decent 3D? Holograms? Interactivity? Come on Hollywood. There is more money to be made.

Currently, the movie industry is running ads before the movies featuring low paid film workers who tell the moviegoer (who just bought a ticket) that downloading movies takes away money from the workers. Attempts like this seem to question the people's intelligence. People will not have sympathy for an industry that still makes hundreds of millions in profits for executives and millions for actors. It's doubtful that the salary of workers on a film will suffer from warez trading, but they also never see a cut of the huge profits from a successful film. Following propaganda methods used by the music industry may be the fastest way to anger the movie going audience.

Conclusion: Great music, movies, and software will continue to be created. People will continue to trade them. Industry must discover how to capitalize on the revolution.

There are still many people on both sides arguing just exactly what is "fair use" regarding copyrighted material. Like most arguments, the views of people differ based on how they predict the money flow will affect them. Some industries, like the big music labels, sense a huge income loss and respond by putting fear into their audience. Other industries see peer-to-peer networking as a new world with many income opportunities. The consumer watches the game with amusement amongst the propaganda and marketing. Internet service providers market the dream of high speed connections by including in their ads, "download music and movies at super speed." Portable and car MP3 sales are growing at a rapid rate, as well as blank CD and DVD sales.

Peer-to-peer file trading is just the beginning of the revolution. Many industries are looking forward to marketing toward huge networked P2P communities. The question is: will the software, music, and movie industries be willing to adapt and profit? The software industry has taken measures to provide the consumer with what they want. Most software creators provide the user with full demos and reward their consumers with discounted upgrades. The music industry is actually beginning to get the picture. The growing success of satellite delivered, commercial-free, music channels such as Sirius proves that consumers are willing to pay a monthly fee for portability and a wide range of choices. Labels are starting to package bonus CDs and DVDs within new releases to give the consumer more than he can find online. The movie industry has learned early to package bonus features within DVDs to ensure that people will continue to buy them.

However, after 20 years, the trading of warez continues. The Pandora's box of P2P networking is opened and cannot be closed. People will always choose online innovations that provide them with the content they want and the privacy they need. How the money is made and where it goes is not their concern. Industry must let the user become a consumer, not force them to be one.