How to Reduce Illegal Music Product?

In this case, I recommend some problem solving which I expect can create a better condition, those are :

•Protect the format
This way is recommended in the form of reducing the supply of illegal goods while I recommend the same things which become the main support of the existence of Illegal Music Product, that is : Advance of Technology. Advance of Technology has already given the huge easiness and opportunity for the supplier to make the copy of the original one in a very easy way but, we can also use Advance of Technology to protect the format of Illegal Music Product which make it can’t be copied by the Supplier of Illegal Music Product so, in my expectation, government and Music Industry can corporate and next time, create the protected-format of Music Product I which, at least, the goods supplied can be reduced and the marginal cost of the suppliers can be higher than before.

•Support the original CD to compete
We can also reduce the quantity of Illegal CD and MP3 sold by reducing the demand of those goods. The only way to reduce the demand for Illegal Music product is to increase the demand for the original Music product that just can be done if Government gives more attention and corporation to the enemy of Illegal CD and MP3, that is : the original one
When the demand for the illegal Music product decrease, automatically, the supply will begin to decrease and we can reduce or even eliminate the existence of Illegal Music Product in Indonesia. As what have been mentioned before, the price of Music Product tend to be expensive because they have to pay royalty, PPN (Pajak Pertambahan Nilai), PPBM (Pajak Penjualan Barang Mewah), seller agent fee, Copyright tax which paid to ASIRI (Sound Recording Industry Association of Indonesia), box and packaging cover cost, retribution cost, production cost ( based on whether the cost is high or not ) and other miscellaneous costs. So, what should be done to make it cheaper which will create the better position for original music product in the competition with the illegal one?
I recommend a shift of focus of government from doing the arrest and seizure to support the original Music product party so, by some agreements ( I assume, Artist can make the agreement of royalty to reduce the piracy, why can’t it be done by government ?) between those two parties ( can be in the form of subsidy or reducing the tax ), they can begin to reduce the cost and create a lower-price Original Music Product.

Negative Impacts of Illegal Music Products

The Impacts are :

•Destroy Domestic Music Industry
Selling and purchasing illegal goods are criminal action consider that, it hurts other parties, especially party in music industry . This piracy activity create loss for them in the form of money ( royalty which must got by them ) and feeling of unappreciated ( Act of selling and buying the illegal Music Product means that people don’t appreciate the creator). So, people from music industry will think twice to create more and more because finally, it will be pirated and their exertion finally, unexpectedly, will benefit the other party who copy their Music Product. This thing will reduce the domestic creativity in Indonesia and, the worst thing here, people from music industry will stop their activity as the action to protest the piracy in Indonesia which create the destruction of Indonesia’s Music Industry . If it happens, state will get much more loss from tax and Indonesian GDP will decrease because of the decreasing of total output from Domestic Music Industry. Also, Indonesian will get less diversity of music to be listened


•Create status for Indonesia as Priority watching list
As what have been told before, piracy has become one serious problem in Indonesia and that problem becomes bigger and bigger connected with Indonesia’s worse status in international world. It can be seen in fact while, Since April 2005, Indonesia is categorized as priority watching list again, connected with its piracy rate. So, while Indonesia is categorized as priority watching list, it means that people tend to reduce their interest to innovate and create something because of lack of law protection to intellectual property. This also influence investment and trade in Indonesia because the status above create a bad image of Indonesia in international world and if it still happen, it’s not impossible that Indonesia will be the first level country and will get Trade fine from US. As example, Ukraina has already become the first level country and US cancelled its export to US as much as $75 million. Not just US, it’s not impossible that, the other developed countries which give high attention to intellectual property right will do embargo to Indonesia connected with the status.

•Create Loss for the state
Illegal Music Product creates a huge loss for Music Industry and also the state in the form of the tax-payment they must receive. Each year, state can have a loss around 1 trillion

•Disadvantage in the process of Transferring technology
Many Firms tend to consider strong intellectual property protection connected with the decision of technology transfer rather than investment decision so, by being a country with weak protection to Intellectual Property, we will have a difficulty in the process of transferring the technology from other countries and it is a poor fact consider that, to be the developed country, Technology (usually through investment ) is a must. Considering our status now, although we can get the technology, one firm has its own policy to minimize the transfer of technology to spesific countries so, there is a possibility that we will not get the whole technology but just some parts of that which means, we will get less benefit compared with other countries.

•Support Porn Material
In Indonesia’s culture, every little thing connected with pornography will be rejected and by the existence of Illegal Music Product offered with Video Clip, it has a chance to show pornography and it is contrary with Indonesia’s culture because it can destroy Indonesia’s Young Generation and also Support the criminality in the form of Sexual Harassment.

Efforts which has Already Done to Reduce The Existence of Illegal Music Product

And...The Efforts are :

•Constitution or UU of Intellectual Property Right
Illegal goods can be found easily, in trotoar, Vendor’s Place, market, even in place like supermarket, hypermarket and department store but, on July 29 2003, the first day Constitution No. 19 Tahun 2002 about Intellectual Property Right come into operation, we can’t see it anymore in most big stores, supermarket and department store because it has already cleaned from illegal Music Product and begin to sell just the original one caused by feeling of fear to the fine and the existence of their business. That’s why, in 2003, there are decreasing in the quantity of illegal goods from 363.5 millions to 356.2 millions and, this decreasing can increase Music Industry’s growth by 10.9%. Now, there is a decreasing but, the quantity of illegal still exceed the original one because, we can still find the illegal goods in the market, trotoar and Vendor’s place where the seller seemed don’t care about the fine and this constitution and they can’t be blamed because most of the sellers live from this business so, their level of afraid to the risk is just small. And, I believe the transaction of illegal Music Product in those places will never end since the demand for illegal goods is still high. Let’s say, the law enforcers do the arrest and seizure, it will make supply curve shift to the left ( decrease ) and creates the higher price of the good ( but still categorized cheap compared with the original one because, they don’t have to pass some procedures )for these goods because the demand is constant and creates more profit for the seller, consider that the caught activity reduces its competitor and people will have less alternative for sellers. So,because this is illegal business, and supported by law of Supply, there will be other suppliers appeared and the price will decrease again and the activity will come back like before.

•Copyright Tax
Based on APBN 2005, there will be Copyright Tax for original goods as the law instrument to create easiness for the law enforcer to recognize the original and illegal Music Product, for the certainty in watching the goods physically and administratively also, Copyright Tax have its own fine ( see appendix ). But, how far it will help? I still doubt that, this Copyright Tax can be worked because, although, there is an easier way for the law enforcer to recognize the goods and that Copyright Tax will be used to support the illegal-goods destruction project, the law enforcer in Indonesia still weak so, there will be no significant change in the quantity of illegal existed and sold as what the government expected. Now, talk about charging Copyright Tax around 1% per unit sold, what a small quantity but, consider the substitution theory, it will stimulate more demand for illegal. Also, Copyright tax will make longer the bureucracy line and create one more difficulties for the Music Creator.
•Anti-Piracy Campaign
This way have already done by artists in Indonesia to invite society not to buy the illegal Music Product and I think, it can be worked because in marketing, there is person who act as opinion leader so, in this case, I assume the artists like SLANK and Delon are the opinion leaders in which, they have fanatic fans that will follow whatever they said or do so, since the artists keep telling not to buy illegal, their fans will do that. This way will not cover so much people but, at least, it can help to reduce. As the real action of this campaign, begin from May 22 2003, there is anti-piracy campaign held by ASIRI by doing a show in Jakarta, Bandung, Surabaya, Yogyakarta and Semarang ) with the theme of “ 100% Anti-Piracy Music “. Also, there is “ Save Our Music “ Campaign in some schools in Jakarta.
•Offer a competitive price
Between all the efforts, in my mind, this is the most efficient efforts in which, done by the party from Music Industry itself where, we can purchase CD with a lower price than usual. How can it be happened ?
As what have been said by Syanne Susita ( Promotion Manager Universal Music Indonesia ) and Zakaria (Promotion Manager EMI MUSIC Indonesia ), it can be happened because of the reducing of Production and Marketing Cost. Also, the packaging made as cheap as possible and there is no huge promotion anymore to reduce cost. The breakthrough here is the existence of Royalty Break held by Universal Music to create a specific deal and agreement and deal with the artists so, the royalty must be paid is less than what usually paid in the past. This Royalty Break then, take a big role to reduce the cost and automatically, the price so, currently, Illegal Music product with reachable price has already existed so, it will give more tight competition with illegal Music products because people will think twice to buy illegal music product while currently, the original one has a reachable price.
•Improve controlling process of the import of raw material
Actually, one way to reduce illegal Music Product is to control the import of raw material of Optical Disc which in this case, is a primary need for production of Illegal Music Products in which, without that, production process will not be done. By seeing this condition, Indonesia’s Department of Industry has already released some regulations to prevent the piracy to be happened, such as : duty to put Certificate of Analysis and technical specification based on serial number of production to each Polycarbonate Raw Material needed. Beside that, to each weight minimal 500 kilograms package of polycarbonate optical grade must have logo, name of producer, serial number of production, name of country, weight and kind of Polycarbonate. About the machine to produce it and the possession of Empty Optical Disc also has been put in Regulation No. 05/M-DAG/PER/4/2005 On April 15 2005 about the requirement of importing machine, Machine Tools, Raw Material and Optical Disc. Now, the regulation has already existed but, the supervision from the government is still weak which make the regulation seemed useless and just can give less contribution in reducing Illegal Music product in Indonesia.

Positive Impacts of Illegal Music Products

Every case will have pro’s and con’s also, will have a good and bad side so, based on that statement, we can conclude that the existence of Illegal Music Product also has a good impacts, those are :

•Free Promotional tools, especially for the newcomers
As what have been mentioned before, the existence of Illegal Music Product will create loss for Music Industry, singer and composer. Those people will not get the whole income they must get and can’t do anything when they see the people listen for their Music Product in the form of Illegal. But, let’s think the positive side of this case. Illegal Music Product can be their Free Promotional tools whether they aware or not because the existence of their Illegal Music Product will create more people who are able to pay for listening their song and the people who like and know their music will be increased and of course, it will create more famous name for them. For the Diva like Krisdayanti and Titi DJ, the impact may not be significant but, how about the newcomer? Let’s see Inul. Most people know her through illegal Music Product and without promotion, everybody knows her. Or, let’s make assumption. In the market, there are compilation CD and just imagine when the newcomer’s song inserted between known and famous songs in that Illegal CD. When people buy the CD, automatically, will know that newcomer without being promoted.

•The way for the low income people to get extra income
Just like what have been said before, Indonesia is a developing country with monetary crisis inside which means, Indonesia still categorized as low-income level country . Not just low income, there are also many unemployment inside this country. So, it makes sense if people mentioned above takes risk for selling the Illegal Music Product because that is one alternative to get income ( see table 1 ) in this difficult situation without forcing the government continually to help them. Now, Just go to the market and see the sellers of Illegal Music Product. Most of them are the low-income people and from those low-income people, there are some young and jobless people who make the Illegal Music Product to be their means of subsistence. At least, by doing that business, they can reduce their negative activities like stealing and other criminalities that create loss for society.


•Society satisfaction through consumer and Producer surplus
Generally, People like the cheap product and by seeing the condition now, the price of Original Music Product will not satisfy them in this Difficult Economy condition so, by the existence of the illegal Music Product, society can get more satisfaction and entertainment by paying lower than it must be. This situation will create consumer surplus because they pay something but actually they can purchase it with higher price ( or just say, entertainment in a cheap way ) so, the remain of money can be used to do something else. In this case, I use 5,000 which is the cheapest price of Illegal Music Product in the market and 25,000 which is the cheapest Original Music product I the form of CD. Talking about producer Surplus, the producer also gets profit because they sell product with lower cost caused by some agreements and advance of technology. In this case, I use 1,500 as cost of production which consist of Disc ( 1,000 ) and the plastic seal+cover+miscellaneous ( 500 ) and use 2,200 from the case example got from POLDA SULUT.

Causes of Ilegal Music Product's Existence

What causes the existence of Illegal Music Product in Indonesia ? Let’s see factors below:


•Advance of Technology
Let’s imagine what if there is no technology advance in Indonesia and people don’t know how to record song whether by burning a CD, downloading song from internet or the other ways, I believe the piracy will not become a serious problem for us. Actually, the advance of technology purposed to be good but, in this difficult economic condition, it is hard for people not to take advantage for this easiness in making the illegal copy and sell it for profit of their own. All they need just Computer (can be bought or just hire it ), Printer, Scanner, Empty CDs, Master CD, Paper and Plastic Seal and, they can be suppliers. What an easy way to get money. So, by this easiness for being the suppliers, how can Illegal CD and MP3 doesn’t exist in the market?
•High Price of original Music Product
As what have been told before, Illegal Music Product exist as the substitution for the original one because of the expensive price of that good so, we can make one conclusion here that, the pricing policy connected with original goods determines the existence of the Illegal one. Because, as what have been said in substitution theory, the more the price of the original increased, the more the demand for Illegal. In this case, supplier of the original also realize this condition but, they can’t do nothing about the price because the price covers their cost and the reduction of price will create loss for them. So, what makes it expensive?
To make one original product, there are many procedures to be passed. One of it is payment of royalty, for the artist, composer ( mechanical royalty / copyright ) and Producer. Royalty can be divided into : Royalty paid for unit product sold and Royalty paid as a whole. Royalty for a new artist is around 5,5 – 6% from the unit price, middle-level artis is around 7 – 10 % and upper-level artist is around 10-11%. Royalty for the composer which exist after the composer gives the authority for the other parties ( can be record company or publisher ) to produce his/her product. Then, Royalty for the producer. The existence of this royalty is usually for the making of solo album and, usually, this royalty is almost half from the unit price. Beside royalty, there are PPN (Pajak Pertambahan Nilai) which is around 10%, PPH ( Pajak Penghasilan ) which is around 15%, PPBM (Pajak Penjualan Barang Mewah) which is around 20-35%, Seller Agents fee, Copyright tax paid to ASIRI (Sound Recording Industry Association of Indonesia), box and packaging cover, retribution, production cost ( based on whether the cost is high or not ), Marketing Cost and other miscellaneous costs. So, it is not weird if the price of the illegal Music Product is cheaper, that is, because they don’t have to pay and pass all the procedures above.

Then, after it existed, it began to develop and develop until its quantity exceeds the original one and become the winner in the competition. So, what actually can support it to be happened? Just see the factors below :

•Supported complement
In this case, the complement also takes role and what could be the perfect complement for illegal CD and MP3 beside the player? It has been told before that there are also the Illegal Goods In the form of CD and VCD player and illegal here means cheap so, when the Quantity demand for Illegal Music Product increases, Quantity demand for Illegal CD and VCD Player will also increases. Then, CD and VCD player supplier will supply more for profit and of course, it will increase the demand for Illegal CD because people tend to buy more CD if they already had the player.
•High profit for the sellers
Now, talking about the sellers. What makes them interested to involve in this business ? the one and only answer is its profit, which tease them to involve in this risky business. Based on one sample case from POLDA SULUT, the seller just buy it for Rp.2,200,-/unit and sell it around Rp. 5,000.-. The profit they get is around Rp.2,800.-/unit. Let’s assume If in one day, there are 50 units sold, the profit will be Rp. 140.000,-. About the capital, just say they must buy 1000 pieces so, they just prepare Rp.2,200,000.- to begin this business and create profit. It’s very easy way in building a business, isn’t it?


•Consumer Preferences
Consumers are heterogeneous which means, in this case, we can divide the consumers to : Consumers who like Quality product, like Cheap Product, and some like Quality and cheap product. This concept explains that, it’s not impossible for middle-upper income people to buy illegal while the other middle-income people keep purchasing the original one. This preference also will determine whether illegal will be normal goods or inferior goods while income increases. Some people who prefer original Music Product to illegal one will leave illegal while their income increases but, for those who prefer illegal Music Product with good quality to better-quality original will buy more illegal Music Products consider that, they can get more entertainment (counted based on quantity purchased ) than just buy small quantity of original one. These preferences that determine the demand for Illegal and because currently, Indonesian people tend to be illegal Music Product -minded, there will be high demand and high demand will stimulate high supply that creates more existence of illegal
• Indonesia’s position as Developing Country
In this case, Indonesia’s position is as developing country especially, as low- income level country which means, there is a serious poverty problem inside ( see Figure 6 ) and the poor thing here, in the previous year ( 2005 ), poor people increases until 29.7 % or around 73 millions people. What a suprising value, consider that, government expect the decreasing quantity of poor people in 2005. This quantity then, support the existence of Illegal Music Product because low income people tend to love the cheap goods than the original one because of their less affordability through the goods also, poor people need extra income and it can be got by selling Illegal Music Product.

•Less Awareness to Intellectual Property Right
According to data from Indonesia’s General Directorate of HCPM ( Intellectual Property, Patent and brand ), since 1991 – 1997, for usual patent, there are 19,282 foreign patents and 319 domestic patents while for simple patent, there are 349 foreign patents and 260 domestic patents. As the information, the quantity of domestic patents registered never has a significant increasing, just around 1.9 - 4%. Just compare it with Japan which register around 320,000 domestic patents / year or USA which register around 100,000 domestic patents / year. This low quantity in Indonesia happened because, as general, in getting Intellectual Property right, people must propose an application or register the intellectual property and that’s the main problem here because, the creator in Indonesia just give a little attention connected with registering their product because, they think, in Indonesia, the law protection still weak so, why should they waste money and time to register ( while the time can be used to create ) if later, their Music Product will be pirated and no significant action from the law enforcer. Now, less attention to Intellectual Property Right will make many products created and existed without protection and it will be a very good news for the people who pirate the goods because, there will be less or no fine for them to copy or pirate the original goods.

•Weakness of Law Enforcement in Indonesia
Actually, for destroying the existence of Illegal Music Product in Indonesia is not so difficult for the law enforcer in Indonesia because there is UU No.19 / 2002 about intellectual property right which become the strong reason for the Law Enforcer to arrest and seizure connected with illegal Music Product. As what have already happened in Indonesia, Law Enforcers begin from socializing this law to its entire staff especially about its fine to the people who break this law which are in the form of Jail or just Material Fine. After the socialization, begin from 2003, Law Enforcer did some arrests and seizures in some places but, it doesn’t take a long time consider that after some periods, this activity become less and less and finally, the Illegal Music Products still exist even, there is a trade center in some cities in Indonesia like Jakarta and Surabaya so, what actually cause this thing happened ?
This case may be happened because of lack of knowledge about the characteristic of Illegal Music Product itself which create a barrier for law enforcers to do arrest and seizure directly also, less budget and Human Resource connected with destroying the illegal Music Product then, create big weaknesses of Indonesian law to destroy the piracy activity in Indonesia and these weakness gives more opportunity for the people who create the illegal Music Product.

Existence of Illegal Music product

Year by year, people become more creative. They begin to create and innovate something new for the society but, unfortunately, at the same time, the price which must be paid for getting those goods becomes higher and higher and it created an opportunity for creating substitute goods to give almost same satisfaction to the society by paying a lower price. These substitute goods exist in various industry, from Personal Ware ( Sport Shoes, Shirt, T-SHIRT and etc ), Personal Care ( Parfume, soap, sampoo, etc ), Home appliances ( AC, VCD & DVD Player,etc ), Information Technology ( Software, Printer&Ink,etc ), Automotive ( Motorcycle,etc), book ( novel, textbook,dictionary, etc ) until Entertainment Industry ( cassette, CD, VCD, MP3, DVD ) which later known as Illegal Goods or Counterfeit Goods. From the industries mentioned, the most vulnerable industries are IT ( esp. Software ) and Entertainment Industry by considering its cheap cost of whether producing or reproducing. In Indonesia, the piracy in entertainment industry also becomes one problem for the country, consider that, the quantity of Illegal cassette, CD, VCD, MP3, DVD begin to exceed the quantity of the original one ( see Figure 5 ) and this exceed-quantity means loss for the country and Music Industry itself.
As the more detailed quantity, In 2001, Total Illegal Music Product which exist in the market is around 290.81 millions. From those quantities : VCD is 275.1 millions, CD : 1.34 millions, and cassette 14.2 millions. While the original one at that time just 44.03 millions
In 2002, Total Illegal Music Product increases to 363.5 millions where VCD is 343.9 millions, cassette 17.4 millions, and CD 1.6 millions. While the original one just 34.2 millions. In 2003, Total Illegal Music Product which exist in the market is around 356.2 millions where VCD is 328,6 millions, cassette is 17.4 millions. At that time, DVD begin to exist and exceed the quantity of Illegal CD where at that time, Illegal DVD reached 8.49 millions, and CD is 1.6 millions. While the original one just 35.8 millions. In 2004, Total Illegal Music Product which exist in the market is around 331.3 millions where VCD is 305.6 millions, CD is 1.5 millions, cassette is 16.2 millions, and DVD is as much as 7.9 millions while the original one just 39.7 millions.