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Pirates armed with CD burners and cheap discs are bringing the industry to its knees. The U.S. could be next.
Jun 9, 2003 | If hell had a special section reserved for recording industry executives, it would probably look a lot like Tepito.
The Mexico City neighborhood is a mile and a half of exuberant, unabashed intellectual-property piracy: thousands of people eddying through a labyrinth of street stalls, buying CDs, movies and software at a tiny fraction of the legal price.
It's also the center of a nationwide piracy business that the Recording Industry Association of America and other groups say probably took almost a billion dollars from the music, film and software industries last year -- a business that is almost single-handedly killing Mexico's music industry, crushing legitimate record sales, and sending potential stars fleeing from the country.
Stumble long enough through Tepito's maze of poorly erected street stalls and taco stands, and you might come upon Discos Medellin, a modest little shop where Guillermo Lopez quixotically sells original, nonpirated music for about nine dollars a CD. Lopez, a connoisseur of salsa, has been running the shop for 13 years and has seen sales fall from an average of maybe 60 discs a day a few years ago to about 15 a day now.
"There are days when I don't sell any at all -- people are looking for the cheap stuff," he says, gesturing at the vendor on the street outside, who sells some of the same discs for less than a dollar. "There are still people who buy originals, but ..."
A block away from Discos Medellin, Israel Serrano, a teenager wearing an obviously fake Mossimo shirt, is doing the real business of Tepito. Under a dirty yellow tarp, he and his friend Carlos have stacked up about 2,500 CDs -- a mix of Latin pop, traditional Mexican music and the latest American hits -- which their boss manufactures with a couple of towers of CD burners and some Chinese blanks for maybe 25 cents each. They sell several hundred a day for 80 cents a disc.
Taking a break on an empty crate in the back of the music stand, he says he doesn't really think too much about how the piracy business works or whom it affects. Sounding a little like an American file-trader, he says he just likes selling and listening to music.
He picks up a disc from the vibrating pile next to the stereo, which, as in every stall in the entire neighborhood, is turned all the way up to the chest-walloping maximum. "It's like this disc -- I don't even know how they do this," he shouts, holding up a freshly minted copy of BMG artist Rocio Durcal's latest recording effort, "Carmelito." "It hasn't even been released yet."
Piracy is how people in Tepito make a living, Serrano says. He points at the stall across the street, which sells shots of rum and brandy. "That's pirated." In other words, the Bacardi bottles are refilled with cheap, watered-down alcohol. His arm shifts over to the stand to the right, which sells Hilfiger pants. "That's pirated." He settles back on the crate. "It's all fuckin' pirated here, man."
Mexico's culture of contempt for copyright mirrors the attitudes of younger music consumers in the United States, and it may presage a dark future for American entertainment companies. The distribution models -- file sharing and CD burning in the United States, illegal factories and street sales in Mexico -- are different, but squint your eyes just right and the street markets of Mexico start looking more like Kazaa. In both countries, new technology, aided by out-of-date laws and poor enforcement, is threatening an industry that needs to find a new business plan fast.
In the United States, record sales have indisputably started falling, a development that the RIAA blames on music piracy among younger customers (although a sharp economic slump has no doubt contributed as well). There has been some screaming, and a lot of legal maneuvering, but no one seems to be expecting the American market for music to shrink by 50 percent, as it is on track to do in Mexico.
Maybe they should, though.
Right now, it's probably a little bit easier for a big-city Mexican to walk around the corner and buy a pirate CD than it is for an average American to fire up the Dell and download the disc. But the growing adoption of broadband Internet is probably going to eliminate any piracy gap pretty soon. And with consumers in neither country particularly concerned about whether what they are doing is wrong, a Mexican scenario for the American record industry looks increasingly possible.
Israel Serrano's little stall and the tens of thousands of others like it around the country are the reason that Discos Medellin is in trouble and more than half of the record shops in the country have gone out of business in the last couple of years.
And that is a cause for concern, according to Neil Turkewitz, the RIAA's executive vice president for international affairs. Even if Mexico somehow solves its growing piracy problem, he says, "the infrastructure for legal distribution has just disappeared."
It has disappeared because the demand for legal music seems to be falling at a staggering rate. Mexico is the third-biggest market in the world for pirated music. Almost 70 percent of the music sold in Mexico is copied (most of it in Tepito), and that figure has been climbing pretty steadily for five years. In May the office of the U.S. Trade Representative added Mexico to its list of flagrant intellectual-property violators.
Recent music sales figures in Mexico would make an American record executive cringe. According to Amprofon, the organization that represents the big international record companies in Mexico -- like a local RIAA -- CD sales fell about 16 percent in 2001, and almost 18 percent in 2002. Internal estimates for this year paint an even uglier picture -- the market is expected to shrink by almost a third in the first half of 2003.
Those are apocalyptic numbers. And they've got people in the record industry here speaking in apocalyptic tones.
"It might be last call here," says Juan Pedro Davalos, that governmental affairs chief of Amprofon. "We're living the end of an era in the Mexican music industry."
