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Industry Gatecrashes MP3 Party
By Keith Newman
The establishment recording industry, among the first to use the internet for promotion but the last to embrace it for digital distribution, is now rising like a sleeping giant to stake its claim in cyberspace and the put an end to pirates and usurpers.
Previous efforts to provide secure digital protection were hacked within weeks - the record industry was outpaced and outmanoeuvred by technology and the web entrepreneurs and anarchists determined not to pay for their music. Now the majors labels are back with a vengeance.
Industry efforts have accelerated this year with the takeover of Napster, MP3.com, a string of law suits and the introduction of new measures to track and destroy illegal music files and prevent CD copying.
After all billions of dollars, shared by record companies, songwriters, publishers and traditional retailers, are at stake. According to the July 2001 Jupiter Internet Music Model, online music sales will represent seven percent of total US music sales in 2001 and 32 percent in 2006. Consumer online music spending is expected to grow from $US1 billion in 2001 to $6.2 billion by 2006, a 43 percent annual growth rate over the next five years.
US music sales represent 40 per cent of the global market. The Recording Industry Association of America (RIAA) says it’s six monthly figures to August, reveal the value of music shipped by record companies was $US5.9 billion, down five percent from $6.2 billion for the first six months of 2000. In fact sales of cassette and CD singles were down 38 per cent. Mass scale CD copying, piracy and on-line file swapping are being blamed
The hard line to win back the digital space comes ahead of plans by the world’s top five music companies to sell their enormous catalogues of content over the internet in two separate ventures.
Pressplay, a joint venture of the Sony Music Group and Vivendi Universal and MusicNet, backed by Bertelsmann (BMG), EMI Records and AOL Time Warner plan to be operating by the end of the year. Together the labels, largely through the copyrights they hold, control 85 per cent of music distributed across the globe through traditional means.
The launch of the massive on-line operaitons rides on the back of a deal struck between the RIAA and songwriters and publishers clearing the way for on-line use of any song from the Harry Fox Agency. The agency, a subsidiary of the National Music Publishers Association, represents 27,000 publishers and more than 160,000 songwriters. The $NZ2.5 million two-year arrangement is for streaming and limited downloading.
MusicNet sees itself as a wholesaler, enabling other online music services to set their own prices and subscription models. Pressplay is a consumer brand, dictating price and terms to licensees including Yahoo and Microsoft Network (MSN).
However critics suggest both initiatives will effectively be dictating retail prices saying the record companies want the right to control how many copies are made, the technology used and the price. That control over the whole ‘consumer experience’ irks Jonathan Potter, director of the Digital Media Association, a trade group representing online music start-ups. "In the traditional marketplace, wholesalers can't control what retailers charge," he says.
He claims the individual labels "have not granted one significant license" to other online distributors or shown an inclination to do so. Most of the licenses are for radio-like internet services, limited sale of music videos, or services that let consumers store their music on the internet.
During this year the RIAA and its members have become increasingly aggressive as they slam competitors with lawsuits and mount take-over bids to own key technology. The pioneering MP3.com site, which opened up the Pandora’s box on digital downloads is now undergoing a radical restructure after being acquired by French media conglomerate Vivendi Universal hard on the heels of a $118 million copyright infringement suit. Vivendi, will use the technology for its own on-line subscription service.
Runaway file-swapper Napster has been temporarily put out of business following music industry lawsuits, pending a restructure as the on-line arm of new owner Bertlesman (BMG).
As Napster’s use declined the on-line community looked further abroad to feed its appetite for free music. In its wake hundreds of look-alike and copycat file swapping sites have emerged including FastTrack, Audiogalaxy, iMesh, BearShare, Limewire Gnutella sharing billions of music files in recent months.
Meanwhile the RIAA continues to exercise its
legal muscle to divide and conquer the renegade internet distribution
business. As the big labels try to railroad their agenda to centre stage
they’ve so far crippled several sites including Scour and Aimster and
have others in their sights.
The latest court action will test the effectiveness of international law to clamp down on services which enable individuals to scroll through each other’s hard disks in search of songs rather than relying on central servers or company websites. If the companies are shut down the networks may still survive.
In another move to tighten a hold on their
intellectual property the major labels are introducing several new secure
digital formats - hundreds of thousands of CDs with copyright protection
technology are now being released in the US and overseas markets.
The industry’s new ‘cunning plan’ will place two versions of an album on a single disc, one in modified CD form so it can't be transferred to a computer hard drive, and another for example in Microsoft's Windows Media Audio digital format allowing files to be copied to hard drives but with some restrictions. The move gives Microsoft an instant edge over the renegade MP3 format. Other formats including RealAudio also being tested.
Meanwhile the RIAA, which represents the interests of the over 600 record companies, is experimenting with technology to directly target the computers of illegal file swappers. And in some cases delete non-kosher files.
One method masquerades as a file-swapper looking for certain songs then attempts to block other potential traders from accessing those files by repeatedly requesting them, making downloading painfully slowly. It’s a kind of denial of service attack.
The RIAA sparked a further wave of criticism this month after it sought to have the US anti-terrorism bill amended to protect the use of this kind of software. The amendment would have protected copyright holders from liability if any damage resulted from pursuing musical miscreants. However it was considered too broad, giving an incentive to spread viruses or employ hackers to track down music pirates.
Meanwhile in Washington entertainment industry lobbyists are trying to convince computer programmers and those advocating the use of open-source code not be alarmed at industry attempts to embed copy-protection in nearly all PCs and consumer electronic devices.
Walt Disney and News Corp for example support a draft of the Security Systems and Certification Act (SSSCA) as "a reasonable compromise" claiming it’ll pave the way for legitimate access to their content over high-speed internet connections and increase hardware sales.
Preston Padden, executive vice president of the Walt Disney Company, which helped craft the legislation, told Wired magazine the move would be good for computer companies making hubs and routers and those trying to build broadband networks. "It will jumpstart the broadband revolution, because entertainment content will create consumer demand."
The draft SSSCA says it is illegal to create, sell or distribute "any interactive digital device that does not include and utilize certified security technologies" which of course must be approved by the US Commerce Department. If industry groups cannot agree on a security standard after two years, the Commerce Department will step in.
"Anyone who distributes copyrighted material with 'security measures' disabled or has a network-attached sever configured to disable copy protection" is liable to five years in prison or $NZ1 million in fines.
Jonathan Potter, executive director of the Digital Media Association warns the bill is anti-technology. "It would have the United States government approving or disapproving every semiconductor, every server and essentially any digital information technology device prior to coming to market."
In the New York Times this week there’s an outcry from independent music distributors that the majors are going way too far in their efforts to curb competition, including denying other on-line outlets access to their music.
The Justice Department, admits it’s investigating the possibility of anticompetitive practices. Those close to the inquiry confirm the focus is on the two joint venture on-line companies and their reluctance to license catalogues to competing internet distributors.The European Commission also revealed last week that it is also in the early stages of an inquiry into the behaviour of the recording industry.
"It is anticompetitive of the labels to use the leverage of their copyright ownership to prevent others from doing distribution as well," said Aram Sinnreich, a digital media analyst with Jupiter Research.
Cary Sherman, general counsel of the RIAA, says the labels are proceeding cautiously with their entry into a brand new marketplace where the business models are uncertain, technological protections are still being developed, and business impact unknown. A spokesman for BMG, told the New York Times it was actively engaged in discussion with numerous companies about licensing its music.
But Rob Reid, chairman and founder of Listen.com, a music site that is trying to compete with the labels, said the only deals that matter would be for a label's entire catalogue, since that is what MusicNet and Pressplay could offer. A year ago, there were 25 companies wanting to license music from the majors, today according one executive many who are now dead and departed.
With the need for expensive packaging and costs associated with traditional distribution eliminated through digital downloads there’s considerable room for the cost of music to be scaled downward. However there’s concern the major labels may simply fix prices at a certain level to grow their profits and avoid being undercut
Digital distribution has the potential to change the whole economic model of the music industry. To date there’s little evidence of prices coming down for CDs at your average retail outlet or on-line.
The efforts by the majors to stake their claim on-line and eliminate all interlopers whether they be on-line entrepreneurs or over zealous home copiers has only just begin. "The next hurdle will be providing digital services at acceptable price points with the features that consumers want most, such as the ability to make copies of downloaded songs, listen to them on any device, and burn CDs," says Jupiter’s Aram Sinnreich.
Crippled CDs or downloads which prevent people making their own home compilations or those that only work with Microsoft Media Player will almost definitely create a consumer backlash. If the price of downloads is not significantly cheaper than existing retail content the music industry may be doing itself a disservice and in fact fuel greater loyalty to the very parties they’re trying to eliminate.
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