LATE LAST YEAR in a glitzy Los Angeles hotel ballroom, a usually convivial music technology conference known as Webnoize briefly took on the acrimonious atmosphere of The Jerry Springer Show. A panel on Internet piracy devolved into a shouting match, underscoring the vast gaps in thinking between representatives of the record industry and some of the rogue members of the tech industry.
The central figures in the panel fracas were: Eileen Richardson, the CEO of the upstart San Mateo company Napster, which had just introduced a software program that allows computer users to trade MP3 files quickly and efficiently; and Karen Allen of the Recording Industry Association of America (RIAA), the organization that represents the five major labels and was about to file suit against Napster for encouraging the spread of illegally copied MP3 files.
For the 1,000 or so audience members, the bickering provided a few laughs amid the serious business of merging the technology and music industries. Today, as a wave of consolidation and high-profile deals speed this convergence, and with the RIAA filing suit against not only Napster but MP3.com, the piracy issue has the potential to make a mind-boggling impact on companies as small as Napster or as large as AOL-Time-Warner.
"Piracy will always be a part of the business," notes Stuart Rosove, CEO of Seattle-based AudioTrack, which can place watermarks in audio files to allow detection of copyrighted material. "The question is how do you minimize that risk."
It's a question that the record industry is answering with legal force and strategic planning.
The Napster suit stems from the company's innovative application that lets users turn their hard drives into miniservers, thus allowing other users to digitally siphon songs. Particularly popular among wired college students, Napster has allowed those with access to broadband connections to download as much as their hard drives will hold. RIAA says that much of the music being traded is copyrighted and that the artists and labels that own the recordings aren't being compensated. Napster argues that it's not encouraging copyright infringement. Still, Napster's appeal lies with its access to popular songs, available for download at no charge.
"Consumers want to listen to music that they love, and 99 percent of that is owned by the music industry," says David Pakman of Myplay, a company that allows users to create storage lockers for their MP3 files, storing them on the Web rather than on a computer's hard drive. Myplay has the approval of RIAA and the labels, in part because it requires users to supply their own songs from prerecorded CDs or from legitimate download sites.
Myplay had maintained a low profile nonetheless, until MP3.com launched two similar services last month. MP3.com's new Instant Listening Service and Beam-It utilities allow consumers to create playlists that are stored online at My.mp3.com. But unlike Myplay, MP3.com reportedly recorded upwards of 40,000 CDs without the consent of copyright owners, creating what RIAA called an illegal database.
"Simply put, it is not legal to compile a vast database of our members' sound recordings with no permission and no license," wrote RIAA president and CEO Hilary Rosen in a letter to MP3.com president Michael Robertson shortly after filing suit. Robertson fired back that his services fell under the "fair use" statutes and would still require users to own a copy of the original recording; it's just that they wouldn't need to use the physical CD once they'd proven that it was in their possession. He went on to accuse the RIAA of sounding like a monopolist. (This week, MP3.com filed a countersuit against RIAA.)
Aside from all the rhetoric, the record industry has taken steps to embrace some of the established players in the digital download community. Last month, four of the five majors took part in a $96 million round of financing for ArtistDirect, a network that allows fans to access music and merchandise by searching for particular artists. And just last week, the five majors agreed to invest an unspecified sum in the digital download directory Listen.com.
The message these investments sent was clear: The majors want to encourage the transition to digital downloading, but only in conjunction with companies willing to play by their rules.
10/14/99: Is MP3 leading the music industry astray? by Richard Martin