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Commentary: The Record Industry Can't Stop The Music


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Commentary: The Record Industry Can't Stop the Music

On Apr. 28, the record industry won a battle in its crusade against cyberpiracy. A federal judge in New York ruled that a new service from MP3.com Inc. that lets people access their music from the Web had infringed on copyrights. But what looks like a victory for the $14.6 billion record industry is only a skirmish in a war it is losing.

Even as questionable services are shut down, new ones are popping up. The Recording Industry Association of America's (RIAA) next big lawsuit is against Napster, a San Mateo (Calif.) startup that provides a forum where users can share music stored in the MP3 format. The outcome in this case is less certain. And in any event, a spate of similar, yet harder-to-police, file-sharing services are spreading. The message is clear: Courtroom victories won't save the industry. Instead, the record companies must quickly create new business models that allow consumers to organize their music on computers and send it over the Net.LOSING CONTROL. So far, the industry giants have been dragging their feet. They fear surrendering control of music distribution will mean losing revenue and royalties. Nor do they want to hurt the retailers who now distribute most of their product. These are legitimate gripes. But with the Internet turning traditional business models in every industry on their head, big music distributors have little choice but to join the party, or the party--and the music--will go on without them.

There are signs that the industry is finally moving. On Apr. 28, for instance, Sony Music Entertainment Inc. began selling digitally delivered singles from Babyface, Pearl Jam, and two dozen other artists at its Sonymusic.com site. And on May 2, Sony and Universal Music Group announced a joint venture to develop a subscription-based service over computers, cell phones, and set-top boxes.

But these ventures are little more than baby steps. Sony's download service is a nonstarter because songs are priced at the same level as CD singles. Moreover, the system restricts users' ability to transfer files to one's own computer or to other digital devices.

Contrast that with Napster, founded by 19-year-old programmer Shawn Fanning (see e.biz, opposite page 102). It allows PC owners to share music files on their hard drives over the Net. Hundreds of thousands of users have downloaded the program since it was shipped last summer. Each has free access to song files stored on other PCs, creating a virtual library of millions of tracks.

Of course, Napster doesn't have to worry about getting paid every time songs are downloaded. It has drawn the wrath of the record industry, whose suit charges the company "launched a service that enables and facilitates piracy of music on an unprecedented scale."

Piracy on Napster may be egregious, but the company could have a strong defense. The Digital Millennium Copyright Act of 1998 generally shields portals and directory sites from liability unless they directly participate in an illegal activity. Napster says it ejects users found engaging in piracy.

If Napster wins, expect RealNetworks, Yahoo!, and America Online to launch similar services within weeks, says Mark Mooradian, an analyst at Jupiter Communications Inc. By 2002, some 16% of the U.S. music business could be lost to pirated material, says Michael Nathanson, a Sanford C. Bernstein analyst.HARD TO POLICE. Even if Napster loses, similar file-sharing programs such as Gnutella and Scour Exchange are propagating. Unlike Napster, these don't rely on a central directory server. That will make them much harder to police--or stop through lawsuits.

The moral here? The record industry has no choice but to jump more rapidly into the fray. Sure, no one yet has come up with a new business model that will protect the industry's copyrights while offering true value to consumers. But two things are certain: The answer will be found by experimenting in the marketplace, not maneuvering in the courtroom. And the longer the record industry dithers, the more painful the process will be.By Steven V. Brull; Correspondent Brull Covers Technology from Los Angeles.Return to top


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