Magazine

The Music Industry Strikes Back


Cary Sherman's spacious office, at the far end of a long hall decorated with gold and platinum records, might as well be Hollywood's embassy in Washington. Sunlight streams through big windows across a mod suite of low-slung couches and coffee tables. For a man now vilified worldwide for suing Internet music downloaders, the president of the Recording Industry Association of America (RIAA) looks remarkably relaxed. But there's good reason for his aplomb. "Nothing about this campaign was improvised," Sherman says. "We had thought through the details long before the first lawsuit was filed."

That required monumental advance planning. From a purely logistical standpoint, the music industry's antipiracy campaign is the most complex and controversial one in history. Microsoft Corp. raids factories manufacturing illicit copies of Windows. DirectTV sues people who own unauthorized signal-decoding devices. But these efforts have focused almost exclusively solid, three-dimensional objects. Music companies are the first to wage a wide-scale attack against people who steal digital property over the Net.

As a result, the RIAA's legal war is being closely scrutinized by everyone from artists to civil libertarians -- not to mention managers in industries facing similar threats. That includes movie studios, book publishers, computer-game manufacturers, software makers, and database sellers such as Reed Elsevier and The McGraw-Hill (MHP) Companies (publisher of BusinessWeek). Music's strategy -- if it works -- could serve as a model for other companies. "We've got a big problem with file-sharing, too," says Bob Kruger, vice-president for enforcement at Business Software Alliance. "There are tens of thousands of places you can get software for free."

The RIAA crusade is something of a triumph for Sherman. First his team had to sort through an array of uncharted legal, technological, and public-relations problems. Then he sold a comprehensive, step-by-step solution to a contentious group of music executives. But Sherman is reluctant to discuss details of the campaign; he doesn't want to give opponents an edge, he says. The former intellectual-property attorney also declines to reveal the names of the law firms, PR whizzes, and tech advisers the RIAA has hired. "Anybody who helps us is going to be targeted by hackers," he says.

Despite the official silence, sources inside and outside of the industry have shed some light on the mobilization. Plans began to hatch in early summer, 2002, when the RIAA's staff quietly started studying the feasibility of suing individual consumers. Attorneys at Mitchell Silberberg & Knupp, a Los Angeles entertainment law powerhouse, were enlisted to help under the leadership of partner Russell J. Frackman.

At the time, most music executives were still opposed to pulling the trigger on their customers. Although freaked out by sinking sales, they knew that a legal attack would alienate consumers. "It's not that we weren't in favor of aggressive legal action from the get-go," says David H. Johnson, general counsel for Warner Bros., which was the last major label to approve the litigation strategy. "But the only way we thought it made sense was for us to have an attractive alternative." The process of rolling out legitimate online services turned out to be much harder than expected, though. For instance, one tricky problem was figuring out a fair way to assess royalties for monthly subscription services offering an unlimited number of songs.

Before taking teenagers to court, the RIAA also wanted to see if it could stop the problem by shutting down Web sites that facilitated piracy. Though lawyers shut down Napster in July, 2001, other peer-to-peer networks carefully designed to skirt the law, such as Morpheus and Grokster, quickly rose up in its wake. The industry sued the second-generation pirate sites in October, 2001, and was expecting a similar result in court. But on Apr. 25, 2003, a federal judge in Los Angeles ruled that Morpheus and Grokster could remain open. The devastating ruling meant that it would be impossible to kill music web sites in court, leaving the industry with only one legal option: suing consumers. "That decision really threw people for a loop," says Hilary Rosen, former CEO of the RIAA. "These are highly competitive companies with highly competitive executives. There were many disagreements." Despite the dissension, "a pretty big village" in support of lawsuits against file-sharers emerged in the wake of the unexpected Morpheus ruling.

Once the green light had been given, the main challenge became minimizing negative publicity. The RIAA decided to broadcast a series of warnings about the upcoming lawsuits so that no one could claim they were unaware of the threat. In June, for instance, the group sent out millions of instant messages to Kazaa users warning them that file-trading was against the law. Days later, the Web site, which makes most of its money displaying ads to visitors, counterattacked by tinkering with its instant-messaging system. Rather than having it be offered automatically to all visitors, it became an option that users had to click a box to use -- a move that cut down on the RIAA's ability to warn downloaders. Kazaa says that it acted to save users from "potentially distressing unsolicited messages."

On June 25, the RIAA announced that it had reached the breaking point: File sharers would be sued. The next day, the industry's bloodhounds, as it were, ran off their leashes. The hunt was largely conducted by automated Net crawlers operating around the clock. While the industry is loath to reveal its investigative techniques, RIAA sources say the crawlers began by plugging in names of popular songs, such as Eminem's Lose Yourself, into song search engines such as Kazaa. That search, in turn, produced a list of hundreds, and often thousands, of people offering to share it.

The crawler then conducted a second "user-name" search to find out what other material these individuals were offering. Although millions of people are logged on to Kazaa and other sites at any given time, new parallel computing techniques make it possible to analyze every member of this massive community in a matter of weeks. In many cases, firewalls can be obstacles, preventing a search by user name. But this hurdle can be overcome by cross-referencing the thousands of individual song searches, making it possible to compile evidence against pirates a hit single at a time. The final step in the process is asking Internet service providers for the surfers' identities. Most ISPs have gone along with these requests reluctantly -- but they might stop entirely if legal challenges by Verizon and SBC succeed.

The RIAA did more than simply inventory what songs people are offering via the Web. It also collected the "metadata" associated with the individual tunes. For instance, many MP3 music files offered on Kazaa also list the Web site the song comes from, the name of the person offereing it online, and the software used to make the files. This can be damning evidence against defendants who try to claim that all of the music on their hard drives is legally copied from their CDs.

On Sept. 8, the first suits were filed. The accused received summonses, a copy of the complaint listing the charges against them, the songs they allegedly distributed, and a two-page cover letter from law firm Mitchell Silberberg. "Copyright is not a victimless crime," says the letter sent to one defendant. "The music industry employs thousands of other people, such as CD plant workers, warehouse personnel, and record store clerks. They all depend on the sales of recordings to make a living."

So far, the RIAA has been offering settlements in the range of $2,000 to $5,000, according to three lawyers who have counseled defendants. To get the suits dropped, the lawyers say, targets must sign a contract restraining them from discussing their deals. Just two days after the filing of suits, 10 people had already reached agreements.

About the only element of the campaign decided after the announcement of the legal attack was the amnesty program -- an effort to fend off a widely feared backlash. Anyone who has offered music illegally can avoid liability by signing an affidavit promising to stop downloading music. That's an effort to win compliance from the vast majority of file-sharers who have not been sued -- the RIAA's real target. Changing the behavior of this community is Sherman's ultimate goal. The verdict on that count, though, may not come for years. By Mike France in Washington, with Ronald Grover in Los Angeles


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus