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APRIL 22, 2003

NEWS ANALYSIS
By Jane Black

Digital Music: Still Scores Left to Settle
[Page 2 of 2]


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NEEDED: SIMPLICITY.  Cases like these mean it can take a few months for Harry Fox to track down and receive permission from the publisher. That's not fast enough for digital services keen to offer the latest hits. The result: Digital music services sometimes end up doing the legwork themselves. MusicNet, for example, contracts with a Burbank (Calif.) company that employs 12 people to research digital publishing rights.


Harry Fox admits that the process is often slower than it would like. After all, until two years ago, it licensed work only on an album-by-album basis. Changing the system to accommodate tens of thousands of individual song requests takes time, says Carey Ramos, an attorney who represents Harry Fox. But Ramos says these complaints are just an attempt to pass the blame for consumers' slow uptake. "The music publishers made an incredibly generous offer," says Ramos. "Imagine if Microsoft were asked to give away Windows free now and that sometime, years later, people would pay for it."

The standoff has many in the industry calling for Congress to step in. "I'd rather see a solution based on the spirit of cooperation in an industry that's contracting," says John Jones, MusicNet's chief of content and music acquisitions. "But we think a clearer definition of the [law governing tethered downloads] may ultimately be what's necessary." Bob Ohlweiler, senior vice-president of digital service MusicMatch, says clarifying statutory rights for rentals of music "would make clearance of publishing rights electronic and simple. We believe that would be advantageous for the industry."

NOT MUCH TIME.  On Apr. 3, the Digital Media Assn. (DiMA), which represents large Webcasters and computer companies such as Microsoft (MSFT ) and Intel (INTC ), submitted a proposal to the Copyright Office that would reduce the rates paid to music publishers. But this strategy may be a mistake if it only serves to further anger the publishers and songwriters. Ramos charges that the digital music providers are trying "to turn music publishing into a government-regulated utility." Nor are the proposals doing anything to inspire cooperation from the powerful independent publishers who, like Mark Twain, believe that "no man's life, liberty, or property are safe while the Congress is in session."

For the flagging music industry, time is running out. In February, the RIAA reported a 9% decline in CD shipments vs. February, 2002, and a 6.8% slide in sales for all of 2002. With drops like that, the key to getting the publishers on board may not be legislation but convincing them that a huge potential audience exists for paid digital music and that music-downloading services have arrived.

The more subscribers these services attract, the more inclined publishers will be to take them seriously and make more of their own music available. One sure way to boost traffic would be to lower the price of subscription services. Customers may not be willing to pay top dollar for a service with a limited catalog, but they would pay something. And the greater the number of songs that are offered, the greater the number of fans that will sign up.

It's a virtuous cycle. But the music industry to find harmony, someone is going to need to back down.

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Black covers the online music industry for BusinessWeek Online
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