Late last year in a glitzy L.A. hotel ballroom, the usually convivial music-technology conference called Webnoize briefly devolved into something out of The Jerry Springer Show. The central figures in the verbal 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 downloadable MP3 music files quickly and efficiently, and Karen Allen of the Recording Industry Association of America (RIAA), which was about to file suit against Napster and MP3.com for encouraging the spread of illegally copied music 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 (e.g., Time WarnerAOL) speeds this convergence, the quarrel has become emblematic of the vast gaps in thinking between representatives of the record industry and some tech companies on the issue of music piracy.
“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 both legal force and strategic planning. The Napster suit stems from the company‘s innovative application that turns users’ hard drives into miniservers to funnel songs to other users. Particularly popular among wired college students, Napster has allowed those with a broadband connection to download as much music as their hard drives will hold.
The 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 actually encouraging copyright infringement. Still, Napster‘s appeal lies in its access to popular songs for free.
“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 Web-based storage a lockers, instead of using their hard drives, to keep MP3 files.
Myplay has the approval of the RIAA and the record labels, in part because it requires users to supply their own songs from prerecorded CDs or from authorized download sites. The company had maintained a low profile until MP3.com launched two similar services last month. MP3.com’s new Instant Listening Service and Beam-It utilities allow consumers to create and store playlists online at My.mp3.com. Unlike Myplay, MP3.com reportedly recorded upward of 40,000 CDs without the consent of copyright owners, creating what the 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,” RIAA president and CEO Hilary Rosen said in a letter to MP3.com president Michael Robertson after the suit was filed. Robertson fired back that his services fell under the “fair use” statutes. (His users must declare that they own copies of recordings, but don’t need to supply them to MP3.com.) Robertson went on to accuse the RIAA of sounding like a monopolist. (Last week, MP3.com filed a countersuit against the RIAA.)
Even as it strafes some tech companies, however, the record industry is embracing other players in the digital-download community. Last month, four of the five majors took part in a $97.5 million round of financing for ArtistDirect (see accompanying article on ArtistDirect CEO Marc Geiger). And just last week, the five majors agreed to invest an unspecified sum in the digital-download directory Listen.com.
The message is clear: The majors want to encourage the transition to digital downloading, but only with companies willing to play by their rules. The unanswered question is how users will fare in the recording industry‘s playbook.