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TechnologyDaily Mobile
Fast Forwarding The Online Music Debate
by Drew Clark
Some strange bedfellows are pairing up in the digital music industry as companies look to sow profits from consumers' increasing interest in online tunes. But the same firms that are jumping into business partnerships concurrently are suing each other to make sure they keep a grip on their chances for expansion and their current share of the online music market.
In the beginning of the Internet-inspired debate over digital music, it was the Recording Industry Association of America vs. Diamond Multimedia. Diamond made the Rio, a consumer electronics device that enabled users to store and playback MP3 files, the de facto standard for distributing digital music on the Internet. Then the major recording labels sued MP3.com, and then Napster, both popular Web sites that operated without the labels' blessing.
But the us-versus-them courtroom battles against parties that RIAA deemed infringing are giving way to a complicated mix of cross-ownership and new litigation against companies striving to stay above the law.
The degree of changes in the digital music business over the past several weeks has been astounding. First, three of the five major labels -- AOL Time Warner, Bertelsmann's BMG and EMI -- announced in April they would join RealNetworks to offer a subscription-based digital music service called MusicNet. In May, Vivendi Universal announced that it had reached an agreement to buy MP3.com and possibly would utilize it in creating its "Duet" subscription service together with Sony, the fifth of the big labels. And last week, Napster said it had struck a deal with MusicNet to license music for the soon-to-be-launched pay version of Napster.
The changing landscape's impact on the copyright debate already has resulted in a narrowing of the legislative debate -- from one about compulsory licenses that would permit Web sites to distribute music without the consent of the copyright holder to one about how the existing licensing regime should be modified and clarified for the Internet age. But the new backdrop considerably obfuscates the question of what business models are legitimate.
Making Copyright Distinctions
The high-water mark of the digital music dispute occurred in July 2000, with the recording companies' lawsuit against Napster reaching a critical phase. Judge Marilyn Hall Patel issued a stinging preliminary injunction against Napster for contributory and vicarious copyright infringement because it had made a master list of copyrighted songs available on its Web server. That list formed the basis for the MP3 file swapping from one computer user to another.
But before Patel's decision, then-Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, held a blockbuster hearing on digital music. He and current Chairman Patrick Leahy, D-Vt., said if the music industry did not do more to speed the delivery of online music, Congress might have to pass statutory licenses akin to those enjoyed by broadcasters and cable owners.
Such licenses are dubbed "compulsory licenses" because copyright holders must accept them, even though they are compensated for the performance of their works. Music labels have resisted such a move on the grounds that it would expropriate their intellectual property.
Each of the four Internet music distributors who appeared at the hearing attempted to draw distinctions among themselves. Gene Hoffman, founder and then-CEO of Emusic.com -- a Web site permitting song-by-song sales and that since has said it is discussing selling to a major label -- said he enjoyed the advantage of not being sued by the recording labels. MP3.com Chairman and CEO Michael Robertson said his company, unlike Napster, did not encourage whole-scale copying and sharing of music files.
And Napster CEO Hank Berry drew a line between his company's views of copyright's legitimate "fair use" doctrines and the far more free-wheeling perspective offered by Gene Kan, a computer software developer of Gnutella who encouraged widespread piracy of music on the Internet.
New Alliance And New Collaboration
The landscape already had changed considerably by the time of the next Hatch-Leahy hearings in early April. In October, Bertelsmann's e-commerce group bought what has been widely reported as a controlling interest in Napster, attempting to persuade other major labels to join them. Last week, Bertelsmann announced that it had bought MyPlay, a digital-music locket permitting users to upload and store their music online.
Equally important was MP3.com's settlement of each of the five major labels' lawsuits against them. That move permitted the company to prepare its launch of My.MP3.com, a digital locker that allows users to MP3 users to access music files from any computer if they have a compact disk and a password; no downloading or uploading would be required.
But the biggest change was AOL's entry into the market as a content provider, not an Internet service provider. Co-Chief Operating Officer Richard Parsons explained that the service, announced the day before the hearing, meant that Congress did not need to change the law to spur digital music. That prompted Napster's Barry to say, "My first thought was, 'We need to have a hearing like this every week.'"
By the time the House Judiciary Committee held a hearing on the same subject in May, RealNetworks CEO Rob Glasser personally offered lawmakers the service's first demo. Concern about the chief digital-music bottleneck had shifted to another source: music publishers.
Glaser, MP3.com President Robin Richards and Vivendi Universal Executive Vice Chairman Edgar Bronfman agreed that tweaks to the copyright system were needed to facilitate easy licensing of digital music. In an April filing with the Copyright Office, MP3.com and RIAA largely had agreed that compulsory licenses for musical compositions -- as opposed to sound recordings -- were needed in order to resolve the music-publishing issue.
Spat Over Webcasting
Now fights over webcasting are emerging as one of most contentious unresolved copyright disputes for digital music.
Previous litigation attacked MP3.com and Napster for infringing on copyright holder's reproduction rights. But in the past three weeks, the recording labels have sued Internet radio stations Launch.com, MusicMatch, Xact Radio and MTVi for infringing upon performance rights. The difference is that reproduction rights cover the making of permanent copies, while performance rights deal with music that is streamed via webcast or broadcast over the air.
Both the recording companies and webcasters, represented by the Digital Media Association (DiMA), say they are operating with the 1998 Digital Millennium Copyright Act, which created a statutory license permitting Internet radio broadcasts much as has been permitted for radio broadcasts and cable-system operators. Webcasters must keep track of which songs they stream, and pay a rate to the performers that will be determined by a royalty arbitration panel of the Copyright Office later this summer.
At issue is whether the webcasters, which permit consumers to express preferences about their favorite genres of music, cross the line into being "interactive services," a category that Congress excluded from the DMCA license. The RIAA fought hard to exclude interactive services from the DMCA on the grounds that they could become a replacement for individuals buying compact discs or other digital recordings.
Both sides say they want the issue to be resolved in federal court, although they disagree on whether it should be handled in New York or San Francisco. And both have filed motions to bring the fight to their preferred venue.
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