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Music Industry Fights Piracy on 2 Fronts

Nearly two years after it sued Napster into submission, the recording industry has discovered it’s not enough to try to beat Internet music purveyors whose digital distribution techniques allow copyright violations. It also has to join them.

To discourage piracy, the multibillion-dollar industry has in recent months moved beyond lawsuits against file-swapping services. It has employed hacker tactics to flood such sites with bogus files and even taken to suing students who created mini-Napsters on college networks.

At the same time, however, the music labels have finally embraced the very online distribution model many had long resisted, one that analysts called inevitable if they are to weather the digital revolution.

Their deal with online music store Apple Computer Inc. and its CEO Steve Jobs places virtually no restrictions on what users can do with each song they download for 99 cents – the only obstacles are for true pirates who would attempt mass-producing duplicates.

Universal Music Group Chairman Doug Morris called the Apple service “a defining moment in the music business.” Whether it will make a dent in the online free music bazaar is another matter.

“We’re in a period of transition, and I think it’s a very important time for the industry,” said Cary Sherman, president of the Recording Industry Association of America (RIAA). “There’s a tremendous challenge in terms of migrating consumers from illegal activity.”

That challenge begins with young downloaders.

Ryan McNair, 22, of Los Angeles, said he doesn’t intend to stop using the free services in favor of fee-based ones.

“It’s just like, why pay for it when it’s free?” he said.

Since its 2001 court victory against Napster, the industry has failed to shut down a host of file-swapping services, through which some 3 billion files are being traded monthly.

It suffered a setback last week when a federal judge ruled that two of the most popular services – Grokster Ltd. and StreamCast Networks Inc., which distributes Morpheus, were not liable for copyright violations by users because, unlike Napster, they are not central clearinghouses.

A similar lawsuit filed by the music and movie industries is still pending against Kazaa, the largest online file-sharing service.

The music industry also sued four college students for operating computer networks that allegedly offered thousands of songs for illegal downloading. The suits were settled Thursday, with the students agreeing to pay as much as $17,500 in damages while shuttering their sites.

Record companies have also flooded computer users with bogus, garbled music files to discourage free downloading. Madonna’s label recently sent networks fake versions of one of her new songs that included a recorded jab for stealing her music.

And this past week, the RIAA began contacting individual users who offer copyright music on file-swapping networks, warning them via electronic messages that they are breaking the law.

“Everything is on the table,” Sherman said of the expanding legal offensive against individual downloaders and uploaders.

Analysts say some 500,000 consumers were paying for digital music before Apple’s launch this week – compared to the tens of millions who download songs routinely from unauthorized file-sharing networks.

And that’s why some music executives think they have little to lose by backing the new Apple service, given that it’s so far only available for Apple computers, which comprise less than 3 percent of the desktop computer market.

“If it doesn’t work, in other words if the pirates somehow take advantage of this and run amok within this controlled experiment, it’s unlikely they’ll transplant it to the Windows world.” said Phil Leigh, an analyst at the research firm Raymond James & Associates.

Apple has said it plans to offer a Windows version later this year.

Apple’s iTunes Music Store differs radically from competitors pressplay and MusicNet, both with ties to record companies, and the independent Rhapsody by Listen.com, because the competitors remain wedded to cumbersome copy-protection technology.

“MusicNet and pressplay are both creations of the record labels, partly owned by the labels,” Leigh said. “Apple is not just a puppet of the labels…. (Jobs) negotiated something that made much more sense to the consumers.”

None of those services releases figures on the number of songs downloaded from the sites. Apple also has declined to release figures. But Billboard magazine, citing industry sources, said 275,000 songs were downloaded in the first 18 hours after the service launched on Monday.

Faced with the changing distribution landscape that the Internet and digital technology have forced on it and shifting consumption habits, the music industry has been on a slow slide.

After nearly two decades of consistent growth, it saw 5 percent declines in revenue in both 2000 and 2001, and an estimated 10 percent drop in 2002, said Michael Goodman, senior analyst at the Yankee Group in Boston.

As CD sales have dwindled, retailers have reduced the variety of CDs they carry, which has led to less product being distributed. That lack of selection may have driven even more fans to download songs from illegal sites.

The industry may want to tread more lightly in pursuing individual users, said Goodman, because people who download, even through free services, also tend to buy lots of music.

“The people who are downloading are the true music aficionados,” said Goodman. “They get it every way they possibly can.”

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