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Universal to release copy-protected CD in U.S.

The world’s largest record company will be the first of the major labels to release a copy-protected CD in the United States, signaling a new chapter in the industry’s efforts to stem music piracy.

When Universal Music Group on Tuesday releases the soundtrack, “Fast & Furious – More Music,” consumers won’t be able to copy the music onto another CD or use their PCs to “rip” tracks in digital MP3 format. The copy-protection technology will also render the disc unplayable on Macintosh computers, DVD players and game consoles, such as Sony’s PlayStation 2. It might not even play in some CD players.

The industry says it needs to use the lock-box approach to music to prevent consumers, armed with CD-authoring software and hardware and a quick Internet connection, from downloading and burning the recording industry out of existence.

“Unfortunately, phenomenon like Napster and the ease of ‘ripping and burning’ are causing artists and record companies real harm,” said Hilary Rosen, head of the Recording Industry Association of America. “The unprecedented amount of music being copied is hurting the industry.”

Universal Music is the most aggressive in its anti-piracy efforts, saying that all of its CDs will be copy-protected by mid-2002. The other big labels are also experimenting with various technologies. But they’re waiting to gauge reaction from consumers and retailers before introducing such recordings in the United States.

“I’m very, very curious to see what happens,” said Christa Haussler, BMG Entertainment’s vice president of new technology. “Because it is not clear if it will become truly a usability issue, or if this is more of a PR question.”

BMG’s own experiments with Midbar Technology’s copy-thwarting Cactus Data Shield produced raging backlash in Europe, with consumers returning discs as defective. The German label was forced to issue replacement CDs for the new Natalie Imbruglia release, “White Lilies Island,” because the CD didn’t play on some CD and DVD players. It has not introduced any copy-protected discs in the United States.

One United Kingdom-based group of consumer activists, the Campaign for Digital Rights, staged a month-long protest against Sony Music Entertainment after it issued Michael Jackson’s new single, “You Rock My World,” with copy-protection that limited its play to stereos. Sony said it limited its copy-protection experiment to a handful of advance copies given to radio DJs. But that didn’t mute the criticism.

A small Nashville label, Music City Records, led the experimentation in copy-protected CDs, with country music artist Charley Pride’s album “A Tribute To Jim Reeves.” Its introduction last March prompted a lawsuit, alleging the label failed to properly disclose it was copy-protected.

Quiet efforts

Not all efforts at thwarting music piracy have attracted such attention. One of the big five labels claims to have quietly released 15 million copy-protected discs in Europe without attracting notice.

It’s not surprising that the labels would experiment in Europe, where music piracy is rampant and disclosure laws are less well defined. In Germany alone, one survey by market researcher GfK found that blank CD sales jumped 129 percent this year. Purchases of pre-recorded music dropped 2.2 percent in the same period.

Indeed, blank CDs now outsell recorded discs in Europe and Canada, according to one label executive.

The labels see signs of a similar death spiral in the United States. Sales of CD singles are off 41 percent, compared with the same time last year, and album sales are effectively flat – up less than 1 percent from a year ago, according to SoundScan, a market research firm that tracks retail music sales.

Some blame the sour economy. Others point to lackluster sales of hotly anticipated new releases from artists like Mariah Carey and Macy Gray, and the glut of look-alike, sound-alike boy bands.

The record industry sees the burgeoning popularity of sons-of-Napster sites, such as Morpheus and KaZaA and skyrocketing sales of blank CDs, and sees its own demise.

“Copy protection is certainly not new to the entertainment industry,” said Rosen. “Most movies and video games sold today have some form of protection – musicians are an exception to the case and do not enjoy the same protection. It is not surprising, therefore, that the recording industry is taking steps to get in tune with the rest of the entertainment field.”

The trick is finding a technology that curbs piracy without incurring the wrath of consumers. After a faltering first attempt, BMG said it is working to develop a more sophisticated version of copy-protection that would allow consumers the right to listen to music on a PC or make a limited number of personal copies.

One approach involves dual-session CDs, with one set of tracks that plays in home stereos, and a second, encrypted version of the music files wrapped in rights-management technology that limits the number of copies a consumer can make.

Such rules let consumers enjoy music on an array of consumer electronics devices – from PCs to portable players. But it would discourage 15 high school friends from getting together and pooling their money to buy a single music CD and a spindle of blank discs and making dubs for everyone in the group – with a few extras to sell at school.

“This is what’s truly hurting sales,” Haussler said. “This is not my compilation of my favorite music. This is having these perfect copies forever.”

The key to consumer acceptance – as BMG and Sony learned the hard way – is disclosure.

Warning sticker

The “Fast & Furious – More Music” CD will come with a sticker that notifies the consumer that it is copy-protected and warns about possible playback problems. An insert in the jewel case provides a toll-free number for consumers and a Web site, where they can get more information.

Universal told retailers that it would honor refunds on all returned discs – even for CDs that have been opened.

“We have heard the strong voice of the retail community concerning the substantial financial impact that illegal copying of compact discs is causing to business” wrote Jim Weatherson, Universal’s executive vice president of music and video distribution, in a letter to retailers. “We share in your concerns and, in response, are pleased to be the first company to launch a campaign to confront this explosive and damaging trend.”

Retailers, such as TransWorld Entertainment in Albany, N.Y., welcome the initiative, and have spent time briefing their sales staff about the new technology and possible snafus. It is preparing to “cheerfully refund” the consumer’s purchase price at its 1,000 stores nationwide, including the “Strawberries” and “Coconuts” chains.

“They’ve been testing this in Europe and they’re experiencing less than a 1 percent return rate from consumers. It really has turned out to be nothing,” said Jerry Kamiler, TransWorld Entertainment’s division merchandise manger. “If we get the same results here, as I imagine we would, I don’t think it’s going to manifest itself into a consumer problem.”

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