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The Money Programme Friday, 5 May, 2000, 15:47 GMT 16:47 UK
More 7/5/00

Facing the music: a record company nightmare

Michael Robinson reports on major record companies' struggle to catch up with the internet music wave.

An investigator working for the major record companies told me recently he estimated there were up to a billion illegal downloads of copyrighted songs last year. He anticipates three times as many this year.
How many legal downloads of music from the major record labels were there? Hardly any. Because, until now, for the most part major labels have kept their music off the net.
They feared piracy. If they released their hit tracks onto the net, they reckoned, the music would simply get copied on round the world. Fewer fans would buy CDs in the shops and the industry could grind to a halt.
A big mistake.

What happened, of course, was that fans bought CDs, made copies in MP3 format (it's called "ripping" a CD, though "ripping off" might be more appropriate) and put the music up onto the net as MP3s anyway.
Major record companies' response to piracy wasn't to establish alternative legitimate sites where fans could pay for their music. Instead, they unleashed their lawyers.
They attacked the first portable MP3 player, the Diamond Rio, arguing it was a device which blatantly encouraged piracy. "Wrong" said the judge. Since the Rio could equally well play legitimate MP3 tracks - offered free by up-and-coming bands looking for a wider audience - it couldn't be said to be a pirate device. So the Rio was ruled legal and MP3 players are now widely available.
Industry lawyers have recently scored a win against the popular site - and they are confident they will succeed in their case against their other present arch-enemy Napster (where a decision is said to be imminent). But even if they prevail in such cases, other MP3 sites are sure to appear.
Finally, major labels have realised the only long-term hope of dealing with music piracy on the internet is to offer fans a legitimate, equally convenient alternative: official downloads from company sites which are paid for just as fans now pay for their music in the shops.

Starting so late, companies begin with a major disadvantage. Fans of music on the internet have already got used to the idea that music is free and will take a lot of persuading to start paying for it.
The job of persuasion is not going to be made easier by the way major record companies plan to go about offering their music.
For a start, it won't be in MP3 format. Instead, it will be delivered electronically wrapped in one of a variety of encrypted formats which paying customers will then unlock on their computers.

These formats are designed to restrict use, for example, to prevent the song being e-mailed or shared through MP3 sites. Or the use might be restricted to a specified number of plays or number of copies.
These releases will certainly not be as convenient as present-day MP3s. For a start, the music won't play on most existing portable MP3 players. Then the encryption formats aren't yet interchangeable. For example, the encrypted songs being offered by Sony Music on its newly-launched American site will play on the new Sony Magic stick Walkman. But official downloads from other companies may not.
Industry bodies hope to achieve what they call "interoperability" before long. But meanwhile, paying fans are sure to be frustrated.
Worst of all for the majors, the whole encryption process may prove futile. There's a simple reason for that. To get into our ears, the music, however encrypted, has to be decoded first. Once decoded, it can be re-recorded - from your hi-fi loudspeaker, for example. In practice, anyone who's minded to can make almost perfect unencrypted copies and post them up onto the net as MP3s.
The industry hopes it has an answer to that: a new way of electronically tagging their downloads so that, if one of their songs appears on the internet, the person who originally downloaded it can be identified and interrogated.
But for a business which relies so much on making its fans feel good, such big brother tactics may put off even the most loyal, paying fan.
Record companies would obviously prefer to persuade their fans rather than attempt to coerce them into buying their music. What's clear is that they have still yet to develop a credible relationship with fans over the internet and business models which make commercial sense to them and their customers.
They're now racing to get both in place. But the industy's history so far of shunning the internet, rather than embracing it, is going to make the job far harder to accomplish.

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