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Music on the Internet: A New World Is Waiting

Much has been written about the threat posed by the Internet to the record industry. Headlines suggest that industry executives, their heels dug into the “traditional” way of doing things, spend their days plotting court challenges and legislative appeals to Congress to restore the “status quo.” But contrary to their image in the media, record companies, large and small, are alert to the promise of the Internet: to get more music to more consumers in ways never before imagined.

Still, the threats posed by illegal distribution on the Internet are real and potentially devastating to any company that contemplates legitimate distribution of music online. To help ensure that a legitimate online music marketplace can take root and realize its full potential, the record industry has educated consumers about copyright online, policed the Internet for infringing activity, litigated where necessary to enforce rights under established copyright law, and worked proactively with technology companies to create new delivery mechanisms and develop open technological standards to protect digitized music.

Education, Enforcement, and Litigation

From the start, consumer use of the Internet has challenged traditional practices and value propositions in the music industry. The initial explosion of Internet sites offering illicit MP3 files of copyrighted music led consumers to think that music is free for the taking, along with everything else on the Internet. Surveys and focus groups revealed that consumers had no idea that they were infringing anyone’s copyright when they downloaded popular recordings.

In response, the record industry launched an educational initiative—www.soundbyting.com—aimed particularly at universities, where Internet access was greatest, to educate a new generation of students (and administrators) about copyright law and the rights and wrongs of music use online. And to counter the unfortunate implication of Internet piracy that the music created by artists, songwriters, and producers has no real value, artists and record companies have launched a campaign to get consumers thinking about the true value of music.

Also in response to online piracy, the Recording Industry Association of America began to monitor the Internet for infringing sound recordings and to take action to close down illegal sites. The RIAA’s Internet enforcement program is not expected to eliminate piracy: there will always be those who steal copyrighted works. Rather, the goal is to create an environment in which a legitimate marketplace can exist because of the benefits it offers over the pirate marketplace.

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A necessary component of such a strategy is litigation to enforce copyright rights on the Internet, especially against companies building businesses based on the unauthorized use of copyrighted music they neither own nor license. The recording industry has pursued litigation strategically to establish the principle that licenses are required for the commercial use of copyrighted music on the Internet.

Contrary to popular impression, record companies believe that existing copyright law provides an adequate framework to obtain relief against those who disregard copyright principles. New legislation, at least at this point, does not seem necessary, so long as the courts apply to businesses online the “traditional” copyright principles long applicable to businesses offline.

The major record companies have filed lawsuits against companies such as Napster, MP3.com, Scour, and MP3 Board.com—all cases where a business or service is built on unauthorized use of other people’s copyrighted works. Napster, a so-called “file-sharing” service, illustrates why litigation is often necessary. Left unchallenged, Napster could have foreclosed the opportunities for a legitimate marketplace. Even if record companies launched Internet subscription services tomorrow offering access to millions of songs, why would a consumer pay for such a subscription service when Napster’s service is free?

The federal district court in San Francisco agreed with that reasoning, finding that Napster is actively facilitating widespread copyright infringement and, in doing so, directly affecting the legitimate market for copyrighted works. Napster countered that its users are merely engaging in fair use by sharing files within the Napster network. But while the fair use doctrine requires a complicated and fact-specific analysis, one needn’t be a copyright lawyer to know that sharing copyrighted music on a CD with millions of anonymous strangers on the Internet is not fair use. The purpose of fair use is not to provide a catchall defense for widespread online infringement.

The recording industry will continue to rely on existing copyright law to establish that the rights of sound recording copyright owners apply online as well as offline. The hope is that, after establishing this principle in early litigation, it will not be necessary to argue these issues in court repeatedly.

Technology Solutions

Litigation is not a business strategy. Ultimately the best response to online piracy is a legitimate alternative. The record industry understands that it has to make it easy for the customer to find and buy music online, and record companies are working to develop technology standards to protect digitized music as well as forming partnerships with technology companies.

As part of this effort, the record industry launched and actively participates in the Secure Digital Music Initiative, a consortium of some 200 companies representing a wide spectrum of technology and content companies including information technology, consumer electronics, Internet service providers, and security technology companies. SDMI is working to develop an open, voluntary technical framework for protecting music online. A widely accepted technical standard can enable artists and recording and technology companies to develop sophisticated new business models for the delivery of music. The technical framework developed by the companies involved in SDMI will encourage more companies to make music available on the Internet, creating a more comprehensive selection of legitimate music available for the consumer.

Individual record companies are also working with technology companies to develop new ways to deliver music content to the consumer. Many record labels already offer music downloads, custom compilations, and radio-style webcasts, interactive webcasts, and access to music stored in cyber-lockers. And this is just the tip of the iceberg. Coming soon will be subscription models of all kinds. Peer-to-peer distribution networks also offer new ways of getting music to consumers. And many artists are using the Internet to promote and distribute their music in creative new ways. These technology partnerships and new business models represent the nascence of a legitimate online marketplace where consumers can get the music they want, when they want it, in every conceivable format.

The Future of Internet Music

The legitimate market for online music has already begun. In the next few years consumers will see a virtual explosion of legitimate music available on the Internet. But not even the most prescient technologists can be certain where Internet music will be in a few years. Music may be distributed through subscription channels, over file-sharing services, or via a revolutionary technology not yet contemplated. The online marketplace and consumer demand will ultimately sort much of this out. What is certain is that the next few years will be critical in determining whether the great promise of a legitimate music marketplace is fulfilled. The challenge is to ensure that the balance of incentives created by U.S. copyright law continues to apply in the online world. U.S. copyright law has produced the most extraordinary and vibrant industries in the world by preserving incentives and providing rewards to those who produce and disseminate creative works. Those incentives and rewards must remain intact and must encourage creators to take advantage of the extraordinary promise of the Internet.

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