File-sharing rolls on despite industry's lawsuits, Net services

07/04/2002

By DOUG BEDELL / The Dallas Morning News

Lawyers for The Big Five record labels have killed Napster.

The rest of the Internet's most popular peer-to-peer file-sharing services are being dragged to court, one by one, for lessons in copyright law.

And the largest music companies have finally launched their own subscription-based Internet music delivery systems – Pressplay and MusicNet – for those who want to "do the right thing" and pay for their digital downloads.

Yet infatuation with free music swapping remains as strong as Eminem lyrics.

About 40 million Americans are using rogue peer-to-peer networks at least 11 times a week, according to a recent study by San Francisco research firm Odyssey. Napster's successors – fast, easy, unfettered MP3-based hook-ups like Gnutella, Morpheus and Kazaa – are attracting more than 3.5 million simultaneous users daily, far surpassing Napster's user rate at its prime, Odyssey says.

"If I ask the average kid about the state of music on the Internet, he'll tell me, 'It's all going fine, there's nothing I can't get,' " says Jim Griffin, digital entertainment consultant and former head of technology for Geffen Records.

"By and large, people are getting access to whatever they want, wherever they are, whenever they want it, and whether music companies like it or not," Mr. Griffin said.

In fact, it appears Pressplay (a joint venture of the Sony Music Group and Vivendi Universal) and MusicNet (Bertelsmann, EMI Records and AOL Time Warner) are being roundly ignored by music fans.

Neither will release figures on subscriptions since they launched their services late last year. But some researchers estimate the two have managed to attract a combined monthly membership of 40,000 or fewer.

And there are plenty of signs that the world's largest music companies are not satisfied with that consumer response.

Several have recently modified their stances to compete with the free file-sharing networks' ability to offer a vast array of titles from all labels in MP3 form, which can be burned onto CDs or shifted to portable music players.

As it stands now, MusicNet and Pressplay use restricted file formats that cannot be easily transferred for play on other devices. And only Pressplay allows a limited amount of CD-burning for any of the tracks in its catalog.

This week, Universal Music Group announced it has licensed its collection to Listen.com, making Listen.com the first to provide customers access to all five major labels over the Internet. Elsewhere, Warner Music Group granted online music distributor FullAudio Corp. the right to sell downloadable songs that can be burned onto CDs – a first for both companies.

And late last month, Universal and Sony Music Entertainment said they had reached deals with some Internet retailers that will give consumers greater legal options for CD burning.

Universal, the largest record label, said by the end of the summer it will make tens of thousands of tracks and albums from its library available for downloading and recording onto CDs at 99 cents for digital singles and $9.99 for downloadable albums.

It may well be that record labels will ultimately acquiesce to consumer demand by agreeing to allow online MP3 distribution of their entire catalogs under fee arrangements similar to those now used with radio stations, says Mr. Griffin. He led a Geffen team that distributed the first full-length commercial song online, by Aerosmith.

RYAN DONNELL / SPECIAL TO DMN Economist Stan Liebowitz thinks the music industry should fight file-sharing with unfettered subscription service.

"There is a disequilibrium right now with a lot of testing going on," says Stan Liebowitz, a University of Texas at Dallas economist and author of a Cato Institute study of file-sharing, "Policing Pirates in the Networked Age."

"People are trying to figure out the models and what can work."

Limited content

Because they split the catalogs of The Big Five between them, neither of the two $9.95-per-month download services can guarantee a customer will find the music they seek. You won't find the Rolling Stones on Pressplay, for example, but you will on MusicNet.

In fact, Matt Bailey of Redshift Research says MusicNet, Pressplay and the streaming-only service, Listen.com's Rhapsody, contain only 10 percent of the top 100 U.S. singles and only 9 percent of the top 100 albums. MusicNet offers the narrowest selection of music, offering only 3 percent of hit singles and albums, Mr. Bailey says.

"Subscription services are not being given the popular music needed to compete against widely used free file-sharing networks," says Mr. Bailey.

That limited available content – coupled with a lack of widespread broadband Internet access – make the first generation of Internet music services an unattractive consumer proposition, according to a recent PricewaterhouseCoopers report, "Global Entertainment and Media Outlook: 2002-2006."

Consumer confusion is rampant, says Mr. Griffin. "The average person, given the choice between MusicNet and Pressplay, can't make a meaningful choice. How would they know which one has their content?"

Seth Oster, Pressplay's vice president for corporate communications and public affairs, says his service has no control over which titles are released online. The music companies make those decisions, he says.

"Pressplay is the first to acknowledge that we need to continue to add music into the service, especially the two remaining major labels," he says. "But, generally, our members are already finding much of the music they are looking for on our service."

At the same time, both MusicNet and Pressplay say they are committed to add more tempting features for consumers,. At Pressplay, for example, the company's next software release will allow transfer of downloads to portable music players using the secure Microsoft Windows Media Player format, says Mr. Oster.

"This is a new consumer proposition, and we are only at the very beginning," says Mr. Oster. "All the new services are feeling their way around and learning what will and won't work, and the one certainty is that they will all evolve over time."

Fear of the future

"I think that the record companies must know their future lies in digital downloads, but they're afraid of it," Mr. Liebowitz says. "The reality is their current retailers and distribution channels are not going to be thrilled with digital downloads."

As a result, Pressplay and MusicNet must tread lightly, he says.

Meanwhile, the music companies continue their expensive, time-consuming legal assault on the most popular file-sharing programs, including Kazaa, Morpheus and Grokster for contributing to copyright infringement.

And there is growing evidence that The Big Five are resorting to a new tactic to fight file-swapping networks – sabotage.

Users of the most popular peer-to-peer services are increasingly finding posted downloads that are "spoofs" – tracks that contain only static or a single chorus repeated over and over. Managers of peer-to-peer services say they believe the music companies and their security firms may be the source of spoofed tracks.

Last week, U.S. Rep. Howard L. Berman, D-Calif., said he plans to introduce legislation to give music companies a clear legal right to load peer-to-peer (P2P) networks with spoofs and develop more invasive methods of disrupting file-sharing.

Mr. Liebowitz believes those tactics may be unnecessary.

Last year, the music industry suffered through one of its worst recessions in memory, with worldwide sales of recorded music falling at least 5 percent by most estimates.

Industry groups largely blame file-sharing for their woes.

But Mr. Liebowitz says the decrease should have been much more pronounced if fans were really curtailing their purchases in favor of burning their own CDs from P2P downloads.

It may well be, concludes Mr. Liebowitz, that the public will flock to legal subscription services if allowed to copy and share tracks in an unfettered fashion. Ultimately, record company fears of P2P piracy may prove as unfounded as Hollywood's belief that videotape would cripple the movie business.

"They were wrong, but it took them years to catch on," Mr. Liebowitz says. "The record companies have always said, 'This is going to kill us.' But it may well be that this isn't going to do much damage, either."

E-mail dbedell@dallasnews.com