April 24, 1999

Pirate-Proof Music on Web? So Far, That Does Not Compute

By NEIL STRAUSS

OS ANGELES -- The recording industry and electronics manufacturers are trying to hammer out a universal, pirate-proof technology for distributing commercial music to a new generation of portable digital music players. But the two sides are at such loggerheads that it may not be possible for manufacturers to meet the record industry's goal of getting authorized players onto store shelves for the Christmas season.

That could be a losing proposition for the recording industry. Several electronics manufacturers said they would ship players anyway, without safeguards against illegal copying. And analysts predict that with or without a secure standard, American consumers will buy about 1 million of the devices, which enable users to record music off their computers, largely from the Internet.

Related Articles Free Web Music Spreads From Campus to Office (April 5, 1999) Musicians Want an Internet Revolution (March 8, 1999) Expert to Help Devise Format for Delivering Music on Internet (March 1, 1999) With a Click, a New Era of Music Dawns (November 15, 1998) Forum How Can Copyrights be Preserved on the Internet?

As powerful computers and high-speed Internet connections become common among consumers, the recording industry has seen direct electronic distribution as a potent new market. But as with the emergence of earlier products -- the video cassette recorder, audio cassette decks and digital audiotape -- the entertainment industry is concerned about losing sales because of unauthorized copying.

Its fears have been realized with the emergence of a technology called MP3, which packs a great deal of music into a relatively small computer file but offers no protection against unauthorized copying. Quickly spreading from college campuses to a broad base of Internet users, MP3 has become something of a de facto standard for distributing music, legally or otherwise, on the Internet. That makes it the bane of the recording industry, which fears that increasing numbers of computer users will copy their favorite CDs to MP3 files and pass them out free online or transfer them to MP3 players that are already on the market.

It was that fear that prompted the Recording Industry Association of America, which represents the major music labels, to launch a counteroffensive. Its Secure Digital Music Initiative is a consortium of computer companies, electronics manufacturers and major record labels formed to create a secure way to deliver music over the Internet.

That is turning out to be a tricky quest. At a meeting last week in Los Angeles, several participants said, it became clear that consumer electronics companies were bent on developing a class of portable music devices that would be free of restrictions and easy to use, while the recording industry wanted a player that one participant from the online industry described as a digital Fort Knox.

The goal of the music consortium is to have these secure, approved portable players in stores by Christmas, which means giving electronics manufacturers specifications by June 30. Last week, after their third meeting with record company representatives, some manufacturers were already expressing frustration.

A number of issues divide the two industries, participants said. Among the most contentious was whether the new devices should be able to play not just music recorded with a new secure standard but also recordings made with the MP3 format.

While participants from both sides were interviewed for this article, most refused to allow their names to be used, saying the industry association has pressured them to keep details of the negotiations from leaking.

One consumer electronics industry executive involved in the negotiations, alluding to the fee participants must pay the industry association to be a part of the consortium, said: "They said, 'Pay us $50,000 and present your proposal, and we'll get back to you with something.' This isn't a democratic standards organization. This is the music industry acting out of fear."

The major labels deny that they are running scared and insist that negotiations are running smoothly. Still, they find themselves in uncharted territory as they struggle to restrict or supplant MP3, which is already available to a mass market.

The music industry has substantial leverage in the form of what both sides refer to as "content" -- vast archives of music by most of the century's best-known artists.

Electronics manufacturers say they assume that once the major record labels agree to release their music on the Internet, the nascent market for digitally distributed music will increase exponentially. By joining the consortium, they are hoping to temper the music business' more restrictive proposals and come up with a compromise that will be easy to sell to consumers. But at the same time, they are impatient with what they see as an overly cautious recording industry terrified of losing its lock on distribution.

For example, Creative Labs, whose SoundBlaster card became a de facto standard for computer audio in the early 1990s, is a consortium member, but it is not sitting around waiting for a green light from the recording industry. The company is well into development of its own portable MP3 player, the Nomad, which it plans to begin selling this summer. As for releasing a player by Christmas that is compliant with the digital music initiative, the company now says it is undecided.

The recording industry fears that retail record and CD sales will suffer.

"We're definitely interested," said Hock Leow, vice president of Creative Labs' multimedia division. "But it depends on how difficult it is to implement their specification. If it's very hard for consumers to use, or cost prohibitive, I don't think we'll manufacture it."

There are areas where both sides feel compromise may be possible. For example, on the MP3 front, one proposal is a sunset model, which would result in players that would initially play unprotected MP3 files but would stop playing them after some agreed-upon time, perhaps 18 months. This plan assumes that future formats -- with the wrapper of the new security standard around them -- will supplant MP3.

Another contentious issue is that the recording industry wants a prohibition on microphone inputs. By connecting the audio output of one digital device to the microphone input of another, commercial recordings could be copied just as they are copied to cassette tapes now, except that the digital copies would be closer in quality to the originals.

Another issue in the negotiations is whether there should be restrictions on computer users' access to the software that will enable them to digitally encode, or record, music using the new standard. Such software for the MP3 standard is freely available and widely used.

And in the end, many members in both industries wonder aloud whether anyone will comply with a secure standard if the rules for using it are too restrictive.

After all, the digital music consortium, as an initiative of the Recording Industry Association of America, is supported by the major labels, but it does not control them. If a standard is released, it does not necessarily follow that every major label will comply. Those attending the meetings said that the most active voice in the negotiations was Universal Seagram. The company is expected to announce, in partnership with the BMG label and the rights management company Intertrust, its own secure digital distribution system, which could become an essential component of the new standard. BMG is a unit of Bertelsmann.

In contrast, Sony has maintained a greater distance from the talks, working with IBM on a separate digital music distribution model. But unlike the owners of other major labels, Sony is also one of the world's largest consumer electronics manufacturers and holds lucrative patents on CD technology. The two other major labels -- Time Warner and, particularly, EMI -- have been involved more as onlookers.

None of the labels would agree to provide a spokesman for this article. For music consumers already familiar with the free MP3 format and the portable MP3 players already in stores, buying a restricted player -- which could be more expensive than MP3 players because of the additional security technology required -- might not be a popular holiday choice.

"Is the recording industry comfortable having a portable player that's SDMI compliant yet can play an MP3 file that is not secured?" asked David Watkins, a consortium member and the Diamond Multimedia executive who oversaw development of the Rio, the first portable MP3 player. "In an ideal world, no. Our belief is that we'll come up with something that gives content owners a sense that their rights are being protected, and labels will get their compensation, yet consumers will be able to operate it without requiring a Ph.D. But there's a long way to go before substantial consensus is reached."

Though Diamond Multimedia is a friendly member of the music initiative process, it has been enmeshed in a lawsuit filed by the Recording Industry Association of America claiming that Diamond's Rio is illegal because it violates copyright laws and encourages music piracy. Last Thursday, a California appeals court heard the industry association's appeal of a judge's refusal to issue a preliminary injunction banning the Rio.

In the meantime, members of the consumer electronics industry say that the industry association's legal argument undermines the digital music initiative process by asserting that all portable players that extract music from computers are in violation of the Audio Home Recording Act, a 1992 federal law enacted as digital audiotape, or DAT recorders, were introduced to consumers.

In the past, when the cassette and DAT were introduced, the industry embarked on similar antipiracy campaigns and initiatives. The difference this time is that piracy is not the issue so much as losing control over the distribution of music.

"Everybody in the SDMI arena says you should be able to take a CD, put it in your computer in an SDMI-protected file format and transfer it into a portable player," said Ron Moore, a lawyer for Diamond Multimedia, referring to the digital music initiative. But in the recording industry association's lawsuit, "they say that making a copy to your hard drive and then putting it into your portable player is prohibited."

A spokeswoman for the industry association responded, "It's not about selective enforcement of the law, it's about trying to move forward together on voluntary standards that are consistent with copyright protection principles but also fair to the technology industry."