May 3, 1999

New System for PC Music Stirs Recording Industry's Piracy Concerns

By JOHN MARKOFF

AN FRANCISCO -- In what may be the most ambitious digital-age challenge yet to the nation's recording industry, Real Networks, a leading maker of Internet audio software, plans to announce on Monday a system designed to let consumers copy, store and play audio CD's on personal computers. The system is also designed to enable people to play music transmitted via the Internet.

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The software, Real Jukebox, will record and play music in several technical formats including G2, a format developed by Real Networks, and the increasingly popular MP3 standard that is widely used by Internet music enthusiasts to swap music files, often without regard for copyright.

The Real Networks announcement comes as the music recording industry tries to hammer out a digital music technology standard that would protect intellectual property on the Internet. Monday's announcement seems certain to intensify the debate over music piracy.

Real Jukebox is meant to conform to copyright law by means of an electronic "tether" that restricts digital copies of the audio CD's to the hard drive of the user's personal computer; that would supposedly limit consumers to making but a single copy of a music file for their personal use. But the software will give users the option of shutting off the tethering feature. That would make it possible to attach a copy of a CD track or an entire CD to an e-mail message and send it to any number of friends -- the kind of unfettered distribution that the recording industry opposes.

Company executives said Real Networks was supporting a variety of copy protection standards, but that it was also trying to educate users about the balance between personal use and intellectual property violations. "People can turn the tethering feature off, but we remind them that they can't legally take a file and mail it to 100 friends," said Rob Glaser, chairman and chief executive of Real Networks.

A user who turns the tether feature off will see an on-screen dialog box that explains the relevant issues of the Home Audio Recording Act, a 1992 Federal law enacted when digital audio tape, or DAT, recorders were introduced to consumers. That law allowed individuals to make a single digital copy of a copyrighted recording for personal use, but barred further copying and distribution of the recording to others. In reality, though, adherence to the law depends on the honor system.

Glaser drew an analogy between his company's efforts and those of manufacturers who produce automobiles that clearly have the ability to exceed speed limits.

"I admit that sometimes I go 57 or 59 or sometimes when I'm late for a flight, I go 70 and then I feel a little guilty," he said.

"So far on the digital highway, the road hasn't had any warning signs. This is the software equivalent."

Real Networks already has standing in the digital music community by dint of its Real Audio software, the leading software used for so-called streaming audio -- the broadcast-like transmission over the Internet of radio programming and other multimedia Web services. The company says that 60 million people are registered users of Real Audio.

One significant feature of Real Jukebox, which will be available in free and commercial versions, is that it will permit PC users to make a copy of an audio CD in a fraction of the time it takes to play it at normal speed -- and to do so even while listening to the CD on a personal computer. A test version will be available Monday for downloading from the Real Networks site on the World Wide Web, www.realnetworks.com.

Whether Real Networks' tethering strategy will appease the recording industry is yet to be determined. The Recording Industry Association of America, an industry group, went to court last year to try to block distribution of the Rio, a portable player made by Diamond Multimedia that enables consumers to listen to MP3 computer files. Earlier this month, a California appeals court heard the industry association's appeal of a judge's refusal to issue a preliminary injunction banning the Rio.

As part of the Real Networks announcement on Monday, the company plans to say that Thomson Consumer Electronics Inc., under its RCA consumer brand, will produce a portable Jukebox Networks player. Glaser said on Friday that he was in discussions with other consumer electronics companies that planned to build playback devices, which he said would reach the market later this year.

Meanwhile, the recording industry, which is at work on these various issues under an effort called the Secure Digital Music Initiative, has a stated goal of establishing a standard copyright-protecting format that could be incorporated into portable players that would reach stores by next Christmas. In practical terms, that would mean providing specifications to electronics manufacturers by June 30.

But the group behind the digital music initiative is deeply divided. Among the most disputed of the unresolved issues is whether new devices should be able to play music recorded not only with a new copyright-secure standard but also recordings made with the existing nonsecured MP3 format.

The Real Jukebox approach seems to be an acknowledgment that the pirate-friendly MP3 format has such momentum that the record industry will have difficulty extinguishing it.

"The honor system being offered by Real Networks is the wild card," said Richard Doherty, president of Envisioneering, a consumer electronics and computer industry consulting firm. "The Real Networks system is one of the brands that stands a chance of gaining wide adoption, and this could raise the ire of the music industry to a whole new degree."

The Real Networks system also comes during a period of intensive innovation and competition between different digital encoding and compression schemes. Within the last month, both Apple Computer Inc. and the Microsoft Corporation have introduced their own software for digital Internet music.

Seeking a balance between copyright protections and personal use.

The various competitors are making a range of claims about audio quality and compression efficiency. Currently, MP3 files require about a megabyte of storage for each minute of audio playback, but a number of the proprietary schemes do a much better job with compression -- meaning that music can be stored in less space on the user's hard disk. But any compression system has trouble competing with the sound quality of a CD.

Whether the lower-quality audio of Internet music will prove a market factor is still to be determined.

"This is where religion comes in," said Steve Fields, a marketing executive at Pacific Microsonics, a Silicon Valley company that has developed a technology for improving the audio quality of CD's. "In many cases, some of these formats will sound fine to the untrained ear. But, emphatically, this is not CD-quality audio."

That may not matter to the Internet audio market, according to Doherty. "These are matters that are highly subjective and age dependent," he said.

The strength of the Real Networks software may ultimately be that it will permit computer users to build and exchange personal playlists of songs. Personal computers, Glaser said, offer a level of control over the sequence of musical selections that is not possible with today's CD players.

Real Jukebox will also be designed to work with Internet music sites to permit users to use music search engines, download recordings and purchase music over the Internet. The company said Real Jukebox will incorporate Internet music distribution standards now being developed by both I.B.M. and AT&T.