Volume II, Issue II Summer 2003

High time for the recording industry to embrace new technology

Most of the "debate" on Internet music is really two monologues: music downloaders vs. the music companies. You're either a thief or a greedhead.

But the music companies are at last starting to make significant concessions to reality. Internet music is here to stay, and the music industry is finally admitting it is better off trying to win customers with incentives to pay up instead of just treating them all like potential criminals.

Apple's new iTunes digital music system, which has the loosest restrictions of any approved by the major music companies, is proving to be the most successful. This initiative is too restrictive for reasons I'll explain later, but those restrictions obviously aren't onerous for its core audience of Apple fanatics.

Now comes the hard part: designing a computer music system that will please the other 96 percent of computer users. To put this into context, we'll have to dive back into some history.

Copyrights are not physical property

There are two reasons that digital/computer music is so popular. One, obviously, is that a lot of it can be easily obtained free. Second, it's the most convenient way to listen to music. The trouble is, the music industry has focused nearly all of its attention on the first point and ignored the second.

The music industry really can't be scolded for its concern. What industry wouldn't object to the destruction of its entire economic model? Hilary Rosen, chief executive of the Recording Industry Association of America, and Jack Valenti, her counterpart at the Motion Picture Association of America, have predicted all sorts of horrible things if this evil of file-sharing and MP3 music isn't stopped. File sharers are just like car thieves – or as Valenti has called them, "terrorists."

Yes, music sales are down in the last couple of years, which Rosen triumphantly cites as proving her point. She cannot be unaware the economy has slumped in the same period. Customers might be more concerned with paying for food and housing instead of the corporatized, lowest-common-denominator music the record companies are churning out.

The RIAA also uses the bogus statistical method of summing up its supposed loss by calculating the total retail value of all music products distributed through piracy. But a college student with a music collection worth $5,000 at retail probably couldn't afford to buy the music in the first place. And unlike a Toyota or Porsche taken by a car thief, the music industry still has the songs.

Plainly, Rosen, Valenti and the companies they represent prefer using false but emotionally appealing debating tactics instead of fact-based discussion.

For the truth is, music is intellectual property, and intellectual property copyrights have never been treated the same under United States law as physical property rights. The Constitution grants intellectual property rights for a limited time to "promote the progress of science and the useful arts." (Article 1 Section 8, Clause 8). The government decides the time period of those rights.

However, property rights do not expire and are not given in expectation of any return. They are absolute. There is no need to justify them. That's why the Constitution mandates owners must be compensated if property is taken.

This distinction is the origin of the "fair use" doctrine for the intellectual property of music and movies: you can make copies of music for a backup or to play in multiple locations on devices that you own. There's no equivalent to fair use in property law – buying a Toyota does not entitle you to take another from the dealer as a backup.

So while intellectual property rights are indeed protected under the Constitution, the rationale is far different and the line between legitimate use and illegal use is drawn differently. The music industry does not have the right to totally control the music it sells. And it never will. Even if enough members of Congress could be bribed by the entertainment industry to propose a Constitutional amendment equating intellectual property with physical property, it would never be approved by the states.

So the next time the Jack and Hillary show trots out its "file-sharers are like car thieves" analogy, remind them of that pesky Article 1, Section 8, Clause 8.

Why digital music is superior

The RIAA tolerated "fair use" in the old days before digital music because mass copying and distribution was too inconvenient for individuals. Also, analog music degrades with each copy. Making a tape for a few friends would cost the music industry some revenue, but not enough to make it practical to sic the lawyers on people.

However, easy copying, global availability and perfect replication in the hands of individuals destroys the physical distribution system the music industry is based on. It saw future sales dropping to one album per release. From the music industry's perspective, digital music looked like a disaster – just as the VCR did to the movie industry a little more than 20 years ago.

But had they thought about it from a customer's perspective, the music moguls would have admitted that digital music is far superior to vinyl, tapes and CDs, potentially opening an entirely new market the way that VCRs did for the move industry and CDs did for music.

As an intangible pattern of ones and zeros, digital music is not locked to any one medium the way traditional LPs were held captive to vinyl. Digital music can held be on a CD, a ZIP disk, a memory card or hard drive – or anything else that can store digital data.

Suddenly, music fans (and their spouses) don't need to give up square yards of their living rooms to counters groaning under an assortment of albums. They can copy the music nearly effortlessly, taking it with them in a portable device as well as having it at home.

Failure of the witch hunt

Instead of trying to exploit the opportunity, the RIAA indiscriminately demonized all Internet and digital music as theft. The music honchos tried to do the impossible by rolling back the technological clock with nasty threats and lawsuits. One plan would have built copy protection into every computing device, satisfying the entertainment industry at the price of crippling the much larger electronics industry – exporting the RIAA's guilty-until-proven-innocent philosophy to the entire world.

Such tactics accomplished the seemingly impossible – driving the music industry's image as smart-suited scum even lower. Music lovers didn't like the implied our-customers-are-thieves insult, and ethical people who pay for the music felt the insult most keenly. With breath-taking hypocrisy, these companies went so far as to suggest schools include ethics-based instructions in respecting copyrights.

Many music artists objected to the RIAA's pious pronouncements on ethics and morality. From personal experience, they know many if not most music companies are amoral that regularly deceive them, lie to them and even break the law. Even musicians who publicly side with the music industry will often privately concede this point – as long as no record executives are listening.

Despite winning nearly every lawsuit, the RIAA is no nearer to stopping illegal Internet music downloading than before. In fact, it's further away. File-sharing software such as KaZaA is more popular than Napster ever was.

Filing lawsuits hasn't helped. Lecturing the public on ethics hasn't helped. And the music industry's limited Internet music services haven't helped. (In some models of these schemes, if you don't pay a monthly fee, the digital rights management software prevents you from playing the music.)

But Apple's iTunes service may be the first step to a real solution that can let the music industry survive and the public get what it wants.

The idea behind iTunes is to make copy protection invisible to the average user. People can download music, store it on up to three Macintosh computers, copy it to an unlimited number of Apple's iPod music players, and even burn the music into standard-format CDs. This means the average person won't be endlessly entering codes and paying money to play the music they've purchased, as subscription-based services force you to do.

However, the iTunes music is downloaded in a proprietary, copy-protected format. So of course, you're locked into using an iPod to carry music around. Great for Apple, lousy for customers.

The proprietary flaw

So while iTunes loosens the shackles, in the long run people prefer to wear no chains at all. Already, iTunes software is being hacked to enable music-sharing over the Internet.

While Apple chief executive Steve Jobs is far more understanding of the needs of customers than the record industry, he is forgetting a major lesson in the history of innovation: Customers usually shun proprietary formats in favor of open standards whenever they have the choice.

In the proprietary world, one company holds the right to a product or service. That eliminates competition, restricting choices and raising prices. A good example of this is Sony's Memory Stick, a device Sony hopes to make the standard for storage devices in digital camera, handheld computers and other such products. Despite all of Sony's clout, its Memory Stick has not dominated the market.

There are already several different storage formats, such as SmartMedia, Secure Digital and Compact Flash. These formats were designed by a technical standards body not controlled by any one company, so they can be produced by any company. These devices are made in greater volume than cost less than the Memory Stick. Competition keeps costs down, and expands the range of devices that open-format memory devices can be used on.

In short, Sony's Memory stick is designed with Sony's interest in mind (it's a member of the RIAA), not the customer's. And the same thing is true of Apple's iTunes. Customers have to pay once for the music, and again for the devices to play and store the music. Those who can afford Apple computers, who tend to be notably loyal to the company, seem to overlook these flaws. But the other 96 percent of the computing public isn't likely to be as forgiving (although Apple is promising a version of the iTunes software that will run on Windows computers by this fall).

People by now are very familiar with MP3 and other formats, such as Ogg Vorbis, that don't have copy protection: Once you've got the music, you can do whatever you want with it. And despite the self-serving talk from Apple and others, MP3s encoded at a high enough bit rate sound nearly identical to CDs to most listeners.

Can't we do better?

For the time being, if you want to avoid the wrath of music company lawyers and still have total ease of use, the only solution is to buy and rip the CDs into MP3. Since CD copy-protection schemes have failed so far in the United States, this is a workable strategy.

I think we can do better, and satisfy the music industry's need for a semblance of control and the customers' insistence on freedom to use what they've paid for.

This ideal system is copy identification, also known as watermarking. When the music is purchased over the Internet, it's embedded with an inaudible digital code that gives information about who purchased it. The watermark would not be needed to play the music, and customers wouldn't hear it. In normal use, customers wouldn't even know it is there.

But someone who leaks their music onto the Internet will be easily identified by the watermark. The RIAA's music police already scours the Internet for pirated music; it would be simple for them to read the watermark and go after the offending party.

A download-on-demand service without copy protection would encourage music sales by allowing impulse buys. Also, the greatly reduced cost of Internet vs. physicial distribution would make it cost-effective to sell music now gathering dust in vaults because it's too esoteric for the mass market.

Such a service could not be completely free of restrictions, or the music industry wouldn't go along with it. But those restrictions must not handicap those who pay for the music. (Copy-protection schemes are loathed in part because they most inconvenience the paying customer, who gets no reward for honesty). In short, the ideal system would treat customers as innocent until proven guilty, and provide some means to identify the guilty.

The entertainment industry can try something different and truly creative, or it can continue to decline and alienate its customers. Either way, the march of technology can't be stopped and companies that won't adapt will die.

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