On the Record

The head of the RIAA tells why 2000 was a watershed year for online music

The public profile of the Recording Industry Association of America has certainly risen dramatically over the last two years. Our mission is to promote a better business environment for selling music. We do that through certifying gold and platinum records, market research, technology evaluation, international promotion, trade promotion, government relations, fighting censorship attempts and anti-piracy enforcement.

In the last year, the RIAA has been most known for our Internet strategies. Many would argue the Internet has created hurdles too large for any industry to overcome. But we view them as opportunities.

The recording industry is at a turning point in its history. It is evolving from 50-plus years of a brick-and-mortar retail market to one in which fans can get their music when they want, where they want and how they want. These online opportunities are openly embraced by recording companies, as finding new and unique ways to deliver the worlds music is our business and our passion.

Unfortunately, accompanying every technological innovation are those who are bent on using them to circumvent the law. Copyright infringement has always been a concern, but the computer age has given rise to a whole new breed of infringer. Many are of the false impression that if its technically possible, then it must be legal. This simply isnt true. There is no "cyber-nether land." Copyright laws exist online as well as off. As a result, its imperative for the future of all creative works that, as Internet economies continue to grow, copyright laws continue to be respected. The recording industry, as well as other content providers, takes these matters very seriously and, as recent events have shown, will seek legal action if necessary to protect them.

It is important to point out, however, that the RIAA does not view litigation as a business strategy, but rather as a tool — a means of establishing some very important intellectual property ground rules as this new Internet economy continues to evolve. The true means to create a legitimate online music community must be done by our member companies and others in the music community working in partnership with the technology industry. But then, those investments in the development of these new businesses must be protected.

And the law supports that notion. In a strongly worded opinion last July, U.S. District Court Judge Marilyn H. Patel granted the RIAAs motion for a preliminary injunction against Napster, concurring with the recording companies that Napsters business model did not constitute fair use. The decision made very clear that a commercial venture cannot build a business on the backs of other peoples work. There are laws currently on the books that address this concern, and they must be recognized.

The U.S. 9th Circuit Court of Appeals temporarily stayed Judge Patels order pending further review. Its not certain when a ruling will be handed down. However, were confident that, as the three-judge panel evaluates the case on its merits, the recording industry should receive a favorable ruling.

Indeed, it is now clear that Napster misled the court when it said it was impossible to track their users and their transactions. That is exactly what the company recently announced it planned to do in its strategic alliance with Bertelsmann, which would allow the company to charge a subscription fee for users.

Bertelsmanns venture with Napster is the perfect example of a market evolving in a direction fair for everyone. Its this kind of deal and these kinds of sentiments that the recording industry has been hoping for all along. For instance, we have always supported Napsters new artist program, because the artist is given the choice of whether or not to participate.

The irony is that Napster and others may soon find themselves defending their licensed content from the same nefarious activity that helped create their business.

Again, our concern has never been with the technology, but rather companies and individuals misusing it for copyright infringement. As we have stated from day one, the recording industry never intended to wipe the Net clean of online music and certainly does not have a problem with "peer-to-peer" or similar technologies. Online advancements are our future. And every new licensed site and every downloaded MP3 file that respects the creator proves that this kind of technology can be used legally and benefit all — artists, labels and especially consumers.

It is important for the court to affirm these intellectual property rights. But I believe that this new year will find a new determination on the part of all these industries — the music industry, the artists and the high-tech innovators — to work together.

Our efforts have found other collaborative successes this past year. MP3.com recently ended its legal battle with the countrys five largest recording companies after U.S. District Court Judge Jed Rakoff found that its business model violated copyright law. Not only was MP3.com found to be infringing, but the court also determined the company knew it was infringing when it initiated its business.

What this signaled was the courts clear intent that prospective companies have a responsibility to work collaboratively in creating solutions that respect everyones legal rights. While we were certainly pleased with the ruling, the message it sent regarding the need to work together was the real victory.

One of the biggest misconceptions of the year was that the record labels were turning a blind eye to the opportunities brought about by the Internet. The fact is, 2000 was an unprecedented year for online music. From the explosion of new media companies and the breadth of their range of ideas to the popularity of many subscription and download services, the recording industry made substantial investments in the emerging online market.

Record labels saw from the outset the popularity of downloadable files, the most common being found in the MP3 format. Independent labels released their catalogs as paid downloads in early 1999 through ventures such as EMusic.com and Liquid Audio. By the end of 2000, all five of the major recording companies were selling music downloads. Initial launches gave access to 100 or so albums or songs. However, recent figures indicate that well over 8,500 songs are currently available, with the intent of all labels to have their entire catalog online in the very near future.

In addition to the material offered on its sites, the recording industry has reached out to many retailers, hoping to connect with as many consumers as possible. Today you will find high-quality downloads on many commercial Web sites, including Amazon.com, Musicland Stores and Tower Records, just to name a few. Partnerships were sought with general music sites as well. Music site partners include ArtistDirect, Lycos Music, Music.com, Rolling Stone and SonicNet. Fans are asking for music, and the industry is responding.

What is exciting about these ventures are the benefits they offer the new media companies. With almost every digital music service company participating in the download sales program in some way, every company gets the chance to build its business, whether that business be watermarking, encoding, hosting or digital copyright security. Additionally, setting up download services has provided a technological base for the record companies to get music out in other forms, such as streaming, subscription services and wireless delivery.

Still one of the most popular formats for receiving music, "streaming" provides a music flow to your computer without saving to the hard drive. Labels have provided streaming licenses to a number of Internet Webcasters providing everything from live or on-demand concerts to Internet radio and digital lockers that store music remotely for consumers. Streaming enables music labels to offer consumers quick access to a wide variety of music while giving the labels the ability to learn consumer tastes.

The likely next wave in digital distribution will be through a subscription service. Users will have access to what they want when they want it, and copyright holders will have the option of participating and being compensated when they do. Literally every label is either preparing a subscription service or looking into getting one.

As exciting as these opportunities and innovations are, the most thrilling ones are those we cannot even imagine yet. As they have for decades, new technologies and business models will continue to transform how music is distributed, and the recording industry — whose business is finding new ways to make music available to more people — will continue to embrace them.

Along with these new tools for the distribution and sale of sound recordings, work has also been done to help online music Webcasters get access to a simplified licensing system that would distribute royalties to many participants.

Looking to the future, the recording community was proud to announce this past year a groundbreaking royalty program called the SoundExchange, the first new performing rights organization in 60 years, and the first to collect royalties on behalf of sound recording copyright holders, featured and nonfeatured artists. SoundExchange was designated by the U.S. Copyright Office as the sole collection agent for satellite and cable subscription music services, and has issued licenses to Webcasters for nonsubscription music services (Internet Radio) on behalf of its 280 member companies and their 2,100 labels. SoundExchange will be collecting and distributing royalties from these services, with its first distribution scheduled for July. SoundExchange members include all five major record groups as well as small, medium and large independent labels in every imaginable genre.

Arguably, the most important achievement through our work in the digital domain this past year has been the degree to which the public is now aware and understands the importance of intellectual property as it relates to creative content. Until very recently, the concept of digital music was not in the mainstream. Now, with the growth of technology complemented by an aggressive effort by the RIAA to educate students, industry leaders, Congress and the general public, we are at a crossroads. We believe we have helped shape public understanding of how technology and music can coexist and have hopefully set the tone for a more informed public debate.

We will continue to promote the issues important to the American recording industry. Many of those issues are currently related to future digital distribution. That being said, our primary concern this year will be to maintain and build on the positive momentum derived from last years debate. Now that the licensing ethic is more established, we must do our part to facilitate global music licensing for the industry. Wed like to make more progress on interoperability of the consumer experience in digital music. And wed like to support developing businesses by educating the public about the value of and passion for music.

The online distribution debate over the past couple of years has proven one very important thing — that music is as important as ever in peoples lives. Old fans are able to hear new music, new fans are able to hear old music and emerging artists are given the tools necessary to reach new markets. Finding new ways to let the world hear our music has always been the goal, and in the early part of the 21st century, Im honored we can play a part in this exciting solution.

Hilary Rosen is the president and chief executive of the Recording Industry Association of America.