Who Will Reap the MP3 Windfall?

| 16 Feb 2015 | 04:52

    The Online Music War In what is bound to determine the economic and technological contours of cyberspace for years to come, the RIAA (Recording Industry Association of America) and MP3.com are finally going to get serious and bash each other in the presence of a judge. The RIAA complaint?hastily filed in federal court on Jan. 21, after negotiations with MP3.com broke down a week earlier?alleges that the fractious Internet company's newest service, MyMP3.com, violates copyright law. And if the legal arm of the recording industry prevails, the resulting liability of the defendants (estimated by some industry analysts to be as high as $67 billion) will serve notice that the future of music on the Web is still very much in the hands of the major labels?which already control 90 percent of the off-line distribution of music. Both systems are based on a huge database of at least 45,000 CDs (new ones are being added daily) stored on servers, which then stream new or previously purchased product. The RIAA charges that by duplicating this copyrighted material without a license for commercial purposes MP3.com violated the law.

    In their Feb. 10 response to the RIAA's complaint, the attorneys for the defense acknowledged that "MP3.com transformatively created and stored on its computer server, MP3 files of the songs contained on approximately 45,000 CDs," but contend that this is completely legal and in accord with the "fair use" provisions of the copyright law.

    They may have considerable difficulty getting the court to agree. The RIAA's publicist referred me to Steve Metalitz, former chief counsel for the Senate's Patent, Copyright and Trademark Subcommittee, and currently a professor of copyright law at George Washington University. "I don't think that MP3 is denying that they duplicated copyrighted material without permission, which is a clear violation of the law," he says. "If they are going to prevail in this case they are going to have to get a judge to really expand the exceptions to protection, or in some other way make a radical change in the law." The fair use doctrine stipulates that copyrighted material can be used without permission in commentary, news reports or for educational purposes. "MP3 has an uphill battle, because they copied entire works, and they are not claiming this is a charitable effort?it is part of a commercial service they offer."

    But as MP3.com's CEO Michael Robertson tells it, MyMP3.com is in fact almost a charitable effort. "Our contention is that all we are doing is letting the consumer listen to the CDs that he has already bought. We think that's the right thing to do. People shouldn't have to throw away their CDs and buy some digital version if they have already invested 15 bucks."

    A longtime industry gadfly, Robertson insists that his new service is actually a boon to the majors because it directly addresses their continued concerns about MP3 piracy. "The ironic twist of it all is that we designed a system that's dependent on the CD. The only way to get music into your catalog is to have the CD. You would think the industry would be ecstatic over this, because it encourages people to keep buying CDs. Our retailers have realized an average of 101 percent rise in sales. The real reason for this lawsuit is that this is a power struggle. We have moved the majors into the digital era and they feel like they're not steering the ship anymore."

    As for Metalitz's arguments, Robertson remains unimpressed. He likens MyMP3. com to commercial photocopying (which the courts have deemed "fair use") and continues, "Metalitz's position doesn't make sense. Is Kinko's in violation as well? Don't they run a business based on enabling fair use copies? We just created a database of CDs to enable fair use."

    Robertson contends, "This is just a case of technology moving forward." He claims his service is nothing more than the cyber (and legal) equivalent of copying a CD onto a cassette or hard drive. "If you look at the courts' track record," he adds, "they have decided with the consumer and new technology, whether that is in the case of the Diamond RIO player, the VCR or the photocopy machine."

    He takes solace in a recent case decided in the Ninth Circuit, Sony v. Connectix, in which the multinational electronics firm sued competitor Connectix for creating an emulator for the PlayStation software that would allow Macintosh users to run games. Sony argued that Connectix had violated the copyright laws by copying the BIOS of their product. The court found for the defendants, citing fair use. "Fair use trumps copyright every time," Robertson crows.

    The possible ruination of MP3.com aside, the stakes are also high for the majors. Robertson says the reaction from consumers has been "phenomenal." He won't release complete figures, but claims that in the first 36 hours online MyMP3.com had 10,000 users, and in its first two weeks 4.5 million tracks were loaded into accounts.

    If the RIAA loses this case, Robertson says, consumers will have the right to "re-purpose" 17 billion CDs that have already been sold into their digital lockers, with no royalties going to record companies?"that's a quarter of a trillion dollars of music that consumers will have a right to load into their MyMP3.com account."

    Laura Betterly, the president and cofounder of Visiosonics (a producer of electronic pro digital gear), goes even further when stressing the importance of the case in determining the configurations of the space. "This has a lot more to do with trying to control the industry itself than the technology. There is a smokescreen going on. There is a remobilization of the troops. The whole Time Warner EMI thing is an attempt to figure out how they can capitalize and keep control. I think they want to own the digital arena, and the best way to do it is take down the big players first and replace them with your guys."

    Few of Robertson's peers seem to agree, however. Jon Potter, executive director of the Digital Media Association (DiMA), the trade association that represents the interests of digital media companies in Washington, DC, angrily asserts, "You can't violate the copyright law, go into a bunker and come out shooting, saying that the labels shouldn't mind because they would do this deal if they only understood it." David Pakman, president of Myplay.com, which offers an online music storage system similar to MyMP3.com, argues that Robertson's motivations are anything but charitable. "He is attempting to use controversy to positively manipulate his stock price. As a public company you can't put your shareholders at risk like that unless you think you can win?and I don't think they can win."

    "I think they resent the level of unfair competition from someone who doesn't feel the need to get licenses that are dictated by law," president of the RIAA Hillary Rosen says of Robertson's disgruntled competitors. "Those guys are playing fair and MP3.com is playing unfair."

    Robertson easily dismisses his critics. "I understand that Jon [Potter] is trying to suck up to the RIAA, because right now he is in negotiations with them. I asked him three weeks after MyMP3 came out if he had ever tried it and he hadn't. He was making public comment, and he hadn't bothered to try it. He didn't understand what it did or how it worked. Jon is a lobbyist, not an expert."

    Regarding Pakman's charges, he says, "I don't know what stock ticker he's following, but getting sued for $60 million is probably not a good recipe to raise your stock price. "

    On Feb. 7, Robertson filed suit against both the RIAA and Rosen in San Diego, charging defamation, trade libel, interference with prospective economic advantage and unfair business practices. The heart of his case is that on Jan. 18, in an effort to hurt MP3's stock price, Rosen called a stock analyst at one of MP3's investment banks, discussed the impending lawsuit and suggested what kind of negative effect this would have. Rosen has issued a press release labeling the charge "ridiculous" and a "transparent attempt to silence criticism."

    Where do the recording artists stand in all of this? Ron Stone, president of Gold Mountain (which represents Bonnie Raitt, Tracy Chapman and Ziggy Marley), calls Robertson "an arrogant little pissant... The people at MP3 have this arrogance about what they are doing that is offensive to me and all artists. They think that just because the record companies have fucked us over that we are going to embrace them. Just because the record companies are fucking us over, MP3 thinks it's their turn. At least the record companies bought us dinner and kissed us goodnight. What MP3 did was rip 45,000 titles onto the Internet. They didn't ask the artists if they wanted their material up there. They didn't ask the record companies for permission."

    Despite Stone's ire, MP3 has always maintained that it is the most artist-friendly of companies, and Robertson defends this reputation by pointing to the more than 50,000 artists who work with the site. His position, however, seems to point to an ultimately irreconcilable conflict of artist and consumer interests.

    "Remember that consumers have ownership rights too," he says. "That is a very fundamental question. We think that when you buy a piece of music you have the right to listen to it on any format, on any device, anywhere you want for your personal use."

    Robertson's gamble, if he wins, promises to change the face of the Internet. But even if he loses, Rosen says that his bold move has resulted in the labels' beginning to realize that they have to negotiate the licensing of their vast catalogs for distribution via the Web.

    "Everybody recognizes that the horse has left the barn. So it was necessary to find a way to make sure that people recognize this wasn't legal, and litigation was the only way to assure both expedited licensing negotiations and a moratorium on the service."

    Robertson counters that despite the "rhetoric" the majors "haven't executed anything digitally except very limited marketing initiatives." He says he's willing to change that, sit down and negotiate "any elements of the system" with the RIAA.

    Yet he seems to be relishing the fight. He recounts that during a discussion with Rosen she asked him whether this was the kind of issue he wanted to risk his entire business on. His simple response, he says, was, "Is this the type of issue you want to risk your entire industry on?"

    The court is scheduled to rule on an RIAA request for summary judgment on April 12. If the court finds that things should proceed to trial, it will commence sometime this summer.