September 3, 2002 4:00 AM PDT

Labels loosening up on CD copy locks

Fearful of consumer backlash, major record labels in the United States have slowed controversial plans for making CDs more difficult to copy, even as tension over online music piracy mounts.

Read more about CD copy locks
Last year, news that record companies were planning to add technology to CDs that would block people from making copies or MP3 files--and in many cases might even prevent playback on computers--sparked considerable controversy online, and even lawsuits.

Now major record labels themselves have put the brakes on the drive for copy protection, at least in the United States, even as record stores lobby for the locks to be added as soon as possible.

"From our perspective, CD copy protection is unfortunately not as good as we'd all like it to be," said Christa Haussler, vice president of new technology at music label BMG Entertainment.

Though the labels are slowing their drive for the technological locks, their desire for them has not diminished. Earlier this week, the Recording Industry Association of America (RIAA) reported that CD shipments dropped 7 percent during the first half of 2002 compared with the previous year. The organization blamed the drop on music downloading and CD copying.

Overseas adoption of CD copy-protection technology is growing, moreover. Israel-based Midbar Tech, which makes the Cactus Data Shield product used by Universal Music Group and other labels, said Monday that more than 30 million discs worldwide have been released with its anti-piracy protection built in. Ten million of those discs were released in Japan, where labels began using Midbar tools only this year.

But in the United States, the largest consumer market in the world, the silence on the issue is increasingly conspicuous. Universal Music, whose executives led the industry last year by saying they would copy-protect a significant proportion of their discs by this summer, has had only three relatively small releases.

Universal declines to discuss its strategy in detail, other than to provide a stock statement noting it is still investigating the technology.

"The integration of copy-protection technology into some of our CDs is a first step in measuring its effectiveness in a quickly evolving marketplace," the company's statement says. "We have not finalized our plans for 2002, nor have we made a commitment to put copy protection on all of our CD releases."

Others, such as BMG, are more blunt. Labels are leery of the consumer backlash that met even the first whispers of copy protection. Headlines since have not been friendly; reports have focused on cases where copy-protected CDs couldn't be played in PCs, in DVD players and PlayStation game machines and on suggestions they might even damage Apple Computer products.

So far, European consumers have been slower to take up playing CDs in computers, as opposed to in conventional CD players, Haussler said. That's made it easier for labels to introduce copy-protection technology without as much fear of a backlash, although growing PC penetration in Europe is now making the markets more similar, she added.

In the United States, "it's actually a really big political and legislative issue," Haussler said.

Push and pull
Their own sales figures aren't the only force pushing labels in the direction of protection. Many retailers, which are bearing much of the brunt of declining music sales, are blunt about their dissatisfaction about the slowdowns.

"They're trying to complicate the issues," said John Sullivan, executive vice president of Transworld Entertainment, one of the nation's biggest owners of retail music stores. "We think they should just get it done. We'll take care of consumer complaints."

The response from consumers has been overblown, despite the considerable controversy in headlines and online, Sullivan said. His stores saw no consumer backlash to Universal's protected release of the "More Fast and Furious" CD, he said.

But reaction has come in more areas than simple sales, at least in the United States. Two lawsuits have been filed over protected CDs, even before they were widely distributed. The first to be identified, a small release of country singer Charley Pride's most recent album, drew the first suit, alleging that customers were being misled about the contents of their purchase. It has since been settled.

Experienced class-action firm Milberg Weiss Bershad Hynes & Lerach followed that lawsuit up with another against all five major labels, charging that the big music companies were selling defective CDs without notifying consumers. That suit, filed in June, has yet to make significant progress.

In Washington, Rep. Rick Boucher, D-Va., has led a campaign questioning the legality of copy protection, asking whether the technology would violate consumers' "fair use" rights to the music they've purchased.

Meanwhile, the technologies themselves have occasionally run into trouble. Anti-copying technology from Sony and Midbar each proved to be easily disarmed using only a felt-tip pen. Compatibility problems with Macintosh computers led Apple to warn people that problems resulting from playing nonstandard CDs wouldn't be covered under standard warranties.

No miracle lock
The companies producing the technology say they're close to working out most of these issues. But there is no silver bullet, they say.

Record companies would like to have perfect playability along with perfect protection. That's impossible, says Noam Zur, vice president of sales and marketing for Midbar. However, an acceptable compromise between playability and protection has been reached, he says.

"The number of complaints we get is negligible," Zur said. "I think the products are mature."

Macrovision, the U.S. company that is expanding from protecting videotapes and DVDs into music copy protection, says that consumers have to be given benefits along with the copy-blocking. Like its rivals, it is creating ways to put digital music files on CDs in a format that can be transferred to computers or MP3 players, along with video files, Web links or other add-ons.

Once these files are routinely put on CDs, criticism of the locks will be muted, the company believes.

"What we and the labels have been spending a great deal of time on is developing the capacity to make it easy to use music on PCs and portable devices," said Brian McPhail, vice president of Macrovision's consumer software division. Once those additions are in place, he said, "I think all the objections will go away, except those from ideologically inspired organizations."

If the push toward copy protection on CDs has slowed, then, it appears that it's not forever. A new generation of technology could persuade the record companies to pick up the pace again.

"The record labels in this country are very sensitive to consumer tastes," said Cary Sherman, president of the RIAA. "They are looking very carefully at the technology as it improves, but the technology needs to be more consumer-friendly."

 

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