April 3, 2001 2:20 PM PDT
Desperado storms Capitol Hill
Although no legislation was being discussed at the Senate Judiciary Committee hearing, the debate helped paint the picture of an increasingly fractious online music world, in which artists, labels, retailers and technology companies each are taking diverging positions.
Much of the testimony indicated that the record labels are losing some ground in the debate over file-swapping service Napster and the online distribution of music, even as their legal position has been shored up in court.
"While I cannot speak for every artist, my initial resistance to the new services created online was based on the debate having been framed in terms of 'piracy,'" Morissette told the Senate Judiciary Committee attendees. "Being labeled as such by the record companies, it understandably sent a ripple effect of panic throughout the artistic community. But what I have since come to realize is that for the majority of artists, this so-called 'piracy' may have actually been working in their favor."
Nevertheless, there was no indication that lawmakers plan to turn debate into action anytime soon.
"I'd like this to be done without the heavy hand of Congress," Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, told the witnesses. But "we're going to have a lot more hearings to make sure that everyone here is considered."
The answers to the questions raised Tuesday will ultimately go a long way toward determining whether music--and movies and other digital works--will be widely available on the Net or tightly controlled by the big music labels and Hollywood studios. Artists, labels, retail stores, tech start-ups and consumers all have stakes in the issue, as each group tries to gain leverage in a market still reeling from Napster's influence.
For now, it is clear that the record labels are holding most of the cards, a situation that seemed to make some legislators uncomfortable. Several of the senators at the hearing wanted to know whether anything more could be done to spur the release of music online, ranging from small tax incentives to "compulsory licensing" of the type that feeds radio stations and cable TV.
Most of the witnesses shied away from the question or said Congress should not be involved. It was left to Napster, reeling under a series of court losses that threaten to put it out of business, to call explicitly for congressional intervention.
"I believe it will take an act of Congress--a change to the laws to provide a compulsory license for the transmission of music over the Internet," Napster Chief Executive Hank Barry told the panel. "The Internet needs a simple and comprehensive solution, similar to the one that allowed radio to succeed--not another decade of litigation."
But that proposal was met with some skepticism from the committee's top Democrat, Patrick Leahy of Vermont, who said that "many in the Senate and in the House, for that matter, feel that we don't want to...jump-start things with a compulsory license."
Congress, courts or the free market?
Most of the participants in Tuesday's hearings--representing many different sides of the online copyright debates--agreed on a broad goal for the online content market: Entire music catalogs, and ultimately movies, should be available widely online.
This is happening, and not as slowly as many people believe, contended Hilary Rosen, chief executive of the Recording Industry Association of America. Before Napster, companies both in and out of the traditional music industry believed that delivering singles was enough, she said. But consumers' response to Napster changed those assumptions, and the labels are working as quickly as they can to react.
"The business-model thinking has completely evolved since that time," Rosen said. "Napster a year ago said they wanted a legitimate service, and they haven't been able to do it. This is not an easy thing to do."
Rosen and Richard Parsons, co-chief operation officer at AOL Time Warner, cited a February decision against Napster by the 9th U.S. Circuit Court of Appeals as a watershed moment, when the online world realized it had to "stop living in a dreamland" and abide by copyrights.
But several members of the committee raised concerns that many songs are still available on Napster despite the court injunction. Napster's Barry said that a U.S. District Court on Friday appointed an independent technical advisor to examine the file-swapping company's compliance efforts as well as those of the record labels.
Although legal issues surrounding Napster are far from resolved, that ruling helped spur a partnership among AOL Time Warner, EMI Recorded Music and BMG Entertainment to distribute music via RealNetworks through a service tentatively called MusicNet, Parsons said.
"The digital distribution of entertainment content is a real business and will grow exponentially," Parsons said, saying that the market is moving quickly and that MusicNet will be available in "late summer or early fall."
Sony Music Group and Vivendi Universal's Universal Music Group are forming their own subscription service, dubbed Duet.
The industry's controlling hand
The head of independent music label TVT Records, Steve Gottlieb, told the committee that "without Congress the online music industry may be dominated by owners of the most content," namely the labels behind MusicNet and Duet. "The largest aggregators of content could gain undue advantage and institutionalize positions of dominance."
Despite its violation of intellectual property rights, Napster received praise from Gottlieb, who said "all music is available on an equal footing."
Representatives of music stores also said they are increasingly concerned that they will be gradually cut out of the loop through major-label deals such as MusicNet.
"We've always played by the rules, but today we're puzzled by the rules," said Mike Farrace, senior vice president of digital business for Tower Records. The labels have not only been inconsistent in approving music for online distribution, but thoroughly inconsiderate in their policies toward consumers, he said.
Farrace cited demands for personal customer information, use agreements that "made customers feel like untrustworthy thieves," and other restrictions that have made his company and others suspicious of ulterior motives, he said.
"We're starting to worry that maybe all the talk and activity about protecting the music is not just about controlling copyright infringement but is really about controlling lawful use and hiding plans for cutting retailers out of the marketplace," Farrace said. "A lot of the deals the record companies seem most interested in pursuing are with each other or with companies that they all buy a piece of--like MusicNet."
News.com's Patrick Ross reported from Washington, and John Borland reported from San Francisco.