May 16, 2002 4:00 AM PDT

Kazaa finds friends in file-swapping fight

Powerful computer and telecommunications companies are allying with upstart file-swapping service Kazaa in a bid to overhaul the way record labels are paid for music and other content distributed on the Net.

Stung by legislative proposals that could force computer companies and Internet service providers to become anti-piracy cops, Verizon Communications and an influential technology trade association are beginning to push a copyright proposal that could make downloading a song online as legal as listening to the radio.

Known as "compulsory licensing," the idea has floated around Washington, D.C., for several years in various forms, but it has been bitterly opposed by record labels and movie studios. Until now, it has been backed almost exclusively by the file-swapping companies themselves. But the addition of influential technology companies to the mix would shift significant political weight behind it.

"We're several years into this problem, and it's not getting better," said Will Rodger, director of public policy for the Computer and Communications Industry Association (CCIA), which counts Oracle, Sun Microsystems and Yahoo, as well as Verizon, as members. "We may as well recognize what technology can and can't do."

The concept is in its early stages. Industry figures are still exploring the idea and just beginning to talk publicly about it. But tenuous alliances are forming that bring Kazaa parent Sharman Networks into a circle of political powerbrokers that would have been unthinkable a year ago.

Certainly, the drive could be lost in the complicated tangle of issues that have closely linked telecommunications and copyright policies since the 1998 passage of a landmark digital copyright law known as the Digital Millennium Copyright Act (DMCA). However, with file trading still viewed by many as the most powerful force driving consumers to broadband and home computer adoption, it's unlikely that the technology companies and ISPs will back away from the issue altogether.

"As a broadband provider, we see having access to content as a critical component," said Sara Deutsch, Verizon's vice president and associate general counsel. "If the Net is to grow, there needs to be some guarantee that content is available."

Political dynamite
Compulsory licensing is political dynamite from the point of view of the record companies and other copyright holders.

If a compulsory license for file swapping were passed, record companies and potentially movie studios would be forced to allow anyone who asked--or who pushed a download button--to use their works on demand.

That's akin to the way music has always worked on the radio. Radio stations don't have to ask to play a piece of music; they simply have to find it, keep track of what they're playing, and pay royalties to songwriters and publishers. Webcasters also have a compulsory license to stream whatever music they want, but they are embroiled in a battle over how much to pay and exactly how they can use the music.

While applying similar licensing to downloads would guarantee content owners are paid, record labels and movie studios are staunchly against such a plan because it would mean losing all control over online distribution.

Under a compulsory licensing scheme for digital downloads, music would not be free, as it is today through services such as Sharman's Kazaa or StreamCast Networks' Morpheus. Payment models might entail a direct charge to file-swapping services, for example, much like the current arrangement with radio stations.

Another scenario floated by Sharman's Washington lobbyist involves the creation of an Intellectual Property User Fee (IPUF), which would be used to pay record companies and artists for online music downloads.

The IPUF plan is still short on details. But the idea would be to add a small fee for users somewhere along the line, onto ISP subscription, CD burners, computers or other devices, for example. The funds would go to the artists and record labels to pay for lost revenue. This already happens with blank audiotape sales, a small percentage of which goes to the record companies to compensate them for album taping.

Sharman's lobbyist, Phil Corwin, has spent the last three months trying to win support from musicians' groups and technology companies. He's had some interest--but recently he found the gold mine of potential support inside the technology community. Sharman and the tech companies aren't yet working together, but they've both realized that they're talking the same language.

"We're all saying that instead of trying to obliterate file swapping, the way to go is to try to make money from it," Corwin said.

Political payback
The big technology and Internet companies have been quietly feuding for years with content companies, which want them to play a more active role in guarding against piracy. Verizon has been bolder than most ISPs in criticizing movie studios and record labels for asking Net access providers to pull the plug on subscribers who are trading files online.

But hostilities broke into the open earlier this year, when Sen. Ernest "Fritz" Hollings, D-S.C., introduced a sweeping piece of legislation that could force technology companies to build anti-piracy protections into all computers, consumer electronics and potentially even ISPs' networks.

Most big technology companies have criticized that bill, but Verizon and the CCIA are now going farther by looking for something that will push back hard on Hollings and his supporters.

Compulsory licensing may fit that role.

A major stumbling block is who would be on the hook for collecting and transferring money to the record companies. ISPs don't want to see charges added to their monthly fees. Computer makers don't want to see charges added to their products. Tracking usage to determine the amount artists and labels ought to receive is also likely to be a major headache.

In any case, political battles over the price of downloaded music could make any plan untenable. Artists and labels are fighting over how much in royalties musicians should receive for digital sales, as opposed to CDs. The ongoing Webcasting battles illustrate that technology companies have a far lower idea of the value of music than do record companies.

CCIA is not ready to introduce its own bill yet, and it's far from clear whether the group's full membership would support the idea. Still, legislation could find its way onto the table as early as next year, according to CCIA's Rodger.

"This is just an idea," he said. "But it's one we're serious about."

See more CNET content tagged:
file-swapping, Sharman Networks Ltd., Kazaa, record company, telecommunications

 

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