The Search For Ways to Make Napster Work

Cable World, April 9, 2001 by David Connell

Arguments Against Compulsory Licenses

What a difference nine months makes.

A hearing on online entertainment held by Senate Judiciary Committee Chairman, and part-time gospel song-writer, U.S. Sen. Orrin Hatch, R-Utah, signaled a definitive shift in the debate over Internet-delivered music and video. No longer were artists and record companies damning the innovations of Napster but were instead promising to make the Internet work, while insisting that everyone get paid.

The discussion has shifted from technological revolution to discernable profit.

In this shift, all sides -- lawmakers, artists, record companies and Internet distributors -- have found a common ground. Now, they just have to figure out how to roll out the services, ensure all copyright holders get a share of the pie and that piracy is kept to a minimum. Not surprisingly, the devil is in the details.

Rolling out the services seems to be getting easier, particularly for the larger entertainment conglomerates. Vivendi-Universal and Sony are launching "Duet," and AOL Time Warner, Bertlesmann and EMI are teaming with RealNetworks to unveil a business-to-business platform called MusicNet that will license its catalogues to consumer Internet companies. (See sidebar.)

Also, the security and anti-piracy concerns are, slowly but surely, being addressed. Liquid Audio president Gerald Kearby told the committee last week that his company has been securing online content since 1996 and provides services to 1,200 record labels.

"Liquid Audio's digital music distribution system is a comprehensive, secure platform that is delivering music in a legitimate, user-friendly environment to millions of customers today," Kearby assured the senators.

However, he warned that "consumers will be driven to illegitimate channels by overly strict rules and complicated procedures."

Recording Industry Association of America president Hilary Rosen also warned that building a secure system is not as easy as it seems, noting that Napster has yet to build a "legitimate service" despite several lawsuits and spending months trying to implement a filtering system.

Paying rights holders

By far, the biggest disagreement among all sides, however, seemed to be what mechanism to use to ensure that all of the proper rights holders are paid for digital performances or downloads of content. In the music business, this process is particularly difficult, because not only must recording artists and record companies be paid, but so must songwriters and music publishers.

"In some of your modern hip-hop songs," Robin Roberts, president of MP3.com, said, "there are more than 10 music publishers you must secure the rights from" in order to legally post the song on the Internet.

In order to streamline the process of securing the digital rights to music and other online entertainment, Robins and Napster's Barry suggested Congress craft a compulsory license for the distribution of media over the Internet.

A holdover from the seemingly ancient days of multichannel video services, compulsory licenses create a pool of funds, paid by cable and satellite TV operators, which is shared equally by the producers of television content. This way, each operator does not have to negotiate separately with each show producer.

Compulsory licenses are unpopular with most content producers because they feel the licenses are set too low and undervalue the programming. The idea of spreading them to the Internet is even less popular.

Jack Valenti, chairman of the Motion Picture Association of America and a longtime opponent of compulsory licenses, said extending the scheme to the Internet would be unworkable because the cable and satellite licenses are based on a limited viewing area, while the Internet is "global and instant."

He added that independent content producers would lose their ability to re-sell rights in foreign countries because the programming, or music, would be available globally once it was released on the Web.

Furthermore, Valenti pointed out that the compulsory rates would have to be set high enough to "cover the whole world."

"Americans would be subsidizing European, South American and Asian viewers," Valenti said. "An Internet compulsory license is an idea whose time has not come."

Industry solution

AOL Time Warner co-COO Richard Parsons agreed with Valenti, saying that there is an industry solution to ensuring that rights are secured for online content. He told the Senate panel that the new MusicNet service would secure "the full compliment of licenses" needed to deliver a song on the Internet.

"It's complicated, but we did it," Parsons said, responding to questions about AOL Time Warner's ability to secure digital rights. "This is a complicated problem, but it doesn't rise to the level of U.S. Congress intervention ... [The marketplace] is working, and we're getting there."

Hatch agreed with Valenti and Parsons, saying a compulsory license is "the last thing you want to do" when trying to work out payment agreements between content creators and content distributors.