Music Industry Roundup

The Recording Industry Association of America (RIAA) is continuing its legal campaign against file sharing. In late March, the trade organization launched a new salvo of lawsuits against 532 individuals and 21 university computer networks across the country—89 of the accused violators used school networks for downloading or sharing large numbers of copyrighted recordings. The RIAA claimed that the alleged violators shared an average of 837 songs.

The latest move is the first time the RIAA has gone after university networks, whose administrators have generally cooperated with investigators. Schools involved include some big-name institutions such as Georgetown University, the University of Michigan, and the University of California at Berkeley.

The names of the accused weren't available at the time the lawsuits were announced. Instead, the RIAA had only numeric Internet addresses from which it was working to establish identities. Once that process is complete, music industry attorneys will seek damages against individuals or attempt to negotiate out-of-court settlements. The March lawsuits follow similar efforts in January (532 suits) and February (531 suits). As of March 29, the RIAA has filed approximately 2000 lawsuits against copyright violators and has settled with more than 400, with settlements averaging $3000.

Widespread copyright violations may have made US lawmakers much more amenable to enacting stricter laws against such activity. On Thursday, March 25, Senators Orrin Hatch (R-UT) and Patrick Leahy (D-VT) introduced a draft bill that would allow the Justice Department to pursue civil cases against file sharers, and would lower the burden of proof in file-sharing copyright violation cases. The so-called PIRATE Act of 2004 ("Protecting Intellectual Rights Against Theft and Expropriation") would impose hefty fines and prison terms of up to 10 years for file sharing, according to Xeni Jardin of Wired News.

A similar bill is "circulating among members of the House Judiciary Committee," Jardin noted. Legislation author and sometime songwriter Hatch told reporters that operators of peer-to-peer networks "are running a conspiracy in which they lure children and young people with free music, movies, and pornography." The PIRATE Act got a big thumbs-up from Jack Valenti, chief of the Motion Picture Association of America. "I commend Senators Patrick Leahy and Orrin Hatch for their vision and leadership in combating the theft of America's creative works," Valenti stated.

On March 25, the British Phonographic Industry (BPI) announced that it would begin using instant messaging on peer-to-peer file-sharing networks to step up its campaign against illegal downloading. The London-based trade group said it would issue warnings that file-sharers risk legal action. A recent BPI survey found that 92% of the 8 million people in the UK who download music do so illegally. Most of the downloading is of single songs; less than 6% of downloads are entire albums, the BPI found.

Early this year, in concert with the RIAA, BPI officials announced plans to launch lawsuits against egregious violators. "I'm sure we will be taking action this year, as long as the problem persists," said BPI chairman Peter Jamieson. UK lawsuits will be civil rather than criminal, thereby enabling the BPI to recover "compensatory damages," according to a report from London.

Uncertain future for legitimate downloads? New economic opportunities typically spawn a scramble by entrepreneurs to stake out territory, but only a few survive—for example, there were literally dozens of US automobile manufacturers during the 1920s, but only a handful lasted to mid-century. Legitimate music download services are similarly scrambling for significant shares of an uncertain market, and many of them aren't likely to endure what the Wall Street Journal refers to as an impending "shakeout."

In a March 23 analysis, reporter Nick Wingfield of The Wall Street Journal claims that there are "too many players jostling for too few chairs in the online music game," despite the hype surrounding the initial success of Apple Computer, Inc.'s iTunes Music service. Smaller startups may be squeezed out as giants like Microsoft, Sony, and Wal-Mart push their way into the market.

As a result, many startups are rethinking plans to launch public offerings to raise capital or to try to sell themselves to larger companies. Subscription service MusicNow, which offers songs at 99¢ each and unlimited access to its music library for $9.95/month, has signed up only about 18,000 subscribers. Echo, Inc., a planned online service, announced with gusto last year by partners Best Buy Company and Trans World Entertainment Corporation, has never materialized.

"There are more than a dozen companies with existing or planned online music ventures hawking virtually the same selection of songs licensed from major recording companies and independent labels. The profits from such song-downloads services are questionable," Wingfield noted.

On the other hand, the online music industry is in its infancy. "We're still just scraping the surface of the online music market," a Roxio spokesman said. (Parent of legitimate Napster, Inc., Roxio recently named music industry veteran Michelle Santosuosso to the new position of vice president of artist and label relations. Santosuosso, a former Clear Channel executive, will manage and develop Napster's label and artist relationships, as well as supervise the service's "Napster Live" in-house recording sessions.)

Wingfield added that Apple Computer makes most of its money in the online business by selling iPods, not recordings. More than two million of the sleek players have been sold since their introduction, and about 50 million iTunes since the launch of the service a year ago. The popularity of the portable players continues to grow. On March 25, Apple announced that it was postponing overseas shipments of the iPod Mini in order to meet pent-up demand in the US. The Cupertino, CA–based company has pushed back the international release of the player from April to July, according to Apple vice president Tim Cook.

DirecTV unloads XM stock: XM Satellite Radio Holdings, Inc. announced March 25 that DirecTV Group, Inc. would sell its stake in the satellite radio service for about $230 million. DirecTV's 9 million shares account for about 4.9% of XM's 184.9 million shares outstanding, according to the announcement. Formerly a Hughes Electronics/General Motors subsidiary, DirecTV is now 34% owned by Fox Entertainment Group. In February, XM moved to a completely commercial-free format like competitor Sirius Satellite Radio. Other major XM shareholders include radio giant Clear Channel Communications, Inc.,and automakers Honda Motor Company and General Motors Corporation, with whom the satellite service has sweetheart deals to install XM receivers in new cars. The underwriter for the stock sale is Bear, Stearns & Co.

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