Music Industry in Antitrust Probe

For the entertainment industry, every perceived threat produces an overblown reaction. After a protracted and very public struggle, file-sharing upstart Napster was cowed into submission;'s "personal music library" was rendered ineffective through a combination of legal pressure and co-option; other Internet music experiments are threatened with lawsuits too costly to contest.

Sparing no expense in its struggle to maintain control of distribution, the industry's strategy is first to squash the competition---either by suing them out of business, buying them out, or withholding product to choke off their cash flow---then establish online outlets of its own. Once-viable independent music companies such as Emusic and CDNow have been acquired and folded into industry-backed online operations MusicNet and pressplay. This strategy has provoked federal legislation to insure some semblance of a competitive marketplace (the Music Online Competition Act, crafted by Congressmen Rick Boucher of Virginia and Chris Cannon of Utah) and now, an antitrust investigation by the US Department of Justice.

In mid-October, investigators from the agency began examining the music industry's online distribution plans for possibly anti-competitive tactics---including the exclusion of the industry's longtime retail partners from any form of revenue sharing. The film industry has made every indication that it intends to do something similar: crush or acquire as many movie sites as possible, lock in some form of reliable copy protection system, and begin offering titles on demand over the Internet.

Missing from the plans are traditional retailers---music stores and video outlets---that have long been the industry's primary interface with the buying public. Provided that the copy-protection issue gets handled with some degree of certainty, industry executives see the Internet as the answer to their dreams: near-total control of the distribution of high-demand, high-profit products direct to the public. Although no one in the industry has indicated that retailers will have their supply of CDs and DVDs cut off (an unimaginable possibility), it is probable that they will be excluded from participating in any industry-backed Internet ventures—in effect, as many retailers see it, product will be withheld, choking off their cash flow.

Should the technical and legal issues be resolved, movie studios and record labels could eventually be competing against their own dealers. That scenario doesn't sit well with either the Video Software Dealers Association (VSDA) or the National Association of Recording Merchandisers (NARM), who have gone on record as supporting both MOCA and the Justice Department's investigation. NARM president Pam Horovitz has written to Boucher and Cannon thanking them for their concern and expressing her organization's support for the continuing search for a fair business model. She warned that "competition in the sale and merchandising of recorded music will be significantly reduced and, eventually, eliminated," should the music industry be allowed to carry out its agenda. The Consumer Electronics Association has also weighed in on the issue, in support of home recording rights.

The Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) have both lobbied hard against MOCA and similar proposals that might inhibit their eventual control of the distribution of recorded entertainment. "The marketplace is working, but this legislation threatens to stifle America's copyright industries by substituting government regulation on the Internet for business models and contractual arrangements that promote flexibility, experimentation and adaptation to consumer demand," read a letter to legislators, jointly signed by the RIAA and MPAA.

A conceptual shift is evident in the letter's wording: the self-characterization as "copyright industries" rather than "entertainment businesses." What's disturbing is that this could be construed as an indication that, for the entertainment industry, protecting copyrights is more important than creating quality entertainment.