Anti-piracy feud bodes ill for Web music

By all rights, it should be a banner few months for digital music.

A high-powered new generation of digital music players is heading for Christmas stockings. Almost simultaneously, the major record labels are releasing their catalogs online after years of stalling.

Unfortunately, the two campaigns might as well be happening on different planets. People using hot new music devices such as Apple Computer's iPod or Compaq Computer's iPaq will not be able to play music from the Pressplay and MusicNet subscription services, which for the first time will make songs legally available online.

The disconnect speaks volumes about the fragmented state of the so-called digital rights management industry, which provides anti-piracy technology. Consumer electronics companies that once paid some lip service to helping fight digital music piracy are now releasing products that will boost demand for the huge amount of free--if legally questionable--music still available online.

"Piracy is not a technological issue. It's a behavior issue," Apple CEO Steve Jobs said when he unveiled the iPod last month. He did say that the company warns its consumers not to steal music. But his not-our-problem stance exemplifies market decisions being made across the electronics industry.

These decisions bode ill for the high-profile subscription services launching over the next few weeks. Already, many consumers interviewed by CNET News.com say they are unlikely to sign up for online music services that cost money and don't work in conjunction with the new generation of MP3 players.

"Why (pay for music) when I can get it free?" asked Rochell Lopez, a 28-year-old San Francisco resident interviewed at a local Circuit City store. She said she currently listens to MP3s downloaded from Morpheus, a post-Napster file-swapping service. "The reason why I liked Napster was because there was a lot of bootleg stuff that you can't find, like live shows that I know the record companies are not going to put out."

A history of conflict
The seeds of this season's disconnect stem back years. Record companies originally tried to stop the spread of MP3 players, suing Diamond Multimedia to keep it from distributing its first Rio digital music player.

But courts ruled that the MP3 player was legal, and other companies quickly started distributing their own digital music players.

Slipping through the cracks As record labels and electronics makers quarrel over the best way to let people hear digital music, many high-profile anti-piracy companies are disappearing. Reciprocal: Founded in 1996, New York-based Reciprocal built its digital rights management services on technologies from Microsoft, InterTrust, Xerox, Preview Systems and Adobe Systems. Despite investments from several technology heavyweights, Reciprocal defaulted on a loan to Microsoft and ceased operations. Preview Systems: Though it was a pioneer in anti-piracy protections, the Mountain View, Calif.-based company struggled to keep up with Microsoft and InterTrust. An initial public offering in December 1999 peaked at nearly $70 a share, but Preview Systems' stock soon plummeted to $3. After cutting staff by 25 percent earlier this year, the company sold its software security technology to Aladdin Knowledge Systems. Supertracks: Founded in February 1999, the Portland, Ore.-based company hoped to capitalize on digital distribution by offering a secure way of selling music downloads. But in May 2001, Supertracks laid off 60 percent of its work force. Three months later, peer-to-peer provider CenterSpan Communications paid $750,000 in stock for the source code for Supertracks' secure streaming technology and other assets.

That court ruling also helped embolden consumer electronics companies participating in the Secure Digital Music Initiative (SDMI), a cross-industry group formed in late 1998 to create a universal way of adding anti-piracy features to digital playback devices. After some early progress, that coalition lost almost all momentum this year in the wake of disagreements over priorities between music and consumer electronics companies.

A few content companies, most notably Walt Disney, are still pushing for a legislative version of SDMI that would force all digital devices to include content protection technology. But such a bill has yet to be introduced into Congress, and growing opposition from powerful technology companies appears likely to sink it.

This means that consumer electronics companies are free to release products that support unprotected MP3s. Meanwhile, services that must protect their music are still struggling with incompatible technologies and models that may well alienate consumers.

The different companies "haven't gotten on the same page to reconcile their business models," said P.J. McNealy, a research analyst for GartnerG2, a division of Gartner. "This market won't take off until there is a standard" way of protecting content against copying, he said.

Slow steps forward
Despite their differences, progress is being made in the relationship between consumer electronics and technology companies and in anti-piracy technology as a whole.

Copy-protection technology is starting to filter into the market in large volumes for the first time, regardless of a spate of start-ups going out of business. The companies winning the race say the market can serve a role that legislation or industry standards bodies can't fulfill.

"There are some things that really work out best for the market to figure out," said Michael Aldridge, lead product manager for Microsoft's Windows Digital Media division, which provides a digital rights management system. "There needs to be different kinds of implementations for different kinds of devices."

Microsoft and streaming media company RealNetworks have made the largest strides in recent months. Microsoft's Windows Media system will protect music released on Pressplay, a subscription service handling music from Sony Music Entertainment, Universal Music Group and EMI Recorded Music. Those songs will show up on the software giant's Microsoft Network and on Yahoo later this year.

RealNetworks has come from behind with the help of technology acquired from Aegisoft. Its format and digital rights management system will be the core of the MusicNet subscription service. That will put music from Warner Music Group, BMG Entertainment and EMI Recorded Music on America Online, RealNetworks' own site, and ultimately Napster.

Smaller companies, including InterTrust and Liquid Audio, still have their products in the market. InterTrust in particular has had substantial success in seeing its technology supported by hardware manufacturers. The company says it remains confident in its future--even though it has laid off 40 percent of its work force and has been caught up in an ongoing patent dispute with Microsoft.

"I'm really encouraged that we've shaken out a lot of the weaker players," said Talal Shamoon, executive vice president of business development at InterTrust. "Early adopters and early suppliers (are) giving way to people who are going to go all the way and deliver."

These companies are talking consistently to hardware device manufacturers and chipmakers. Many hardware makers actually have support for Microsoft's or InterTrust's anti-piracy technology built into their players.

But the major label-backed subscription services still won't let music be transferred to those devices. The reason is technical: While MP3 players can decode audio files, most aren't sophisticated enough to keep track of times and dates. This means that the players have no way to support the expiration dates for songs distributed through subscription services.

The various companies involved say they are consistently talking to bridge this and other gaps. But as was the case with SDMI, content, technology and electronics companies still find they have different priorities and aren't willing to bend their business models enough to meet in the middle.

"I think everybody operating a subscription service would like to be able to add the value of transferring to a digital device," said Jeff Albertson, product manager for RealNetworks' media systems division. "Progress is still happening, but it's happening in different ways" than in SDMI.