Copyproof CDs moving to market?

In a research note published Friday, J.P. Morgan analyst Sterling Auty said that Arista Records, a subsidiary of BMG Music, appeared to be moving to market with CD copy-protection technology produced by SunnComm Technologies.

"We expect volume shipments of protected CDs to ship commercially in the U.S. as early as the May-June time frame using the SunnComm solution," Auty wrote. "This will be the first major step in the growth of the CD audio protection market."

Record labels have been experimenting with compact disc copy-protection technology for close to two years now, but other early indications that mass-market release was close have proven premature. Labels in Europe and Asia have begun releasing scattered tests, but U.S. trials have remained largely limited to advance and promotional CDs.

A spokesman for BMG Music said his company's corporate policy, which would affect Arista, has not changed in any way. "We are conducting trials only, and we have not announced any plans to go to market with copy-protected CDs," BMG spokesman Nathaniel Brown said.

SunnComm could not immediately be reached for comment.

Labels, which have seen their revenues fall over the past two years, are eager to find a copy-protection technology that would block people from burning copies of CDs or from "ripping" unprotected MP3 files with their computers and putting the songs on file-trading networks such as Kazaa.

However, previous versions of the antipiracy technologies from SunnComm, Macrovision and others have proven flawed. CDs protected with the technology have been unable to play in some CD players or computers, potentially even damaging some machines. Hackers have been able to break through much of the protection technologies using techniques as simple as drawing on the CD with a felt-tipped pen.

SunnComm recently struck a deal with Microsoft to work together on a package of copy-protection techniques for labels. The smaller company will protect the ordinary CD audio tracks against copying, while Microsoft will provide tools to put additional copy-protected versions of the songs on the CD that can be copied to a computer hard drive or MP3 player but not traded online.

This so-called second session, containing files that can be used by computer music aficionados but not widely distributed, has come to be a key goal for the labels. Previously, label executives have said that the full technology package remains flawed, however.

"While the technology is apparently not quite ready, there is promise for some protective technologies," Hilary Rosen, chief executive for the Recording Industry Association of America, told music retailers at that group's national convention last week. "While there are no specific plans to release such products into the marketplace at this time, if they are produced, record companies will need to work closely with retailers to assure that the proper consumer education and labeling takes place."

Auty wrote that Arista's example could be followed by the rest of BMG--a result that, if realized, could hurt Macrovision, he said.

"Our concern also lies with the chance other labels at BMG Music will rapidly follow Arista's lead," Auty wrote. "As for the major labels other than BMG, they are still up for grabs, but a decision could be delayed as the industry stands still to see how consumers react to BMG's advances."