Recording industry sings new Net tune

Attendees at Jupiter Communications' Plug.In conference here didn't get the heated debate they were expecting during the MP3 panel discussion yesterday. Instead, recording industry representatives said the industry needs to work with the technology industry to tap a potentially huge market to distribute music over the Internet. And they said MP3, the popular audio compression format for downloading music files on the Web, is no longer a threat to the traditional record industry.

Even more surprising were comments made by Hilary Rosen, chief executive of record industry trade group the Recording Industry Association of America (RIAA), that piracy is no longer an issue.

It was a far cry from what has been a contentious debate for several months. Even last month at the MP3 Summit in San Diego, some upstart Internet music companies were still talking revolution, shouting the familiar battle cry against the traditional music industry.

Meanwhile, the RIAA unsuccessfully tried to block the shipment of Diamond Multimedia's portable Rio MP3 playback device last year. The RIAA also has blamed MP3 for sagging music sales.

But the debate has shifted, with mainstream music companies such as Universal Music, Sony Music, and MTV Networks Online getting into the download game. Arguments recently have centered around the Secure Digital Music Initiative (SDMI), the RIAA-led initiative to create specifications for secure music downloading.

The consortium earlier this month published its specifications for portable devices; a broader set for the Net at large is expected in spring 2000. Proponents say it is the only way popular content by the big record companies will be available legally to the public, but critics argue that non-SDMI devices will still be available, so the illegal use of MP3 will continue.

Still, for the moment, the war of words has quieted to a degree.

"The RIAA and the record labels have accepted the fact that MP3 is OK," said Jupiter analyst Mark Mooradian. "It's not their preferred type of file format, but they have to support MP3, and they realize that."

CNET News.com caught up with the RIAA's Rosen to see how record labels are dealing with the ongoing sea changes in the music industry.

CNET News.com: Your remarks during the Jupiter Plug.In panel emphasized that the technology and record industries appear to be seeing eye to eye these days. You said the industries are entering into a stage of cooperation. It's quite a contrast from when the RIAA filed that lawsuit against Diamond Multimedia.
Rosen: The court case was never the strategy. It was a part of the work to do. But there was a mindset in filing the case that there were many in the technology industry that were kind of dismissive of the creative interest, and finding some way to put down that marker seemed important as one tier of that strategy.

But the biggest lesson we learned was that technology legislation would never keep up with the pace of technology. And we tried to fit this kind of round peg into a square hole, and it didn't work. And the good part is that the lawsuit has become irrelevant, because companies from Diamond to Creative [Labs], every portable device manufacturer, have been at the table doing deals with the record companies big and small because they see it in their interest now to develop a legitimate marketplace. I don't know that I could have predicted that the day we filed the lawsuit.

Do you feel you understand it more now? There appeared to be ignorance on both parts. Both sides seemed very defensive during the lawsuit.
I think it was less about ignorance and more about a level of stubbornness, that both sides wanted the other to come to their way of thinking. The technology industry very much wanted the music industry to buy into the notion that everything on the Internet should be free. And not just the record companies, but the small writers and the music publishers and the artists very much wanted the technology industry to pay respects to the creativity.

And ultimately when there was more a meeting of the minds, you could have a respect for creativity that didn't necessarily mean you were tied into old-fashioned technology models or old-fashioned business models. All of a sudden, the sand started shifting and people could find ground to work together on.

One thing that was very surprising was that you said piracy is not an issue.
I don't think it is. We do it a lot. We do enforcement a lot, so I'm not saying we don't make sure that rights are protected. I'm proud of that work--I'm not defensive about that. But I don't think it's the main subject of what's happening. It has become more of a cost of doing business rather than the entire business. We'll always have piracy of cassettes and CDs, for instance, with the flea markets or street vendors. That will never go away, and I think the same will be true of the Internet. But we're going to see an explosion of legitimate music online. And consumers are going to have an alternative. I believe consumers will want the alternative.

How do you respond to MP3.com's IPO? What does that signal to you?
My grandmother used to say, "gey gazunt," like, "Go and be well." It sort of means, whatever you want to do, do. That's sort of how I feel about it. They've been relentless and creative and vocal?and more power to them for creating a vision that they can get by on.

It reflects a lot of gambling that ideas matter as much or more than sales. And who's to say that in 15 years that won't prove to be the case?

The last [audience] question [during the panel] brought up an interesting thing, which is, What does create value? That was the subject of [BMG Entertainment CEO] Strauss Zelnick's speech yesterday. That's a question that in these times, not just about music, is really unanswered.

I think it is ironic that when I look at the numbers they were talking about, about what Geffen [Records] sold for and what A&M [Recording Studios] sold for--after there was Guns n' Roses, Sting, Cher, and everybody from the Carpenters to Sheryl Crow--there were superstars on these labels that people were spending millions of dollars to buy. And yet the marketplace value that MP3 is about to be valued is interesting. I don't know why.

What's your impression of this conference and its attendees? What kind of companies are catching your eye?
I haven't walked around enough to catch enough of a vibe. But I would say that clearly from the first Jupiter Conference, or from the first year of music conferences to this one, there is much more concentration on concrete business models and much less speculation on revolution.

Has the rhetoric toned down in your view?
It seems to be. MP3 very much represented this new-world anarchy of the Internet. And clearly this convention has reshaped the thinking.