Year in review: The sound of Net music

Like the several years before it, 2003 saw the history of digital media written largely in the courts. But the release of groundbreaking new services also poured energy into the business that had been unseen since the height of the dot-com days.

Early in the year, a federal judge ruled that Kazaa parent Sharman Networks could be sued for copyright infringement in the United States, opening up a legal battle over the most popular file-trading software application on the Net. A few weeks later, a different judge ruled that Verizon Communications had to give the recording industry the identity of a file-swapping Internet subscriber, paving the way for future lawsuits against individuals.

The Recording Industry Association of America (RIAA) began going down this road in April, when it sued a quartet of college students operating file-trading tools on their campus networks. But record labels and their movie studio allies suffered a stunning legal defeat later that month, when a federal judge in Los Angeles ruled that decentralized peer-to-peer software tools such as Grokster and Gnutella were legal, giving a green light to file-swapping companies for the first time since Napster went to court.

Just a few days later, the digital music landscape shifted dramatically again, with Apple Computer's release of its iTunes digital song store for Macintosh computers. While others had sold digital music by the song before, Apple's simple service, and the flexible usage rules the company had won from previously skittish record labels, put it head and shoulders above any previous effort. The publicity alone, unprecedented for a commercial digital music undertaking, moved online music into a new era.

Despite its unexpected defeat--which it vowed to appeal--the RIAA continued its legal press against peer-to-peer networks. In late June, it announced that it would begin suing individual file-swappers for the first time, and soon began sending out subpoenas to Internet service providers seeking personal information on subscribers it planned to sue. ISPs and civil libertarians challenged the organization's pretrial subpoenas as unconstitutional.

By mid-September, the organization had the information it needed to start, and it launched a first set of 261 lawsuits against computer users. Some of the publicity went awry--one target was a 12-year-old honors student who lived in New York public housing, and another was a Boston grandmother who didn't even have a computer capable of using Kazaa and who had no interest in the hard-core rap she was accused of offering for download. These cases were settled quickly or dropped, but the RIAA pursued others.

Meanwhile, Apple's iTunes was posting unexpectedly high sales even among the tiny Macintosh audience, and countless other Net music and e-commerce companies were lining up to follow suit. Buy.com founder Scott Blum was the first, with a song store called BuyMusic. Musicmatch came quickly afterward. Sony and Microsoft indicated their intention to release stores in 2004. The new Roxio-owned Napster launched in October, looking nothing like its old anarchic self but offering a greatly expanded version of Apple's offerings.

Finally Apple itself launched the Windows version of its store and iTunes software in November, along with blue-chip marketing partners in Pepsi and America Online. By this time, the company was conceding that it made little or no money from selling the music, but said it saw the store as a way to persuade people to buy its profitable iPod digital music players.

As the year closed, record companies saw a series of legal setbacks. Canadian copyright regulators said downloading--but not uploading--music from P2P networks is legal. More damaging, a U.S. federal appeals court said the RIAA's unconventional strategy of subpoenaing ISPs for the identity of alleged song-swappers before filing any cases was illegal. Cutting the sting somewhat was news from the U.S. Department of Justice, which said it is closing an old antitrust investigation of the record labels' online business practices without filing charges.

Looking toward next year, scores of lawsuits remain outstanding against individuals, and the rush to open online song stores has analysts predicting an imminent shakeout.

--John Borland