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February 23, 2004
Volume 3, Issue 9

Digital Music Forum in NYC Next Monday

The DCIA is pleased to sponsor a special luncheon session "P2P MUSIC SOLUTIONS" from 12:30 PM - 1:30 PM exclusively for registered attendees of Digital Music Forum (DMF) presented by Digital Media Wire and Billboard Magazine on Monday, March 1st in New York.

Join us for an exciting live demonstration presented by BlueMaze Entertainment, Clickshare, DCide, Digital Containers, and INTENT MediaWorks.

The full-day DMF, which will be held at The French Institute (59th Street and Park Avenue), includes five panels and three keynote addresses, focusing on the role of digital technologies in the future of music.

DMF will address whether there is a viable business model for selling music online and can the music industry profit from legitimate uses of P2P, how consumers are reacting to new formats for music delivery and who will be the winners and the losers in the world of online music sales, what is the status of pending lawsuits and legislation concerning digital copyright, and will new formats generate the kind of success that the industry experienced with CDs during the '80s and '90s.

DCIA founder and Altnet EVP Derek Broes will be a featured speaker on a panel entitled "The Future of P2P: Can the Music Industry Profit from Legitimate Uses of P2P." Most in the industry acknowledge that P2P is not a short-term technology, and some artists and labels are beginning to adopt it for distributing their music. This panel will consider the challenges and opportunities in trying to determine how best to utilize this powerful technology.

Jeff Howe of Wired Magazine will moderate, and other panelists include EMI Music's Ted Cohen, Broadjam's Roy Elkins, Big Champagne's Ed Garland, Cherry Lane Digital's Jim Griffin, and Berklee Media's David Kusek.

DMF's keynote speakers will be Sean Ryan - VP, Music Services, Real Networks; and Jonathan Potter - Executive Director, Digital Media Association.

Attendees will include decision-makers from music labels, record companies, music publishers, producers and distributors, technology companies, wireless companies, rights organizations, industry bodies, radio, advertising, attorneys, artists, investors, and venture capitalists.

To access the DMF agenda, registration, and other event details, please visit www.digitalmusicforum.com, or to register by phone, call 323-464-0793.

Report from CEO Marty Lafferty

This has been another week during which public rhetoric and symbolic actions have unfortunately tended more towards the divisive than the constructive.

So once again we urge parties representing music rights holders, P2P software providers, broadband ISPs, and consumer interests to invest at least as much effort in seeking positive commercial solutions that will be beneficial to all parties as in these other endeavors.

We are once again hearing comparisons of file-sharing copyright enforcement efforts to the futility of alcoholic beverage prohibition. And now we have witnessed for the first time a consumer responding to a P2P copyright infringement action with a countersuit charging the music industry with racketeering.   

There was at least one bright note, however, as reported on Tuesday by Jon Healey in the Los Angeles Times: "In the music industry's most significant endorsement to date of online file sharing, independent label Artemis Records has agreed to make its albums available for purchase on Kazaa, Grokster, (eDonkey, and Overnet).

New York-based Artemis, home to well-known artists such as Steve Earle, the Pretenders and the late Warren Zevon, is the most notable label to license its songs to (DCIA Charter Member) Altnet, a Woodland Hills company that uses file sharing to deliver digital goods.

Artemis is run by Danny Goldberg, former head of Mercury Records Group, Atlantic Records and Warner Bros. Records. Formed in 1999, Artemis was named the top-selling independent label in 2000 and 2001 by Billboard magazine.

The five major record companies have declined to strike deals with Altnet, choosing instead to sue Kazaa, Grokster and hundreds of their users for copyright infringement. The labels don't want to offer authorized versions of their songs through (software applications) like Kazaa that also let users download them illegally for free. But Jordan Flaste, head of new media for Artemis, said illegal file sharing is precisely why he signed up with Altnet.

'You have to go through every means necessary to reeducate the consumer that there are legal alternatives,' Flaste said.

Artemis also is selling its songs through (centralized) online services such as Apple Computer's iTunes Music Store, RealNetworks' Rhapsody and Roxio's Napster. But what Altnet can do, Flaste said, is give file sharers an alternative source of legal downloads within the programs they're already using.

For example, he said, when a Kazaa user does a search on the network for Warren Zevon, the first results displayed will be authorized copies from Altnet. Those will be available for 99 cents per song or $9.99 for the entire album.

'Some users are annoyed because they were expecting it for free. But it retrains so many people to look at it as, you have an opportunity to purchase it, via a system that you're already very familiar with,' Flaste said.

Artemis' move came just as the major record companies were ramping up their attack on the company behind Kazaa - (DCIA Charter Member) Sharman Networks Ltd.

Last week the major record companies' Australian subsidiaries started a new lawsuit against Sharman in that country. Representatives of the companies raided not only Sharman's headquarters in the Sydney suburb of Cremorne, but also the Sydney offices of Altnet parent Brilliant Digital Entertainment Inc. and the homes of top Sharman and Brilliant executives.

Some advocates of file sharing say the big five are attacking the technology because it threatens their domination over the music market. A growing number of independent labels are signing with Altnet, although the vast majority remain on the sidelines, neither suing nor partnering.

The company has signed 30 independent labels since last summer, said Christian von Burkleo, senior vice president of business development.

Audible Magic Visits the Nation's Capitol

DCIA Senatorial Response

LA-based Audible Magic presented its "song fingerprinting" technology in Washington, DC last week, and it is important to understand how such file-identification watermarking techniques could be part of a larger viable commercial solution.

The purpose of using such a system for identifying uploaded tracks should not be, as this demo suggested, to stop them from being redistributed, but rather to help ensure that regardless of their point of origin on the Internet, each new end-user would follow rights-holders' prescribed rules, including making any required payments, in order to access them.

If song fingerprinting were to be deployed, it would need to be as the first step in a two-step process, the second of which would be to apply associated digital rights management (DRM) tools - not to prevent file-sharers from accessing copyrighted music - but rather to ensure that each new file-sharer properly licensed each song for listening.

Rather than a notice on the computer screen letting the user know access has been "terminated," for example, implementation would need to include a notice on the screen letting the user know how to license the song.    

The goal should not be to curb online music file-sharing, but rather to curb unauthorized redistribution of music online. There can be a very attractive business for music rights holders, peer-to-peer (P2P) software companies, and broadband ISPs in licensed music "super-distribution" via P2P.

Fingerprints can be generated during final post-production of copyrighted songs by rights-holders using special technology. Software programs to read the fingerprints and thereby identify the songs can be inserted at a number of places in the distribution chain, theoretically including, as Audible Magic proposed, attached to P2P file-sharing applications as an upgrade plug-in, although in an open environment like the Internet, the impact of attaching them in that manner would be narrowly limited only to closed P2P applications that complied and only to those users who upgraded.

Two problems with this approach would be: 1) non-complying P2P software applications quickly appearing on the Internet launched from locations outside of US jurisdiction targeting consumers seeking to trade files without authorization; and 2) even "mandatory" upgrades not being universally enforceable.

Such a solution would also implicitly centralize a decentralized system, which would basically render much of the benefit of P2P redundant.  The power/price ratio that P2P brings to distribution would be lost.

No such solution has been proven beyond a demo that even in theory would only be effective for subsets of end-users of certain P2P software applications if they existed in isolation in a closed environment. In addition, the widespread redistribution of copyrighted music files by e-mail and instant-message attachments would be unaffected by this type of implementation.        

In order for fingerprinting technology to serve its purpose in helping to foster a commercial solution, which as previously noted would not be as a blocking program, but rather to identify songs so that associated DRM could be applied before they are downloaded by the next P2P software user, it would have to be implemented properly. The place in the distribution chain where identifying songs by their fingerprints would be most effective is at the ISP Point-of-Presence (POP) using router solutions.

All P2P protocol traffic, regardless of which P2P software application is being used, must pass through these points, where a turn-stile approach such as this would be most effective. This would address the issue of copyright infringers being able to circumvent the use of fingerprinting technology by simply changing P2P software applications.

According to the Digital Millennium Copyright Act (DMCA), ISPs must agree to accommodate and not interfere with content protection measures instituted by industry consensus that do not burden their systems or impose unreasonable costs. Fingerprinting technologies implemented at the POP router level could meet this test, but the path to involve ISPs in this optimal commercial solution would clearly be longer than shorter ones to begin to generate revenue simply by using P2P DRM.

Questions remain as to whether this ISP model would prove feasible on a practical level.  There would be privacy issues as this approach could empower ISPs to censor file traffic on the Internet. Circumvention by encrypting the data while it travels through the ISP would be an issue as well.

Although broadband ISPs have many very significant issues that have to be addressed, in the fullness of time, their business will be better if it includes value-added content-based services as well as high-speed access to the Internet.

Meantime, leading P2P software companies are already demonstrating increasing success in the marketplace by serving as a viable and attractive distribution channel for encrypted and DRM-protected content from artists and smaller independent music labels, without the implementation of fingerprinting.

The major labels could not only be adding that revenue stream, but at the same time helping to displace unauthorized content from redistribution, if they would begin to do business with the P2P firms. DCIA's Members from the P2P software side of the equation are ready to license content from RIAA members today.

They will encrypt it and add DRM protection and sell it through secure payment gateways. They are not suggesting that the industry wait until an effective implementation of fingerprinting be deployed - that can come as part of a later phase. What they are saying is that they will work with music rights-holders to generate new revenue immediately and to make it attractive for broadband ISPs to enter the business and provide even more growth and increased security, using such technologies as fingerprinting implemented in a way that they can be effective.

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