Digital Audio Recordings Of Copyrighted Music example essay topic

The research compiled here will attempt primarily to answer the following questions for the layman: 'What is digital music distribution and why is it significant?" 'Who are the stakeholders in digital music distribution?" and 'What are the primary drivers of the imminent changes in the music industry?" Formal reference material on this subject is in short supply. As a result, opinions, facts, and statements made by stakeholders and industry observers have been gathered from various articles published both in print and on the Internet will be quoted as sources. What's at Stake? Traditionally, music has been recorded to physical media, like CD or cassette now or like vinyl in the past, and distributed to music consumers through retail stores.

'Digital music distribution's imply involves the transport of the product, recorded music, to the consumer via a non-physical, digital method According to Mark Hardie, a senior analyst at Forrester Research, 'consumers want a digital music format that allows a great deal more control of the content they choose... it is inevitable that we will have a music industry that distributes it products digitally". Music recording industry - annual worldwide revenues of $65 billion In 1998, nearly 20 million Americans visited music-related sites 3 In 1999, Americans will spend $35 million on CDs; $1.6 billion by 2002 In 1999, piracy cost $10 billion in lost sales, according to the International Federation of the Phonographic Industry. The future of the industry Economic fortunes Source RIAA 2000 Ten year record sales Source RIAA 2002 MP 3 (MPEG Audio, Layer 3) Fifteen years ago, in 1987, the Fraunhofer Institut Integrierte Schaltungen (Fraunhofer Institute for Integrated Circuits), a developer of microelectronics circuits and systems, began a project known as 'EUREKA project EU 147, Digital Audio Broadcasting'. The institute worked in conjunction with Professor Dieter Seltzer of the University of Erlangen at Nuremberg to produce the powerful audio signal compression algorithm that would eventually become known as 'MP 3'. Without data reduction, digital audio signals typically consist of 16 bit samples recorded at a sampling rate more than twice the actual audio bandwidth (e.g. 44.1 k Hz for Compact Disks).

So you end up with more than 1.400 Megabit to represent just one second of stereo music in CD quality. By using MPEG audio coding, you may shrink down the original sound data from a CD by a factor of 12, without losing sound quality. Factors of 24 and even more still maintain a sound quality that is significantly better than what you get by just reducing the sampling rate and the resolution of your samples. Basically, this is realized by perceptual coding techniques addressing the perception of sound waves by the human ear. A year later, in 1988, the Moving Pictures Experts Group (MPEG) was formed as a working group of the ISO / IEC [International Standards Organization / International Electrotechnical Commission]. MPEG is charged with the development of international standards for compression, decompression, processing, and coded representation of moving pictures, audio, and their combination, in order to satisfy a wide variety of applications.

The membership of MPEG consists mainly of individuals involved in academics or research. In 1989, Fraunhofer IIS patented its compression algorithm in Germany. In 1992, the algorithm was included into the specification produced by MPEG for its standards for 'coding of moving pictures and associated audio for digital storage media at up to about 1.5 Mbit / sec '. In 1993, the specification was published as 'ISO-MPEG Audio Layer 3', thus 'MP 3'. In late 1996, after having applied in early 1995, Fraunhofer IIS was granted patent protection (US 5579430) in the United States for its 'digital encoding process'.

In 1998, Fraunhofer began to contact companies and individuals that were developing utilities based on its source code. Fraunhofer informed the developers about the technology's patent protection and offered to discuss licensing the technology. The encoding and decoding utilities are commonly known as 'rippers' and 'players'. You 'rip' tracks from pre-recorded CDs and translate them into the MP 3 file format by using an encoding utility. The resulting MP 3 files can be 'played' with an MP 3 decoding utility. Diamond Multimedia vs. RIAA The MP 3 digital music format was developed in an open, non-proprietary environment an international standard, really as a basis for the development of storing and playing audio and audio in conjunction with video.

It could easily be compared to the Internet-enabling Transmission Control Protocol / Internet Protocol (TCP / IP) by its intent. These technologies, as well as others, grow out of cooperation among stakeholders for the purpose of elevating a technological field. As such, it offers no inherent protections, such as protections against the duplication of copyrighted material. MP 3's open nature has attracted it a large and growing audience among music lovers. Individual and small-time developers using the standards to create freeware or shareware "rippers" and "players" enabled the availability and increasing demand for music in the MP 3 format. These utilities and music files' easy accessibility to audiophiles and the growing word-of-mouth on the Internet have contributed to a growing commercial market.

Among the products that attempt to satisfy the increasing consumer demand for access to digital music is the portable MP 3 player. In the fall of 1998, Diamond Multimedia Systems, Inc, a developer and manufacturer of multimedia hardware and software for the personal computer, introduced its Rio PMP 300 portable MP 3 player. The device would allow, via a parallel connection with a computer, the storage of 32 megabytes of MP 3 files. This is the equivalent of 60 minutes of high-quality digital music. From the device, the owner can play back the files via headphones, a configuration that draws comparisons to Sony's WalkMan.

The Rio, as introduced by Diamond, would be very simple to use and affordable at under $200. The Recording Industry Association of America and the Alliance of Artists and Recording Companies, two trade organizations that represent various creators, manufacturers, and distributors of sound recordings filed in the District Court for the Central District of California in October 1998 for an injunction preventing the release of Diamond's Rio. The two organizations claimed that the Rio violated the Audio Home Recording Act of 1992 (AHRA). The AHRA regulates the sale of 'digital audio recording devices'. Section 1001 of the act defines such a device as any machine 'which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use'. A 'digital audio copied recording' is 'a reproduction in a digital recording format of a digital musical recording'.

Any device covered by the act must employ a serial copy management system (SCMS) to prevent second generation copying. The sale or import of any such device requires a royalty payment to the Copyright Office. The district court determined that, because it is capable of storing a digital audio file and creating a digital musical recording, the Rio is subject to regulation under the AHRA. In regards to incorporating SCMS into the Rio, the court found that it would be useless.

The Rio copies a file from a computer, but the computer is not subject to SCMS, so applying SCMS to the Rio would not control second generation copying. Further, any harm to the recording industry caused by the sale of the Rio should be covered by the $1 to $8 royalty payments per device. So, though the court did find that the Rio was a 'digital audio recording device', it refused to enjoin Diamond from releasing it. The ruling was appealed in the Ninth Circuit Court of Appeals. Though it maintained that the injunction was not warranted, it further reversed the ruling that the Rio was a 'digital audio recording device' by the definition set forth in the AHRA. The court held that for it to meet the definition, 'the Rio must be able to reproduce, either 'directly' or 'from a transmission' a 'digital music recording'.

It did not, according to the court. In it's ruling, the court said:' In fact, the Rio's operation is entirely consistent with the [AHRA's] purpose - the facilitation of personal use. As the Senate Report explains, ' [t] he purpose of the [Act] is to ensure the right of consumers to make analog or digital audio recordings of copyrighted music for their private, noncommercial use. '. .. The Rio merely makes copies in order to render portable, or 'space shift', those files that already reside on a user's hard drive...

Such copying is a paradigmatic non-commercial personal use entirely consistent with the purposes of the Act. ' Diamond filed a counter suit against the RIAA. Among various claims of anti-competitive practices on the part of the RIAA, Diamond challenges the constitutionality of the AHRA. Given the success of the Ninth Circuit opinion, there is speculation about whether Diamond will pursue this legal course. Its arguments against the AHRA involve First and Fifth Amendment protections, Congress' authority to impose and collect royalties for technology designs, and the 'vagueness' of specific portions of the Act. Brad Biddle, an attorney specializing in digital music issues, calls the counter suit, if successful, a 'significant and rare occurrence'.

He states further that 'In the most extreme result, we may see [the home recording act] go away. ' The 'Big Five " The music recording industry is controlled by a group of five distributors (also called 'labels'. Collectively, in the industry, these companies are known as the 'Big Five'. The companies are Warner / Elektra/Atlantic Corporation (WEA), Sony, Universal Music Group, Bertelsmann Music Group (BMG), and Electric and Musical Industries (EMI). These companies are, perhaps, the largest stakeholders in the battle for the future of the recorded music industry.

They have the most to lose, but can also help determine exactly what that future holds. Like most industries, the recorded music business is facing revolutionary changes because of the Internet. Any retail business model is now forced to consider how it can be re engineered to do business virtually, using 'electronic's hopping carts instead of real ones. A car shopper today can use the Internet to do their homework on price, get insurance rate quotes, and even buy a car online. The ideas for entrepreneurial-minded technology companies, music companies, artists, and individuals are ripe for the picking. How well suited is the 'old guard' to take advantage of these new business opportunities?

The primary strength that large record companies bring to bear is their artist marketing experience. According to Mark Hardie of Forrester Research, 'To take an artist and create a superstar requires sophisticated production and access to other media outlets. You don't create an artist like Madonna simply by releasing music on the Internet. ' A large portion of existing record companies' resources are dedicated to the manufacture and distribution of physical products. The remaining portion of their resources is spread across the functions involving the development and promotion of artists. The large record companies have strong relationships with the traditional, engrained musical outlets, like radio and television.

These companies also have the deep pockets necessary to provide 'guidance, financing, and promotional resources necessary for [artists] to create the kind of quality product worth listening to and to rise above the noise level that the Internet helps amplify. ' There are also weaknesses inherent in the business model that has been evolved among the major record companies. The hardest of those weaknesses to overcome will likely be the companies' bureaucratic reputation. Outspoken critic of traditional record companies, Chuck D of the group Public Enemy, says, 'Major record labels are like dinosaurs. They move slowly.

Our album 'Bring the Noise 2000' was slated for a March 1998 release, but Poly Gram slept on it". Many artists and industry observers also call into question the terms of many contracts with artists. Traditionally, artists are asked to sign over the rights to their songs and make very little of the profits. The record companies argue that the terms are reasonable, given the resources that they must employ, to get an artist's song played on MTV, for example. If these companies are to survive and thrive in the new industry, they will need to combat these weaknesses. The range of opportunities that the traditional record company faces is enormous.

As stated above, the majority of the resources of most record companies are employed in the manufacture and distribution of physical products. Digital music distribution renders this portion of their business model obsolete. The forward-looking company will marshal those resources and redeployed them to their more useful and fruitful efforts: artist development and promotion. Al Azz oli, co-chairman of Atlantic Records, says that digital music distribution is 'only going to make us more profitable'. Atlantic is executing an ambitious e-commerce strategy.

Another opportunity faced by the traditional record company is time. Although the pace of change is rapid with the rise of the Internet, it is important to keep in mind that only 25% of American households have a personal computer. 3 Until easy-to-use, non-computer, Internet-ready appliances, such as public kiosks and the like, are widely available, traditional retail music outlets will do a brisk business. Finally, the still-daunting sizes of currently available music files on the Internet will slow digital music distribution's growth. Current modem speed limitations require easily an hour to download the music that is now sold on a CD. However, the growth in sales of higher bandwidth Internet connections will speed this pace.

Given so many opportunities, what are the threats to the traditional record companies' continued dominance of music distribution? Digital music distribution, as it stands now, will likely offer much thinner profit margins. Chuck D says 'a major label makes a CD for as little as 80 cents, then sells it wholesale for $10.50 so retailers can charge $14 - that's highway robbery. ' He gloats further, 'the true revenge will come when the major labels start dropping their prices. ' If consumers are able to use inexpensive technology to buy just the tracks they " re interested in and to create their own CDs and play lists, you can assume that they won't pay $14 for it. The key to that $10 margin is manufacturing and distribution that will eventually fade.

Finally, but most importantly, is the number and varied sources of competition for dominance. Competitors include 'anyone who is in the business of distributing information digitally... [record companies] face competition from a broader base'. Piracy, or the illegal copying and distribution of copyrighted works, has been the traditional record company's battle cry for slowing the pace of change. It is certainly a problem. In 1998, piracy cost $10 billion in lost sales, according to the International Federation of the Phonographic Industry.

The industry's best effort to address this growing problem, made more convenient and prevalent by the rise of digital music distribution, is the RIAA's Secure Digital Music Initiative (SDMI). SDMI is an effort to combat the main impediment to more traditional music companies' making their products available online: security. 'They have not been running to make their products available online [because] doing so is an invitation to being stolen... they want some assurance that the music will be secure before going down that road', says RIAA general counsel Cary Sherman. With the small company SDMI, the RIAA intends to create a technological framework for people to buy music online, for piracy to be abated, and for companies to thrive. Though there is some doubt as to the actual motivations of the RIAA (given that it represents 'big record labels scared silly of losing control and revenue'), the current framework for digital music distribution is certainly not intellectual property-friendly. The development of a secured method of facilitating electronic commerce among the producers of music and the consumer and preserving copyrights is the key to tremendous cost savings and profits.

A fundamental tenet of the traditional music industry will remain unchanged in the future: 'whoever has the goods, top artists with loyal followings, inventive ways to serve the music up, reasonable pricing, an easily navigated site - will prosper', according to Dave Salvador, artist and digital music writer for ZDnet's online 'Fresh Gear'. On July 13, the SDMI released its 'Portable Device Specification Part I, Version 1.0'. The specification 'contains functional requirements for portable devices and associated applications, thereby providing a protected environment for digital audio content. As such, it provides a framework for music creators and manufacturers of applications and devices to develop new products and services for the electronic delivery of digital music to customers. Compliance with the specification is entirely voluntary.'s DMI-compliant devices will play all 'legacy' (pre-SDMI) music, as well as new music released in SDMI-compliant formats. The new SDMI-compliant devices will be introduced in two phases.

In Phase I, devices will allow consumers to play both unprotected and protected content. Phase II begins when a new 'screening' technology is adopted to filter for pirated music. Consumers will be able to easily upgrade their Phase I devices to Phase II technology. Bob Kohn, coauthor of Kohn on Music Licensing and the chairman of Good Noise, an online music distributor, says, 'The RIAA is trying to make every attempt to maintain control over the distribution of music in the United States,' and that the initiative 'is nothing about piracy and everything about control.

' Kohn and other critics of the initiative point to a 'shift of power from those big five companies to the consumer and the artists. ' Michael Robertson, CEO of MP 3. com, finds the initiative 'rather interesting... in the SDMI press conferences they talked about an open standards sort of approach... when you " re talking about open standards, there's only one... MP 3. There are no other open standards. So I think it's a bit of a challenge for them to reconcile the fact that an open standard lets everybody compete on generally equal footing, no matter how big or small. ' Richard Doherty, director of research at the Envisioneering Group, predicts 'The SDMI will be trampled by technology before the year is out.

' The 'New Guys " The changing landscape of the music business is breaking apart old models of doing business. The changes are allowing individuals and entrepreneurs to step into the cracks in the facade of mainstream music distribution, ask questions, and provide new solutions. What strategic advantages do these new companies have and what challenges do they face? The primary advantage enjoyed by a new music company is an economic one. With digital distribution, a traditional barrier to entering the market is gone.

A new company does not have to establish major production and distribution facilities. There are fewer, if any, CDs to press and few retail outlets to finance. There is also no existing infrastructure that these companies have to dismantle, unlike traditional companies. Another advantage is the opportunities and business models that the Internet offers. According to Hilary Rosen, President and CEO of the RIAA, 'the Internet cracks the channel wide open for record companies, and with many more distribution opportunities, record companies have other ways to distribute their artists' product and much more precise methods for targeting the ideal customer for their music. More revenue opportunities means more abundantly available, affordable music.

' Finally, new record companies get to right the new rules. They have the 'first-mover' advantages. They get to establish a beachhead while the 'big guys' try to catch up. They have the momentum of e-commerce, which has changed and is changing many industries fundamentally, behind them. With 'dot com' behind your name comes venture capital. MP 3. com was given an $11 million shot in the arm in early 1999 from Sequoia Capital and idea lab.

The company will use the money to shore up its technical infrastructure and to expand the services that it offers artists that sign with them. The picture's not all rosy, though. These newcomers to the recording industry will also face a variety of challenges to their efforts. Though these companies can move swiftly, they lack experience and established relationships in traditional promotion methods, like radio and television.

It will be an uphill battle to gain respect among these outlets and to gain a reputation that will attract top talent. As Hilary Rosen stated, the Internet has started a virtual land rush to stake a claim to digital music distribution. All the newcomers have essentially the same advantages. They also all lack revenue to re-invest in themselves. They will have to use trial-and-error with methods such as subscriptions, advertising, and merchandising to establish revenue streams that will sustain ongoing operations. Clearly the recorded music industry is undergoing a transformation.

What does the new landscape hold in store for the creative source of the product at the center of the industry? Do the advantages favor small artists or the established artists? Fundamental questions are being asked about ownership of copyrights, promotion, and profits. Artists of all shapes and sizes, from FlashPoint to Tom Petty are enjoying a set of advantages that only digital distribution brings. These artists can use technologies (MP 3 and others) to produce and disseminate promotional recordings to whet the appetites of consumers at very little cost. According to Chuck D (of Public Enemy), an artist will no longer have to depend on 'a song and a video, the Net will bring back live performances.

Artists will be able to release a song every two weeks, instead of waiting six, seven months for a label to put it out. A band can become like a broadcaster. ' Artists have long complained about the unfavorable terms of the contracts under the control of major record labels. Look for substantial changes in those terms. A deal with MP 3. com's record label, for instance, involves no start-up fees, no monthly fees, the artist retains the copyright on their music, and the artists keeps half of the profit from every CD they can sell.

As for privacy concerns, at least one artist seems unaffected. 'To the pirates, I say the more the merrier. Success comes from the fans first - if someone is going to pirate something of mine, I just have to make sure to do nine or ten new things. I mean, you can't download me. ' Other artists are choosing to wait. They want to see clearer answers to the security standards question before they commit.

Digital music distribution offers a few special advantages to up-and-coming artists. Hilary Rosen, head of the RIAA, said this of the Internet's effect on music: 'The human landscape includes artists, business people, brilliant musicians, talented promoters, creative marketers, and shrewd financiers working together to bring consumers new music. And then there is the exceptional hybrid, the one-man-band who has the ability and inclination to combine these pursuits. The Net creates a marvelous playing space for such entrepreneurial artists to develop their own micro labels and business models on the Web.

' Consider this case study. Atomic Pop, headed by the former chief of MCA Music, is introducing and promoting the band FlashPoint on the Web. The 9-month-old punk band is currently touring with Ozzfest. Atomic Pop will use news, photos, and audio and video clips from the tour to create buzz for the band on its Web site in hopes of inspiring sales of the band's first album piracy issue.

They want to 'do something that brings power back to into the hands of people... the ability to download songs does that. I don't care if some kid makes 20 copies of a song. We " ll just write more songs. ' For major artists, digital distribution offers the ability to reach fans directly. It also offers new opportunities for revenue.

Ten thousand of David Bowie's fans are willing to pay a subscription for access to the artist's online community. There, they can access every song he's ever made, contribute lyrics for his next album, and get an inside look at the production process., On the Verge. Olli Luttgenau, the band's leader, likes the trade-off between signing and getting exposure with a big label and the control of the band's destiny with Atomic Pop. Big labels, he says, will 'give you a huge advance, and wine and dine you... while they " re giving you 12 [percentage] points on a record. ' Atomic Pop, on the other hand, encourages the band's involvement in production, promotion, and sales. If the album doesn't sell, FlashPoint doesn't get paid.

The band also dismisses the It is an easy argument to make that the consumer is the clear winner in the battles ongoing for standards, rights, and dominance in the music distribution industry. As long as none of the players do battle ask that the consumer give up rights, the eventual outcome will likely favor the consumer. The expanded access to new and different types of music, the array of sources and outlets of music, and the more appropriately priced products will be some of the most important consumer gains to come out. Hilary Rosen, head of the RIAA, says the following about the consumer's current and future choices in the market:' The array of music posted on the Internet today is like a giant yard sale - loads of stuff that's cheap or free. To the extent that music merchandising happens at all, the selection is like a giant food court at the mall, where nachos and pizza and corn dogs and teriyaki burgers - anything you want - are out there on the steam table, and you have to sort through it to find something you want. On some days that might suit your time, taste, and budget".

But on another day, you might want to go to a restaurant that has some ambiance and puts some care into the 'packaging' of your experience. The menu is carefully composed, the food is high quality and attractively presented. People seem to be willing to pay for that careful, discriminating packaging. Here again human nature prevails over chaos, quality over quantity". When an artist and a record company work together to package an album or song and deliver a unique artistic vision, or when a retailer creates an in-store or home page display of little-known blues singers recommended by a major hip-hop star, this is not a matter of big business skimming profits or homogenizing public taste. This is marketing and promotion that adds value and vigor to the creative community.

It showcases artists and lights a path for the consumers. It creates a connection among people who can easily identify and navigate among musical choices and genres, creating shared listening experiences. ' Regarding piracy, many players consider it a simple matter of supply and demand. 'If nothing the consumer wants is available in the format in which they want it, you " re going to have piracy,' according to Gene Hoffman, president and CEO of Good Noise. 12 An interesting comparison drawn to music copyright violations is book copyright violations. A book's publisher cannot dictate how the book is used after its sale, according to the 'First Sale Doctrine'.

The judicially established rule stipulates that the author of a piece of content relinquishes control over the use of the content once it is sold. Price is another key win for the consumer. With most traditional record companies' cost structures changing, lower prices are sure to follow. Companies may worry that a customer's downloading an MP 3 file might preclude the purchase of the song on CD. That theory doesn't seem to hold. According to Gerald de Melo, a consumer with a Web site dedicated to the legal issues surrounding the MP 3 format, some people 'use MP 3's to 'try before you buy'.

They wouldn't have considered buying certain CDs if it wasn't for MP 3's. ' According to Michael Robertson, CEO of MP 3. com, 'we had a chance to meet with one of the larger retailers for [the Rio MP 3 player], and we asked them, 'Hey, do you know what people are buying when they come into your store and they buy a Rio, what other things are in their shopping cart?' They did a report and what they found out was that the average person buying a Rio bought five CDs at the same time'. That would not indicate that digital music distribution is driven wholly by the consumer preference for free content on the Web.