Music giants fight a corporate war online
April 14, 1999
by Lessley Anderson
(IDG) -- Universal Music Group and BMG Entertainment, two of the "big five" record labels, announced a new Web venture last week, and they poured on the hype. A press release went out advertising a press conference for a "major Internet announcement in the media business" the amusing effect of which was to spur rumors about a linkup of America Online and CBS. Celebrity mogul Edgar Bronfman Jr., CEO of Universal's parent company, as well as BMG Group Chairman Thomas Middelhoff, appeared personally to talk it up. The partnership will launch a site, GetMusic.com, aimed at promoting the labels' artists and selling CDs online.
That was all well and good: The formation of GetMusic.com arguably was something of a milestone in the music industry's painful crawl into the Internet age.
But neither Bronfman nor Middelhoff, nor anyone else at the press conference, had much to say about the dramatic behind-the-scenes developments that are currently shaping the future of music.
Prodded into action by the lightning proliferation of the MP3 music format and the piracy that has gone with it, music companies are struggling desperately to develop a feasible method for distributing digital music securely. This effort is supposedly centered on a process known as the Secure Digital Music Initiative, launched last December by the music industry's lobbying group, the Recording Industry Association of America.
But what's really going on is a good old-fashioned corporate power struggle. It involves IBM, Microsoft, AT&T, Sony, Matsushita and Time Warner, as well as BMG, Universal, EMI and a host of smaller companies. And it's ultimately not just about how consumers will buy music, but how they'll buy movies and computer software and just about anything else that can be delivered in digital form.
Few in the business are willing to talk on the record about what's going on. And since the battle is still at an early stage, the dynamics are shifting almost daily. But key alliances are forming. And almost everyone is scrambling to figure out where they'll fit in. Here are some of the most important new developments.
What does all of this mean for the RIAA's much-touted SDMI process? Leonardo Chiariglione, executive director of SDMI who was appointed to the post largely because of his success in shepherding the contentious MPEG standard remains optimistic that a consensus on digital music distribution can be reached. This week, the group intends to finalize "Version 0.1" of its specification.
"Why the low number?" asks Chiariglione. "Because at the moment we have nothing."
Almost everyone in the business agrees that it will be some time before any secure digital-distribution system is widely used. Such systems are complex to implement, requiring software on the client side, software on the server side, expensive development tools and intermediaries to collect payments, among other things. And additional hardware components will be required if they're to be truly invulnerable to hackers.
Consumers may also reject bulky, supersecure systems. The beauty of MP3 is that it's extremely simple to use. Some suggest that no matter what the labels come up with, freely traded MP3 files are still going to be everywhere.
But the stakes for the recording industry and, eventually, for the movie industry and other businesses as well are huge. Today, BMG and Universal may only be using their new site to promote artists and sell a few CDs. Yet, they and the other labels clearly understand that digital distribution will happen eventually, and that it threatens the companies' control over the business. How this all unfolds will be the biggest behind-the-scenes topic in the music business for some time to come.
Digital Music Dictionary
MP3: Stands for Motion Picture Experts Group-1 audio layer three. Developed in 1991 by the Fraunhofer Institute, a German research firm, it's become the file format of choice for garage bands and CD-ripping pirates.
RIAA: The Recording Industry Association of America. The special-interest group that represents the "majors": Universal, BMG, Warner Bros., EMI and Sony.
SDMI: Secure Digital Music Initiative. Launched in December by the RIAA in order to decide on a method of "secure" digital music distribution to protect the labels' content, and combat the proliferation of MP3.
DRM: Digital Rights Management. A system that specifies and implements the way digital music will be used. DRM would allow a record label to specify whether a track is available free or for a price, for a limited time only or for an unlimited time.
MS Audio 4.0: Microsoft's new file format. It will compete with MP3.
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