An Introduction to the Musical Copyright and the Internet -An Exploration of the Digital Music Market Place

01 Nov 2000

BY: Ms. Ute Decker
The changes and challenges faced by the music industry are one of the favorite subjects featured in articles on cutting edge Internet trends printed in newspapers and journals almost everyday. While according to some forecasts, the music industry is dead and done others stress that the music industry will be the first - if not the greatest - beneficiary of the digital revolution.

One thing is for sure: The effects of the Internet on the creative sector are growing and music as content is among the front-runners preceded only by software. The phenomena the music industry faces ranging from systematic piracy to thriving business opportunities will - due to growing bandwidth and 24-hour Internet access - be felt soon by most other content providing sectors and can, therefore, function as an interesting example for the copyright world.

The development of the Music Market
The new phenomena on the music market basically fall into three different groups: (1) New formats, (2) New business models, (3) New piracy threats.

New Formats
New disc formats. On the production side, recorded music still is manufactured and distributed largely on mass-produced physical media. Sometime this year, we should start to see disc production in the 'DVD-Audio' format, a new format similar to the DVD-Video discs now used by the film industry. Also underway is the Super Audio CD (SACD) format. All of these discs will hold a much greater amount of data than CDs, and, therefore, can support a greater number of recorded tracks, and/or a much higher quality of sound together with accompanying information, e.g. about the background, the artists and composers, interviews and pictures. Another development is the widespread distribution of CD-R media and burners that enable consumers to burn their own CDs at home.

New compression and broadcasting formats
Similarly, new compression formats are evolving in the recording industry. A long established and well-known one is the "MP3" compression format. MP3 allows digital data to be compressed to 1/12 to 1/24 of its original size, depending on the sound quality desired. This technology permits digitally recorded music to be stored in new and much smaller memory units, such in computer files or in a dedicated MP3 player. Even more sophisticated compression standards are under development at the MPEG group and elsewhere. Similarly, as broadcasting signals migrate from analogue to digital formats, new standards are evolving for digital audio broadcasting and digital video broadcasting.

New Business Models
Customized CDs: At the retail level, record stores have started to install kiosks that allow consumers to pick their desired tracks and have a CD made containing their own particular compilation, with the record producer's authorization. Larry Kenswil, president of Universal Music Group's eLabs, predicted recently that in ten years' time more than 25% of music sales will be generated by in-store kiosks.

On-line CD sales: Also springing up are retailers that allow users to order physical CDs through the Internet, and have them delivered by mail (see e.g.,,,

On-line track downloads: Legitimate download sites are developing slowly but surely on the Internet. These allow a consumer to select individual tracks of recorded music, pay for them by credit card or other payment mechanism, and download the tracks to his or her personal computer or portable music device for permanent use. This has obvious appeal to individual recording artists or small production companies, as it is a very inexpensive way to get into the recording business. Some new '' companies are signing up new musical talent and making this their only business. See And major producers are experimenting with various types of downloads as well. e.g.

Interactive music services: A host of new interactive services are being developed, and traditional forms of radio and television broadcasting are under increasing pressure from new and competing communications services that offer streaming audio by a variety of means. As an initial matter, traditional broadcasters themselves are increasingly looking to the Internet as a place to expand their own businesses; some have already started 'simulcasting'—converting the output of their broadcast stations to a format that can be communicated over the Internet. New 'webcasters' are springing up that are not connected with a traditional broadcaster at all, but that offer their own custom programming only over the Internet. Multi-channel subscription, near on-demand and on-demand transmission services are evolving particularly in Europe, North America and Asia.

New Piracy Threats
Digital ways of use have enabled new piracy threats that call for both practical and legal reactions. I will touch upon this only shortly because it is the subject of another panel.

CD-R backroom piracy: The general availability of CD-R media and burners has lead to backroom piracy that ranges from the burning of CDs "for friends" to systematic piracy on a commercial scale.

MP3 as a basis for infringing dissemination of music: The high compression factor of the MP3 format combined with acceptable sound quality has brought transmission and download times so far down that the exchange of sound files is turning as frequent and commonplace as the exchange of (other) emails.

Filesharing Protocols such as Napster and Gnutella enable any user of the Internet to open his hard drive to the world. The ease of this transmission has lead to the casual dissemination of infringing music files - the only other content disseminated in this context is pornographic material - oblivious to the illegal character of such activity and the harm done to all rightholders including artists, authors, and producers.

Legal implications
Among the many legal implications I will highlight the two most important ones:

First, the scope of exclusive rights must adapt to the changes in the ways of use. Whereas in the past the primary market of the music industry was in the reproduction and distribution of solid sound carriers, the primary means of pleasing a customer and delivery of content is turning liquid. Music will be delivered in streamed format, via downloads, in installments, and on the basis of subscription. Services on the Internet do not only create a demand for music on demand anymore but also actually have the potential to fulfill it. The strictness of the distinction between tangible and intangible use has lost its justification. Consequently, the WIPO treaties have introduced a new exclusive right in order to cover the making available of works on-line. The WCT gives this new right both to producers of sound recordings and performers of musical works.

Second, meaningful protection for technological measures and rights management information is necessary. Almost all business models for the dissemination of any content on-line rely on the employment of technological measures of protection. Technological measures are the basis for subscription-based and other interactive music services, interactive download services, and DVD audio. Such measures may take the form of encryption or password based access control and its most basic forms are well known already. The more sophisticated such measures get, the more they will be tuned in to the consumer's preferences. These technological measures enjoy in most territories a patchwork of limited protection already. Following the WIPO Treaties, more and more countries succeed in the introduction of comprehensive and meaningful protection but in most countries this crucial protection is still missing. The same is true for the protection of rights management information, which is the basis for electronic rights management systems and convenient on-the-spot licensing.

The WIPO Treaties negotiated and passed in 1996 deal - among other things - with those two issues and are of vital importance to all players on the digital music market. The ratification of the Treaties is steadily proceeding - 17 countries have ratified the WCT and 15 have ratified the WPPT at the moment and the number is growing by the week. More and more countries including the US and several Central European countries have already changed their legislation to adapt to the digital agenda. Even the European Union and with it its fifteen member states is moving closer to the completion of what has turned out to be a long and complicated legislative process. These changes in copyright, which are a necessity for well-developed countries, are a chance for lesser-developed countries to boost electronic commerce in their region and to put up a highly visible sign of their willingness to support the development of their creative industry on their territory.

Initiatives of the Music Industry
The main challenges for the private sector is the development of new business models and adapted licensing schemes. But as the digital environment poses new risks along with new opportunities, a new initiative has been launched by the music industry several years ago that has by now developed into a well functioning and efficient platform for the development of a secure environment for the marketing of music in a digital environment - known as the Secure Digital Music Initiative (SDMI). The solution is seen in the development and application of sophisticated technology in a cross-industry discourse.

The recording industry is seeking to create a secure trading environment through the use of technological measures, while at the same time ensuring that fans can enjoy music in as many reasonable ways as possible. In this spirit, the recording industry has worked with other industries to create the Secure Digital Music Initiative (SDMI).

SDMI includes a wide range of companies of all sizes and profiles from the consumer electronics, computer, security and recording industries. They meet regularly to develop specifications for music systems. The first priority was to address the developments in portable players that have been made possible by new semiconductor technologies coupled with music compression. Anyone who has used these devices will understand their appeal as lightweight, lower power and reasonable sound-quality units. However, they also encourage piracy, as they can play illegal music files that have been downloaded from the Internet.

Eventually, a consensus between the SDMI participants emerged. The recording companies agreed that they would not seek technical protections for certain tracks already released for use on MP3 players. The hardware and computer companies agreed that they would protect music offered over the Internet. All agreed that music taken from a CD or other source should have some minor limits to prevent the more blatant forms of piracy.

This does not mean that record companies will tolerate pirated music on the Internet—indeed IFPI regularly closes down sites where the owners ignore or do not understand that posting music without permission is illegal. Nor does it mean that record companies will not develop future technologies to prevent illegal copying of music over the Internet. As a reaction to piracy, SDMI is working on a "screen" to prevent such music from being played on an SDMI player.

Initiatives are also underway in Europe, North America and Asia to devise technical systems to monitor digital utilization of works and phonograms, to detect infringements, and to identify works, phonograms and different rights holders. Essential to the effective utilization of information technology in licensing are internationally compatible systems of identification, 'tattooing' of protected materials, and electronic copyright management and control systems negotiated among hardware, content and telecommunication service providers.

The recording industry is facing a situation very different from its past. New disc and equipment standards, new encryption technologies, custom-made CD kiosks, and interactive transmissions of music in many different formats dramatically change the way that people enjoy music. Copyright needs to adapt in a number of ways to keep pace with these exciting developments. The WIPO treaties guide the way for adapting international copyright and related rights to the Global Information Society. They are critical for creating a legal environment in which producers can protect phonograms against infringement in information networks, and develop diverse licensing schemes for on-line exploitation of phonograms. The treaties have created a firm link between intellectual property rights and the use of technological measures to control and administer the exercise of those rights.

The Digital Music Market is driven by an immense potential of creative energy, investment, consumer demand, business ideas, and a thriving sense of new opportunities sadly accompanied by criminal energy in the ugly old melange of pornography, piracy of intellectual property rights, and other fields of organized crime. Both the private sector in the pursuit of its initiatives and the legislators in the creation of the legal framework have the chance and the responsibility to make this opportunity work.

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