Industry ponders cures for digital music slump

Despite the digital music industry's stagnating growth and the upcoming breakup of its host, Jupiter Media Metrix Inc.'s "Plug In" digital music conference returned Monday for its seventh annual showing here, featuring a lineup of familiar industry figures discussing the distribution and legislation issues that have for years plagued the sector.

This will be the last Plug In run by the current incarnation of Jupiter Media Metrix. Created two years ago through the merger of research firm Jupiter Communications Inc. and Internet traffic measurement firm Media Metrix Inc., the company is in the process of dissolution after losing more than US$500 million in 2001. Competitor comScore Networks Inc. agreed in early June to buy the company's Media Metrix measurement business, while publisher INT Media Group Inc. announced several weeks later a $250,000 buyout of Jupiter Media Metrix's research and events operations.

INT Media Group Chief Executive Officer (CEO) Alan Meckler opened this week's show with the news that his company will shortly rename itself Jupiter Media and preserve Jupiter Research and Jupiter Events.

The same downturn and changing business environment that killed Jupiter Media Metrix is afflicting the still-nascent digital music industry. Revenue for the sector in 2002 will total $900 million, Jupiter forecasts, the same total it calculated for 2001. The company has revised downwards its future growth estimates for the sector: At last year's Plug In, Jupiter predicted U.S. consumer online music spending would reach $6.2 billion in 2006. Its current five-year projection calls for spending to grow to $5.2 billion by 2007.

The digital music industry has changed significantly in the past year: At 2001's show, industry-backed subscription services MusicNet and Pressplay discussed their pre-launch plans and Napster Inc. named a new CEO, who hailed Napster as a brand that "cannot be killed." Now, Napster is bankrupt and MusicNet and Pressplay are struggling to draw customers to their available but limited services. They're also under investigation by the U.S. Department of Justice for possible anticompetitive practices.

Among the biggest flaps of the moment at the usually tumultuous intersection of music and technology is the U.S. Copyright office's Copyright Arbitration Royalty Panel's (CARP) recent determination that Web broadcasters should pay a per-song, per-stream royalty. The recommended rate has already been cut in half from the panel's initial recommendation, to 0.07 of a U.S. cent, but even that is unacceptable, said Congressman Rick Boucher in a keynote address Monday morning.

Boucher, a Democrat from Virginia who has been a U.S. House of Representatives point man on digital media and Internet commerce issues, termed the CARP decision "inappropriate in the extreme" and called for an overhaul of the entire "truly broken" CARP process. The proposed royalty rates were unfairly set by a panel lacking the expertise and reliable data needed for a reasonable decision, he said, and will have a devastating effect on fledgling Webcasters.

Boucher said he is teaming with Representative Jay Inslee, a Washington Democrat, to introduce this week legislation to defer any requirement that small Webcasters make royalty payments. Boucher offered no further details of his plan, but said he hopes it will delay any payments owed until a new fee structure is in place. More flexible payment plans, such as sliding fees based on a Webcaster's gross revenues, will better spur the industry's development, he said.

In a later keynote, Recording Industry Association of America Inc. (RIAA) Chief Executive Officer Hilary Rosen said she's doubtful Boucher's bill-to-be will pass. The RIAA has already expressed its approval of the CARP's initial decision and dismay over the subsequent reduction of the proposed royalty rate for music Webcasts, saying the lower rates don't reflect music's fair market value. In response to an audience question about the consequences of steep fees on small broadcasters, Rosen suggested that broadcasters without the resources to pay the proposed fees shouldn't be in the market.

"This is not about mom-and-pop (businesses) versus big corporations. This is a business model issue," she said. "This is something that should be anticipated when you build a business."

Boucher also used his keynote to tout another piece of intended legislation, the Music Online Competition Act (MOCA) he co-authored last year and hopes will pass before the end of this one. MOCA is aimed at tweaking various aspects of the U.S. Copyright Act with updates Boucher said will sensibly adapt the act for new, high-tech uses.

Rosen and other executives disputed his proposed legislative remedies for the industry's ills.

"No legislation that gets passed this year is going to help anybody in this room, because for everything they give you, they're going to take something away," Rosen said, referring to the U.S. Congress.

EMI Recorded Music (a unit of EMI Group Plc) Vice President of New Media Ted Cohen said MOCA and other plans of Boucher's to spur industry competition and growth are unnecessary.

"What he's envisioning through legislation, we've already gotten there through negotiation," Cohen said during a panel discussion on subscription music services.

Fellow panel member Chris Gladwin, CEO of FullAudio Corp., used his time on the stage to announce an alliance with ISP (Internet service provider) EarthLink Inc., which introduced Monday a FullAudio-powered subscription music offering for its nearly 5 million subscribers. The service features access to 75,000 songs from several major labels, with monthly fees starting at $9.95 for 50 track downloads.

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