Online music interests converge at Senate hearing

The hearing attracted a huge crowd, including many young people, who filled up the standing room at the back of the committee's hearing room. The recording artists Don Henley, representing the Recording Artists Coalition, Alanis Morissette and Chuck D were among the witnesses testifying. Shawn Fanning, who founded Napster, also was present.

Questions posed by committee members revealed mild frustration over Napster's current inability to fully protect copyrighted material despite a court order that it do so, and they questioned the time it is taking the music industry to offer a legitimate subscription service with a broad catalog of music that will meet consumer demand. But in general, committee members seemed willing to continue in their oversight capacity and allow the various parties to try to resolve their differences in court and elsewhere rather than step in with proposed legislation.

The senators also seemed gratified that on the eve of the hearing some of the pressure they have put on the recording industry to come up with a digital music system with copyright protections in place apparently helped motivate three of them -- Bertelsmann AG, EMI Group PLC and AOL Time Warner Inc. (AOL) -- to announce a deal Monday with RealNetworks Inc. to develop a platform for online music subscription services. [See, "UPDATE2 - RealNetworks, EMI, AOL, BMG in online music deal," April 2.]Richard Parsons, co-chief operating officer of AOL, told the committee that MusicNet, as the effort is called, "ushers in the era of secure, convenient, interactive mass music distribution that consumers demand." Music by artists signed to record for Bertelsmann, EMI and Time Warner will be licensed to MusicNet, and AOL in turn will distribute it, Parsons told the committee.

The service will start with three of the five major record labels, but its objective is to get the music catalogs of all five into its ranks, and possibly Napster, too, so that it will have the broadest possible online music offering. Deals will be made with the smaller independent companies as well, Parsons said. But when asked when the service will be available, he admitted software is still being tested to find an appropriate digital rights management system to make the service work.

"AOL is looking to market the service in late summer or early fall," Parsons said.

The MusicNet deal is not the only development in the online music debate since last time the committee met on the subject of online music sharing in July. Significantly for Napster and its estimated 60 million members, a U.S. District Court in San Francisco ordered the service to block copyrighted files, and Napster has begun taking steps to comply, Napster Chief Executive Officer Hank Barry told the committee.

However, Sen. Patrick Leahy, a Democrat from Vermont, said only a few days ago he was able to find songs by Lenny Kravitz, Marvin Gaye and Henley, "just by typing in the appropriate line" and he said he suspected the artists hadn't given permission for it to be available through the system.

In response, Barry defended Napster's compliance thus far with the court order issued last month, saying that the total number of files available has been reduced from 375 million to 100 million and the number of songs blocked is about 300,000.

Barry also reminded the committee that Napster's architecture allows songs to be downloaded from other users, with the Napster server acting only as a directory of songs that are available. But he admitted that songs are still available through the server that shouldn't be there.

"The challenge ... is identifying all the files as people are logging in, blocking the ones that should be blocked and, in general, when people are not acting appropriately with respect to the rules of the system, removing those people from the system," Barry said. "We blocked over 750,000 people from participating. I don't think it's good enough; we are working on it every day to make it better."

Napster has complained that another hurdle it faces is getting the record companies to offer licenses, and when asked about this problem, Ken Berry, chief executive officer of EMI, said his company has been in conversations with Napster but no deal is expected in the immediate future. The label is waiting on a commercial model that will make it a legitimate business, he said.

Sen. Charles Schumer, a Democrat from New York, said Napster's inability thus far to protect all copyrights is not encouraging news for recording companies that might want to sign licensing deals with it.

"I would like to see the technology you have started prevail, but if you are doing that (violating copyrights) maybe you shouldn't be the one sitting at the table making the deals," he said.

Barry also pleaded with the committee to consider passing a law that would establish a compulsory licence similar to those paid by radio stations for transmitting music over the Internet. Such a move would be appropriate because users of the music-swapping service trade music for noncommercial purposes, Barry said.

But none of the senators showed any enthusiasm for such a scheme.

"I would hope we can do this without having a compulsory licence situation," committee Chairman Orrin Hatch, a Republican from Utah, said.

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