Why record labels still squirm

A court ruling this week threatens the Internet's most popular music-sharing site with shutdown at midnight tonight, yet experts say the case is only a wakeup call in a much larger conflict: the entertainment industry's struggle to adapt to the wired digital era.

The Internet has been reshaping American industries in recent years, moving through banking, investing, and retailing, to name a few.

Now, it's entertainment's turn, and there are signs aplenty that the industry's legal victory over Napster Inc. won't end the spread of mouse-click piracy.

"A huge collision is going on," says Shane Ham, a New Economy analyst for the Progressive Policy Institute in Washington. And, he adds, "this collision has not been headed off by this court decision. It is just the first step in a very big battle."

A federal court this week ordered Napster to stop enabling the trading of copyrighted material from the major music labels, including A&M Records, Sony Music Entertainment Inc., BMG Music, and others.

Napster, based in San Mateo, Calif., argued that it does not violate copyrights, because its Web site does not officially distribute music, and its users do so for personal, not commercial, use.

US district Judge Marilyn Hall Patel soundly rejected that argument, and called for the site to clamp down on the practice by midnight tonight. Napster will appeal, and a full trial is set for later. Many wonder if the profitless startup can survive the legal fight.

Whatever Napster's future, though, the threat posed to the entertainment industry by the Internet's ability to copy and distribute artistic material is expanding daily, say analysts.

"Napster is just the first alarm bell," warned Peter Chernin, president of News Corp. and Fox Entertainment, in a speech this week to the Center for National Policy in Washington. "A growing number of powerful programs ... do exactly the same thing in a variety of different media."

The entertainment industry's mushrooming challenge is evident on a number of fronts. In recent days, the Motion Picture Association of America and others have sued Scour.com for doing to movies what Napster has done to music.

While free downloading of movies is far less popular than music at this stage because of the greater downloading capacity it requires, no one doubts that as the bandwidth capacity of computer Internet connections expands, so will the ability to pirate movies.

The digital world is also beginning to rattle the book business. This week, novelist Stephen King leapfrogged the traditional publishing model by taking his latest work directly online.

The software industry, too, feels a growing threat from pirates who crack the codes of popular computer games and make them available for free. And as evidence of the seemingly endless allure of breaking digital barriers, a Norwegian teenager has sparked a lawsuit by cracking the encryption code for digital video discs, enabling piracy just as DVD movies are gaining popularity.

The entertainment industry itself has a tradition of reacting slowly and with hostility to technological innovations, say experts, pointing to industry's dire predictions when audio cassettes and VCRs were introduced.

And in developing new ways to distribute music digitally over the Internet, the industry has been "way behind on this stuff," says Martyn Collins, director of legal affairs for Noir Records.

But the recording industry is on the move now, with big labels beginning to introduce music that can be downloaded directly via the Internet and played through computer speakers - at a cost or only for limited sampling.

The industry has also launched what it calls a Secure Digital Music Initiative, aimed at developing encrypted digital music that would be protected from unauthorized use.

Still, some believe that whatever the industry does, the toothpaste is out of the tube and controlling copyrighted material on the Internet is impossible.

Already in the wings, software like Freenet and Gnutella make free exchange of digital music possible and legal pursuit much harder. These pieces of free software are not run through any central Internet server, nor is there any corporate entity for the music industry to go after. Both follow a long Internet tradition whereby people develop software and, essentially, throw it up on the Net for anyone to use or improve upon.

Mr. Ham of the Progressive Policy Institute predicts that applications like Freenet and Gnutella will appeal only to a small cadre of Internet experts because they are more difficult to use.

He suggests the entertainment industry will learn to accept a low level of pirating with such applications and focus on keeping larger, more user-friendly sites like Napster out of business.

But succeeding in the courts will only be part of the battle, analysts predict.

Some industry leaders, like Chernin, are already calling on Congress to rewrite the Digital Millennium Copyright Act passed just two years ago to strengthen copyright protection on the Net.

Whatever is done in law or the courts, the industry's main problem may be sociological. The generation of Americans that is growing up digital and making most use of services like Napster is accustomed to obtaining free material over the Internet. Changing that mind-set, Ham says, may be the toughest challenge of all.

(c) Copyright 2000. The Christian Science Publishing Society