Unrestricted Digital Music?

January 23, 2007 New York Times

Record Labels Contemplate Unrestricted Digital Music

By VICTORIA SHANNON

CANNES, France, Jan. 22 — As even digital music revenue growth falters because of rampant file-sharing by consumers, the major record labels are moving closer to releasing music on the Internet with no copying restrictions — a step they once vowed never to take.
Executives of several technology companies meeting here at Midem, the annual global trade fair for the music industry, said over the weekend that at least one of the four major record companies could move toward the sale of unrestricted digital files in the MP3 format within months.
Most independent record labels already sell tracks digitally compressed in the MP3 format, which can be downloaded, e-mailed or copied to computers, cellphones, portable music players and compact discs without limit.

The independents see providing songs in MP3 partly as a way of generating publicity that could lead to future sales.
For the major recording companies, however, selling in the MP3 format would be a capitulation to the power of the Internet, which has destroyed their control over the worldwide distribution of music.

Until last year, the industry was counting on online purchases of music, led by Apple’s iTunes music store, to make up the difference.
But digital sales in 2006, while 80 percent ahead of the year before, grew slower than in 2005 and did not compensate for the decline in physical sales, according to an industry report released in London last week.

Even so, the move to MP3s is not inevitable, some insiders warn.
Publicly, music company executives say their systems for limiting copies are a way to fairly compensate artists and other copyright holders who contribute to the creation of music.
But privately, there are signs of a new appreciation in the industry for unrestricted copies, which could be sold as singles or through subscription services or made freely available on Internet sites that support advertising.

The EMI Group said last week that it would offer free streaming music on Baidu.com, the leading Web site and search engine in China, where 90 percent of music is pirated. EMI and Baidu also agreed to explore developing advertising-supported music download services. This summer EMI licensed its recording to Qtrax, an ad-supported music distribution service.
Experiments by Yahoo — last year it offered a handful of tracks from Norah Jones, Jessica Simpson, Jesse McCartney and Relient K without any digital restrictions — will continue this year, David Goldberg, vice president and general manager of Yahoo Music, said in an interview at Midem. Two of the major labels, Sony BMG and EMI, agreed to the tests in 2006.
In a handful of European countries, especially in France, consumer frustration has led to government proposals to legislate interoperability.

“There is a groundswell, and I say that on the basis of private conversations,” said Rob Glaser, chief executive of RealNetworks, which sells digital music protected against piracy through the Rhapsody subscription service.
“It will happen between next year and five years from now, but it is more likely to be in one to two years,” he said.