So how did the labels open the biggest music-buying period of the year? By shipping an estimated 250 million albums to retailers without any protection against digital piracy.
Music and technology executives vow that this will be the last holiday season without widespread use of technology that prevents songs from being transferred from CDs to the Internet. Of course, they've made that prediction before.
Top executives at Vivendi Universal, owner of the largest record company, said last year that every CD they released this Christmas would have anti-copying technology. Each of its rivals, meanwhile, was testing ways to produce CDs that resisted piracy.
So far, though, the only commercial U.S. releases with copy protection have been four comparatively obscure discs from Universal. Think rapper Pretty Willie, not rap star Eminem.
Perhaps most striking about the labels' failure to lock down CDs is that they have taken a particularly aggressive stance abroad, where copy-protected discs are increasingly common.
Hundreds of new titles have been released overseas with copy protection, including the latest efforts by hit makers such as Celine Dion, Robbie Williams and the Foo Fighters. Many, including those from Sony Corp. and Bertelsmann subsidiary BMG, can't even be played on a computer.
"I think people will be surprised in January when they hear the number of releases that came out with copy protection" overseas, said Adam Sexton, vice president of marketing for Macrovision Corp., a Santa Clara, Calif.-based supplier of anti-piracy technology.
To be sure, executives are clamoring to shut off the stream of music flowing online in the United States, where album sales have declined an unprecedented 10% this year. Although other factors have helped drive down demand -- including complaints about the price and quality of CDs as well as the rising competition from DVDs and video games -- the global reach of online piracy is undeniable.
So why haven't more copy-protected discs been released in the world's biggest CD market?
One reason is that three years after Napster Inc. demonstrated how easily an ordinary CD can be shared by consumers around the globe, label executives don't think the technology for copy-protected CDs is foolproof enough to release domestically. They also worry that American consumers are so enamored of "ripping" music onto their computers that they would reject CDs with copy protection and rebel against artists who record such albums.
"All of a sudden, the cry for protection at any costs turned into an 'Oh, my God, we might lose the people that are left' kind of fear," said Chief Executive Peter Jacobs of SunnComm Inc., a Phoenix-based developer of copy-protected CDs.
U.S. consumers have more legal freedom to make copies for personal use than listeners in Europe or Japan, and they're more likely to sue when their expectations aren't met. Two California consumers already have filed a class-action lawsuit against the five major record companies, alleging that copy-protected CDs are defective products that shouldn't be allowed on the market.
The labels also face opposition from some artists who argue that copy-protected CDs will drive away fans. Said Jim Guerinot, who manages such acts as No Doubt and Beck, "We build this nice wall around our music so people can't steal it, but how many people are we blocking from actually using it?"
Beyond that, even label executives agree that copy-protection technologies can't stop every would-be pirate from breaking the locks on the songs. And all it takes to fuel global copying on a file-sharing network is one person with an unlocked version of the CD.
Nevertheless, executives at SunnComm and Macrovision say they're close to completing work on new versions of anti-piracy technology that will satisfy the labels' demands for U.S. releases. The latest approach will allow songs to be copied to computers, transferred to portable devices and even recorded onto CDs -- with some limitations.
Indeed, SunnComm said it's already installing its anti-copying gear in a CD manufacturing plant in North Carolina owned by Bertelsmann subsidiary Sonopress. By next year's holiday season, executives at the two companies say, a sizable percentage of the major labels' releases will be copy-protected.
CDs were introduced in 1982, when consumers weren't equipped to make digital copies and piracy was largely the work of professionals. The discs' vulnerability didn't become evident until the late 1990s, when millions of consumers with powerful personal computers could convert CDs into compressed data files that were easily copied, and affordable high-speed Internet connections could distribute those files in a matter of seconds.
Now, much of the music recorded during the last four decades is available free online -- a notion that terrifies record labels whose bottom lines rely on continuous sales and reissues of artists' older work.