Company Town : The Net Is Alive With Pirated Music

In September 1993, a secretary at Warner Bros. Records was grazing online and noticed that some kids were discussing the music on a new Depeche Mode CD. The problem was, the album hadn’t yet been released in the United States.

“It kind of panicked us. We were alarmed,” said Jeff Gold, senior vice president at the company.

Bootlegging and piracy are not uncommon in the music industry. But piracy usually occurs after a piece of music has been distributed in stores. In this case, the music had been e-mailed. The source turned out to be a disc jockey in England, where the album had already been released, who downloaded it to an impatient American fan.

“From there it spread like wildfire,” Gold said.

At the time, there was little Warner Bros. Records could do to prevent such incursions. Copyright laws did not encompass the digital transmission of information, despite nearly two decades of attempts to create such legislation by the Recording Industry Assn. of America.

That all changed Nov. 1, when the Digital Performance Right in Sound Recordings Act of 1995 was signed into law by President Clinton. The bill grants copyright owners of sound recordings the right to authorize digital transmission of their works.

Every year, unauthorized copying of music shaves hundreds of millions of dollars in revenue from the music business, and it’s difficult to monitor. The Internet escalates the problem to a potentially broader scale.

“We’re getting a lot of feedback from music creators who are concerned that their music is being illegally used online,” said John Shaker, senior vice president of licensing for BMI, an organization that protects the rights of songwriters.

“The perception that the Internet is a hacker’s haven and shouldn’t be taken too seriously is too shortsighted these days,” according to Hilary Rosen, president of the Recording Industry Assn. of America. “If you had a mailing list of 300 to 400 rock lovers and you sent a new song to all of them [by e-mail], even if you weren’t getting paid, that’s a commercial violation.”

The new legislation is only the first step in addressing the changes brought about by the new world of cyberspace, Rosen said.

“New copyright laws are usually outdated by the time they’re signed,” Rosen said.

Another problem is “sampling,” the pilfering of individual elements from a musical selection (Ringo Starr’s drums from a Beatles song, for example). Digital technology allows for the perfect separation of musical tracks. An entirely new song can be written around the individual element, a practice already common in rap music.

Sampling “infringes on the author’s moral rights,” according to attorney John Frankenheimer, co-chairman of the entertainment department of Loeb & Loeb, which recently combined with Spensely, Horn, Jubas & Lubitz to form the largest law firm dealing with intellectual property rights.

“We’re still in the embryonic stages of licensing over the Internet,” Frankenheimer said. “To date, many rights have not been licensed. And every day [without new agreements] we fall further behind.”

At the moment, the danger of music being downloaded and copied over the Internet is not yet widespread, Frankenheimer said.

“The technology exists but it’s very pricey,” he said. It is also impractical for most applications. So far, it’s limited to large operations such as film companies that have movie scores written in Europe and then transmitted to Los Angeles.

It takes about nine hours to send 1 1/2 hours of music, but it’s still faster than Federal Express.

Meanwhile, addressable CDs and CD-ROMs are not far off. Fiber-optic and compression technology are expected to improve.

Over the last two years, the music industry has begun to aggressively use the Internet as a marketing tool. That not only includes major record companies such as Warner Bros., but young bands and home-grown labels looking for efficient and inexpensive ways to promote themselves on a national scale.

In addition to radio and MTV, the Internet has become an effective way for rock musicians of every stripe to reach their target audience. Although the upside is obvious, the dangers of piracy are increasing exponentially.

Few small businesses have the clout or legal wherewithal to combat Internet theft.

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Just keeping pace with all the new Internet music services is daunting, Shaker said. Music Web sites are growing rapidly, at about 38% a year, he said.

The use numbers are already significant. Gold estimates 10,000 downloads in a single day for a preview of the new Madonna single.

Rosen said the sale of music over the airwaves requires information encoding to prevent pilferage and to regulate sales. According to Clark Siegel, a partner in the entertainment department of Loeb & Loeb, hackers will undoubtedly try to circumvent these patented encryptions.

More changes in the copyright laws are essential, Siegel said. One such change now before Congress is closing the loophole that allows for copying music even if it’s not for monetary gain. Copying a friend’s CD is one thing, but giving music away to thousands over e-mail is another. “It’s the same problem that exists with software,” Siegel said.

Even with an intricate web of protections, there will be the daunting issue of enforcement. “The copyright industries and owners can have all the rights in the world,” Rosen said. “But enforcing those rights on a server-by-server basis will be extraordinarily challenging.”