Web Impresario Posing Threat to Music Industry

A year ago, Michael Robertson was a computer geek who knew nothing about the music business.

Today, operating out of a tiny, nondescript office in a San Diego aerospace complex far from the glitzy music capitals of Hollywood and New York, the 31-year-old former software programmer is feared and loathed by some of the most powerful forces in the $40-billion record industry.

Robertson runs a controversial Web site called MP3.com that is spreading the gospel of the MP3 technology--a new compression formula that allows computer users to quickly download free CD-quality songs from the Internet. In many cases at other sites, the technology is used to make pirate copies of copyrighted works.

As the world’s six top record conglomerates struggle to stamp out digital piracy and retain their lock on global music distribution, Robertson has emerged as a new kind of rock ‘n’ roll rebel: a cyberspace capitalist itching for a showdown with the corporate entertainment establishment.

His business also illustrates how quickly new technologies and the Internet can shake the foundations of entrenched businesses.

“The rules of commerce are changing fast, and the record industry needs to wake up and deal with it,” Robertson said. “The Big Six run a real risk in arrogantly thinking that they can bully the Internet into doing what is best for the record labels. Fans are tired of paying $15 for a CD to get one good song. Artists are sick of signing their lives away and ending up in debt.

“That tired, old business model that the companies have exploited for decades is not going to work in cyberspace,” he said. “If the sleeping giants don’t open their eyes pretty soon to the way things work on the Web, they are going to lose a huge, multibillion-dollar opportunity to upstarts like me.”

Robertson denies ever posting illicit files on his site. But visitors to the site can still learn the latest tips on how to circumvent digital music security systems, connect to search engines that lead to pirated music and download free software that enables them to play legal or bootleg MP3 music files on their home computers.

The site also champions provocative new products such as Diamond Multimedia’s Rio MP3 player--a portable gadget that can download and play back music pirated from the Internet.

Visitors to Robertson’s site can also sample and purchase new recordings by more than 400 independent artists signed to his Digital Automatic Music label, which offers acts about twice the percentage of royalties they would earn at a major record label but lacks the marketing dollars or promotional muscle that big companies provide. New tracks by Dionne Warwick, the Band and several other veteran acts can also be found posted there. Visitors can click and listen or download the tracks for free. Robertson says the site currently sells 20 to 50 CDs a day to Web fans.

In less than a year, MP3.com has become one of the leading music sites on the Web--frequented by an estimated 150,000 visitors daily, about half of whom Robertson says download a free song during each visit. And his site is just the tip of the MP3 iceberg.

The technology has spawned a new breed of music fans who gather daily in chat rooms and fly-by-night pirate sites on the Internet to swap pilfered hits by artists such as Brandy, Celine Dion and Eric Clapton. These Web-savvy bandits--mostly college students with access to high-bandwidth Internet connections--apparently feel no guilt about ripping off copyrighted recordings to build customized digital jukeboxes on their personal computers.

Although it would seem that artists with a stake in copyright protection would resist aligning themselves with the MP3 movement, several top counterculture acts, including the Beastie Boys, have begun releasing exclusive tracks in the MP3 format on their own Web sites. Last week, Less Than Jake, a rock band on Capitol Records, and Public Enemy, a rap group on Def Jam, released free tracks from their latest albums on the Internet in the MP3 format against the wishes of their own record companies.

Even if the music conglomerates can figure out how to curb electronic theft, the industry must confront a more sweeping prospect: a generation of music fans weaned on MP3 that cares only about compiling collections of hit songs with little inclination to purchase music in the album format. This attitude undermines the economic foundation of the music business, whose profits are generated by manufacturing and distributing albums that contain 12 or more songs and sell them wholesale for about $10.

Robertson, whose site has turned into a pulpit for the MP3 movement, predicts that the established retail, manufacturing and distribution systems will crumble as electronic transmission of music through interactive computer services becomes readily accessible to fans and independent artists.

Robertson’s views haven’t earned him many friends in the music business. Critics regard him as a reckless self-promoter exploiting the MP3 controversy to rustle up a buyer for his Web site.

“The problem with Michael Robertson is that he’s got too big of an investment in keeping up this David-versus-Goliath image to care much about the bigger picture, particularly when it comes to protecting artist rights,” said Hilary Rosen, chairwoman of the Recording Industry Assn. of America, the trade group that represents the nation’s six giant record conglomerates. “The whole point is that a copyright owner should have control over their work.”

The way Robertson sees it, the record industry has failed to keep up with the rapid pace of technological change represented by the Internet. Robertson says the industry wastes too much time trying to stop fans from stealing music and not enough energy trying to induce the 100 million consumers who frequent the Internet to purchase their products.

Robertson predicts that MP3 will have as big an impact on the record industry as the Xerox copying machine did on the publishing business. Because it will be difficult to prevent fans from creating and transmitting digital copies of a song, music companies will have to revise their business models, perhaps learning to be content with selling the initial release of a new recording to a bigger universe of buyers on the Internet.

“Theft is a cost of doing business on the Internet,” Robertson said. “I know the giant companies have spent more than a year trying to develop a universal encryption and watermark security system, but I guarantee you the minute they unveil the thing, some hacker will figure out a way to get around it. It is impossible to secure digital music.”

Robertson stumbled into the music business by chance. A native of Redwood City, Calif., he graduated from UC San Diego in 1990 with a degree in cognitive science and wrote software programs as a consultant for several years.

In 1996, he invested about $20,000 of his own money to open Z Co., which developed filez.com--a Web search engine. About a year later, Robertson hooked up with Greg Flores, a former stockbroker from Dallas, and, after a review of Internet traffic charts, decided to launch MP3.com.

“We set the site up at 10 a.m., and before the day was over we had 10,000 people visit and advertisers calling us cold,” Robertson said. “We looked at each other and said, ‘This is amazing. What have we stumbled onto here?’ ”

The company now employs nine people and rents a tiny office in an industrial complex owned by a defense contractor that specializes in nuclear research and space technology. Robertson said he himself is stunned at how a company as small as his can make so large an impact in so short a time in an industry with as much potential as the record business. He says the site is already turning a profit from the advertising it carries and the CDs it sells.

“The thing these giant corporations need to realize is that finding an illegal music file is like playing a game: You look here. You look there. The search is part of the thrill . . . ,” Robertson said.

“The industry needs to focus on how to make it easy for consumers to give them money in one quick, instantaneous transaction,” he said. “The company that solves how to get a consumer from hearing a song on the Net to clicking the mouse and owning it is the company that will thrive. They will crush us like a bug. But if they don’t figure out a way soon to make it easier for fans to get music legally than illegally, their days are numbered.”

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