Is it pirating or fair use?

By David Lieberman
USA Today

She doesn't consider this wrong.

"Artists make money other ways" including from concerts, she says. "I'm sure they're taken care of." Besides, "There are still a ton of people who've never heard of (free music sites) like Napster and Morpheus. So it doesn't concern me all that much."

But it scares the pants off music companies who see digital downloading and copying spinning out of control.

About 17 percent of adults wired to the Internet at home, work or school say they've downloaded music, according to a recent CNN/USA TODAY/Gallup Poll. Millions more use CD burners, standard on many new personal computers, to copy for friends CDs bought or songs downloaded. In less than five minutes, on a blank disc costing less than a buck, they can make a copy of an hourlong CD.

Music companies succeeded in court in putting the easiest-to-use site for public tune-sharing, Napster with its central system, on hold. But other sites that allow Internet exchange directly between individual users, such as Morpheus (www.musiccity.com), still flourish.

Movies could be next as the price of DVD burners plummets.

But are the folks who make digital copies criminals who could destroy the entertainment business? Or are entertainment executives overreacting as they try to cripple consumers' ability to copy music or video, even when it's perfectly legal?

That's the crux of a growing debate in Washington that will determine the future of entertainment. Several companies, led by Walt Disney, warn that they could collapse unless Congress forces electronics makers to build sharp restrictions on copy capability into digital audio and video gear.

Though such a move would alienate many consumers, executives are desperate to stop what they see as a potential mortal threat to a century-old industry.

Music executives mostly blame digital copying for a collapse in sales. Last year, they sold 10.3 percent fewer albums and singles than in 2000. Meanwhile, seizures of counterfeit, pirate or bootleg labels soared nearly 504 percent in 2001 to 22.2 million, according to data from the Recording Industry Association of America.

Sales this year are worse. Total units are down another 12 percent versus the first three months of 2001.

The fear is continued falling sales. Consumers now buy more blank CDs than recorded CDs. And executives watch nervously as millions of Internet users trade dial-up modem connections for broadband service, such as cable and digital subscriber line (DSL), that make it a snap to download music.

"More than half of the broadband traffic in the United States is file-swapping, and it mostly involves copyrighted works," said Richard Doherty, director of The Envisioneering Group.

Record companies say a telltale sign of digital copying is a steep drop in an album's sales in its second week out. A few years ago, second-week sales typically fell 25 percent or less. Now 40 percent is the norm.

For example, Alanis Morissette's 1999 release, "Alanis Unplugged," fell just 17 percent in week two. Her latest, "Under Rug Swept," fell 44 percent. Results are even more extreme for Brandy. Her 1998 album, "Never Say Never," fell a mere 4 percent. Her new release, "Full Moon," also dropped 44 percent.

"I wouldn't expect a drop-off like that on someone like Brandy. But it's pretty much across the board now," said Jordan Katz, Arista Records sales executive. "If you look at sales of CD blanks, they're up tremendously. Are people buying them to do anything but make music?"

Hollywood studios see an omen in what's happened to music. Disney CEO Michael Eisner recently told lawmakers that people already download 350,000 movies from the Internet every day — including recent hits such as "Lord of the Rings: Fellowship of the Ring," "Harry Potter and the Sorcerer's Stone," and "Monsters, Inc."

Battling the consumer

Executives have reason to be nervous. The music experience shows that it's difficult to put the digital genie back into the bottle.

Still, music companies are trying. Most are experimenting with technology to protect CDs from copying. Some add noise, imperceptible on conventional decks, that prevents a disc from being played or makes it sound horrible on computers. In December, Vivendi Universal's album "More Fast & Furious — Soundtrack" became the first major commercial CD in the United States to use copy protection. But more are coming.

"It'll be a steady rollout," said Larry Kenswil, president of Universal Music eLabs. "If it works, it's invisible to consumers."

But CD buyers in Europe, where the copy-protected discs are more prevalent, complain that some don't work on portable or car players. That's led Philips, which, with Sony, invented the CD format, to warn some music companies it might not let the crippled discs carry its compact disc trademark.

Such responses frustrate entertainment executives, who said they believe equipment makers should be forced to limit consumers' ability to download and/or copy copyrighted audio and video.

"We are allowing a whole generation to believe that recorded music should be free," said Alain Levy, EMI Recorded Music CEO — who recently announced a layoff of 20 percent of his work force. "And we have absolved the hardware industry of their responsibility to defend a fundamental law, which is defending intellectual property."

Senate Commerce Committee Chairman Ernest Hollings, D-S.C., agreed. In late March, he introduced a bill to give entertainment and technology companies a year to agree on standards to let copyright holders curb digital copying. If they fail to see eye to eye, the Federal Communications Commission would pick a standard.

But technology companies and some retailers say the Hollings bill could prevent consumers from making perfectly legal copies. They said they fear anti-copying technology could keep a struggling new band from building fans through free samples. Or it could stop teachers from downloading and copying material in the public domain.

Consumers have rights

There's also wide agreement that consumers have some right to copy their own CDs. That includes making a disc with a mix of favorite songs, copying music to their PCs (and backing up the hard drive) or transferring tunes to a portable MP3 player.

"The issue is: Should the technology companies be held responsible because some people might use a device to break the law?" said Fred von Lohmann, Electronic Frontier Foundation attorney. "If that's the case, you certainly couldn't build photocopiers or VCRs. Fair use is something to be decided by the courts on a case-by-case basis, not by companies that conspire to use technology against you."

It's also far from clear that piracy is even a main reason the music industry's in trouble.

"In 1997, 11 percent of music was pirated, and 40 percent of computer software was pirated," said Saul Berman of PriceWaterhouseCoopers. "Who makes more money: Microsoft or the record companies?"

Strauss Zelnick, who used to run Bertelsmann's music operation, said recent sales declines reflect "the tailing off of CD penetration growth and the tailing off of the pop boom over the last five years."

He said he believes consumers will buy more music when they hear more songs that they like.

"Look at the big sales for Creed's new album. If kids are all pirating, then why are they buying it?"

Retailers also question whether digital copying is to blame for the industry's woes.

"Do we still have a competitively priced product?" asked Pam Horovitz, president of the National Association of Recording Merchandisers. "DVD sales have exploded, and it's a product where the price has come down while the price of CDs has gone up. If our only response as an industry is to stop copying of CDs, we may be missing a consumer message."

Record company supporters and critics acknowledge that the industry — in its zeal to kill file-sharing services such as Napster — didn't listen enough to PC owners' desire to get music via download.

Sony and Universal are building a site called Pressplay, while AOL Time Warner, Bertelsmann and EMI back a rival, Musicnet. But no industry-backed alternative site offers the online equivalent of a well-stocked record store.

Music executives again blame free downloading for this problem. They say their sites and others would flourish if it weren't for Web services such as Morpheus that still enable listeners to trade free songs.

"Piracy issues have limited (legal) consumer offerings online," said RIAA head Hilary Rosen.

USA Today reporter Darryl Haralson contributed to this report.