Digital Music Distribution Info.

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May 2, 2002
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Digital Music Distribution
Digital music consists of electronic bits and can be distributed via telephone lines, cable systems, satellite transmission and networks like the Internet, eliminating the need for packaging, warehousing and shipping. Currently, most digital music is delivered on physical media in the form of CDs, but the Internet is rapidly becoming the delivery medium of choice for many artists and labels.

Internet music distribution is a boon to independent artists because it enables them to increase their visibility and keep a much larger share of the profits. Internet distribution is also a great opportunity for independent record labels and any of the major labels that are flexible enough to adapt to this new model.

Many major artists, such as the Beastie Boys, Public Enemy and Tori Amos, are already taking advantage of Internet music distribution. More major artists and labels are beginning to support this method of distribution, now that standards for secure digital music distribution systems have been established.

Internet Record Labels
Over the past few years, a new generation of Internet record labels has appeared and is establishing a new business model for music distribution. Internet labels can help independent artists quickly gain exposure to potential fans worldwide. Many Internet labels also double as online music stores and sell music in downloadable formats like MP3 and on physical media like CDs. Most Internet labels also create and host Web pages for artists or include links to the artist’s own site.

Internet labels typically split the revenue from music sales with the artist on a 50/50 basis. This business model is similar to the Advantage program that Amazon.com offers independent authors and small publishers. Some sites offer arrangements that include sharing advertising revenue in place of a percentage of sales. Several of the leading Internet record labels are described below. (See Appendix A, Interesting Web Sites, for additional listings.)

AMP3.com

AMP3.com is an Internet record label that sells downloadable music and pays artists up to 50 cents every time one of their songs is downloaded. Sponsors pay anywhere from 10 to 20 cents per download to place ads at the beginning of songs. Consumers have the option of downloading songs for free or purchasing the songs with the ads removed.

EMusic.com

EMusic (formerly GoodNoise) is one of the better known Internet record labels and music distributors. Through relationships with artists and license agreements with leading independent record labels, EMusic offers a wide variety of downloadable music in MP3 format. EMusic also offers other sites a percentage of sales that result from customers who use the site’s link to EMusic.com.

MP3.com

MP3.com’s Digital Automatic Music (D.A.M.) system lets any artist sign-up to have their album produced and sold by MP3.com. Artists on MP3.com get exposure to over 6 million listeners per month, with no sign-up cost or monthly fee. The artist simply receives 50% of the price of every CD sold. If the artist gets a record deal with a label, they can cancel the contract with MP3.com without obligation.

SpinRecords.com

SpinRecords.com is a resource for emerging artists and their fans. The site is dedicated to the independent and underground music scenes and provides all types of services as an independent label to unsigned artists and bands. Visitors can download music in MP3 and other audio formats, share information on the message boards and purchase products from the spinstore. There is also a section for local music, with information on clubs and concerts in major cities.


New Stars Wanted

If you’re an independent artist or musician in a new band, you can upload you music to RollingStone.com and have your music heard by the industry’s most influential critics. Rolling Stone editors will listen to the original MP3 tracks you upload, and each month they review and rate the 10 most promising songs. You can also post your band’s bio, photos, lyrics, tour schedules and track the number of downloads your music receives.


Secure Music Distribution
Many record companies are hesitant to release music in open formats like MP3 because of the potential for piracy. As a result, several companies have developed secure music distribution systems designed to track downloads and prevent unauthorized copying.

Watermarking
Virtually all secure music distribution systems use some form of watermarking to help identify the source of pirated music and protect the rights of copyright holders. Watermarking transparently embeds copyright and licensing information in the music data. (Additional information such as lyrics, album graphics and promotional material can also be added to the file.) The files are then encrypted and stored on a server with a database that tracks the number of copies transmitted and the amounts of royalties due.

Encryption
Most secure music distribution systems use some form of encryption to protect the music from unauthorized use. Some of these systems assign the user a personal key or passport, which can only unlock songs purchased by that user. Others may require a separate key for each song. In each case, the consumer must use a software or hardware player supported by the system.

Encryption presents several problems. The biggest is that consumers are choosing digital formats like MP3 because of the freedom, flexibility and convenience they offer. People who purchase downloadable music want to be able to play it on any of their computers or portable players, without having to worry about entering a key. Encryption will prevent this flexibility, unless all manufacturers of hardware and software for playing downloadable music agree on the same standard and develop a system that is completely transparent to the consumer.

Consumers have a legitimate need for music in unencrypted formats, such as MP3. Many people have made large investments, over many years, in “unsecured” music in the form of records, tapes and CDs. In the future, if consumers have no choice but to purchase music in an encrypted format, they will not be able to use the hardware and software of their choice to play all of their music.

Consumers who choose to use a PC to store and play their music have a reasonable expectation to be able to “format-shift” music (convert it to another format) so they can exercise their right of “fair use.” (See Chapter 5, Digital Music and Copyright Law, for more information on the Doctrine of Fair Use.)

Developers of proprietary formats and audio encryption schemes seem to forget that the audio needs to be unencrypted before anyone can listen to it. When a digital signal reaches the D/A converter in a sound card, it is in a raw, unencrypted format. In fact, two software utilities—Total Recorder and Audiojacker—can be used to capture digital audio signals from any player and store them as unencrypted WAV files. The WAV files can then be easily converted to MP3 (or other formats).

Of course, makers of these software packages aren’t trying to encourage illegal duplication of music. Their software just makes it easier to record from any source, including the programs that play “secure” music. Make no mistake, it is illegal to unencrypt a song and then distribute it without the copyright owner’s consent.

Some “secure” systems allow you to burn one copy of each song to a standard audio CD. But there is nothing to prevent you from extracting the audio from that CD into an unencrypted format that you can use anywhere. All encryption will do is make it more difficult for you to use the music. Encryption will not prevent a determined person from unencrypting and copying music, and it certainly is not going to stop bootleggers from pirating it.

The Secure Digital Music Initiative
The Recording Industry’s Secure Digital Music Initiative is an ambitious effort dedicated to the development of technical specifications for securing music across all digital delivery platforms. SDMI was formed in December 1998 and consists of over 100 companies from the recording, consumer electronics and computer industries.

A key goal of SDMI is to protect the interests of music copyright holders by developing a system to mark recorded music with rights management data that can be recognized by all audio devices. The first SDMI specification was adopted in June 1999 and will be implemented in two phases.

Players that support the Phase I specification will be able to play music in most current formats, including both protected SDMI and open formats like MP3. Phase II of SDMI will establish a secure format, which uses watermarking technology to embed copyright and licensing information in the music. Phase II compliant players will be able to detect and reject any pirated music that was originally created in the secure format. Phase II devices will also be able to play older songs in unsecured formats like MP3 without any restrictions.

The Portable Devices Specification’s proposed default Usage Rule would allow users to make no more than four (4) usable copies of a recording, of which three (3) may be transferred to other SDMI-compliant devices. In order to make more copies, the original source must be recopied producing again 4 usable copies[1].

Future Distribution Methods
Eventually, digital music distribution systems will evolve to be as much a part of the music industry as Postal, UPS and FedEx shipments are today. Some of these systems will offer consumers more flexible options for purchasing music. Options may include music subscription services, where you pay a flat monthly fee to listen to an unlimited amount of music, and micropayments, where your account is charged a small amount each time you listen to a song.

Some “rent-to-own” systems will allow you to listen to a song a fixed number of times for a small fee and purchase more “listens” when you reach the limit. Once you have paid for more than a specified number of listens, you “own” the song. Other systems may let you download and listen to any song for free for a limited period (week, month, etc.), after which you must purchase a key to be able to listen to the song. With a “super distribution” system, you can e-mail copies of songs to friends, who will only be able to listen to them for a “demo” period unless they purchase a special key.

It’s difficult to predict which systems will catch on with consumers and just as hard to predict whether or not enough manufacturers will agree on any one system to make it economically viable. Meanwhile, you still have more options than ever before to find, purchase and listen to music. And you always have the right to “vote” with your wallet if any “secure” systems are imposed that add inconvenience to your music experience.