By Richard Menta- 4/3/01
Today Senator Orin Hatch will open the latest hearings on the digital music industry. Called "Online Entertainment and Copyright Law: Coming Soon to a Digital Device Near You," Early highlights include a rally by 1,000 Napster supporters lead by Shawn Fanning and Chuck D and testimony by Alanis Morissette and Ted Nugent.
Nugent has been particularly vocal against Napster, feeling the service is nothing more than theft and should be shut down. Morissette, on the other hand, was an early investor in online music, trading music tracks for an equity stake in MP3.com. Morissette has since divested herself of most of that stock, a financially sound move that was more a reaction to the stock market's significant downturn.
Along with the celebrities, which also include Don Henley, the usual cast of CEO's from Napster's Hank Barry to Recording Industry Association of America (RIAA) chief Hillary Rosen will be there. It was at such a hearing last year when Rosen lit up Senator Hatches ire by her comments on fair use and home taping (she said home taping, which by law is defined as fair use, isn't fair use).
Is this hearing moot?
The question about this hearing may be whether it is moot or not. Unless the congress enacts new laws that protect Napster, the company is at high risk to be closed by the courts. At the very least the monetary damages it may lose in civil court could lead to its dismantling. Senator Hatch is already on record as saying he objects to rewriting the law, so despite their march Napster's fate will probably remain in the court's hands.
The music industry also seems to be taking Hatch's threats that if the music companies do not negotiate the licensing of their music online, he will author legislation to set up a rate chart. Hatch understands that the music labels are more interested in keeping the status quo because they KNOW it is profitable versus the unknowns of online technology. He is fully aware that the issue here is control of a budding industry and if the music industry can't control early on, they will then kill technological progress to protect their interests.
Hatches threats have helped blunt that, pushing the reluctant record companies to speed up licensing with several deals already announced. Just this last week, Real networks announced a deal with AOL Time Warner, EMI Group and Bertelsmann (majority partner in Napster) to establish a new music subscription service online dubbed MusicNet. One of the byproducts of this arrangement is the possible inclusion of Napster in the licensing deal. If such licensing happens - and all of Bertelsmann's weight is being used to make it happen - the service will have effectively settled with three of the five major labels. Market forces will be well on their way to settling the matter before there is a need for full Washington intervention.
But as we have pointed out in the past, while the labels appear as allies in the Napster case, they are bitters rivals everywhere else. Universal, the largest of the music labels, doesn't like the fact that Bertelsmann has control of Napster's 60 million user base (a number that has been dropping since the advent of that service's filtering software to block out record industry music). They have already partnered with Sony on a new Napster competitor called Duet, which should appear sometime this fall. Napster is now a direct competitor and good business says to destroy your competitor and take his market share. Universal has little incentive to settle with Napster.
Universal is also the most litigious of the Big Five, refusing to settle their case with MP3.com as the other labels did and wining a big settlement. Universal's highly aggressive tactics are the type Senator Hatch fears most and the reason he made his threats.
Despite some forward progress, Hatch might find reason yet for a strong government hand in this deal. Don't count on it though, congress doesn't exactly move fast. Still, there are enough holes and vagaries in the Digital Millennium Copyright Act (DMCA) that over the next couple of years, amendment may be unavoidable.
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