Online Music Debate Storms Capitol Hill

The raging debate over online music moved to Capitol Hill Wednesday, as several music industry insiders testified before the U.S. House Small Business Committee.

Wednesday’s hearing was classified as an information-gathering endeavor to “examine the new market possibilities for small music labels and entrepreneurs created by the Internet.”

Promoting Piracy

The Web is a double-edged sword, according to Tommy Boy Records CEO Tom Silverman.

“Without a doubt, the Internet provides a tremendous opportunity for small record labels such as Tommy Boy,” Silverman said. However, he added, the ease with which fans can swap music online has created “a culture of infringement,” meaning that “people who would never walk into a Tower Records and steal a compact disc are doing the same thing on the Internet when they download illegal copies of music.”

He also said that “online piracy has some musicians so rattled” that his artists do not trust him with copies of their unreleased material.

Legal Battlefield

Digital downloads of music have been the focus of heated debate and litigation in recent months. MP3.com recently suffered a blow when a U.S. court granted a motion by the Recording Industry Association of America (RIAA) for a summary judgment holding the music sharing company liable for copyright infringement.

The RIAA won another round when the federal judge hearing the organization’s related lawsuit against Napster rejected the online music file swapping company’s argument that its service is legal under the Digital Millennium Copyright Act.

Napster is also being sued for copyright infringement by heavy metal band Metallica and rapper Dr. Dre.

College Sales in Freefall

Silverman told the Capitol Hill committee that music companies are “losing money every time a user downloads a copy of a recording.” New research commissioned by Reciprocal, Inc. and conducted by VNU Entertainment Marketing Solutions supports that view.

The report, “Measuring the Impact of Music File Sharing,” shows that overall retail music sales increased 20 percent in the time period since 1997. Sales at retail music stores within a five-mile radius of college campuses — where the heaviest concentrations of online music swappers seem to be located — showed a decrease of four percent over the same period.

The study found that retail sales dropped even more sharply near the 67 colleges and universities that banned Napster earlier this year. Sales at stores near those schools dropped seven percent over the same two-year period from 1997 to March, 2000.

Larry Miller, President of Reciprocal Music, said in a statement, “It is now clear that the controversial practices of companies that provide directories and an easy interface to libraries of unlicensed music are in fact detrimental to the growth of the music business and those artists whom they claim to support. Record sales are up despite the widespread use of MP3, not because of it. These figures should put to rest the ongoing debate about the effects of online file sharing.”

Speaking for Digital Freedom

Pleading the case for the companies that make it easy for consumers to swap digital versions of artists’ songs were Chuck D, rapper and founder of Rapstation.com, and Peter Harter, vice president of Global Public Policy and Standards for Emusic.com.

Chuck D called companies such as Napster and MP3.com “the radio of the new millennium.” He added, “So many artists don’t get a chance to be on the radio or MTV, or be on a major label. This is how they get heard. Why would you want to deny them that?”

Chuck D also argued that the big music companies have held the power of music distribution for too long, stifling the flow of creative works into the marketplace. He said, “I’m looking forward to the day when there are one million labels and one million artists on the Internet.”

Even though he is one of the most ardent defenders of free music downloads, Chuck D does acknowledge that musicians need to make a living. He said, “I am working with an unnamed company right now on a model that will allow free downloads and compensation for artists.”

Middle Ground

Ric Dube, Senior Analyst/Editor at Webnoize — which reported earlier this month that most college students are weekly Napster users — took the middle ground and called for record companies to find a solution that allows artists and consumers to benefit.

He suggested that music labels consider selling monthly subscriptions to online music sites to provide listeners with the content they desire and artists with the income they deserve.

Committee Chairman Jim Talent (R-Missouri) summed up the situation by saying, “In the age of the Internet, smaller labels have the requisite flexibility to find innovative ways to market their works and maintain their revenue streams. Artists like Chuck D and innovators like Emusic.com and Tommy Boy Records will be able to survive in the future because of their commitment to music and their willingness to embrace advances in technology.”