25 February 2004--The digital music industry is a shipwrecked vessel leaking money, and even Norah Jones can�t save it. Music is pouring out through enormous holes created by peer-to-peer file-sharing networks. Sales are plummeting, while a whole generation is getting used to getting music without paying for it.
At least, that�s the way the big music companies see things. An alternative view is that consumers want better access to content, and they know that innovative technology--iPods and broadband Internet, rewriteable CD drives and peer-to-peer networking--can give it to them. In this second perspective, consumers are held back by the companies that currently control access to the content, the five major record labels that together distribute 85 percent of the music sold in stores today.
At a 9 February digital entertainment conference in New York City devoted to examining new models for distributing music through digital networks, one man, lawyer Mark Ellison, smiled to himself, because almost exactly 20 years ago, as an executive in the nascent satellite television industry, he had seen it all before.
Satellite TV started out as a pirate industry, and media piracy predates not only that industry but Bluebeard and other real pirates. Almost as soon as Johannes Gutenberg built his press, bootleggers were selling versions of the Bible. Radio was the first electronic media whose foundations lay firmly on the quicksand of copyright infringement; it started out by playing recorded songs but not paying artists and music publishers any royalties. Only with the twin threats of legislation and lawsuits hanging over its head did radio begin to pay royalties in the mid-1940s.
Cable television as well started out by snatching broadcast signals out of the air and redistributing it through its coaxial cable networks without permission. It too eventually settled with television networks and the emerging national stations such as the Turner Broadcasting System Inc. (now a TimeWarner company), for which Ellison was in-house counsel at the time. "Broadcasters litigated at first, then embraced cable, and now couldn�t live without it," Ellison says. Satellite television would follow the same pattern.
Ellison, who now heads a new satellite business television network called ReachTV, in Burke, Va., recalled how it happened. "Networks like Home Box Office would send their programming to cable operators by satellite signal, in the clear--that is, without encryption. A professor of electrical engineering at Stanford, the late H. Taylor Howard, built the first home satellite system. He was a wonderful man, and the first satellite pirate. He tried to pay--in fact, he sent checks to HBO--and wrote letters explaining why he was paying."
The satellite industry quickly grew to more than three million households over the course of the early 1980s, with the signals still unencrypted. It eventually settled on a system called VideoCipher from General Instruments, which is now owned by Motorola Inc., Schaumburg, Ill.
"When we scrambled, that is, encrypted, the Turner system," Ellison says, "it was largely to control the flow to the backyard systems. But all of a sudden we had a lot of cable and other companies we�d never heard of, who wanted to sign up. Thousands of them." They had been grabbing the unencrypted signal for free and now could only get it by paying.
Ellison thinks history will repeat itself with Internet music. "Outrage and litigation at first, then cooperation and a business model that works for everyone," he predicts. "An industry association, the Society for Private and Commercial Earth Stations--SPACE--was formed. It became the Satellite Broadcasting and Communications Association (SBCA, Alexandria, Va.), which is still the industry representative. We pulled together the satellite dish retailers, the operators, the equipment manufacturers, and the programmers." Ellison left Turner to become the association�s general counsel and head of government affairs.
"SPACE�s goal was to legitimize the direct-to-home satellite industry," he says. It did so through negotiations with a surprisingly large number of rightsholders--professional and collegiate sports organizations; film, television; and record studios; the two music publishing rights associations, BMI and ASCAP; and more. Eventually, licenses covering TV network and superstation programming were hammered out. Today more than 22 million U.S. households get satellite TV service. Without an umbrella organization encompassing satellite interests and the content companies, Ellison says, it couldn�t have been done.
Which brings us back to the February music industry event, put together by the Distributed Computing Industry Association. Based in Washington, D.C., the DCIA was formed in 2002, when a group of movie studio executives, led by Michael Eisner, the now-embattled CEO of the Walt Disney Co. in Burbank, Calif., wrote a letter to several leading computer hardware and software manufacturers. The letter asked that they address the question of peer-to-peer file-sharing networks through which most online music, and increasingly, online movies and television shows, are distributed. It suggested that they form a coalition to "find solutions to this problem that is threatening the very essence of our business." Thus the DCIA concedes many of the premises of the recording industry and those of other harsh critics of peer-to-peer networks. Nonetheless, Sharman Networks Ltd. of Port Vila, Vanuatu, the operator of the leading peer-to-peer network, Kazaa, is also a founding DCIA member.
If Mark Ellison is right, peer-to-peer networks will legitimize themselves, and an industry association will play a critical role. Perhaps the DCIA is that organization.