Can MP3 show us the money?

Internet startups and musicians looking to make money from digital music have a major problem.

"MP3 is still most often identified with free," said Bob Kohn, chairman of Internet music firm Emusic.com Inc., formerly GoodNoise Corp., who released some of the findings that his company has discovered in its first year of operation. "Consumers are only starting to make a connection between MP3 and e-commerce."

Artists, management agencies, and independent labels looking to the Internet to free them of the Big 5 record labels' domination of the music industry are now worrying that the Internet's culture of free information may mean fewer, if any, profits.

Webnoize/DMN Inc. released results from a recent study on Wednesday that emphasised that the majority of music being downloaded in MP3 format is a copy that hasn't been purchased. The survey of more than 1,500 college students showed, of those who grabbed music off the Internet, at least 44 percent didn't pay for any of it; an additional 42 percent didn't know whether the music was legal or not.

Rap artist Canibus, speaking during a panel discussion, stressed his opinion that unprotected music is fine as a promotional tool, but not to sell. "You can stream 30 seconds of my music from (my Web site)," he said. "But it would be ridiculous to give it away unprotected." The Jamaican-born artist, who maintains his own Web site with the help of two Webmasters, went gold with his first album, Can-I-bus.

The debate comes after two attempts to enforce copyrights by law and technology recently failed. On Tuesday, a three-judge appellate panel scuttled a suit brought by the Recording Industry Association of America against Diamond Multimedia Systems Inc., the maker of the Rio MP3 player.

On Wednesday, a strong digital video copy protection scheme called Divx also tanked after its primary promoter, Circuit City Stores Inc., announced it would fold the management organisation to stem losses. The scheme had many similarities to the Secure Digital Music Initiative, a push by the major record companies and others to make a digital music technology that is pirate-proof.

Yet, pundits at the MP3 Summit predicted that the controversy surrounding whether to use copy protection or not will actually become a moot point in the future. "In every other business, there are sophisticated models for revenue," said Jaron Lanier, an artist and spokesman for Universal Music. "This is increasing the options that musicians have, not giving them less." Lanier sees a future where some artists may make money from digitally downloaded music, while others may make the money from performances, and still others will have corporate sponsors.

Artist Canibus thinks musicians will have other options. "The artist is a brand," he said. "My fans want to see my Web site 24-hours a day. I can use that to promote others music or sell to them." While his site is commerce-free today, that could change soon. Canibus thinks the RIAA's loss is the gain of the artists. "You guys [on the Internet] are basically writing the declaration of independence for the music industry," he said. "This is 1776."

Yet, he stresses, it doesn't mean that the record companies won't have a role to play in the future. "They have a lot of money, and we need that money," he said. "The only one with more money than the record labels is the digital world. This is a fight between superpowers."

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