Music industry fears advent of digital music player

Despite the massive changes the Internet has wrought on other industries, music companies have only slowly waltzed online -- and mainly for marketing, not to sell music. The tempo is about to change.

"As you move to the Internet, what these [music companies] do -- move physical product to the consumer -- is not needed anymore," said Steve Grady, a spokesperson for online music dealer GoodNoise Corp.

Grady, and others, see a not-too-distant future where music will be bought, sold and -- and most importantly -- delivered over the Internet. The first step will be taken today, when PC hardware maker Diamond Multimedia Systems Inc. releases its portable digital music player, Rio PMP300. The Rio is the first player from a major hardware maker that can play music downloaded from the Internet.

"From all indications, this is going to be a hot product," said Ken Wirt, vice president of corporate marketing for Diamond, at Comdex last week. The company plans to quickly ramp up its production to 10,000 units per week. The Rio promises to turn the music industry on its ear and accelerate digital distribution of music, giving more power to independent bands. All this in a package smaller than a Walkman and weighing less than a Mars bar.

While the player takes downloadable music offline, the heart of the dispute is the MP3 audio standard. The format delivers near-CD-quality music in files one-tenth the size of those on a compact disk. A five-minute song on CD may require 50MB, but the same song in MP3 format only requires 5MB -- allowing the music to reasonably be distributed over the Internet and fit into the relatively small memory of the Rio and other such players.

MP3's major drawback -- for the established music industry, at least -- is that it only compresses music and has no security to copy-protect songs. Once a song has been converted into the MP3 format, anyone can distribute the music over the Internet: A single copy or a million copies are only a few keystrokes away. That does not make the Recording Industry Association of America (RIAA) happy. Cary Sherman, senior executive vice president and general counsel for the association, which represents about 90 percent of the music industry, countered that the device could kill the industry by offering pirated music for free. "Leakage is an acceptable but undesirable business practice," said Sherman. "But when the leakage becomes a flood, the artists suffer."

In fact, at present, the majority of MP3 music on the Internet is pirated copies of songs. That spells lost profits for the music industry, which is quick to claim that the Rio is not a step forward, but a step back. "Other companies -- that are just as smart as Diamond -- can easily turn flash memory technology into a player [like Rio], but they have waited for the content to be protected," said Sherman. With the Rio's release, that changes, he said. "Why should Sony wait when Diamond rakes in the money."

Sherman's words are prophetic. Already, fearful of getting behind, Sony unveiled at Comdex possible products that use a proprietary memory format to store music, according to a report in the Wall Street journal. "This will have a domino effect," said Sherman. "Before you know it, artists won't be protected at all."

Left unsaid, is the fear that the Internet will drastically redraw the lines of power in the music industry. The fear is real, because the Internet has changed entire industries already.

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