RealNetworks' version of Napster: MusicNet

MusicNet, a joint venture with major record labels from AOL Time Warner, Bertelsmann and EMI Group, plans to let music fans search for and download or stream a broad range of music owned by those three labels, Glaser said. These songs could be downloaded from other MusicNet subscribers, as people would on Napster, as well as from central servers.

But there are key differences between the labels' effort and the popular file-swapping service. Only music that has been authorized by the labels will be available to trade. Any music downloaded via MusicNet will be "tethered" to personal computers, so it can't be burned to CDs or transferred to portable devices. Consumers will also get an occasional reminder to "relicense" their downloaded music, meaning they will have to keep paying monthly subscriptions to listen to downloaded music.

Although no demonstration was available of Sony Music Entertainment and Vivendi Universal's rival Duet service, Vivendi Executive Vice Chairman Edgar Bronfman said the service would be similar to MusicNet, offering streaming access to songs and restraining downloads as soon as "technically feasible." He said a Napster-like peer-to-peer service would also likely play a part in Duet's future.

Like Napster, however, these giants told members of Congress on Thursday that they are running into legal licensing roadblocks, highlighting just how far the mainstream music industry has fractured as it moves further onto the Net. MusicNet and Duet face opposition from songwriters and music publishers, which stood side-by-side with the record labels in the fight against Napster but are now sitting across the negotiating table as the labels try to launch subscription services.

"Music publishing issues stand out as the most significant impediment" to online distribution, Glaser said. "If we're not able to quickly resolve these issues, it will be necessary for Congress and the (United States) Copyright Office to step in."

Publishers have already filed one lawsuit against Universal Music, charging that the label's trial subscription service through Farmclub.com violated their rights. Labels say that securing individual rights to every song for a subscription service, which could represent thousands or tens of thousands of individuals, is too difficult.

The labels are asking Congress to grant a "safe harbor" that protects them from further lawsuits while they launch the subscription services, saying they would pay retroactive fees to publishers after the Copyright Office clarifies the law.

Who to regulate?
But music publishers told Congress that the labels were simply trying to get out of paying royalty rates that were already in place to publishers. For example, labels can already offer downloads as long as they pay publishers 7.5 cents per song, publisher Michael Stoller said.

"What record labels are looking for is a subsidy from songwriters to get on the Internet," Stoller said, asking Congress not to give the big record labels any new powers or protections. "If Congress is not going to regulate record labels or Internet music companies, it should not regulate the least powerful group, the songwriters."

Congressional committee members urged the parties to come to their own negotiated settlements without legislative action. Some were openly skeptical that the matters were critical enough for Congress to get deeply involved.

"Convenience of access to entertainment seems a particularly weak justification" for interfering in the marketplace, noted Los Angeles Representative Howard Berman, D-Calif.

The big record labels have held up Duet and MusicNet as proof that they are finally moving online in full force. Each is viewed as a potential rival for the paid service being prepared by Napster.

The new MusicNet capabilities outlined Thursday are a technological step forward for the record labels, which have so far steered clear of licensing music to companies offering anything resembling Napster's file-swapping services.

MusicNet's peer-to-peer capabilities will be a far cry from Napster's old unregulated community, however. Only those songs already available for download from the companies themselves will be allowed to be traded through the network.

Instead of the old anarchic grassroots file-swapping, MusicNet is putting peer-to-peer to a new use that looks more like the Net-speeding capabilities of Akamai Technologies and its rivals. If a song that one member wants can be downloaded more quickly from another member instead of from the central servers, the system can go to this other member instead.

The idea of using peer-to-peer technology as a content distribution mechanism has been taken up by a few start-ups in the technology community, including Zodiac Networks, but has not yet been used by major entertainment companies.

Although no details are yet available on the type of security that the service will use to protect songs against unauthorized copying, a representative said the MusicNet technology will be ready by the end of June. At that point it will go to distribution partners--which today include only AOL Time Warner's America Online and RealNetworks--that offer it directly to consumers.