The Central Scrutinizer

The music industry has found itself embroiled in a very strange war, pitting huge corporations against their own customers—often kids savvier in the ways of music and electronics than in the nuances of IP law.

So who were these record companies? Five corporate giants own most of the world’s popular music. Though they compete with each other in a truly cutthroat manner, they also recognize that they share a fair number of industry interests. The companies usually coordinate these activities through their trade association (or lobbying group), the Recording Industry Association of America (RIAA). But owning the music doesn’t necessarily mean owning all of the rights to that music. Somehow or another, and largely because of the industry’s somewhat unusual history, music IP rights have been sliced and diced every which way you could imagine.

Sound Byzantine and impenetrable? It is. With so many rights and so many people to compensate, it’s almost impossible for a newcomer to know where to begin. And virtually everyone interested in Internet music was a newcomer.

Consider the challenge facing Internet media companies that provide streaming media—say a CNN news clip broadcast over the Internet to your desktop computer. If you’ve ever watched one of those clips appear in your media player, you know that it arrives in two parts: first it “loads,” and then it plays. Computer scientists discovered that this two- stage approach is needed any time that a video travels across a network, because network traffic travels in “packets” that arrive in “bursts.” When we’re reading e-mail, we really don’t care if there’s a brief delay between sentences. But if we were watching a video, we’d find it pretty annoying. So when the video bits arrive across the Internet, they don’t run straight to the media player. They arrive first in the computer’s “cache buffer,” where they spend a couple of seconds in short-term memory. That way, the buffer fills up in bursts, but feeds the images smoothly to the screen. The buffer gets a little longer when many bursts arrive and a little shorter between bursts, but as long as it’s not empty it can continue feeding the screen smoothly without that annoying stop­action effect.

So far so good. But suppose that instead of a CNN news clip, we’re streaming a live concert. Here’s the question: Are we watching a live per­formance broadcast as it’s being performed, or are we watching a record­ing captured only seconds before in the cache buffer? Here’s a better question: Do we care? Well, we should; different entities own the rights to live performances and recordings. If we don’t know which one we’re viewing, how can we negotiate an IP license with the owner? And if we don’t negotiate a license, aren’t we infringing? You see the problem. If ever a dilemma was needed to convince a fourteen-year-old music fan that adults are nuts, this was it.

Between the crazy quilt of IP rights and regulatory hearings and the general legitimate legal questions that are reopened whenever a new tech­nology calls old definitions into question, even an Internet pioneer who wanted to honor the IP laws would have a hard time figuring out what to do—and many of them aren’t all that interested in learning. Clearly, infringement would be rampant and lawsuits would follow. The corpo­rate interests representing the music business came together in different alignments on different issues. Together they reached back into Frank Zappa’s work from the 1970s to find the idea of the Central Scrutinizer, an official responsible for enforcing laws that have yet to be passed against kids driven to crime by music. RIAA CEO Hillary Rosen because the first real-world central scrutinizer. Her job was to survey the terrain, to see who was infringing their IP rights, and to work to stop them. She monitored the emergence of fan-based distribution networks, filed law­suits against a number of technology companies, lobbied Congress to change some laws, and generally led the charge to preserve the time- honored business models of the music information business.

While the specific alignment of the players and the rights may have changed from one skirmish to the next, the general battle plan held.

The first high-profile battle started in late 1998. Diamond Multime­dia Systems, a small tech company based in San Jose, announced that its new Rio PMP300, the first portable MP3 player sold in the United States, would be available in time for Christmas. Now, in the autumn of 1998, the Internet had not yet exploded into the phenomenon it would soon become. Digital music, on the other hand, was already a way of life. Anyone with a decent home computer could convert an entire CD col­lection into MP3 files stored on a hard drive. Though this situation in and of itself made the record companies a bit queasy, they didn’t see much point in fighting it. After all, they had long since made an uneasy peace with the idea that consumers could create “unauthorized” analog cassette copies of their CDs. Equally unauthorized digital MP3 copies sitting on home computers didn’t seem to be much more of a threat.

By late 1998, though, a number of Internet companies already had begun to popularize the idea of music downloads. MP3.com made some attempts to honor IP rights, Liquid Audio bent over backwards to avoid infringement, and various other players had already made the scene, but the record companies had yet to decide precisely how to respond to the new technologies. Besides, though the community of fans downloading music seemed to be growing, its size remained manageable. The record companies were cautious and nervous, but neither willing to enter the fray themselves as online music providers nor expend much energy, money, or goodwill fighting those who had filled the gap. The technol­ogy didn’t seem to be good enough, smooth enough, or reliable enough to leap beyond technogeeks and into the broader realm of “normal” music fans.

The Rio promised to destabilize the comfortable denial into which the record companies had slipped. The Rio was precisely the technology capable of creating demand among non-techie music fans. It was a tiny portable computer, smaller than a cassette, with a hard disk capable of storing an hour of digital music, and Diamond planned to sell it for $199. People who bought a Rio wouldn’t have to sit at their computers to enjoy MP3 files. They could download an hour’s worth of music, clip on the Rio, plug in some headphones, and go jogging. Record companies quickly realized that consumers would find this opportunity attractive— so attractive, in fact, that those consumers would start paying attention to MP3 music files and the Web sites that allowed music downloads. Of course, some of them—and possibly even some of those Web sites— might be less than scrupulous in honoring IP rights. The record compa­nies took a stand on October 8, 1998, when the RIAA sued Diamond to block the Rio’s release.¹⁶

The issues in the case were pretty technical. The RIAA claimed that the Rio violated some provisions of the Audio Home Recording Act of 1992 (AHRA) governing the manufacture and sale of devices capable of making multiple copies of sound recordings. Not to be undone on a tech­nicality, Diamond cited at least two technical reasons that the provision in question didn’t apply to the Rio. First, the Rio had no recording capa­bilities; users would have to record the music elsewhere, convert it into an MP3 file stored on a hard disk, and then move a few bits from the home computer to the Rio. Second, back in 1992, the computer indus­try had planted a loophole in the AHRA exempting anything that con­tained software from the relevant definition of “device.”

The bottom line, though, is that the technicalities don’t matter. The fight wasn’t really about the nuances buried in the AHRA. The real ques­tion was whether or not the law would let technology create a new opportunity for consumers.

But you can’t sue somebody for launching a new consumer good. You must find some law that the product violates, which is why these battles are always so technical. We know they’re fighting about whether or not consumers should get easy, ready access to MP3 files. But we have to pretend that they’re fighting about esoteric provisions of an esoteric statute. And so, we’ve come full circle back to the rift between IP law and IP policy. IP policy should grant rights to promote innovation and to advance human knowledge (and overall welfare). IP law, on the other hand, is what it is. Fights like this one drive the point home. We could have an interesting debate about the ways that readily available MP3 files affect motivation. We might learn something, and we might arrive at a solution consistent with the policies we claim to promote. But that’s not the way we fight these battles. We fight on the narrow grounds of what IP law is. And here, the applicable law was the AHRA.

And so, the RIAA contended that the AHRA prohibited Diamond from launching the Rio, Diamond argued that it didn’t—and the judge agreed with Diamond. In the meantime, the RIAA had shot itself in the foot. Not only did the Rio create a demand draw, but the RIAA’s lawsuit galvanized the Internet community and focused media attention on a product that it was trying to bury. Even Hillary Rosen, RIAA’s CEO and the industry’s central scrutinizer, reportedly soon realized that the suit had probably been an error—and that the music industry needed to get its act together quickly.

There’s no question that the filing of that lawsuit focused people like a laser on what the record companies were doing, and what people perceived the record companies were doing... and that was a terrible mistake on our part in terms of not laying the groundwork earlier for the industry’s perceptions of opportu­nity and interest and enthusiasm....................................... Now, would they have come if we didn’t

sue? I don’t know. Granted, there’s some arrogance certainly in the record indus­try. But there was a lot of arrogance in the technology industry about how the music industry’s just going to have to learn the new way.¹⁷

Regrets or not, when the Rio hit the shelves, the genie was out of the bottle. Consumers, even those who weren’t particularly tech savvy, soon discovered the merits of the MP3 format. They soon wanted to convert their CDs to MP3, store them on their hard disks, and play them back. They even made some of these files available on the Internet. The record companies realized that change was coming fast, and they redoubled their efforts on the Secure Digital Music Initiative (SDMI), an uneasy alliance of music, technology, and other businesses working together to ensure that both IP rights and revenue streams could continue no matter how big a bite the information sector took out of their industry—an alliance so uneasy, in fact, that it never really got off the ground. They had no idea what was waiting for them just around the bend, with its huge jaws wide open waiting to swallow them whole.