The Digital Beat: The Recording Industry Faces the Music, and the Feds

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Now that the major labels have beaten Napster into submission, they're facing their own possible lashing by an even more formidable opponent: the federal government. The U.S. Justice Department is investigating whether or not the recording industry has violated antitrust laws during the long and arduous battle over music online. Maybe there is such a thing as karma after all.

Record company offices have been abuzz the past few weeks, as a flurry of subpoenas have been making their way through the mailrooms. At issue are the two upcoming online music subscription services: MusicNet, coming from RealNetworks, EMI Records and AOL Time Warner, and Bertelsmann; and PressPlay, a joint venture from Vivendi Universal and Sony. The sites, which would charge surfers fees to download exclusive digital music, have been the crown jewels in the industry's fight against underground services like Napster, MusicCity and Gnutella.

The Feds' concern is that, by dictating the price and terms under which, say, Bjork can be downloaded, the labels will quash start-up retailers and unjustly dominate the emerging online marketplace. Even Marilyn Hall Patel, the U.S. District Judge who has been presiding over the Napster case, said the label's plan "looks bad, sounds bad and smells bad." For their part, the labels are defending themselves by saying that they haven't licensed their catalogues because they wanted to wait until various technologies and security wares were in order.

So what's the truth? Duh! Of course the labels have been trying to dominate the Internet. Does this come as a surprise? Hell, AOL Time Warner, Bertelsmann, Sony, EMI Group and Vivendi Universal already have a whopping eighty-five percent of music sales in the U.S. market offline. And they didn't get that on their good names. Case in point: forty-two states have already launched lawsuits alleging that the major labels conspired with top retailers to hike and fix the price of CDs.

The industry has had plenty of time to license music to start-ups and, with the exception of a couple of deals by EMI, hasn't done squat. As a result, countless start-ups like MP3.com, Listen.com and Emusic.com have suffered the losses. What really happened, I suspect, was this: The music industry spent the past months panicking over Napster and hoarding its goods until it figured out just what this whole Internet thing was all about. Just look at how long it has spent fumbling its grandiose Secure Digital Music Initiative -- which has yet to initiate anything really at all.

The industry's heel-dragging is not just lame, it's costly. MusicNet and PressPlay now face increased delays as the holiday season approaches. It serves the industry right. If it had to foresight to clean up its act many months ago instead of dumbly chasing down Napster, it wouldn't be smelling so bad now. And you know what the ultimate irony is: While the labels fester, the Napster spawn just get stronger.