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One day after three of the five major record labels announced a deal to license their music to a new online company called MusicNet, representatives of the recording industry appearing before a key congressional panel were able to handily deflect criticism that they were moving too slowly to bring fans the music they love over the Internet in a legitimate way. Instead, the criticism that seemed to resonate more with members of the Senate Judiciary Committee on Tuesday had to do with complaints from artists, headlined by Don Henley and Alanis Morissette, that the recording industry doesn’t represent their interests and hasn’t invited them to the table during Internet licensing negotiations. Even a Napster executive’s call for compulsory licensing of music to online companies seemed to fall on deaf ears as committee members held back on threatening record company executives and instead just noted with irony that it took the scheduling of a congressional hearing to get the marketplace to respond. “It actually worked,” noted Sen. Patrick Leahy, D-Vt., the ranking Democrat on the committee. “The timing was real good.” The judiciary panel’s second hearing in a year on the subject of digital entertainment was convened one day after BMG, Warner and EMI agreed to license their music on a nonexclusive basis to a new company formed in partnership with audio-technology pioneer RealNetworks. The deal pits the trio against Universal Music and Sony, the remaining members of the Big Five music companies that have announced their own joint venture, called Duet. With those deals signed and sealed — if not yet delivered to consumers — record company officials were able to tell Congress that they are in the process of giving consumers what they want, despite testimony from music retailers and digital music companies that said the labels have been dragging their feet on licensing content. “You have to have some faith that we’re working on these issues,” said Richard Parsons, co-COO of AOL Time Warner, the parent of Warner Music. “It seems to be very slow in the making,” observed Sen. Orrin Hatch, R-Utah, chairman of the committee. “Why is it that music can be on the radio and everyone kind of just accepts it, and why is that not possible on the Internet?” “It just takes time,” Parsons responded. “We’ll figure it out.” Those assurances didn’t fully blunt the criticism from digital music companies that have been trying to license music from all the labels for digital distribution, instead of implementing just a handful of agreements here and there. “We can only provide the music consumers want if all music, and not just a token sample, is made available by the copyright owners on reasonable licensing terms,” said Gerry Kearby, president and CEO of Liquid Audio, which provides secure delivery of music online but has been limited to “a few hundred titles” now available for licensing. In a Senate hearing room lined with Napster fans standing along the walls, easily identifiable because they weren’t wearing suits like the lawyers and lobbyists who were able to secure seats, the Napster issue was relegated to second-class status. “The question before us today — from all of our very different perspectives and responsibilities — is what does it take to make music on the Internet a fair and profitable business?” Napster CEO Hank Barry told the panel. “I believe it will take an act of Congress — a change to the laws to provide a compulsory license for the transmission of music over the Internet.” Barry was grilled by Sen. Dianne Feinstein, D-Calif., about whether he had formulated a pricing structure for licensing. He answered that online music companies have many different business models and that licensing in the music industry involves several different copyright owners — the recording industry, music publishers, artists and composers. “It certainly doesn’t rise to the level of U.S. Congress intervention,” Parsons said, dismissing the concept of compulsory licensing. Hatch quizzed the representatives of online music companies about whether they thought the MusicNet deal gave them hope that their companies will be able to enter into licensing deals — outside of compulsory licensing — with the record companies. “When I first heard the news, my first thought was we ought to have a hearing like this every week,” said Barry, “because it does move things forward.” Feinstein also pressed Ken Berry, president and CEO of EMI Recorded Music, about whether he would consider licensing Napster. Berry said his company has indicated that it will consider licensing to Napster if and when they have a legitimate business model. The record labels sued Napster for copyright infringement in December 1999, and successfully won a court injunction against the wildly popular song-swapping service. Napster is requesting that an appeals court rehear arguments on that injunction. U.S. District Judge Marilyn Hall Patel will hear from both sides on April 10 about whether Napster is complying with the injunction, which requires the company to block all copyrighted songs submitted by the record labels. Some committee members pointed out that the legal and technical marketplace has changed substantially since the committee’s first hearing on the subject last summer, when Hatch and Leahy did hold out the prospect of compulsory licensing if the recording industry didn’t act more quickly to make online music available to consumers. Henley, who has been active on the issue of artists’ rights, said he believed that the recording industry, which he maintained does not represent artists, contributed to Napster’s success by failing to license rights to legitimate companies. “The major labels should have spent their time negotiating and implementing a fair and comprehensive licensing system, one that addresses the interests of all the parties, including recording artists.” Morissette, who was a surprise witness after Ted Nugent was unable to attend, emphasized that some artists believe that “free” Internet distribution has actually benefited them by helping them develop a community of people who love their music. “This in turn allows that artist to generate compensation through other outlets such as touring and merchandise,” she said. “For the majority of artists, this amounts to making enough money to be in survival mode.” But record industry executives were eager to close the books on the Napster case, now that the courts have ruled. “Napster was exciting,” said Hilary Rosen, president and CEO of the Recording Industry Association of America, one of the executives testifying. “But giving away someone else’s music without their permission is yesterday’s news. The story now is the music industry’s efforts to alert fans and consumers to the huge amounts of legitimately license music that is currently available online.” Related Articles from The Industry Standard: Forces of Digital Music Converge on Washington RealNetworks Signs 3 Majors to Subscription Service Some Record Companies Get Real Copyright � 2001 The Industry Standard

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