It can't be easy being Hilary Rosen. As the CEO of the Recording Industry Association of America, Rosen has the unique privilege of being the most visible spokesperson for the entire music industry. Unfortunately, this privilege comes at a price; and as the record industry has fought a very public battle with online music companies like Napster and MP3.com, Rosen has been the lucky one who must address the growing sentiment against the record industry that is emerging online.
In the past few weeks, the controversy has been fast and furious about Napster, the innovative file-sharing software that lets fans trade MP3 files free of charge. The RIAA filed suit against the company, and musicians like Dr. Dre and Metallica have joined in with separate lawsuits. Yet Napster is still growing like mad; a dozen clones, such as Gnutella, have emerged, bands like Limp Bizkit and Public Enemy are stepping up to proclaim their support -- and the RIAA is gaining few fans among the online communities that support these software innovations (and all the free music they can get).
At the end of a month packed with daily news about Napster and a legal victory over MP3.com, Rosen was as careful with her words as any diplomatic industry representative embroiled in several lawsuits should be. What does the industry think it's going to gain by suing Napster? Shouldn't the industry itself be helping to innovate new technologies and business models for music? And is it really frustrating to be Hilary Rosen right now? Rosen offered us her measured response and thoughtful nonanswers.
What do you think will happen if you actually win the Napster lawsuit? Do you think you can rid the Net of the entire file-sharing concept?
While ultimately I don't think litigation is the right business strategy over the long term, I do think that Napster is guilty of copyright infringement, and we will have both a favorable court decision and some precedents set for companies that try and commercialize file sharing.
There is certainly a lot of intrigue in the notion of file sharing -- for community reasons and for marketing reasons and for putting like people with like-minded interests together. Clearly I understand all that. But those issues really should be divorced from the very unique and specific issue, Does a company have a right to create a system that is so deliberately designed to take other people's work?
It's interesting in court -- the Napster lawyer tried to make the argument that file-sharing services like Napster actually bring the Internet back to its original purpose and history, which was when university researchers would share their research with their colleagues around the world. That was a very valuable and exciting thing that happened, but there's a principal difference between that activity and what businesses like Napster are engaged in -- it was those professors' works that they themselves were sharing!
As a practical matter going forward, lawsuits get a lot of headlines and they raise a lot of passion -- I understand that. But ultimately the future of music on the Internet is not going to be about legalities and litigation, it's going to be about how are we bringing music to fans -- new music, established artists -- what are the new business models that people are adopting and how do you make all the new opportunities win-win.
But even if you win the Napster case, there are a dozen Napster clones and some that are decentralized, like Gnutella. How do you plan to stop this?
I don't think anybody has illusions about controlling all transmissions online. The question is, How do you compete if services available to give it away without regard to the creators are allowed to flourish with such customer-service-friendly tools? Gnutella is a little harder to use than Napster, but there also ways to enforce against Gnutella users that you don't have with Napster.
So what are the new business models for the industry? Many accuse the record industry of trying to stop new innovations, rather than come up with ideas on their own. Are Napster and online distribution of music causing the record industry to rethink or change its business models?
It doesn't necessarily change -- it expands. I personally believe people will want to buy CDs for a long time to come, but I also believe they want to have subscriptions, kiosks in stores and airports, digital downloads ... I believe the expansion is where the conflict and the opportunity arrives. It behooves technology innovators to help develop those concepts in partnership with the music community. It's not accurate to say that the record industry says no.
There's no question that the industry has been slow to the marketplace, but it's too simplistic to say that the slowness or speed is out of some fear. It's more accurate to say that these are very complex transitions with a lot of interests and players involved -- artists and publishers and distributors and retailers and technology partners. There are a whole host of changes, and new structures that have to be created to move into these worlds.
It's not necessarily what people always want to hear, but I do believe that it is complex.
Recent Soundscan numbers show that CD sales were up 8 percent in the first quarter of this year, as compared with last year. Yet the record industry has said that Napster and online piracy are going to negatively impact CD sales. What kind of impact do these new numbers have on your thoughts about Napster's detrimental effects?
It's not whether or not somebody is killing CD sales this week -- it's whether music has value, and is perceived to have value in and of itself by fans, and by technology companies and venture capitalists who are investing in new businesses and have to pay for everything from their server space to their telephone lines to their lunchboxes. Paying for the content they are using is not an unreasonable request. I think it's a value quotient, not necessarily a piracy fear, that is also important to consider.
Some have speculated that in the future, music will be given away free, and artists will make money elsewhere. Do you think this is possible?
It goes back to the earlier issue that whether or not the record companies and artists are making money selling CDs is irrelevant to Napster; they are building a business on the backs of artists. Just because [artists] are making money elsewhere doesn't mean Napster has the right to do this. It's a self-serving argument for Napster.
No one is arguing Chicken Little here; what we are saying is that if that geometric progression is such that music has less and less value, ultimately you do get to a scenario where it's hard for the legitimate businesses to compete. No one says we're there, but it doesn't take a rocket scientist to see where we're going.
It's an artists issue. Cynics say the record industry doesn't like that model because it takes them out of the equation. But it's not true -- artists like it when they have a record that's so successful that they get to stay home for a few months rather than go on tour. You are limiting the artists' choices. And secondly, a significant part of the meaning of the music is creating the demand for the work. And creating that demand for the music and the artist is very much a marketing and promotional function the record company does. The costs associated with that have to be absorbed somewhere.
Things will evolve and the industry has always given away music for free, but it's really inappropriate that the only ways that artists should be able to make money off their craft is touring, if in fact people are enjoying their music anyway. Not to mention the whole crop of artists that don't have the ability to tour.
What was your reaction when you heard that Napster was sponsoring the Limp Bizkit tour?
I thought Napster must be desperate to have to pay $2 million to get someone to support them.
And what about Limp Bizkit, which has stepped out of line from other members of the record industry?
I didn't think it was a thoughtful statement about the long-term economics of the record industry -- it was an anti-establishment, rock 'n' roll publicity thing for them to do.
There's no question that the multitude of artists who have spoken out against Napster far outweigh this kind of publicity stunt, but I hope that their fans realize that these artists actually care about their work, and care about their art, and care about their ability to keep making it.
Is there anything Napster could do to tweak its software that would satisfy the record industry's concerns?
I think if Napster has ideas for alternative business models, they haven't said them yet. I don't think it's my place to do that. If people are creating businesses that use other people's work like that, it behooves them to come up with some other scenario at the outset that does the right thing. Where they go from here is the subject of obviously complicated scenarios.
Shouldn't the record industry be helping them create those scenarios, though, rather than expecting the technology companies to come up with all the ideas themselves?
There are mutual responsibilities, but obviously as this case is in litigation, suffice it to say that Napster has never come up with a scenario. And I don't think anybody in the record industry has any indication that that is a viable option.
As you battle MP3.com in court, is it your hope that this company will be put out of business by this lawsuit? The monetary damages for copyright violations [up to $150,000 per song] could easily bankrupt the company.
The business models that MP3.com have put forward are interesting business models. The issue with MP3.com is simply of them not seeking licenses prior to the launching of their system.
As the record industry's most visible spokesperson, is it frustrating that online fan sentiment has turned to be anti-record label? Or that people like Michael Robertson, CEO of MP3.com, constantly deride the RIAA?
I do get a particular laugh out of technology entrepreneurs who try and say that the record industry has screwed artists over the years. But what is it, now it's their turn?
We have gone through an interesting shift here. The RIAA is a trade organization that was never a public entity or necessarily had any public profile. So it's quite a different role for us to all of a sudden respond not just to the music community but to the public itself. But I've learned a lot: A lot of people don't know what record companies do and what they bring to the equation -- helping to develop the talent and create the demand. That's been interesting.
When you go to buy a Chevy, you generally know something about General Motors being a decent company. When you want to buy a Bruce Springsteen record, you don't think much about Sony Music; that's been deliberate by these companies over the years. As a result, a lot of other people have painted on that blank canvas. If we could do that over, maybe we'd do that differently. But maybe not.