When I started in the music business, music was important and vital to our culture. Artists connected with their fans. Record labels signed cutting-edge artists, and FM radio offered an incredible variety of music. Music touched fans in a unique and personal way. Our culture was enriched and the music business was healthy and strong.

That's all changed.

Today the music business is in crisis. Sales have decreased between 20 percent and 30 percent over the past three years. Record labels are suing children for using unauthorized peer-to-peer (P2P) file-sharing systems. Only a few artists ever hear their music on the radio, yet radio networks are battling Congress over ownership restrictions. Independent music stores are closing at an unprecedented pace. And the artists seem to be at odds with just about everyone — even the fans.

Contrary to conventional wisdom, the root problem is not the artists, the fans or even new Internet technology. The problem is the music industry itself. It's systemic. The industry, which was once composed of hundreds of big and small record labels, is now controlled by just a handful of unregulated, multinational corporations determined to continue their mad rush toward further consolidation and merger. Sony and BMG announced their agreement to merge in November, and EMI and Time Warner may not be far behind. The industry may soon be dominated by only three multinational corporations. The executives who run these corporations believe that music is solely a commodity. Unlike their predecessors, they fail to recognize that music is as much a vital art form and social barometer as it is a way to make a profit. At one time artists actually developed meaningful, even if strained, relationships with their record labels. This was possible because labels were relatively small and accessible, and they had an incentive to join with the artists in marketing their music. Today such a relationship is practically impossible for most artists.

Labels no longer take risks by signing unique and important new artists, nor do they become partners with artists in the creation and promotion of the music. After the music is created, the artist's connection with it is minimized and in some instances is nonexistent. In their world, music is generic. A major record label president confirmed this recently when he referred to artists as "content providers." Would a major label sign Johnny Cash today? I doubt it.

Radio stations used to be local and diverse. Deejays programmed their own shows and developed close relationships with artists. Today radio stations are centrally programmed by their corporate owners, and airplay is essentially bought rather than earned. The floodgates have opened for corporations to buy an almost unlimited number of radio stations, as well as concert venues and agencies. The delicate balance between artists and radio networks has been dramatically altered; networks can now, and often do, exert unprecedented pressure on artists. Whatever connection the artists had with their music on the airwaves is almost totally gone.

Music stores used to be magical places offering wide variety. Today the three largest music retailers are Best Buy, Wal-Mart and Target. In those stores shelf space is limited, making it harder for new artists to emerge. Even established artists are troubled by stores using music as a loss leader. Smaller, more personalized record stores are closing all over the country — some because of rampant P2P piracy but many others because of competition from department stores that traditionally have no connection whatsoever with artists.

Piracy is perhaps the most emotionally gut-wrenching problem facing artists. Artists like the idea of a new and better business model for the industry, but they cannot accept a business model that uses their music without authority or compensation. Suing kids is not what artists want, but many of them feel betrayed by fans who claim to love artists but still want their music free.

The music industry must also take a large amount of blame for this piracy. Not only did the industry not address the issue sooner, it provided the P2P users with a convenient scapegoat. Many kids rationalize their P2P habit by pointing out that only record labels are hurt — that the labels don't pay the artists anyway. This is clearly wrong, because artists are at the bottom of the food chain. They are the ones hit hardest when sales take a nosedive and when the labels cut back on promotion, on signing new artists and on keeping artists with potential. Artists are clearly affected, yet because many perceive the music business as being dominated by rich multinational corporations, the pain felt by the artist has no public face.

Artists are finally realizing their predicament is no different from that of any other group with common economic and political interests. They can no longer just hope for change; they must fight for it. Washington is where artists must go to plead their case and find answers.

So whether they are fighting against media and radio consolidation, fighting for fair recording contracts and corporate responsibility, or demanding that labels treat artists as partners and not as employees, the core message is the same: The artist must be allowed to join with the labels and must be treated in a fair and respectful manner. If the labels are not willing to voluntarily implement these changes, then the artists have no choice but to seek legislative and judicial solutions. Simply put, artists must regain control, as much as possible, over their music.

Consumers can resell CDs purchased in a record shop, but what about digital music files downloaded from an online store?

George Hotelling wants to know. In a move that could spark a novel legal test of Internet music resale rights, the Web developer in Ann Arbor, Mich., on Tuesday night put a digital song he purchased online at Apple Computer's iTunes Music Store up for auction on eBay.

Hotelling said he isn't all that concerned about getting his money back for the Devin Vasquez remake of Frankie Smith's song "Double Dutch Bus," which cost him 99 cents. Instead, he said he's using the attempted sale to probe some thorny consumer issues stemming from commercial online music services, in particular, technology known as digital rights management that's used to prevent unauthorized copying. In that spirit, he's promised to donate anything above his purchase price to the Electronic Frontier Foundation (EFF), an activist Internet legal group.

The effort has apparently resonated with online music aficionados, many of whom have expressed anger at copyright controls used by licensed Internet music services, including iTunes. With the auction set to end Sept. 9, the price on the song had gone up to $15,099 as of Wednesday evening.

"I'd just like to know that if I buy something, whether it's physical or intellectual property, that I'll have my right of 'First Sale,'" Hotelling said, referring to the legal doctrine that allows the owner of a lawful copy of a work to sell it without the permission of the copyright owner.

Apple's iTunes store launched earlier this year, setting a new benchmark for commercial online music services that seek to make inroads against free but illegal file-swapping networks. Consumers have purchased some 7 million songs through the store to date, and analysts believe that number could soar, once Apple introduces a version that's compatible with Microsoft's Windows operating system, which runs on about 90 percent of the world's PCs.

Other companies have also jumped into the market, including a reborn Napster and digital music service Musicmatch. Meanwhile, RealNetworks, America Online, Amazon.com and potentially Microsoft are planning to sell digital downloads.

While momentum is building for digital music distribution, legal experts said Hotelling's auction highlights the fact that there are still some kinks to be worked out.

"It underscores the fact that when you purchase digital music online today, you may be getting quite a bit less for your money than when you purchase a CD in a store," said Fred von Lohmann, a senior staff attorney at the EFF. "If you buy it in a store, it would be absolutely crystal clear that you could auction it on eBay."

By contrast, von Lohmann said it's unclear whether Hotelling's auction is legal or whether it's allowed under Apple's terms-of-service contract for iTunes Music Store sales.

"It's a little bit of a murky area," he said. "It would make a pretty interesting law school exam question."

Here is a story out of Australia that I picked up on the wire. Something that should give the record industry pause.

A few days back we wrote about how Arista records made the committment to ship all of their CDs with copy-protection to prevent their being played on PCs. Their notion is to stop users from ripping tracks to trade online. The problem we had about this scheme is that it will only distant consumers from CDs, because they won't work as expected. For many, that expectation is to play in the background on the computer as people do their job. The 128MB Philips PSA MP3 player for the gym is available on Amazon

But working stiffs are not the only ones who have turned to the PCs as their music conduit. Many radio stations have integrated PC systems to play tracks over the air.

The Age is reporting that radio stations are finding that they are unable to play copy-protected CDs on the air. So what are they doing about it? Simple, the CD go into the wastebasket rather than get much-needed air play.

"...if we can't transfer the CD tracks to our digital playout system the CD ain't going to get any airplay at all!" said an unamed radio jock.

Radio stations in the states have also incorporated computers to serve the daily rotation. Just the other day I was listening to college radio station WRSU and the DJ was lamenting how the only place he was able to get a hold of the latest Third Eye Blind single "Blinded" was to download it from the Net. This is not unusual, the MP3 format offers radio stations quite a bit of time saving convenience in organizing and selecting tracks for airplay.

I used to work at WRSU and the old process involved going into the record library to grab the appropriate vinyl (yes vinyl), carry a dozen albums into the control roomto set up your first couple of sets, pull the next record out of the sleve and cue it up, and then run back to the library in between songs to gather a few more albums for the nights shift, an act the DJ needs to repeat several times during the session.

A laptop filled with MP3's hooked up to the control board eliminates the back and forth.

Modern DJs - a group that does not exactly make the greatest of salaries - wil ultimately take the path of least resistance. If a record plays in the CD tray it will make airtime. If not, they better REALLY love that album or it aint makin' the cut for reasons that have nothing to do with the music.

The biggest loser? Yes, the artists again, just like they were in last weeks story. At least the artists of those labels who are instituting copy-protection on all their products, which right now means only BMG-owned Arista records. Unless every single label follows suit soon (which at that point DJs will not have much choice but come up with some solution), radio airplay may come up scarce for Arista artists.

Like I said before, ill-conceived record industry activities will only distant consumers further. This time by distancing the biggest promoter of records.

Copy-protection technology on music CDs may be headed for the U.S. market in bulk this year for the first time, according to one Wall Street analyst.

In a research note published Friday, J.P. Morgan analyst Sterling Auty said that Arista Records, a subsidiary of BMG Music, appeared to be moving to market with CD copy-protection technology produced by SunnComm Technologies.

"We expect volume shipments of protected CDs to ship commercially in the U.S. as early as the May-June time frame using the SunnComm solution," Auty wrote. "This will be the first major step in the growth of the CD audio protection market."

Record labels have been experimenting with compact disc copy-protection technology for close to two years now, but other early indications that mass-market release was close have proven premature. Labels in Europe and Asia have begun releasing scattered tests, but U.S. trials have remained largely limited to advance and promotional CDs.

A spokesman for BMG Music said his company's corporate policy, which would affect Arista, has not changed in any way. "We are conducting trials only, and we have not announced any plans to go to market with copy-protected CDs," BMG spokesman Nathaniel Brown said.

SunnComm could not immediately be reached for comment.

Labels, which have seen their revenues fall over the past two years, are eager to find a copy-protection technology that would block people from burning copies of CDs or from "ripping" unprotected MP3 files with their computers and putting the songs on file-trading networks such as Kazaa.

However, previous versions of the antipiracy technologies from SunnComm, Macrovision and others have proven flawed. CDs protected with the technology have been unable to play in some CD players or computers, potentially even damaging some machines. Hackers have been able to break through much of the protection technologies using techniques as simple as drawing on the CD with a felt-tipped pen.

SunnComm recently struck a deal with Microsoft to work together on a package of copy-protection techniques for labels. The smaller company will protect the ordinary CD audio tracks against copying, while Microsoft will provide tools to put additional copy-protected versions of the songs on the CD that can be copied to a computer hard drive or MP3 player but not traded online.

This so-called second session, containing files that can be used by computer music aficionados but not widely distributed, has come to be a key goal for the labels. Previously, label executives have said that the full technology package remains flawed, however.

"While the technology is apparently not quite ready, there is promise for some protective technologies," Hilary Rosen, chief executive for the Recording Industry Association of America, told music retailers at that group's national convention last week. "While there are no specific plans to release such products into the marketplace at this time, if they are produced, record companies will need to work closely with retailers to assure that the proper consumer education and labeling takes place."

Auty wrote that Arista's example could be followed by the rest of BMG--a result that, if realized, could hurt Macrovision, he said.

"Our concern also lies with the chance other labels at BMG Music will rapidly follow Arista's lead," Auty wrote. "As for the major labels other than BMG, they are still up for grabs, but a decision could be delayed as the industry stands still to see how consumers react to BMG's advances."

WASHINGTON--Software, music and movies that employ copy-protection schemes must be prominently labeled with consumer warnings, according to a bill introduced in Congress this week.

The measure, sponsored by Sen. Ron Wyden, D-Ore., would grant the Federal Trade Commission the power to establish labeling methods for technology that limits the ability of consumers to freely copy, distribute or back up digital content.

"While digital media companies are racing to develop technologies to combat piracy, some of these antipiracy measures could have the effect of restricting lawful, legitimate consumer uses as well as unlawful copying," Wyden said in a statement. "My bill says that if digital content is released in a form that prevents or limits reasonable consumer use, consumers have a right to be told in advance."

The proposal, called the Digital Consumer Right to Know Act, represents the latest fusillade in the battles over copyright, peer-to-peer networks, and digital rights management that are taking place in Congress.

Last year, the Motion Picture Association of America backed a bill that would forcibly implant copy-protection technology in PCs and consumer electronics, while two other proposals would defang the "anticircumvention" portions of the 1998 controversial Digital Millennium Copyright Act. None of the three bills has been voted out of committee; and the MPAA-backed proposal has not been reintroduced during the 108th Congress, which convened in January.

Wyden's bill would give the Federal Trade Commission a year to devise regulations that would apply to copy-protected software like Microsoft's Windows XP and Intuit's TurboTax, most DVDs, and the relatively small number of music CDs girded with antipiracy schemes.

An early report from an Intel-sponsored summit last month suggested that Wyden's bill would require certain consumer-electronics devices to be labeled. As introduced, the proposal applies only to any "producer or distributor of copyrighted digital content" that impairs the ability of the purchaser to use it freely.

The bill would not restrict the ability of companies, vendors or distributors to employ whatever antipiracy technologies they wish, as long as they were clearly labeled. It also would not apply to analog content.

With Congress on a wartime footing and focused on homeland security, it's unclear how likely the bill is to be enacted this year. No companion measure has been introduced in the House of Representatives.

Adam Thierer, an analyst at the free-market Cato Institute, says Wyden's bill is unwise, as was the mandatory copy-protection proposal that Sen. Fritz Hollings, D-S.C., introduced last year.

"The better alternative to federal mandates on either side of this debate is to instead just encourage a technological free-for-all in the marketplace," Thierer said. "Let the industry do whatever it wants in an attempt to bottle up their content, but also let consumers continue to experiment with and use digital content in creative ways without fears of federal intervention at every turn... There's no reason for Congress to intervene in an attempt to solve each and every intellectual property dispute, as has seemingly becoming the case in recent years."

A separate bill sponsored by Rep. Rick Boucher, D-Va., adopts the same approach as Wyden's proposal but does not go as far. Boucher's bill would require anyone selling copy-protected CDs to include a "prominent and plainly legible" notice that the discs include antipiracy technology that could render them unreadable on some players.

NEW YORK -- Now that major music companies are starting to go beyond timid first attempts at offering their wares over the Internet, industry insiders are struggling to figure out which types of services and devices are best positioned to capture the hearts and minds of consumers.

Though much attention has focused on subscription music services for PC users, cable and satellite network operators may play a bigger role in digital music than has been expected, according to industry insiders at the Digital Music Forum here Monday.

"The time for online music is now," was the key refrain, as well as the title, of the event's keynote address given by Chris Gorog, chief executive officer of Roxio. Roxio last year bought the remaining assets of music-swapping service Napster, which had been knocked out of business by a lawsuit over copyright issues, and recently has announced it will be entering the online music service market.

"One might suggest it's a knucklehead time to join the fray ... the landscape is full of buried bodies of people who tried to do this," Gorog said.

Finland's parliament has, for the moment, rejected the contentious National Copyright law proposal, based on the European Union Copyright Directive (EUCD), the European counterpart to America's DMCA.

The deadline for implementation of the EUCD was December 22nd 2002, but so far, only Denmark and Greece have actually followed through.

The Electronic Frontier Finland was the, "local, vocal voice to criticize the copy protection circumvention ban and other controversial issues of the proposal".

"An unclear law with criminal sanctions of up to two years in prison [from e.g. copy protection circumvention] would have formed a serious risk to unintended citizens," said Jyrki Katainen, a member of the parliament committee and vice chairman of the Conservative Party, told the EFFI which also said Katainen was in addition, "worried that the law would have harmed the Finnish competitiveness as an information society".

EFFI chairman Mikko Välimäki says followuing after the EFFI's public campaign against the proposal, "the official Finnish consumer protection agency made an announcement criticizing CD-copy protections and ... also testified against copy protections". Added vice-chairman Ville Oksanen, "We have of course always the risk that the next proposal, whenever it comes, is even more pro-content industry. Luckily, it's only theoretical because it's now clear the parliament won't take the content industry's argument 'more protection is always better' for granted anymore. More likely, we expect, and certainly hope, the next proposal to look more like a very minimum implementation of the directive with maximum fair-use exemptions."

Lamar Smith (R-Tx), a lawyer from San Antonio, Texas, is the new chairman of the House Judiciary subcommittee on courts, the Internet and intellectual property.

By an amazing coincidence, last year he sponsored legislation to, "criminalize trafficking in counterfeit music, movies and other audiovisual works" and "give victims of intellectual property theft an opportunity to recover damages in federal court," among other things.

At the time, he observed, "One could complete a transatlantic voyage today without ever spotting a pirate ship." One could indeed, Lamar.

Smith said the subcommittee will handle legislation dealing with digital rights, copyright and patent protections, secure networks, p2p networks, fair use standards, litigation management, cyber-security, state sovereign immunity, patent and trademark office reform and e-commerce which oversees issues including digital rights, online piracy, the Internet and intellectual property.

And, of course, online piracy.

He takes over from Howard Coble, dearly beloved of the RIAA (Recording Industry Association of America) and other Hollywood trade organs.

Associated Press WASHINGTON -- To Don Henley's ears, the FM dial has been transformed from a bazaar of choices to a place where "everybody gets the same McDonald's hamburger."

Taking issue with the musician on Capitol Hill last week, the chairman of a company that operates 1,200 stations said it makes a point of offering a variety of formats, from talk to country to rock to Spanish language.

At issue is the Telecommunications Act of 1996, which loosened restrictions on owning multiple stations. Henley, a native Texan who achieved fame as a singer and drummer with the Eagles, testified before the Senate Commerce, Science and Transportation Committee in favor of a bill aimed at slowing consolidation in the radio and concert industries.

The Bush administration, however, appears to be leaning toward easing the remaining ownership rules. The Federal Communications Commission is reviewing them, and the agency's chairman, Michael Powell, has expressed concern that many are no longer relevant.

The committee debated legislation sponsored by Sen. Russ Feingold, D-Wis., that would strengthen government oversight of radio station mergers and would ban arrangements in which recording companies pay radio stations' promoters for air time.

The proposal is aimed at Clear Channel, the country's largest radio station chain and biggest concert promoter, with more than 1,200 stations, or about one of every nine across the United States.

The chairman and chief executive of the San Antonio-based company, Lowry Mays, said that far from stifling diversity, Clear Channel has made a point of offering many formats.

But Jenny Toomey, executive director of the Future of Music Coalition, which seeks stricter ownership rules, said that was a fallacious argument.

"Measuring music diversity by counting the number of radio formats is like measuring the variety of food in your pantry by counting the number of cans without looking at what is inside them," she said.

The committee chairman, Sen. John McCain, R-Ariz., engaged in a testy exchange with Mays over whether Clear Channel had plans to buy more stations. Mays evaded the question several times, leading McCain to ask: "Do you have any plans to obtain more radio stations? I'd like to ask the question for the third time."

Responded Mays: "If we can serve the local community better and we see an opportunity, yes."

McCain also took on Clear Channel over its presence in San Diego. While federal rules prevent a company from owning more than eight stations in a market, Clear Channel has the maximum in San Diego while owning five in Mexico that broadcast into San Diego.

"It's clearly in violation of the intent of the law," McCain said.

Critics of consolidation say ownership of so many stations in one market drives up advertising rates and limits choices.

Other committee members expressed concern about Clear Channel's practices.

"When you pump in homogenized programming, isn't that troubling in terms of localism?" asked Sen. Byron Dorgan, D-N.D. He noted that Clear Channel owns all six commercial radio stations in Minot, N.D.

Mays said that after his company bought the stations, the number of formats increased from two to six.

The legislation being considered was greeted with skepticism by some Republicans.

"I think there are probably always complaints from competitors," said Sen. Conrad Burns, R-Montana. He asked why the committee was not investigating the sale of shelf space in supermarkets to the highest bidder.

"Radio airwaves cannot be equated with grocery store shelves," Henley said. "They are owned by the public."

The singer also complained that he is essentially charged money to get his music on the air, because his recording company pays an independent promoter to get his songs on radio stations.

Although Mays conceded that his company receives payments from these promoters, he said it was in exchange for research information. He insisted the company has a strict policy against "pay-for-play."

Mays disputed allegations that his company will not air songs from artists unless they tour with Clear Channel's concert promotion business. Mays said it would make no business sense to do that because concert promotion accounted for only 7 percent of Clear Channel's business.

"Seven percent of your income is how much?" McCain asked. "Five million? Ten million? Fifty million?"

"Maybe $100 million," Mays said.

The European Commission dealing with the issue of file trading presented a draft of a proposed directive last week. Looking to find a balance between copyright holders right to control the content they own and the fair use right of consumers the most distinct aspect of the directive is that it lets file traders off the hook for criminal liability when they trade.

What is good about this directive is it removes the ability of the record industry to prey on individual file trades, forcing them into expensive litigation that can impose heavy fines and even jail terms.

But remember, we said the directive is looking for balance. The commission that drafted this directive is hardly a friend of KaZaa and iMesh and see a need to control their popularity.

The directive strikes language punishing copyright infringement for commercial purposes. The first reaction might be those who burn copies of CDs to sell at the local flea market. It goes beyond that, specifically taking aim at Peer-to-peer file-sharing services.

According to the commission, file trade services that encourage copyright infringement and make money from advertising are commercial. "That is illegal and should be stopped," the Commission said.

This runs contradictory to the recent Dutch ruling in favor of KaZaa that put the onus on file trading on the users themselves and not onto the P2P clients. Right now, file trade services are legal in the Netherlands.

But the Netherlands are EU members and should the directive be passed it would supersede the Dutch court ruling. Commercial P2P services would be illegal if they allow the trading of copyright material.

"There is also evidence that counterfeiting and piracy are becoming more and more linked to organized crime and terrorist activities because of the high profits and, so far, the relatively low risks of discovery and punishment," the Commission said in a statement. "Pirates and counterfeiters are in effect stealing from right holders," Frits Bolkestein, internal market commissioner said in a prepared statement. "If we don't stamp that out, the incentives for industrial innovation and cultural creativity will be weakened."

Organized crime and terrorist activities?

Strong words, especially since Nikki Hemming hardly seems the al-Qaeda type. As for high profits, the only service making any money to the best of my knowledge is KaZaa. Certainly it's not KaZaa-lite.

And that said, does this mean that KaZaa-lite and Xolox are free from prosecution because they are non-commercial?

The European Commission dealing with the issue of file trading presented a draft of a proposed directive last week. Looking to find a balance between copyright holders right to control the content they own and the fair use right of consumers the most distinct aspect of the directive is that it lets file traders off the hook for criminal liability when they trade.

What is good about this directive is it removes the ability of the record industry to prey on individual file trades, forcing them into expensive litigation that can impose heavy fines and even jail terms.

But remember, we said the directive is looking for balance. The commission that drafted this directive is hardly a friend of KaZaa and iMesh and see a need to control their popularity.

The directive strikes language punishing copyright infringement for commercial purposes. The first reaction might be those who burn copies of CDs to sell at the local flea market. It goes beyond that, specifically taking aim at Peer-to-peer file-sharing services.

According to the commission, file trade services that encourage copyright infringement and make money from advertising are commercial. "That is illegal and should be stopped," the Commission said.

This runs contradictory to the recent Dutch ruling in favor of KaZaa that put the onus on file trading on the users themselves and not onto the P2P clients. Right now, file trade services are legal in the Netherlands.

But the Netherlands are EU members and should the directive be passed it would supersede the Dutch court ruling. Commercial P2P services would be illegal if they allow the trading of copyright material.

"There is also evidence that counterfeiting and piracy are becoming more and more linked to organized crime and terrorist activities because of the high profits and, so far, the relatively low risks of discovery and punishment," the Commission said in a statement. "Pirates and counterfeiters are in effect stealing from right holders," Frits Bolkestein, internal market commissioner said in a prepared statement. "If we don't stamp that out, the incentives for industrial innovation and cultural creativity will be weakened."

Organized crime and terrorist activities?

Strong words, especially since Nikki Hemming hardly seems the al-Qaeda type. As for high profits, the only service making any money to the best of my knowledge is KaZaa. Certainly it's not KaZaa-lite.

And that said, does this mean that KaZaa-lite and Xolox are free from prosecution because they are non-commercial?

That would explain the record industry's condemnation of this directive. My first reaction was that their game plan targeted the prosecution of file traders next and this upset them most. Then I realized that any home-grown, non-centralized service may also be protected as long as they generate no revenue. In essesence this directive says it's ok to facilitate file trading as long as no one makes any money off of it.

"The proposal creates a two tier system of enforcement where some types of piracy are acceptable and others not," the industry organizations said.

We'll keep an eye out for this directive and report when we hear more information.

Representatives Rick Boucher and John Doolittle introduced the DMCRA which would to quote the EFF would "require labelling requirements for usage-impaired "copy-protected" compact discs, as well as several amendments to 1998's infamous Digital Millennium Copyright Act (DMCA)." We always seem to complain about the DMCA around here now is our chance to change it! Check out this "Action Alert" at the EFF."

Only commercial piracy is criminal under European Commission proposal, to industry's chagrin.

The European Commission has presented a draft directive that punishes copyright infringement for commercial purposes, but leaves the home music downloader untouched, infuriating the entertainment industry.

The proposed directive is meant to harmonize intellectual property rights enforcement laws in the 15-nation European Union (EU). It aims to strike "a fair balance" between interests of right holders and the opportunities the Internet offers to consumers, according to Commission documents.

Criminal sanctions apply only when copyright infringement is carried out intentionally and for commercial purposes, the Commission said.

A consortium of industry groups, including representatives of the tech industry as well as music companies, declared the proposal "inadequate."

They still have time to lobby for tougher sanctions. The Commission's draft directive has to pass the European Parliament and the European Union's Council of Ministers before it is officially adopted.

Directive Highlights: Peer-to-peer file-sharing services that encourage copyright infringement and make money from advertising are commercial, according to the Commission. "That is illegal and should be stopped," the Commission said. Examples of such file-sharing services are Kazaa and Morpheus.

Even though the individual is let off the hook, the Commission uses strong words to condemn piracy and counterfeiting, which is also part of the draft directive. The Commission estimates over 17,000 jobs are lost annually through piracy and counterfeiting in the EU.

"There is also evidence that counterfeiting and piracy are becoming more and more linked to organized crime and terrorist activities because of the high profits and, so far, the relatively low risks of discovery and punishment," the Commission said in a statement.

"Pirates and counterfeiters are in effect stealing from right[s] holders," said Frits Bolkestein, internal market commissioner, in a prepared statement. "If we don't stamp that out, the incentives for industrial innovation and cultural creativity will be weakened."

Assessment Criticized: The music industry blasted the proposal, calling it "inadequate" and "unambitious." The criticism came in a statement issued jointly by ten organizations, including the Business Software Alliance, a technology trade group. Also voicing disapproval were the International Federation of the Phonographic Industry and the Motion Picture Association.

"The proposal creates a two-tier system of enforcement where some types of piracy are acceptable and others not," the industry organizations said.

Furthermore, the Commission underestimates the size of the piracy problem and falls short of providing the legal framework to fight it, the group said. Collectively, the film, video, music, and leisure software industries in Europe claim they lose over $4.9 billion annually as a result of piracy.

The music industry also charges that the Commission fails to achieve its goal of harmonizing national laws on intellectual property rights enforcement in the European Union, instead perpetuating a patchwork of different legal measures and procedures across the EU.

If you've ever used a peer-to-peer network and swapped copyrighted files, chances are pretty good you're guilty of a federal felony. It doesn't matter if you've forsworn Napster, uninstalled Kazaa and now are eagerly padding the record industry's bottom line by snapping up $15.99 CDs by the cartload.

Be warned--you're what prosecutors like to think of as an unindicted federal felon.

I'm not joking. A obscure law called the No Electronic Theft (NET) Act that former U.S. President Bill Clinton signed in 1997 makes peer-to-peer (P2P) pirates liable for $250,000 in fines and subject to prison terms of up to three years. (You may want to read it, s ince you'll likely be hearing more about it soon.)

That's a long time to spend cooling your heels in Club Fed.

Yet something strange is going on here. So far the Justice Department has made precisely zero prosecutions of peer-to-peer users under the NET Act.

This odd delay is not because peer-to-peer piracy is legal. It's not. The NET Act covers people who willfully participate in the "reproduction or distribution" of copyrighted works without permission, when that activity is not covered by fair use rights.

The law even grants copyright holders the right to hand a "victim impact statement" to the judge at your trial, meaning you can expect an appearance from the Recording Industry Association of America (RIAA), the Motion Picture Association of America (MPAA) or the Business Software Alliance (BSA), depending on what kind of files were on your hard drive. You'll no longer have it, of course, because it'll have been seized by the FBI, and you'll be in jail.

Fretting that not enough peer-to-peer pirates are already there, a band of congressmen asked Attorney General John Ashcroft last July to begin some NET Act prosecutions, pronto. Their letter complained of "a staggering increase in the amount of intellectual property pirated over the Internet through peer-to-peer systems." The 19 politicos--including Sen. Joseph Biden, D-Del., Rep. James Sensenbrenner, R-Wisc., and Sen. Dianne Feinstein, D-Calif.--urged Ashcroft "to prosecute individuals who intentionally allow mass copying from their computer over peer-to-peer neworks."

It didn't take long for the Justice Department to respond. A few weeks later, John Malcolm, a deputy assistant attorney general, said to expect some NET Act prosecutions. "There does have to be some kind of a public message that stealing is stealing is stealing," said Malcolm, who oversees the arm of the Justice Department that prosecutes copyright and computer crime cases.

Since then, however, there's been nothing but silence. The Justice Department has been tight-lipped about its plans, and did not reply to a request for comment on Friday.

Yet there are signs that prosecutions are coming soon. A person close to the RIAA told me there have been recent meetings with the Justice Department.

A second hint that pressure on the Justice Department is increasing lies in a statement of principles that the RIAA signed this month with the Computer Systems Policy Project and the BSA. The trio of groups say they want more "governmental enforcement actions against infringers."

For its part, the RIAA sent me a statement on Friday that seems to back that up: "We are in constant communication with various law enforcement agencies about all forms of piracy. It's illegal, and there clearly is an important role that law enforcement can play...It's important to remember that a 'Kazaa user' trafficking in copyrighted music without permission is doing something that is clearly illegal, as numerous courts have held that uploading and downloading copyrighted works without permission constitutes direct infringement. And it is well-established that copyright infringement can be a federal crime, so government enforcement seems perfectly appropriate."

Bob Kruger, BSA's vice president of enforcement, says his group is not actively lobbying for prosecutions of peer-to-peer users, bu t would not oppose them either. "Industry has an obligation to make law enforcement aware of the problems that beset it," Kruger said. "Congress has recognized that government enforcement efforts are part of the overall solution."

Ren Bucholz writes "In what was designed to be a "safety valve," the Copyright Office is holding its tri-annual search for exemptions to the DMCA's prohibitions on circumventing access controls. The Electronic Frontier Foundation submitted comments last December that outlined four "classes of works" that should be exempt, including copy-protected CDs, region-coded DVDs, DVDs with unskippable promotional material, and public domain works that are only available on DVD. They are asking people to write in support of the four exemptions that they have proposed. The Copyright Office is only accepting comments until February 19th, so get on it!"

The Copyright Office is conducting the rulemaking proceeding mandated by the Digital Millennium Copyright Act, which provides that the Librarian of Congress may exempt certain classes of works from the prohibition against circumvention of technological measures that control access to copyrighted works. The purpose of this rulemaking proceeding is to determine whether there are particular classes of works as to which users are, or are likely to be, adversely affected in their ability to make noninfringing uses due to the prohibition on circumvention of measures that protect access to copyrighted works.

"If allowed to make the rules, the entertainment industry will treat us all like criminals in their attempt to crack down on piracy" new survey.

And instead of worrying about online piracy, the US Congress' top priority should be protecting consumers fair use right to access, copy and enjoy content they acquire legally, said 60% of people who responded.

"More than 53 percent fear that Congressional mandates intended to limit piracy would only end up making an already complicated problem worse," said Scott Sutherland of marketing communications firm SutherlandGold, which conducted the survey.

Entertainment companies that argue the technology industry should do more to crack down on piracy get little support from consumers, said Sutherland, continuing that 54% also believe Congressional mandates might have the unintended consequence of stifling technological innovation and restricting law-abiding consumers access to entertainment content on the Internet.

"Much has been made of Hollywood's powerful lobbying voice in the Digital Rights Management debate," said Sutherland. "This survey shows that the technology community could greatly benefit from waking the real sleeping giant in this debate: consumers," said Lesley Gold.

The study also revealed that, "despite a host of legislation pending in Congress to address online copyright issues", only 18% of respondess believed it was important that Congress make addressing the issue of online piracy a priority this year.

A sizable majority also thought allowing Hollywood to dictate the terms of new laws intended to protect copyright would have highly negative consequences and more than 53% of consumers agreed with the statement, "that if allowed to make the rules, the entertainment industry will treat us all like criminals in their attempt to crack down on piracy. Congress has to make sure that new laws protect our rights to use, copy and share content we acquire legally while at the same time cracking down on piracy".

"Constituents appear to be saying that Members of Congress don't have their priorities straight," said the report. "Clearly, consumers feel protecting their right to access content is a far greater priority than protecting the interests of copyright holders."

Few Consumers Trust Policing Internet to Congress ...

• Only 4% of consumers believe the federal government should be responsible or get actively involved in preventing online piracy. Also,
• 40% said individuals are most responsible for their policing themselves online
• 35% said entertainment companies should do more to protect their content.
• While only 11% said technology companies and Internet Service Providers should do more to limit piracy.

Consumers Want Access to Content

• 28 percent of consumers said it was important that individuals be able to freely download copyrighted contents such as music or movies without paying for them as long as the content is only used personally and not distributed to others
• Only 2 percent thought it important to make sure people who steal content online are prosecuted to the fullest extent of the law.

When the world leader in consumer electronics takes a pass on the hottest portable music player out there, you have to wonder what gives. Sony became a global giant on the basis of innovative devices manufactured by the millions on nothing more than a hunch that people would buy them. Now Apple is delivering the innovation while Sony studies the matter.

What's changed since the original Walkman debuted is that Sony became the only conglomerate to be in both consumer electronics and entertainment. As a result, it's conflicted: Sony's electronics side needs to let customers move files around effortlessly, but its entertainment side wants to build in restraints, because it sees every customer as a potential thief. The company's internal divisions reflect those in the marketplace, where entertainment executives have declared war on consumers over file-sharing. But Sony's position is unique. It can settle the fight and flourish, or do nothing and be hobbled.

Instead, it's tried to play both sides. As a member of the Consumer Electronics Association, Sony joined the chorus of support for Napster against the legal onslaught from Sony and the other music giants seeking to shut it down. As a member of the RIAA, Sony railed against companies like Sony that manufacture CD burners. And it isn't just through trade associations that Sony is acting out its schizophrenia. Sony shipped a Celine Dion CD with a copy-protection mechanism that kept it from being played on Sony PCs. Sony even joined the music industry's suit against Launch Media, an Internet radio service that was part-owned by - you guessed it - Sony. Two other labels have since resolved their differences with Launch, but Sony Music continues the fight, even though Sony Electronics has been one of Launch's biggest advertisers and Launch is now part of Yahoo!, with which Sony has formed a major online partnership. It's as if hardware and entertainment have lashed two legs together and set off on a three-legged race, stumbling headlong into the future.

Newsmakers Robin Gross thinks international copyright laws are out of step with the people. So much so that the former Electronic Frontier Foundation attorney is launching a new watchdog group called IP Justice.

Her goal is to "promote balance in global intellectual property law." Gross says she wants to make sure people won't become targets of legal action for doing things like making personal copies of CDs, DVDs and e-books they've purchased.

Gross, who's officially unveiling the project in the next couple of weeks, envisions uniting programmers and online activists across the globe to make sure consumers get a fair shake in the copyright debate. She talked with CNET News.com about how digital technology is changing copyright law, why technologists and consumers should be concerned, and why she thinks the United States is one of the most "restrictive regimes" in this area.

"This year could determine whether the music business as we know it survives.

In the first six months of 2002, CD sales fell 11 percent - on top of a 3 percent decline the year before. Sales of blank CDs jumped 40 percent last year, while the users of Kazaa, the biggest online file-trading service, tripled in number. Meanwhile, the labels' new legitimate online music services attracted fewer paying customers than the McDonald's in Times Square.

As recently as 10 years ago, the media conglomerates that own record labels regarded them as cash cows - smaller than Hollywood but more reliably profitable. Now all five major labels are either losing money or barely in the black, and the industry's decline is turning into a plunge. In the next year, whether together or separately, the labels will have to set about totally reinventing the way they do business, a horribly difficult task for any institution.

To leap the hurdles posed by digital technology, the industry must find a way to make money selling downloaded music on a per-track basis, allow in-store CD burning, slash recording costs with cheap software and hardware, and change artists' contracts to reflect the new economic reality. Doing any one of these will be next to impossible. Doing all of them would be one of the more amazing turnarounds in business history.

The record labels blame piracy for their woes. And they're right - in part. Before writing this paragraph, I logged on to Kazaa. At 10 on a Monday morning, hardly peak time, 3.1 million people were on the network - more simultaneous users than Napster ever had in its heyday.

At least a hundred copies of every song on the Billboard Hot 100 were available for download. So were 13 out of 15 tracks on Mariah Carey's new CD, which wouldn't hit stores for another three weeks. And that's not even counting the discs sold on every street corner from the Bronx to Beijing."

What caught my eye when I first read about the record industry's attempt to ID and prosecute a KaZaa user for trading music files is how average he or she seems to be. The profile that Declan McCullagh offers on the individual in his article "RIAA wins battle to ID Kazaa user" is quite sparse, and yet is still telling.

This alleged peer-to-peer pirate has been targeted for trading hundreds of files. Not thousands, but hundreds.

In Napster's heyday when you could see the names of individual users and view just the files they had to offer there were plenty of folks who made available thousands of songs. Those Napster days are long gone, but more users are trading than ever and the number of files they each trade has also risen. I would think there were beter candidates. Certainly there are folk out there who share many more files.

It therefore makes me wonder if the Record Industry Association of America already knows the identity of this person. This is not a far fetched notion. Lawyers like to only ask defendants questions they already have the answer to, because there are no surprises. If they do know they have plenty of reasons to keep their mouths shut about it including privacy issues that might put the RIAA itself on the wrong side of the law. What make a small time trader in the Pittsburgh area so important?

I personally find the act of suing file-traders distasteful. It's bullying pure and simple as well paid music industry legal teams take on families who can barely afford a lawyer to fight a traffic ticket. When faced with the cost of defending a son or daughter or husband for using KaZaa, these families quickly buckle, paying an expensive fine to end a nightmare that can easily leave them both fiscally ruined and personally humiliated.

"See", the record industry will say, "They admitted they were guilty. They are now going to admit that file trading is wro…stop squirming or I'll rip your arm off…wrong".

What if the person in Pittsburgh is a 13 year-old girl who looks wholesome and normal? Grilling Peggy Sue on the stand would not make good press for the industry. Now if the defendant were a 22 year-old male dropout with a drug problem and a few tattoos - you know, fans of Ozzy and Metallica, not boy bands (and if you catch my irony about label created images, good) - then he would make a wonderful poster boy for music piracy. A rousing example of a burnout who steals from the record companies.

I have no way to know if indeed the RIAA has already identified this person. I doubt that the unsuspecting individual has any clue they are in the industry's cross hairs. Not until the FBI is manipulated into raiding this persons home, confiscate their computer as they ransack the house for evidence, and then slap the cuffs on them to parade them in front of their neighbors into a waiting police car.

Do you think that person being marched off to jail will be a little girl in a pretty dress (picture that on TV)? I don't think it will be, but again I don't know. This is all speculation.

What I do know is that a judge ordered Verizon to name this person and that the order made the front page of USA Today and most of the other major and minor newspapers. The record industry has everyone's attention and they want to use it to demonize this file trader in front of the whole world. They want to jail this person, vilify them, make them an example, and scare other consumers off of file trading in the process.

The record industry wants names to throw to the lions and use fear to keep the populace in check.

I am confident this strategy will backfire.

It backfired on the Roman Empire. It backfired on McCarthy during his communist witch-hunts. It backfired on the church at Salem.

It backfired because these acts only elicited mass sympathy for the victims. Victims who were unjustly murdered, jailed, and banned from employment. The record industry wants to now wants to litter the world with its own set of victims, ruined needlessly for a strategy that has no chance. As I said, I find this all distasteful.

Verizon said it will appeal the ruling. For the sake of the potential targets of this pogrom, I hope they are successful.

All anyone thinks about is money: "You don't hear any more of, 'Hey, we did something creative and we turned a profit, how about that?' Everywhere we look, we want to make the most money possible. This is a dangerous, corrupt notion. That's where you see the advent of programming on the radio, and radio research, all these silly things. That has made pop music what it is today. Everything -- morals, truth -- is all going out the window in favor of profit.

"I don't think it's a good attitude in your life to feel that you have to be rich to have self-esteem. You know, I saw a billboard in New York I wish I had photographed. It was for the TNN network. It said three words against a patriotic background of red, white and blue - BIGGER, YOUNGER, RICHER. Now, I find that fascinating: 'Bigger, younger, richer.' This whole idea of being wealthy has gone too far. I never ride in a limousine, you know. I feel gross if I get in a limousine. One good thing about the Sixties was it sort of was the opposite back then. You looked silly trying to appear rich."

It's ridiculous to make people pay twenty dollars for a CD: "It's funny how the music industry is enraged about the Internet and the way things are copied without being paid for. But you know why people steal the music? Because they can't afford the music. I'm not condoning downloading music for free. I don't think that's really fair, but I understand it. If you brought CD prices back down to $8.98, you would solve a lot of the industry's problems. You are already seeing it a little -- the White Stripes albums selling for $9.99. Everyone still makes a healthy profit; it might get the music business back on its feet."

When the record industry talks about a 5% or 10% drop in sales rarely has the acts of a dissatisfied consumer been included in the blame game. This is partially understandable, because while consumer attitudes can be polled, translating that into effect on sales is something harder to quantitatively measure.

Yet no one will argue that consumer dissatisfaction has an effect on sales. And what about consumer anger? That can have a significant impact for any company or industry.

Take the plight of the Audi 5000 and Suzuki Samurai in the 80's. When first released both vehicles were a big success, but when news stories and magazines brought up safety concerns for these vehicles, sales plunged. Part of it was naturally consumer fear. But the other part of it was an arrogant denial both manufacturers used as their tactic to fight the allegations.

It wasn't their cars, Audi and Suzuki said, it was bad drivers.

Consumers didn't buy it and that strategy backfired badly. Car shoppers not only stopped buying these particular models they stopped walking into Audi and Suzuki showrooms altogether, damaging the sales of their other models.

Want a more recent example? Martha Stewart's company has seen a 40% drop in revenue because of the insider trading scandal she presently is embroiled in. The product she delivers to millions via magazine, TV and Kmart has never changed. What has changed is the image of their spokesperson; little Martha, tainted in the eyes of millions who mix her recipes.

So what did the record industry do? First they saw the writing on the wall early and pushed through an act in Congress that would impose fees on net radio stations that terrestrial stations are not required to pay. Known as the Digital Millennium Copyright Act (DMCA), it required Net radio to pay extra for the right to stream. But how much extra? Enter that other and more recent oligopoly, broadcast radio.

The RIAA knew that market rates would dictate to the Library of Congress - who were to set the first Net Radio rates - what these charges should be. The RIAA also knew they could manipulate what "market rates" would be by signing ridiculously high contracts with deep-pocketed companies who themselves stood to profit by high rates, even though they had to pay them, because it would immediately price out much of the competition.

High rates would guarantee that Net radio would become the domain of corporations, not kids with access to Mycaster or Shoutcast. Not even college radio stations looking to rebroadcast their programming or small Internet companies looking to create a legitimate business on the Net.

That ruse worked as the Library of Congress put not only high fees on even non-profit Net radio, but the burden of record keeping on these Net radio stations. So far, the small Net radio stations have balked, successfully introducing a bill that would at least postpone payments to the RIAA until these rates could be re-evaluated.

Unfortunately, the Capital Hill savvy RIAA was able to corrupt that bill only moments before it was passed last week, counting on the fact that none of the members of the house would look it over again prior to voting on it. The House passed the bill, never realizing until it was too late that the one paragraph passage temporarily freeing small Webcasters was rewritten by the RIAA in the dead of night into a 28 page monster that put even more restrictions on Webcasters (we push you to read RIAA-backed webcast bill).

The bill is now in the Senate. Even if the Senate kills the now pro-RIAA bill, that works out fine for the record industry as it still stopped the Goverment from giving Webcaster a reprieve. Without a reprieve from Congress the music industry can now start demanding non-refundable payment from Net radio stations - fees retroactive to 1998.

"They are apparantly concerned about Brilliant Digital's Automatic add-on software package which has been reported to contain a stealth distribution p2p network. "

"It makes me wonder why anyone who is aware of all the spyware, adware, and such being quietly loaded on unsuspecting machines would ever download KaZaa. This is especially true with the recent Brilliant Digital Entertainment scandal where loading KaZaa automatically makes you a part of a distributed computing scheme whose inclusion you never authorized."

"Distributed computing is OK when you volunteer willingly. Brilliant Digital Entertainment abuses this and should not be allowed to covertly plant their little programs into the drives of the unsuspecting KaZaa users for the privilige of upgrading to the latest version of what is becoming a notorious P2P program."

"A check on Sunday confirmed that the program was no longer available on Download.com's "Most Popular" download rankings, a ranking that regularly listed KaZaa in the top five. KaZaa did rank number four under the "Most Talked About" rankings, but the link on the KaZaa page to download the program had been disabled. As of this morning, KaZaa has been removed completely."

"MusicCity is the first site for independent artists where listeners can sample their music and buy it, " said Steve Griffin, CEO of StreamCast Networks, the parent of MusicCity.com. Previously, the site only housed the software that enabled users to share files. The new site will still run on the same technology, but users will be directed to a separate site, Morpheusos.com, to gain access to the software. The company plans to take 30 percent of the revenue made from song or album downloads off the site. The artist would take the remaining 70 percent. The price of downloading one song currently ranges from 50 cents to $1.50, at the musician's discretion."

"Blubster is designed to make the P2P experience easy for just about anyone. If you were comfortable using Napster, Blubster should make you feel right at home."

"Like all the P2P networks we test, Blubster was critiqued on a 740K DSL connection. With more popular songs, we were able to take advantage of the intelligent download feature and achieve full download potential. As more people populate this network, it should be easier to take advantage of this feature for less popular files."

"Blubster takes advantage of decentralization and a strong community to deliver a fulfilling adventure into the P2P world. As Blubster continues to grow, its resourcefulness will benefit, and hopefully we'll see support for all file types in the near future."

"Kazaa BV founder and FastTrack creator Niklas Zennstrom wrote this statement to CNET News. "MusicCity (also known as StreamCast Networks) has failed to pay any amounts due to Kazaa BV under the parties' license agreement. As a result of MusicCity's breach, Kazaa BV did not provide version 1.5 to MusicCity. Kazaa has also terminated MusicCity's license."

"It was only a few weeks ago that word spread that Morpheus had a security hole that made user's PCs vulnerable to attack. Morpheus vigorously denied this was true, using their home page as a forum for what they called a fasle rumor. That denial was on the company's website when its system was brought down."

"The attacks have forced the company to dramatically rework their plans for the client. Most prominent is the confirmation of our suspicions that Morpheus is abandoning the proprietary FastTrack network for Gnutella."

"What's remarkable about the new Napster is how similar it feels to the old one. This is still very much a file sharing technology. The best things about Napster - browsing through a real person's music collection, sending them messages and recommending them new music - are still there."

"But so are the disadvantages - broken tracks, cancelled transfers - and a complete inability to stream or preview tracks."

"There is new functionality within the Napster application but most of it revolves around the mechanics of charging up a subscription (you get 50 tracks a month, it seems) and deducting downloads one at a time until the account needs replenishing again."

"The option to burn songs to CD or move them to a portable player is noticeably absent. As is any option to search for MP3 files alone."

"Content-wise, there's next to nothing. There's a whole load of tracks from Vitaminic, which is being served into the service by a dozen, maybe more, official Vitaminic computers. Of course this won't cut it in the paying Napster service, because anyone can go to Vitaminic's site and find the same songs in MP3 for free."

"Finally, the question you've all been wondering - does Napster recognise the files in my MP3 music collection. Right now, no it doesn't seem to."