"The late 1990s saw the Internet enable the creation and distribution of thousands of hours of video and audio programming - an explosion of opportunity that will continue for decades."

"As leading technology companies that distribute content via the Internet, we urge the administration to pursue an inclusive treaty that protects the rights of all who perform and distribute audio and video to the public; and to insist that the proposed broadcaster rights treaty grant legal rights and effective legal remedies against piracy of wire and wireless broadcasts, including Internet broadcasting."

These are two excerpts from a letter written to Secretary, US Department of Commerce by the Digital Media Association (DiMA). They effectively showcase the concerns of media companies about the Internet and its future role.

Free downloads may be an ugly side of the Net, but it cannot be wished away. Not when a Music Business International magazine survey forecasts that music purchases over the Internet will rise from 0.5 per cent in 1998 to 11 per cent by 2005. E-music is an integral part of the future. The $38.5 billion global music industry has been at the receiving end of many technological buffets. Its concerns today are: how to make use of the opportunities that the Internet offers and how to protect revenues from being eaten away.

Protection is need of the hour
Piracy remains the biggest concern. Industry sources estimate that loss of potential income due to piracy is 25 per cent and it stands to increase to 40 per cent over the following two years. This is highly alarming. More alarming is the fact that the impact on the music segment would be much more than on the entire industry. This is because the audio industry is a very tiny segment of the software industry and consists largely of small companies that would be much more vulnerable to revenue losses. Though many companies are reporting good revenues from doing mail-order CDs and selling adspace on music-related sites, no one has managed to make the online musicbusiness profitable. Hence the need for action is imperative.

The strongest action launched for copyright protection so far has been the Secure Digital Music Initiative (SDMI). A group of around 150 companies are operating under a framework to ensure against copyright violation of digital music in the process of on-line distribution. The SDMI adopted its first standards to prevent pirated music files from spreading and plans to adopt a finalised version of standards in around December. The second lot is expected in April. The members include music distributors, on-line PC communications service providers, computer manufacturers and home electronics makers, who are at the forefront of on-line music distribution.

SDMI's effect is already visible in technological areas like MP3 players. Korea, emerging as the world's leading manufacturer of MP3 players, has over 100 companies in the MP3 player industry. But of these, only majors like Samsung, LG Electronics and Saehan Information Communication are joining the organisation. Once its final version of standards is adopted in December, SDMI plans to charge some $10,000 by way of admission fee which will be a big burden, since most Korean companies are small in size. For them a possible alternative would be a state organisation involved in distributing components qualifying the SDMI specifications. For their part, SDMI also specifies that Korean majors should make efforts to agree on domestic standard specifications for the device.

Cometh the saviour?
But the SDMI has its fair share of critics. David Weekly, who runs an eponymous site, argues that the singular watermarking technology, Aris, is no choice. Once in place, the only way for an artist to get their music on SDMI-cleared devices is to use software licensed from Aris to put the "SDMI Kosher" watermark on their music. To sell music from their website, artsts would need to purchase a complex per-user watermarking server, with Aris-licensed technology. Device manufacturers seeking to become SDMI-compliant will have to license watermark-decoding technology from Aris and likely pay them a per-device fee.

All this effectively puts the small musician, who belived himself liberated, out of the picture.The SDMI committee is giving Aris a monopoly and works strongly against small publishers.

Another grouse is that SDMI holds that computers will not be under its restrictions, only portable music devices. And yet, to quote David Weekly, "this distinction gets more blurry day by day! This fake protection is not the savior. It will have its heyday, but it will fade as people realize the power of openness."

Even in technology protection, companies have been heavily active. Following the announcement by the record label companies that they intend to offer music in copyright-protected forms, both hardware and software companies are partnering to create a secure pathway for the content to go through. Digital rights management (DRM) is another hot thing on the international circuit. Players like Creative Labs and MusicMatch have taken steps to support this in their hardware and software, respectively. Creative has integrated technology from InterTrust, a DRM leader, in its hardware.

Pairing with InterTrust also provides Creative a near-certain guarantee that its player will be compatible with new music from BMG and Universal Music Group, who have already announced support for InterTrust's DRM solution.

According to a recent report in Webnoize, the Recording Industry Association of American (RIAA) plans to file a lawsuit against software company Napster for contributory copyright infringement. The RIAA holds that Napster was aware that its software was being used for copyright infringement, and thus significantly participated in that infringement.

Internet may hold the answer
The Internet is also being perceived as an opportunity to widen markets. In this regard, Sony Music has been among the most active explorers. It is into promotion of digital broadcasting, by broadcasting music of some major artistes for the first time in the new format. It also has big plans for its initiative with EMI, Universal Music, Warner and IBM to allow full-length CDs to be downloaded.

Competition between IBM and Microsoft is intense. IBM and Sony joined forces to deliver pirate-proof songs over the net and let consumers play them on a portable device, immediately after Microsoft launched the test version of its new digital audio software. While Microsoft and other companies have beaten IBM in rolling out software and consumer devices, none has the explicit backing of the recording industry.

Microsoft has also joined hands with Musicmaker.com wherein the Internet music site will make its catalogue available through the Windows Media directory. Similarly, AT&T Corp, Matsushita and Seagram are some companies that plan to come together to set up a system for the on-line distribution of music. Seagram has formed an alliance with Bertelsmann AG, Germany's third-ranking media company, which gives it a presence alongside music retailers like CDNow and Amazon.com.

Alliances are aplenty too. Yahoo!, the most popular Internet search directory and one of the most-visited portals, is interested in increasing its presence to sports, news and music programmes. For that one source was the planned outright acquisition of Broadcast.com.

Elsewhere, Net-based music company Launch Media has formed a content and advertising sales alliance with more than 20 other music Web sites, wherein it will share some content from its website Launch.com with them and take over advertising sales. Other sites are paid a guaranteed minimum and they get economies of scale not possible otherwise.

Similarly, Virgin JamCast, a joint venture of the Virgin Entertainment group, announced that it would offer, in an alliance with Liquid Audio, its 37,000-strong catalogue on the Net. Reports hold that this is the first arrangement where digital music is being delivered directly to users' desktops.

Basic concerns
But protection fears still reign. Till the second phase of the SDMI, scheduled for April, is completed, no one wants to take chances. Microsoft found out this the hard way when it launched its WMDM technology to secure music distribution over the Net. As reports go, it was cracked within hours and the relevant code was widely distributed by the cracker himself.

But all this has one bright side " it has revealed that there is indeed a huge market for audio software. The only bone of contention would be to make security effective. That would really be the key issue. It is well-established that copy protection enforcement would be tedious and expensive " it would make a lot more sense to change the user's mindset. Pricing technology low enough to make piracy ineffective would then rake in the benefits of huge volumes.