The main differences between Zookz and most online outlets for bootlegged goods are that it's not a file-sharing network and that the content isn't free. Instead, it's just insanely cheap. The company's impossibly low prices reflect the fact that it doesn't pay for most of its inventory or share revenues with copyright holders. All the proceeds go to Zookz, its 10-person staff in St. Johns, Antigua, and (through taxes) the Antiguan government.

How can it get away with this, you ask? I'm not sure it can, but here's its argument....

The governments of Antigua and the United States battled for several years before the WTO over whether U.S. restrictions on online gambling discriminated against foreign firms. The WTO sided with Antigua in several preliminary stages, but the U.S. kept contesting the body's findings. So to increase the pressure, Antigua asked WTO arbitrators to give it permission to suspend its obligations under sections of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement related to copyrights, trademarks, patents, industrial designs and trade secrets. The arbitrators agreed in December 2007, finding that Antigua could request the WTO's permission to suspend its obligations up to a value of $21 million annually.

Citing that ruling, a company in St. Johns called Carib Media -- led by a prominent local attorney and entrepreneur named Hugh Marshall -- came up with the idea for Zookz. A preliminary version of the site went live last week with a relatively bare cupboard: about 50,000 MP3s and 1,500 movie files in a DRM-free MP4 format. (A spokeswoman for the company said it's adding 10,000 songs and 300 movies a week, but at that rate it will take decades to catch up to the inventory at iTunes and Amazon.com). Among the tracks it offers, though, are ones you can't find on any legitimate online music service, including songs by The Beatles.

Copyright holders say the WTO ruling doesn't give companies in Antigua a free pass to violate the copyright laws of Antigua or any other nation, or other international copyright treaties that Antigua has agreed to. The Office of the U.S. Trade Representative contended in an e-mail, “There is no website anywhere in the world that has WTO authorization to engage in copyright piracy. Any representation to the contrary is false, and should be dealt with by the appropriate domestic authorities.”

It's not clear what, in fact, the ruling would let Antiguan firms do. According to Neil Turkewitz, an executive vice president at the RIAA who specializes in international issues, the first step would be for the government of Antigua to seek the WTO's approval for a method to impose the $21 million worth of sanctions. "There’s been no request, and there’s been no consent granted to proceed in this manner," Turkewitz said. And even if the WTO did permit a downloading service, he said, it would have to be confined to Antigua and limited to U.S. intellectual property. No Beatles songs, in other words.

That's a total misreading of the WTO's ruling, argued William Pepper, the company's legal counsel. "There is no burden on Antigua to go back and do anything with anyone," he said in an interview. He claimed that the ruling is much more expansive than the USTR or Turkewitz acknowledge, trumping all other intellectual property laws and agreements and imposing no limits on where Antiguan firms can do business online. The only restriction set by the WTO, he said, is that companies in Antigua can take in no more than $21 million a year through the sale of copyrighted material. Zookz is the only one so far, he said, but if others launch, they'll have to work together to observe that limit. And if Zookz nears the $21-million threshold on its own, Pepper said, it may have to start giving away movies and music.

There's something illogical about that stance. It suggests that if a company didn't charge anything for the downloads, there would be no limit to the quantity of intellectual property infringed. It seems much more realistic that the WTO was imposing $21 million worth of pain annually on U.S. industries, measured by the market value of the intellectual property distributed. A single trade secret could be worth well more than that sum. Nor does it make sense that the WTO would allow Antiguans to exploit intellectual property from countries other than the U.S. -- French movies, say, or Canadian rock -- when Antigua's beef is with Uncle Sam alone.

Pepper said the whole mess could have been avoided had the U.S. taken seriously Antigua's complaints that it was discriminating against offshore betting houses. Antigua has a point about that; Congress allowed some U.S. operations (e.g., race tracks) to take bets online, but barred offshore operators from getting into the game. Rather than complying with the WTO's findings on that issue or finding a way to mitigate the harm to Antiguan gaming businesses, Pepper said, the U.S. government effectively ignored them. "The Americans want to deal with this issue? Fine, they have to come and talk. The movie industry wants to deal with this issue? Fine, they have to come and talk."

The attorney also said the company was concerned about the effect on "creative artists" and would be happy to discuss ways to keep individual artists from being affected by Zookz. But he added, "There's no way we can surrender the right and the opportunity to create more jobs, to generate more revenue up to $21 million, and to benefit the consumers of America."

Naturally, the MPAA doesn't see Zookz as a modern-day Robin Hood. Said spokeswoman Elizabeth Kaltman in an e-mail, "The suspension of intellectual property rights is not an action this pirate Website can undertake on its own. It is, pure and simple, another example of a movie pirate, stealing movies from creators, and attempting to profit from its theft."

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Nevertheless, software developers keep trying to coax out the public's inner Prince. The latest example is Romplr, which launches this morning as a $5 iPhone application. Created by Moderati, the company behind the virtual Zippo lighter, Romplr is song-remixing software that enables people to create new versions of tunes by rearranging their components. The initial version comes with three songs by hip-hop hit maker Soulja Boy Tell 'Em: “Crank That," "Hey You There" and "Turn My Swag On." In addition to bass, drums, vocals and other sonic elements from the originals that can be dropped in and out, Romplr provides seven additional samples that can be sprinkled into the mix. Think of them as flair. See a demo here. Naturally, you can share your mix with friends, including the ones you don't really know on Facebook.

(For those of you who aren't so taken with Soulja Boy, there's a second version of Romplr featuring three dance tracks created by the company's in-house stable of composers -- presumably the ones Romplr doesn't have to pay royalties.)

In the continuum of music-related apps that stretches from the purely passive to the labor intensive, Romplr falls right in the middle. It's more elaborate than Bebot's melodic robot cartoon or Pianofly's virtual keyboard, and it's not purely a game, unlike Tap Tap Revolution. But it's less of a gateway music drug than iDrum or Looptastic, which offer greater possibilities for truly original music-making. The main shortcoming is that you can't add anything of your own to Romplr's tracks, unlike BeatMaker's mobile sampler. That, to me, is what makes computer programs such as Acid and GarageBand so rewarding. And make no mistake, the iPhone is a computer capable of more than rudimentary recording: Just witness what locker indie rockers the 88 did with the iPhone Four Track app.

A spokeswoman for Moderati said a future version of Romplr may give users the ability to add their own sounds or tracks. More definitive are the plans to offer more prerecorded song downloads and to produce versions of the app for other smartphones (wait -- there are other smartphones?!?).

The point for Romplr is to sell apps. For the artists who offer their tracks for remixing, though, there's a payoff beyond the song royalties that's less direct and more consequential. Giving people a chance to break songs down enables them to see more of the artistry involved in recorded music (although, in some cases, the artistry is coming from the producer, not the band). It also deepens the relationship between the artist and the fan by encouraging the latter to make an investment of time and effort into the artist's music. This is what remix culture is about -- letting the fans interact, not just listen.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Created by the team that developed Tickle.com (the source of many an online personality test), SuperFan plans to make money by selling credits that its members can use to control fan pages and targeted advertisements. More interesting to me, though, is how SuperFan functions as an overlay onto YouTube (and, eventually, other online video sites). Most of the items in SuperFan's inventory of user likes and dislikes include links to images and YouTube videos posted by users. In other words, the site acts as a collection of favorites. "We really want this to be driven by the fans," said Rick Marini, the site's founder and chief executive. That's a bit different from social-media sites such as TVLoop and First on Mars, where users' likes and dislikes can help guide others to choice nuggets within the vast amount of content available. SuperFan moves in the other direction, starting from scratch and offering only the material that's drawn a reaction (good or bad) from its members. It also helps users discover content in more indirect ways than other social-media sites. For example, you might track down the members who share your love of death metal or Jonathan Lethem (or both!) to see what movies or TV shows they recommend. My guess is, that's a technique better suited for those with eclectic tastes.

SuperFan will probably have to attract far more users to become a compelling media portal. But Marini seems to believe that the site's main appeal will be the platform it provides for declaiming one's loyalties. "Everything that defines who you are, you can express on the site," he said. It takes more time to do that than some people may want to invest, and the process of suggesting a favorite not already in SuperFan's database is laborious. In fact, the site reviews the new nominees to make sure they might appeal to other users, too. "We want to include those people, those bands" that users suggest, Marini said, "but I don’t want to put in 'I’m a fan of my cat.' That’s not interesting to the community. There is a gray area we have to get through each day on what makes the cut." That strikes me as both arbitrary and not particularly effective at weeding out the things the site really should be concerned about, namely, marketers creating bogus users to pump up their clients.

Each item has a "SuperFan" who controls some elements of its fan page. To become a SuperFan, you have to either claim that spot before anyone else does or spend SuperFan credits to buy your way to the top of the heap. The site awards credits for creating or uploading content, but it also sells them. Those sales will be the site's main revenue stream, Marini said. It also hopes to command higher-than-average rates from advertisers because of its ability to target their pitches. According to Marini, SuperFan can offer advertisers a more complete profile of its users than other social networks "because we know everything you love in life." He added that the company won't share personally identifiable information with advertisers; instead, it will put their pitches in front of users who match the profiles they're interested in. Still, the more accurate the targeting, the more unsettling the practice may be to users. There's also a limit to how narrow advertisers want to make their pitches; at some point, targeting yields an audience that's just too small to be interesting.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Those percentages seem outrageous, but consider this: The royalty set by the CRB for 2009 amounted to 2.7 cents per listener per hour of music streamed. The fact that such a fee would amount to 70% or more of a webcaster's income shows how little these companies have been able to generate from advertisers. The picture has actually worsened for webcasters this year as advertisers cut their spending online and off, strengthening the companies' argument for a discount.

If the numbers were so stark, why did it take a virtual eternity for webcasters and the music industry to agree on a model that seems sustainable? I'd blame four things:

• An arbitration process that discouraged the two sides from bargaining. Under federal copyright law, webcasters have the right to play songs online (subject to some irritating limits on playlists and customization), but the royalty rate is set by mutual consent. If the sides can't agree, a federal panel sets the rate. But the mere existence of the panel made webcasters and SoundExchange reluctant to strike deals, for fear of sacrificing too much and having the panel apply those terms to the entire field.
  
• The webcasters' belief that Congress would save them by passing something like the Internet Radio Equality Act. It wasn't as quixotic as it sounds -- that's what happened in 2002, after the Copyright Office imposed the initial royalty rates for online broadcasters. 
  
• The wide range of webcasting businesses, which hindered agreement on a percentage-of-revenue model. One often-repeated argument coming out of the SoundExchange camp was that some webcasters were Internet powerhouses. But companies such as Yahoo and AOL weren't making boatloads of money off their webcasts -- they had many other sources of revenue, and they wanted the royalty calculation to be based just on the revenue directly attributable to their music streams. (Both companies, by the way, turned over much of their webcasting businesslast year to a major over-the-air radio chain, CBS.) SoundExchange naturally resisted that argument, arguing that it would encourage companies to cross-subsidize their webcasting operations and run fewer ads in their streams. Significantly, the deal announced Tuesday doesn't apply to multifaceted operations -- it's for companies that do webcasting and nothing else.
  
• The copyright holders' interest in maximizing the amount of revenue, not maximizing the number of webcasters. Major labels and performing artists weren't offended by the prospect of high rates driving struggling websites out of business. They wanted listeners to go to sites that were capable of generating significant royalty payments. The webcasters, meanwhile, were struggling to line up advertisers and attract listeners, who had (and have) an ever-increasing number of alternative sources of free music. Over the months of negotiations, SoundExchange agreed to establish several tiers of discounts for hobbyists and small commercial webcasters, with audience caps and limits on songs streamed. The latest deal has tiers too, offering webcasters with less than $1.25 million in revenue the ability to pay 10% to 14% of revenue or 7% of expenses, whichever is greater. "There was certainly concern on our side that many, many small services might erode audience from services who really were trying to make a business work," SoundExchange Executive Director John Simson said in an e-mail.

SoundExchange also agreed to cut the per-song royalties by about 50% for non-subscription webcasters in the new deal. But the more significant step forward is its willingness to accept a percentage of revenue even from popular webcasters, albeit a higher one than it collects from satellite radio services. (That's another thing webcasters find galling: how much more they pay, in percentage terms, than their competitors. On the other hand, their business models and costs are quite different.) Such arrangements aligns the interests of webcasters, labels and performers far better than per-song royalties do. But it's worth remembering that SoundExchange characterized the new deal as "experimental," signifying its hesitation to commit to a percentage-of-revenue model. Considering how well such an arrangement has worked for music publishers and conventional radio stations, I'm betting labels and performers will grow comfortable with it as well.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

What's interesting here is how Fotoglif confronts a problem common to copyright holders online. Just as it's relatively easy to find and copy media online, it's brain-dead simple for Web publishers to grab photos from around the Net and slap them onto their sites. Sure, there are companies such as Attributor that crawl the Web to search for unauthorized uses of copyrighted material, helping the owners of the material to identify infringers. But the scale of the infringing is vast, and it's not clear how much return a copyright holder might get from a big investment in enforcement.

Instead of trying to track and stop infringers, Fotoglif's strategy is to offer online publishers something better than free ...

Each image in its library — it receives 20,000 to 30,000 new news-related photos daily from such partners as Getty Images and Thomson Reuters, Betts said — comes with a display ad attached to the base. The ad generates revenue that's split between Fotoglif, the copyright holder and the publisher. To use an image, bloggers merely embed the code supplied by Fotoglif (it's JavaScript) into their post. The image and the ad is then delivered by Fotoglif's servers.

The value proposition is simple for bloggers and other publishers: It is truly better than free. There are, however, some trade-offs. The ads are chosen by Fotoglif, not by the publisher, although Betts said the company wants to develop a way for publishers to block ads from competitors. And at this point, the images are available in only three sizes. An example of the smallest format is shown to the right; the ad beneath the photo is the one supplied by Fotoglif.

Those limitations may not matter to Fotoglif's target audience: bloggers and small Web publishing businesses. "We are not trying to market ... photos to the Los Angeles Times or the New York Post," Betts said. It's focused narrowly on the folks who don't have the wherewithal to pay the fees that the photo agencies ordinarily command — the ones who've been copying and reusing images without attribution or compensation. Nor is the revenue generated by the ads "terribly monumental," Betts said. "At this point it's a small operation," he added. The goal is to create broad networks of sites that use the photos, achieving the kind of scale that can attract bigger advertisers and larger payments.

In short, rather than trying to sell its partners' copyrighted images to an audience that's reluctant to pay for content, Fotoglif is using that content to gain a presence in the blogosphere that it can monetize. It's not monetizing the photos directly, it's capitalizing on the activity around them — in particular, in the public's interest in news and commentary from sources beyond traditional media outlets. And having tried for several months to build support among bloggers just by offering them the free use of images, Fotoglif has upped the ante by promising to pay websites that use its ad-equipped photos a share of the revenue. Such an all-carrot, no-stick approach seems rare in the copyright world, and Fotoglif and its agency partners deserve credit for trying it.

Photo: Joanelle Romero performs a sacred Indian traditional drum and song live in front of the Jackson family home in Encino on July 6. Credit: Giulio Marcocchi / Sipa Press, via Newscom and Fotoglif

— Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

The first is the latest lawsuit filed Monday by MCS Music America of Nashville and a dozen other music publishers against the operators of two current and one former subscription-music services. The suit seeks a hefty financial penalty from the companies for including the publishers' songs in their services, even though federal law compels the publishers to grant the necessary licenses. The second is a move by the American Society of Composers, Authors and Publishers to have a federal court declare that cellphone ringtones aren't downloadsbut rather public performances for which they are entitled royalties. In other words, ASCAP argues that playing a 15-second snippet of "Don't Talk to Me About Love" when a call comes in is the legal equivalent of blasting the song over the speakers at a hockey rink. In fact, ASCAP argues, it's an infringement even with the volume turned off.

The two cases illustrate the minefield that copyright law presents to companies that dare to venture into the digital music business. But first, here's some background information about the different types of copyrights held by music publishers (who represent songwriters). In the analog world, music publishers collected either a "mechanical" royalty when their songs were recorded and copied onto a single or album, or a (significantly lower) "performance" royalty when their songs were played in public. The latter included not just concerts, but also music played in public spaces (bars, restaurants, office-building elevators).

In the digital world, you might think that downloads would trigger mechanical royalties and that streams would trigger performance royalties. Unfortunately, the transition hasn't proved to be so simple. Courts and the Copyright Office have ruled that publishers can collect both kinds of royalties on some services, such as on-demand streams from an online jukebox. The rationale is that a copy of the full song is made in the process of delivering the stream. The publishers also argue that users will substitute on-demand streams for downloads, so the royalty payments should be equivalent.

One more note: Until last year, the online music services' trade group, the Digital Media Assn., or DiMA, contended that on-demand streams were purely performances, not downloads. In September 2008, however, DiMA reached a deal with the National Music Publishers Assn. and two other groups of songwriters acknowledging that on-demand streams were a form of download, and setting a royalty rate retroactive to the launch of the first services. These royalties were eventually incorporated by the Copyright Office into the regulation that applies to all services and copyright holders.

Unfortunately for RealNetworks (which co-owns the Rhapsody subscription service), Microsoft (which operates Zune Pass) and Yahoo (which used to offer Yahoo Music Unlimited), the 13 plaintiffs in the MCS lawsuit are not members of the NMPA. They claim that the services infringed their copyrights repeatedly by offering on-demand streams and temporary downloads (another class of service covered by DiMA's deal with the NMPA). This is the "gotcha" aspect of the case, which is the second MCS has brought against online music operators (it settled with Napster last year).

ASCAP, BMI and SESAC offer blanket licenses for performance rights, giving services a three-stop solution on that front. But there's no similar group or groups for mechanical licenses despite the fact that Section 115 of the Copyright Act compels publishers to provide such licenses upon request. The NMPA is the largest collection of publishers, with more than 700 members representing tens of thousands of songwriters. But thousands of others aren't affiliated, which presents an enormous logistical problem for companies such as Napster, RealNetworks and Microsoft that want to offer comprehensive libraries of music. Making matters worse, there's no central registry of copyright holders. "The problem is, the law is made for aggressive outliers," complained Jonathan Potter, executive director of DiMA. Referring to MCS, he added, "These guys are copyright trolls."

Attorney Stephen Grauberger, who represents the music publishers in the case, asserted in an interview that there was no compulsory license for temporary downloads until the Copyright Office's regulation took effect March 1, and that the regulation doesn't apply to on-demand streams regardless of the NMPA's position to the contrary. Even if he's wrong on those points, his clients may still win by showing that the three services or their subscribers made copies of the songs without first asking for licenses. As it's written today, the licenses in Section 115 may be compulsory, but they're not issued automatically.

DiMA and the NMPA tried to help services guard themselves against such lawsuits, teaming up behind a bill in 2006 to make it easier for services to take advantage of the compulsory licenses called for by Section 115. The measure would have created one or more clearinghouses where services could report the songs performed and pay the appropriate royalties, which the clearinghouses would distribute to the respective songwriters or publishers. The burden would have been on the copyright holders to tell the clearinghouses which songs they owned rather than requiring the services to track down that information. But the bill died in subcommittee in the face of opposition from broadcasters and tech companies that were concerned about its unintended consequences. Both Potter and David M. Israelite, president and chief executive of the NMPA, said there's been no effort to revive the proposal since then.

In the ringtone case, ASCAP's argument is the mirror image of the NMPA's on interactive streams: It contends that ringtones involve a public performance when they're first delivered to a cellphone, and again when the phone rings. My favorite part of ASCAP's latest brief is when it explains what makes a ringtone a public performance: "It need only be 'capable' of being performed to the public; whether the ringtone is set to play, and indeed whether anyone hears it, is of no moment" (emphasis added).

As if that wasn't bold enough, the brief later says, "Whether the device is on or off, the volume is turned down, or the phone is placed on vibrate, AT&T has caused a public performance." (ASCAP brought a similar action against Verizon Wireless.) I'm no lawyer, but from a policy standpoint, it's absurd to argue that a public performance occurs when there's no performance to anyone, anywhere.

ASCAP has said it doesn't plan to try to collect royalties from people whose phones play music not of their own creation. Thanks, but that's cold comfort. As three tech advocacy groups argued Wednesday in a brief opposing ASCAP, by asserting that AT&T was liable for its customers' use of ringtones, "the infringement accusation [by ASCAP] against consumers is plain." And if a ringtone is an infringing public performance, then so is singing in the YMCA shower or playing an iPod with headphones that leak music (although, as a regular user of public transit, I'd strongly support a prohibition on leaky headphones).

Some folks may pick ringtones precisely because the public will hear and admire them, just as some people carry boom boxes in public or sing as they shop. But as the advocacy groups note, copyright law provides a specific exemption from infringement claims for performances that aren't transmissions to the public, seek no commercial advantage and collect no compensation. Does that ring a bell?

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Variety reported that Swedish video game company Global Gaming Factory X agreed to pay about $7.7 million to buy TPB, although the site's blog hinted that the deal was still tentative. (Apprently, the buyer still has to raise the money.) Variety quoted Global Gaming CEO Hans Pandeya as saying the value in TPB was its traffic: more than 20 million visitors and 1 billion page views a month.

"In order to live on, The Pirate Bay requires a new business model, which satisfies the requirements and needs of all parties, content providers, broadband operators, end users and the judiciary," Pandeya said. "Content creators and providers need to control their content and get paid for it. File sharers need faster downloads and better quality."

But as TPB's blog notes, "If the new owners will screw around with the site, nobody will keep using it. That's the biggest insurance one can have that the site will be run in the way that we all want to." Loosely translated, that means Global Gaming will quickly lose those 20 million visitors if it tries to stop users from downloading "Transformers: Revenge of the Fallen" for free....

Efforts to transform hotbeds of music piracy into legitimate distributors of licensed content have either failed outright or struggled to build an audience. (Even companies that merely used file-sharing technology to deliver entertainment have had a rough go; witness the restructuring Joost announced today.) Video presents an even greater challenge, because movie studios refuse to make new films available for home viewing until months after they've made their run through the multiplexes. This delay creates a window for pirates to rule as the sole supplier of titles to consumers, including film buffs who'd happily pay for the right to watch the movie at home. If TPB's new owner gives Hollywood control over when movies appear on the network, new releases will vanish and so will users. There are too many other sites that can help people find and download the bootlegged version of "Transformers: ROTF" long before the DVD comes out.

Nevertheless, Global Gaming's apparent willingness to work with content owners presents another chance for the entertainment industry to convert masses of file-sharers to revenue-generating customers -- a chance they weren't able to take advantage of with the original Napster. Paul Myers, the entrepreneur behind the defunct Wippit file-sharing service in the U.K., said it's conceivable that Global Gaming could use the proceeds from video game sales to subsidize other downloads. One challenge for the company, though, is that studios, record labels, software companies and video game developers would expect to be paid more than pennies for each full-length movie (or CD) downloaded. Given the volume of downloads facilitated by TPB, the result would quickly be an overwhelming royalty bill for Global Gaming. One possibility, Myers said, is that the new company would create a royalty pool from the money generated through advertising or other commerce on the site, rather than trying to license the content, and would agree to remove any movie, song or game the copyright owners didn't want shared -- one file at a time. If the content owners objected, Global Gaming could insist that it had made a fair offer and gird for battle in court. Such an approach wouldn't work in the U.S. legal system, however, and it's not clear whether it would have pass muster in Europe, either.

Meanwhile, TorrentFreak reports that TPB is ridding itself of any physical connection to the files its users swapped. TPB never hosted the files being shared, but it did store the "torrent" files and supply the tracker software needed for users to find and download movies and other content. Now, according to TorrentFreak's Ernesto, TPB plans to use third parties for the tracker and the torrents. These moves will make TPB operate more like Google, although (depending on Global Gaming's approach) it may still retain a, well, problematic focus. And even if Global Gaming takes TPB in a completely different direction, the technologists behind the network still seem dedicated to helping the masses share video without regard to copyrights. Its most recent projects include an anonymity service to help Internet users (including file sharers) avoid the prying eyes of government, and VideoBay, a site that lets people stream any video supplied by users, a la YouTube but without the attention to takedown notices.

The information-must-be-free culture advanced by TPB makes for a lousy fit with Hollywood's business model, just as Hollywood's desire to keep content scarce and parcel it out in exclusive windows is a lousy fit with the Internet. Those realities will sharply constrain Global Gaming, regardless of what innovative business models it may have in mind.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

But as the Justice Department noted in its brief, which urged the justices not to take up the case, the 2nd Circuit's ruling may not have much bearing on other companies' services.

That's because the appeals panel took pains to wrap its decision as tightly as it could around the specifics of Cablevision's offering. In essence, the court said that, on the sole issue of direct copyright infringement, there was no difference legally between a digitized VCR in the home and a TV recording service that replicated those features at the cable operator's central office. In either case, the appeals panel said, Cablevision isn't making the recordings -- its customers are, through the commands they send with their remote controls. Nor does its technology, which makes a recording available only to the subscriber who set it up, turn the kind of time-shifting that the Supreme Court blessed in the 1984 Betamax decision into an infringing "public performance." The court didn't address any claims of contributory or vicarious infringement against Cablevision, or any fair-use defenses, because the parties agreed not to raise them.

That's not to say the ruling isn't important. Had the Supreme Court established the principle that a recording service has less protection against copyright lawsuits than a recording device, it would have been a clear blow to the Web 2.0 model for entertainment. But Cablevision's approach, which involves making a separate copy for each viewer who wants to record a program, is hardly the most efficient way to deliver TV programming. Nor is it a good substitute for a true on-demand TV service, given that its customers have to set up a recording ahead of time if they want to be able to watch a program after it airs. So I don't see how the ruling poses any greater threat to the entertainment industry than TiVo and its ilk already do. On the contrary, a network-based system might reduce commercial skipping by making it easier for cable operators to insert timely, targeted ads that viewers actually want to watch. 

I can conjure up some online music services that might look at the 2nd Circuit's ruling as a license to evade some of the limits imposed by the Digital Millennium Copyright Act or to avoid paying royalties. One might be a service that let users record webcasts to online music lockers, then play songs from that locker on demand for free -- on the theory that people can record and time-shift webcasts on their home PCs, therefore they should be able to do the same through the Web without running afoul of the songs' public-performance copyrights or the playlist limits in the DMCA. But such an offering would almost certainly raise issues not addressed in the Cablevision case. Besides, the entertainment industry seems eager for another crack at the topic of network-based services. As Ross put it, "We will monitor the ramifications of this decision and continue pushing for policy and legal outcomes that maintain creators’ incentives.” In the meantime, Hollywood might actually try to work with Cablevision on ways to make TV advertising less of an intrusion and more of a welcome visitor.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

I caught up with Silverman at a recent conference for music retailers. He was there wearing several hats, including those of a board member of SoundExchange (the agency that collects performance royalties from digital broadcasters) and the American Assn. of Independent Music (a trade association of indie labels). He was also pitching the New Music Seminar, a conference for independent acts and labels that he's reviving after 15 years of inactivity. (More on that later.)

According to Silverman, the music business historically had three costly choke points that made it hard for artists to succeed without the help of a major record company: recording music in a studio, marketing it to radio and the public, and distributing it to record stores around the country. Technology has eliminated the choke points for recording and distribution, but not for marketing. "Democratization has happened everywhere except exposure," Silverman said. In fact, opening the floodgates online to DIY artists has only made it harder for them to be heard above the din of the 5 million bands and solo acts with MySpace pages. "My great concern," Silverman said, "is that the cream isn't rising to the top any more."

One thing is certainly true: even the cream isn't selling as well as it used to. According to Nielsen SoundScan, of the 106,000 digital and physical albums released in 2008, only 1,515 had sales of more than 10,000 units that year. And only 110 sold at least 250,000 units, less than half the level in 2000, when there were only 35,500 new albums. "That's an all-time low," Silverman said of the quarter-million sellers.

So what should bands be doing? In Silverman's view, the business is shifting to more of a periodical model from the current album-every-two-years approach. "Consumers want to digest music single by single," he said. That's the way music was sold in rock 'n' roll's formative years, before bands like the Beatles stopped touring and started living off album sales. The trick is to deliver singles in a way that will make as much or more money as albums. Silverman's formula at Tommy Boy was to sell longer cuts as 12-inch singles, which retailed for $5 to $6. They did so well that "album sales became ancillary revenue for me," he said. "Fans care about great songs, and great artists may have only one hit. What's wrong with that?"

Consider a few more statistics from Nielsen SoundScan. Consumers may be buying ever fewer albums, but if you tally up the number of albums, tracks, ringtones and music videos sold online and off, they're making more music purchases than ever: 1.3 billion in 2006, 1.5 billion in 2007 and 1.7 billion in 2008, by SoundScan's count. Also in contrast to albums, top sellers in the singles market are growing in number. The number of million-selling downloadable songs grew from 41 in 2007 to 71 in 2008; 2-million-sellers grew from 9 to 19.

One non-trivial problem, though, is that Apple's iTunes store established 99 cents as the de facto price for single downloads. Silverman argues that 99 cents is too low a price because it not only leaves money on the table, it leaves profit margins too slim to support low-volume competitors to iTunes. There should be a hundred specialty online retailers promoting different music genres, he said, but instead there are only a handful. His theory about price elasticity is being tested today at iTunes and Amazon.com, which are six weeks into an experiment in charging $1.29 or 99 cents for new or popular tracks and 79 cents or less for older songs.

Closer to the Tommy Boy 12-inch model, some labels are also trying to sell small bundles of downloadable tracks -- for example, a single and a few remixes -- for significantly higher prices. And even without higher prices, singles can still serve as the backbone of a healthy business, Silverman contends. There are a host of licensing opportunities and spin-offs in the digital era -- ringtones, ringback tones, commercials, soundtracks, etc.

Offering consumers music in the right dosage units is part of Silverman's prescription; the other part is being creative in the making and the marketing of tracks. Rock 'n' roll, new wave and hip-hop emanated from artists who broke with convention and misused technology, he said, but "in a cut-delete-insert world, it's very easy not to make mistakes." That's part of the problem, Silverman argues -- even in a democratized industry, artists still have to break rules and be disruptive to break through.

That's the point of reviving the New Music Seminar, which Silverman helped launch in 1981 to bring independent bands and labels together to talk about how to succeed. Only this time the enemy isn't corporate hegemony over the means of production, promotion and distribution; it's the din created by the musical proletariat. The original New Music Seminar, which ran through 1994, was the model for such multi-day conferences as South by Southwest and the CMJ Music Marathon. Silverman said the new version would be a more modest one-day affair that travels to five cities, starting July 21 in New York. "This is for all the people who aren't being let in [to the music industry] because they're caught in the noise," Silverman said. "We're keeping it under $100 so all 5 million of them can go."

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Thomas-Rasset didn't seem likely to pay the original $222,000 penalty, so it seems even less likely that the RIAA will be able to extract nearly $2 million from her. The trade group has always been more interested in winning the judgment than the amount awarded; spokeswoman Cara Duckworth told CNet that the group has been willing to settle "since day one." But the size of the jury's verdict may only increase calls for Congress or the courts to reduce the financial penalties for copyright infringement

Thomas-Rasset's was the first trial in the campaign against individual file-sharers that the RIAA began in 2003 and ended late last year. As such, it was one of the few tests of the legal underpinnings of that campaign, including the argument that making tracks available to others online (by keeping them in a folder that was open for sharing) was a form of infringement. U.S. District Judge Michael J. Davis instructed the jury in Thomas-Rasset's first trial that making songs available was an infringement, a low threshold that would enable the labels to prove piracy just by collecting lists of the songs in people's shared folders. But Davis second-guessed himself after the verdict and ordered a new trial, mirroring the views of several other judges who had rejected the RIAA's interpretation of the law.

The result of the second trial suggests that the higher threshold isn't enough to derail the labels in an infringement lawsuit. The RIAA's anti-piracy contractor, MediaSentry, presented evidence that Thomas-Rasset actually distributed 11 copyrighted songs through Kazaa (to MediaSentry's investigators), and cited metadata from tracks in her shared folder strongly suggesting that the files had themselves been downloaded, not purchased or ripped from her CD collection. RIAA witnesses also linked the Kazaa uploads to a unique identifier on Thomas-Rasset's modem and computer and showed that the unusual username on the Kazaa account matched one that Thomas-Rasset acknowledged using on several other websites. In other words, the RIAA's case was built entirely on circumstantial evidence, but there was a lot of it.

Thomas-Rasset and her attorneys seemed eager to continue their battle against the RIAA, and although the trade group insists that it doesn't plan to file any new cases, there are still a number of older claims yet to be resolved. Defense attorneys are fighting these on several fronts, arguing that, among other things, MediaSentry's investigative tactics were illegal.

More interesting, IMHO, is the argument Harvard Law Professor Charles Nesson and others are raising that the statutory damages provided in copyright law are grossly excessive -- even unconstitutionally so. The two Thomas-Rasset verdicts, each of which was reached after just a few hours of deliberations, reflect the juries' irritation with her defense. But even if she did put 24 copyrighted songs in her shared folder, it's hard to believe that the labels suffered anything close to $2 million in damages. More important, the mere threat of such a penalty could persuade some accused infringers to settle with the RIAA rather than fight, even if they weren't the ones responsible. Thomas-Rasset may not be a sympathetic defendant, and there's no excuse for illegal downloading. But she will have done all Internet users a favor if her case prompts lawmakers to recalibrate the statutory damages in copyright law.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Photo credit: Julia Cheng / Associated Press

This is a lesson in the value of finding the right niche in a time of technological upheaval. Naxos is both an independent classical-music label and a distributor of classical music. That's classical as in Charles Ives symphonies, not John Williamssoundtracks (which Naxos of America Chief Executive Jim Selby refers to as "crossover" classical). Using music from its own and its customers' rosters, it put together a service called the Naxos Music Library that's both an online jukebox and a classical-music database. (Note: the service offers no downloads, tethered or otherwise. It's streaming only.) "The metadata is incredibly deep," Sean Hickey, sales and business development manager for Naxos, said in a recent interview. That information -- which is comparatively sparse on other services -- is crucial to Naxos' target audience: music students, educators and musicians. They pay $220 to $240 a year for the service (which is sold only in bundles of five or more subscriptions), compared with $60 for Napster's music-on-demand offering. Selby said Naxos has signed up more than 1,000 colleges and universities for the service, collecting hundreds of thousands of subscribers there. Subscription sales are up 35% year over year, Selby said. It helps that there are more than 600 accredited music schools in the U.S., as well as music degree programs at many other institutions. The company is offering the service to younger students too, having just signed up the public school systems in Baltimore and Chicago. "It's not Rhapsody, but it's not meant to be," Selby said. "There's lot of educational tools on there.... No one else is trying to do that."

By the way, Naxos claims that the Naxos Music Library is prospering with no contributions from the major record companies.

The subscription service is just one of the company's efforts to attract and retain a new generation of customers. It's made about 350 podcasts that combine music and commentary from authoritative sources. Every member of its 12-person marketing staff is blogging about releases and performances, commenting on other blogs and Twittering, Selby said. So are many of Naxos' artists, who the company encourages to self-promote through social networks. "A lot of the things the pop guys are doing, these guys are doing as well." He hasn't seen a way yet to sell music through the likes of Facebook, and he's not sure how it could be done. But those networks are a good way to spread reviews, which are still the biggest driver of Naxos' sales, he said.

It also supplies tracks to online stores and has one of its own -- ClassicsOnline.com. One problem that vexed Naxos and other suppliers of classical music was the 99-cents-per-track business model at iTunes and its ilk, which priced entire symphonies and other lengthy classical pieces the same as a two-and-a-half-minute pop song. Naxos' response was to offer longer pieces only as part of a full-album purchase, not individual sales. This year, though, the company is offering individual works for sale with prices scaled to the length of the piece. The new offer may not matter much to "core classical buyers," who want the whole album anyway, Selby said. But it should help attract casual fans, who are an important source of growth for the genre.  

Naxos has thrown itself into digital distribution despite the fact that its CD sales haven't slumped as badly as those in other genres, Selby said. Classical music fans haven't been as quick to shift to MP3s, nor has Naxos been reliant on the big-box retailers that have cut their support for CDs. (Most of the company's sales are through online retailers that specialize in classical music.) That helps explain why the company had its best year ever in 2007, and was on track to top those results in 2008 until the bottom fell out of the economy. This year looks good so far, Selby said, with first quarter sales in line with 2007 and April and May's results even better. Here's hoping that its results are a leading indicator for the economy in general.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Unlike Napster or Rhapsody, which essentially provide access to an unlimited library of music for a monthly fee, the Virgin Media service will let people acquire an unlimited amount of music. (The service is due later this year, the companies said; Virgin is still trying to round up licenses from other labels and music publishers.) An offer like that could completely trump today's subscription offerings, which have struggled to win acceptance among mainstream consumers. It's simple to explain and requires no change in music fans' approach to collecting tunes. But this brings us to caveat No. 1, which is pricing. There was no indication from the companies today what they planned to charge for the service, but it's likely to be considerably more than what Nokia collects for its DRM-based "Comes With Music" phones (where the downloads are nailed to the user's phone and/or PC). My back-of-the-envelope calculation was that "Comes With Music" carries an $8 to $16 monthly premium for two years' worth of unlimited downloads from all four major record companies. I know there's some argument that music fans aren't hugely sensitive to prices, but I have trouble believing they'll tolerate ISP rates that are 40% or 50% higher so they can download tracks guilt-free.

In addition to the hint of trial-ballooning, the deal has the whiff of a quid pro quo. Universal agreed to offer DRM-free downloads, and in return Virgin agreed to take more steps to counter file-sharing. In particular, Virgin agreed to "educate file sharers about online piracy" and temporarily suspend Internet access for "persistent offenders." Here is caveat No. 2. As Gartner analyst Mike McGuire ably put it, "How do they determine who is naughty and nice?" The entertainment industry is eager to have ISPs warn their customers who are detected sharing copyrighted files, then sanction them if they don't stop. French lawmakers went so far as to enact a three-strikes-and-you-lose-your-Net-access law, only to have jurists there quickly declare it to be unconstitutional. The fundamental problem is, as the famous New Yorker cartoon observed, Internet traffic data might tell you which account was sharing files, but not who was seated at the computer. In fact, if the account holder has an unsecured wireless router, good luck finding the computer that did the sharing. So if Virgin is agreeing to cut off someone's Internet access administratively, without access to the courts or some independent arbitrator, it's teeing itself up for a beatdown in the press and Parliament, because mistakes will be made -- that's inevitable -- and Internet service is becoming almost as vital to some users as electricity. McGuire again: "It's like they want to give the consumer all the convenience of DRM-free files but they really, really don't trust the consumer."

Caveat No. 3 is that the DRM-free files could still be watermarked or otherwise outfitted with the name of the person whose Virgin account was used to obtain them. Unwitting (and careless) users with wireless routers could find their names on songs that pop up on Limewire. In light of the potential administrative penalties noted in the previous paragraph, this could prove problematic.

I don't mean to drown the announcement in cold water, and I don't begrudge Universal's interest in protecting its copyrights. On the contrary, it's great to see the company trying to combat piracy by supporting a compelling legitimate service (or at least potentially compelling, depending on the price). I'm just unnerved by the prospect of ISPs becoming not just copyright watchdogs but also the muscle to enforce them.

One final McGuire thought. Universal's move comes 10 years after Shawn Fanning introduced the pioneering Napster song-swapping network, which the company's later CEO, Hank Barry, tried to transform into a legitimate service licensed by the labels. But Napster was never able to line up all of the majors (there were five at the time), particularly not for the radical idea of enabling music fans to download an unlimited amount of music for a flat fee. Noting Universal and Virgin's agreement to do that very thing, McGuire said, "This is about eight years too late."

Yes, that's a self-serving comment. But BianRosa's assertion is supported by a survey by media consulting firm Frank N. Magid Associates of about 1,300 Internet users between the ages of 18 and 44, nearly 700 of whom use Vuze. The survey, which Vuze released late Tuesday, included the following insights about the members of the company's audience:

• They buy 34% more movie tickets, purchase 34% more DVDs and rent 24% more movies than the average Internet user.
• They tend to have more and better equipment for consuming media, including home theaters and expensive computers with large screens.
• They spend less time watching TV, more online, and far more watching downloaded or streaming video.
• They're not only early adopters, they're more likely to share their opinions online, and with more people.

BianRosa said he talks frequently with studio executives, and a common attitude is that BitTorrent users are "never going to pay for anything" and "are basically at the heart of Hollywood's problem right now." Rather than dismissing them, though, the survey shows that Hollywood should be trying to understand when and why they decide to buy content. The data tells Hollywood that Vuze's audience is ready for video delivered digitally and willing to spend heavily on programming and the means to consume it. What it doesn't reveal, at least not explicitly, is why those users buy DVDs but not the downloadable movies sold or rented by authorized outlets such as CinemaNow, iTunes or Amazon.com. 

Naturally, BianRosa has a few guesses. First, he said, the price demanded for downloadable movies is about the same as what it costs to buy or rent a physical DVD, yet the downloads don't deliver as much value. That's true in part because the DRM used on the downloadable media creates "massive friction" for consumers, making those files less portable and harder to use than discs. And  the studios' demand that online distributors pay anticipated royalties in advance cuts down on the availability of legitimate content by making it hard for many smaller outlets to get into the business, he said.

The studios' pricing strategy is dictated to some degree by their concern about cannibalizing DVD sales, which have been a critical source of revenue. But BianRosa asked, "How can there be cannibalization if there isn't distribution?" It's not a question of trading analog dollars for digital dimes, as NBC Universal CEO Jeff Zucker famously put it, because the profit margins should be better online than they are in the physical world, BianRosa said. Rather, the issue is whether Hollywood can afford not to be experimenting online with BitTorrent and other distribution platforms that millions of people are using. The studios, he said, are "hoping for a model online that will magically emerge on its own, with all the problems resolved ... and then embrace it. That's just not the way it's going to happen."

Of course, it's not fair to say the major studios are shunning the Internet just because they haven't been willing to license content to Vuze on BianRosa's terms. They're doing some significant experiments online, particularly with television programs and advertiser-supported platforms such as Hulu (which NBC Universal and News Corp. founded). They've gradually offered more movies for rent or purchase on the Net, and reduced the time lag between the DVD release and online availability. But they've not gone nearly as far as the music industry to enable fully stocked video-on-demand services online or provide the same quality and flexibility in downloadable media as they do in packaged products. And neither the record labels nor the studios has made a credible attempt yet to compete head-to-head with bootlegged goods on the distribution platforms where piracy thrives. Perhaps the Vuze survey will give Hollywood more incentive to court those users, rather than simply wishing they'd go away.

The idea behind branded entertainment is to replace interruptive commercials with an integrated message promoting the sponsor's product(s). Cameron Death, vice president of digital content for NBC Universal, said the company tried that approach for the first time with last year's "Gemini Division," a sci-fi whodunit starring Rosario Dawson. Five different brands were featured in the course of the series' 65 short episodes. To find sponsors for this year's programming, Death said in an interview, the company took a slate of programs in development to advertisers in January, then worked with the programs' creators to integrate the brands into the videos.

"CTRL 7" was the story of a beleaguered office worker named Stuart who discovered that he could control the action around him through commands on his computer keyboard. Think of how you might use keyboard shortcuts in a document or photo editing program; that gives you an idea of how Stuart edited reality. For the 10 new episodes, Kirbyson kept the same story line, with one twist: Stuart unlocks the powers of his keyboard by accidentally spilling a can of Nestea Red onto it. The point is to subtly convey that Nestea is "Liquid Awesomeness," as its trademarked tagline goes.

Death said Kirbyson was given "complete free rein" to tell the story as he wished, with the provison that he find a way to work Nestea into it. The sponsor consulted with NBC Universal on how its brand would be portrayed, Death said, "but it's still a writer's product." That's the company's general approach to branded entertainment: although the program creators are briefed about the brand and the attributes the sponsor wants to promote, "we still want them to do what they do, which is tell great stories." He added that "CTRL" is a good example of what branded entertainment isn't: "It isn't Stuart looking straight into the camera and talking about how great Nestea Red is."

To some media watchdogs, that's precisely the problem. They complain that the practice isn't transparent enough, and should be more clearly labeled as advertising. Not surprisingly, Death disagreed. "I think viewers are infinitely more intelligent than we sometimes give them credit for," he said. For Coca-Cola to reap the full benefits of its sponsorship, "CTRL" fans need to know that Nestea is bringing it to them -- and viewers are smart enough to understand that. "It's a really interesting balance," he said. "I don't think there's anything less honest about it."

NBC Universal plans to distribute "CTRL" this summer through a variety of channels, including Hulu.com, cable video-on-demand services and a dedicated website. Death was coy about the rest of this year's digital line-up, saying only, "We have a lot in the pipeline."

Credit: Image of the short film "CTRL Z" courtesy of the film's website.

Unlike Napster (the legit version, not the song-swapping network), Rhapsody and the handful of other services that tried to sell access to music for a monthly fee, eMusic has always offered subscribers ownership in the form of DRM-free MP3 downloads. The store updates the industry's old music-club model -- persuading people to buy music every month by offering discounts for bulk purchasing -- in two important ways: It sells music by the track, not the album, and it makes the discounts deeper. Or at least it used to -- as part of the Sony deal, the company has raised its price from $10 a month to $12, and lowered the allotment of tracks from 30 per month to 24. In other words, the price per track jumped from 30 cents to 50 cents. (Worse, it did so before adding Sony's offerings, which will be folded in later this year.)

Compared with iTunes, which sells individual songs for 69 cents to $1.29, eMusic remains a bargain. But it doesn't have iTunes' catalog -- it has a large selection of indie labels and some high-profile independent artists, including Radiohead and Paul McCartney, but few of the top hits. And its new pricing scheme isn't better on a per-track basis than the latest iteration of the major labels' music club, which offers mainly older ("catalog") CDs for $7 each.

In that sense, eMusic doesn't seem like the brave experiment in price elasticity that it used to be. The company offered labels less money per track than conventional music retailers did -- about 33 cents per track instead of 60 to 70 cents, judging by one band's royalties -- but promised to make up the difference by selling more tracks. In other words, it was the kind of lower-margin, higher-volume business that the Web promotes (e.g., Amazon.com). EMusic's value proposition was designed to induce fans to spend more on music over the course of a year than they would have otherwise, which would be a good thing for the industry regardless of the per-track results. But from an individual label's perspective, the question has always been whether eMusic's sales were incremental or cannibalistic -- in other words, whether eMusic was bringing in new customers or just offering discounts to people who would have otherwise purchased the label's CDs.

A few labels have tried to avoid the cannibalization problem by holding back their highest-profile releases from eMusic for several weeks. Some also pressed eMusic to increase its royalty payments by reducing subscribers' monthly track allotment. When the company launched the subscription service in 2000, it offered unlimited downloads for $10 a month -- an offer so aggressive, eMusic had trouble attracting labels and, consequently, customers. After Dimensional Associates bought eMusic in 2003, it wasted little time ending the unlimited-download plan, offering 40 downloads for $10 a month instead. That was good enough to attract more indie labels, which in turn drew more subscribers. Four years later, the offer dropped to 30 downloads for $10 a month. Now it's at 24 for $12.

The new pricing scheme may attract more labels, but the risk is that the service is now too expensive to draw in casual consumers. EMusic has been stuck in the aficionado ghetto -- its appeal has been limited to heavy consumers of music. By the time former Chief Executive David Pakman (a persistent and articulate advocate of the low-margin, high-volume model) left last fall, eMusic had about 400,000 subscribers -- not a whopping total by any means, and only half of what Rhapsody has drawn. The same problem afflicts Rhapsody and Napster, whose subscriber numbers have grown slowly in the last year, if at all. That's why Napster recently went the opposite direction with its pricing, introducing an all-streaming service for $5 a month, or one-third the price of its previous offer. Going from $10 to $12 a month doesn't seem like a sure-fire way to broaden eMusic's base, but there's no question that adding older Sony titles (including works by The Clash, Bruce Springsteen and OutKast) will increase its appeal. After all, the problem for eMusic and other subscription services might not be the price point. It may simply be that music fans don't like to commit to spending any amount on tunes month in and month out.

Update, 12:01 p.m.: An eMusic spokeswoman corrected me on one point, saying the company hiked its prices to $12 for 30 downloads last year. The only change this week was to cut the allotment from 30 to 24 for new subscribers. As reader Troy Martin points out below, existing customers are seeing their prices increase and their allotments cut, too -- their plans will now charge about 40 cents a track. It's not clear what will happen to those on annual subscriptions, which have offered tracks for less than 20 cents a song; the best a new subscriber can do on a long-term deal is 41 cents a track.

The brief drew praise in tech circles, but Kagan took pains to emphasize how narrow the 2nd Circuit's ruling was. "The court of appeals announced no 'categorical exemption from direct liability' (Pet. 24) for providers of automated services and it did not 'assume[]' (Pet. 19 n.4) that only one person can 'make' a particular copy," she wrote. In other words, the administration's position is that the 2nd Circuit's decision doesn't provide a broad shield for Web 2.0 companies that want to replace home recording and playback devices with online services. Besides, as the brief notes, the appeals court didn't consider the possibility of contributory infringement because the studios and Cablevision agreed not to litigate those issues. (The parties agreed to take fair-use defenses off the table, too.)

Nevertheless, her stance is a departure from the previous administration's expansive view of copyrights. It also shows a welcome degree of technological literacy. "Respondents’ proposed RS-DVR service is part of a broader transition from analog to digital recording and playback, and from business models where consumers purchase a tangible item to those where they pay for a service,” Kagan wrote. Or as Gigi Sohn, president of the advocacy group Public Knowledge, put it more tartly, "Common sense would dictate that a recording is a recording, whether made on a set-top box or in a cable head-end."

Credit: Chip Somodevilla / Getty Images

So when Obama brought up the issue today in a speech on cyber-security, it seemed like a bolt out of the blue. Here's the relevant excerpt:

"Let me also be clear about what we will not do. Our pursuit of cyber-security will not -- I repeat, will not include -- monitoring private sector networks or Internet traffic. We will preserve and protect the personal privacy and civil liberties that we cherish as Americans. Indeed, I remain firmly committed to net neutrality so we can keep the Internet as it should be -- open and free."

This isn't a change for Obama -- he strongly endorsed Net neutrality during the presidential campaign. And it's consistent with some elements of the cyber-security strategy he laid out today, which emphasized (in a striking contrast with the previous administration) protecting individual liberties and privacy along with critical digital infrastructure. On the other hand, such a regulatory impulse conflicted with another important tenet of Obama's cyber-security initiative: that private companies will be free to choose how to protect themselves. As Obama put it:

"The vast majority of our critical information infrastructure in the United States is owned and operated by the private sector.  So let me be very clear: My administration will not dictate security standards for private companies. On the contrary, we will collaborate with industry to find technology solutions that ensure our security and promote prosperity."

At any rate, it looks like the Net neutrality debate may be revving up again. Let the lobbying begin!

Photo credit: Brendan Smialowski / Getty Images

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

I take some of the  findings with a grain of salt, such as the assertion that using watermarks would lead illegal downloaders to buy more content from legitimate sources. Watermarks may very well drive some people away from file sharing, but they won't stop them from going to sites that stream free songs or bootlegged movies. As the survey points out, multiple factors influence how people choose to acquire content. Nevertheless, the study provided a number of intriguing insights, including the following:

• The initial survey found that legal downloaders significantly outnumber illegal ones. Specifically, 75% of the teens and 53% of the adults said they had paid to download media in the previous three months, vs. 34% of the teens and 21% of the adults who had used file-sharing software. But the second survey -- the one that talked only to those who had downloaded content -- produced a conflicting result. It found that only a fraction of those surveyed had used legal services exclusively. The vast majority of the rest made at least some use of file-sharing software.
• A significant percentage of those who download illegally also pay for content. This is the "don't attack your customers" finding. On the other hand, even these "hybrid" downloaders showed a marked preference for free (and illegal) downloads over paid ones for music and TV shows. "For movie studios, [these hybrids] are the group most at risk for increased illegal movie downloading in the future. However, they also represent the lowest hanging fruit for converting illegal activity to paid downloads," the survey found.
• "Passive" uploaders -- those who share files online because of the default settings of their software -- are more likely to be deterred by anti-piracy measures than "active" uploaders -- those who deliberately offer online the material they've bought, downloaded or ripped from rented DVDs. The population of passive uploaders is "vast," the survey found (roughly 80% of file-sharers fall into this category), and most members of this group have a hazy understanding of the legalities of their actions.
• The DRM technology used by online movie stores contributes to piracy by making those outlets and the goods they sell harder to use. But so does the studios' strategy of releasing movies in windows, which results in legitimate outlets having less content than illegal ones do.
• Although most illegal downloaders know they're violating the law, they don't believe they're downloading enough to be caught. The average BitTorrent users downloaded about two movies per month, but they told Interpret that they wouldn't face a serious risk unless they increased that rate to nearly 500.

One might assume that such surveys underestimate the amount of copyright infringement that's taking place -- after all, the participants are asked to admit to doing something that tens of thousands of people have gotten sued for. But unlike other illegal activities, file sharing is "something that people are perfectly happy talking about," Interpret co-founder Jason Kramer said.

Kramer and Raj Samtani, director of business development at Digimarc (a member of the Digital Watermarking Alliance), said one point of the study was to present watermarks as a less cumbersome alternative to DRM. "We've seen the stick really doesn't work," Kramer said. "The way we presented this to consumers is more of a carrot" -- part of a "new compact" between content companies and consumers. He framed it this way, speaking from the perspective of the studios and record labels: "If we're going to make this [content] available to you, if we're going to make it free of DRM, make it useful on multiple devices and not a big hassle for you, you're going to have to expect that if something illegal is done, we're going to have some sort of recourse."

Consumers have trouble accepting restrictions on the media they pay for, particularly when those limits make the media harder to consume. That's one reason the record companies ultimately dropped DRM from their 99-cent downloads. But Kramer said that when consumers understand the quid pro quo sought by the content companies -- that buying a copy of a movie or a song doesn't give the purchaser the right to share it with the rest of the world -- they're more willing to accept the terms of the deal, provided that the restrictions aren't onerous.

Samtani said he didn't believe encryption-based DRM "is going to be abandoned wholesale any time soon." Although watermarks are used today to trace content leaks and identify the sources of some infringements, the kind of system envisioned in the survey -- where infringing content can be detected as it travels through the Net -- would require a significant amount of work by ISPs and content owners. Some Hollywood executives harbor even greater ambitions for watermarks, using them to disable the playback of bootlegged movies. Such a feature may yet become routine in Blu-ray devices, although it remains a long shot for standard-definition discs.

Ideally, Samtani said, anti-piracy technologies like DRM and watermarks would be used not as a traffic cop but as an accountant, monitoring the flow of content online to support new modes of distribution. "We are at the early stages in some of those changes in business models," Samtani said. The shift enabled by new mechanisms such as watermarks will make the market much bigger, he added. "It's just a matter of getting through this transition, and getting people to embrace new modalities of doing business." That's no mean feat, but Samtani -- who used to work for a DRM company -- says he's seen a real change in the nature of the discussions with content providers. Part of that is a greater recognition of the need to balance the desire to protect content with consumers' interests. Said Samtani, "There are things you will hear about more openly in the next several months that I'm very, very encouraged about."

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Tinysong is like Seeqpod combined with Tinyurl or Bit.ly -- it marries an online music streaming engine with a link creator. You enter the name of a song or artist. It returns a list of possible matches. You pick one, and it generates a link to a stream of that tune on the Grooveshark site. An even better version is offered by Ping.fm, which has integrated Tinysong into its tool for broadcasting content to all your social networks. Let's say you want to tell all your Facebook friends and Twitter followers something snappy about the looming GM bankruptcy filing (and don't we all?), punctuated with a link to the ultimate song about doomed motorists. Ping.fm lets you do that in a single step. OK, so maybe I'm the only one who wants to do that. But you get my point -- Tinysong makes it that much easier to add a soundtrack to our microblogged lives.

Like Seeqpod, though, Grooveshark operates in an unlicensed gray area. Seeqpod, which filed for bankruptcy protection in March, let users stream music from various nooks and crannies online -- with or without the copyright owners' permission, and without paying royalties. The bankruptcy filing halted the lawsuits by Warner Music Group and EMI before they could be resolved, and there's some debate on whether Seeqpod would have been held liable; after all, Seeqpod says it didn't host any of the song files, it merely helped people find them. Grooveshark may be in a more precarious legal situation because it appears to host the song files that users stream. That, at least, was its approach when it launched in 2007 as a way to stream music for free from other users' collections, or buy them for 99 cents a track. Company executives have maintained throughout that the site was designed to be win-win, with copyright holders sharing in the revenue. They have yet to strike licensing deals with the major record companies, however, and they've dropped the paid downloads in favor of advertising-supported streams. (Company executives didn't respond to my requests for comment.)

Grooveshark is slick, has a vast library of music and incorporates an impressive recommendation engine and playlist generator. And Tinysong is a great application. These technologies deliver fully on the promise of the Internet as a "heavenly jukebox." If the past is any guide, the labels will tolerate Grooveshark and its Tinysong app until it builds some momentum online, and then their lawyers will descend on the company. It would be better for all concerned if the labels licensed the back end for such services, then let innovators do their thing. Unfortunately, that's not likely to happen until someone finds a way to generate a meaningful amount of advertising revenue from on-demand music streams. Looking at Grooveshark's site, I don't find an effective advertising model -- you can listen to hours of music without bothering to look at the ads. I do, however, find a great online music experience, albeit one that may not be long for this world.

Update, 8:55 p.m.: Grooveshark CEO Sam Tarantino e-mailed to say, "We've secured a major deal and more are coming but I'm not allowed to say who yet." So my pessimism about Grooveshark's ability to avoid a lethal label lawsuit may be overstated. Stay tuned.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

This is close to a breakthrough offer. Microsoft tried something similar when it altered its $15-a-month Zune Pass service in November, throwing in 10 MP3s to go along with unlimited streams and tethered downloads. But $15 is far more than the average consumers spends on recorded music each month, and the tethered downloads work only on a Zune. Napster's new price is so low, it could change the way people evaluate a subscription-music service. Instead of wondering whether it's worth paying a monthly fee for something with no residual value (i.e., the tethered downloads and the online jukebox), would-be subscribers simply have to decide whether it's worth buying five MP3s a month from Napster in exchange for access to that jukebox. To make the decision simpler, the company offers three-, six- and 12-month plans (for $15, $30 and $60, respectively) that give subscribers more flexibility over when they use their MP3 credits.

I'm willing to pay for access to a fully stocked online jukebox; that's why I've been subscribing to Rhapsody for lo these many years. But most people aren't. (See below for the numbers.) That's why Napster and its music-industry partners have to come up with a dramatically different value proposition if they're going to attract a mass following. The new Napster offer is far more compelling than the old one, but there are still some non-trivial problems....

First, the Achilles heel for Napster remains its incompability with iPods, the most popular portable device on the planet by a very wide margin. Unlike its tethered downloads, Napster's MP3s will work on Apple's players, or any other manufacturer's. But the streams won't, not even on the WiFi-enabled iPhone and iPod Touch models. Napster's servers transmit music in the Flash format, which Apple doesn't support (yet) on its portables. But it seems certain that Flash will come to those devices. In the meantime, Napster might engineer its way around that problem by developing a customized application for those devices, as streaming radio services Slacker and Pandora have done. "That’s something we’re constantly evaluating and looking at," Napster Chief Operating Officer Christopher Allen said, in carefully noncommital fashion.

Second, consumers seem to have a collector's mentality about music that they don't have about other forms of entertainment. They happily pay for access to television, movies and video games, but they want to own songs. Go figure. The new Napster offer obscures that aspect of the service, framing the offer more like one of the old music clubs -- a business model that the music industry has jettisoned. On the plus side, Napster's purchase requirement isn't far out of line with the U.S. average. Nielsen SoundScan's statistics suggest that U.S. households bought about 6 billion tracks in 2008 (1 billion as singles, the rest via 535 million album sales). That's roughly 60 per household per year. Of course, most songs are bought by a relatively small percentage of consumers, so take the average numbers with a grain of salt.

Finally, the service may be a bit ahead of its time. The era of ubiquitous Internet connectivity, everywhere and on every device, is coming. When it arrives, an online jukebox-based service such as Napster's will look like genius. Until it does, though, it looks more like an effort to boost demand for the Internet-ready TVs, set-top boxes and other gadgets that Napster's owner, Best Buy, is so eager to sell.

I don't mean to be a killjoy. Give Napster credit for pushing its partners into yet another new business model. The major record companies' dream of extracting $7 to $10 a month from millions of customers seems even more quixotic today than when Roxio relaunched Pressplay as Napster in 2003. With the exception of Microsoft, the big tech companies best equipped to drive subscription music services to mass adoption have instead abandoned them. Napster's subscriptions slid from 750,000 in late 2007 to 700,000 in October 2008, when it was acquired by Best Buy (it hasn't disclosed them since). Rhapsody's subscriber base has grown over the past year, hitting 800,000 at the end of March, but its increases have been matched by declines at co-owner RealNetwork's premium online radio service. In short, the audience for DRM-dependent subscription music services appears to have peaked. It was past time for Napster to try something else.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.