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Plug.In: CARP Battle, Devices Dominate

Things have not been working out so well lately for the streaming media/digital music sector. News of shutdowns, layoffs, and poor financials continue to hog the headlines and, to make matters worse, a controversial Copyright royalty payment structure is being described as the death knell for the struggling industry.

Yet, beneath the underlying apathy, Jupiter's Plug.In digital music conference on "the future of digital music," raised a glimmer of excitement, especially on the device technology side where the industry is racing to keep up with the need for portability -- and accessibility -- to downloaded digital content.

As expected, the discussions at the conference focused on the ramifications of the controversial Copyright Office's Copyright Arbitration Royalty Panel (CARP) ruling (see in-depth internetnews.com coverage here) with U.S. Congressman Rick Boucher, D-Va., starting the buzz with a well-timed swipe at the major record labels for what he described as an inherent distrust of the consumer market.

Boucher's keynote, which included a call for the labels to put all their music online with permanent downloads, transferability and per-track availability, set off a string of upbeat discussions that included a rare admission from EMI executive John Rose that the paid-subscription music download model "appears to be dead."

As Boucher outlined plans for a 'Fair Use' Fight at the Congressional level, EMI's Rose conceded the music industry must turn to alternative business models as it attempts to stamp out piracy. "We cannot build viable business models when competing with 'free.' It is as simple as that. We cannot beat 'free' but we have to work hard to make 'free' less available," Rose declared, urging the recording industry to experiment and restructure the way digital content is distributed and sold on the Internet.

Rose hinted that the industry would be wise to focus on the a-la-carte space and even suggested the answer lies in partnering with ISPs to let service providers absorb some of the costs of distribution.

"There is no one-size-fits-all answer. The existing models have the consumers paying 100 percent of the costs. That is clearly not working. We need to diversify and find revenue streams outside of paid subscriptions," the EMI Vice President added.

Pro-CARP/Anti CARP
Rose's upbeat keynote could not overshadow the pro-CARP/anti-CARP lobbies, which seemed to infiltrate and dominate most of the two-day discussions. From Boucher's "we need to scrap the CARP" declaration to RIAA CEO Hilary Rosen's "CARP was a pretty thoughtful decision," it was clear the Webcasters and the recording industry remain miles apart on the issue.

John Jeffrey, a Live365 executive who manages the business development and legal affairs teams for the streaming media firm, was among the anti-CARP crowd, dismissing the CARP decision as a "terrible result that is strangling an industry in its infancy." The ruling set royalty rates at 0.07 cents per performance for Internet-only broadcasts and AM/FM retransmissions.

Jeffrey, who shared the stage with Jon Simson of royalty-collection agency SoundExchange and Ann Chaitovitz of the American Federation of Television and Radio Artists (AFTRA) -- the union which represents musicians -- maintained the royalty rates were an "unfair burden" borne by Internet broadcasters, a sentiment predictably shared by Tom Des Jardins of Net radio ad agency LightningCast.

"It's clear CARP is a devastating blow. Webcasters simply cannot afford the rates set," Des Jardins said, arguing that the soft advertising market would force thousands of small Internet radio firms out of business.

SoundExchange's Simson disagreed. "The Webcasters that have shut down have very little to do with (the CARP decision). They were shutting down long before CARP," Simson said, insisting musicians should not subsidize the bigger Internet radio companies like America Online and MTV Online.

Both Simson and Chaitovitz criticized the CARP arbitration process as cumbersome and expensive and insisted it must be reformed when the current payment structure expires. "Looking back at how much money was spent to simply participate in the arbitration process, it is clear that CARP needs to be changed. The arbitrator's fee alone was more than $1 million," Chaitovitz said.

Jonathan Potter, executive director of the Digital Media Association (DiMA), predicted the royalty rates would force about 85 percent of Internet radio firms out of business. "The per-performance fee structure is debilitating...We believe the major labels will successfully weed out Net radio," Potter said, adding that the 0.07 cents per performance fee would suck 100 percent of the profits of many companies.

While the CARP debate raged, the Plug.In conference also featured displays from a small group of device makers showing off new digital entertainment technologies. With the industry showing a trend towards portability of digital content, companies like iRiver America, Xitel and Simple Devices were all on hand to show off the future of gadgets and devices that will be used to shuttle content from PCs to home-based entertainment centers and vehicles.

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