Transcripts

Internet Vs. Albums The Music Biz Hits A Sour Note

SUSIE GHARIB: There's a new battle on the horizon pitting music companies against Internet upstarts. The technology is called stream ripping and as Darren Gersh explains, it could be a major hurdle to the roll out of Internet radio.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Internet radio promises a never-ending stream of music, customized to suit any taste. Stream ripping turns that music into files saved on the listener's hard drive without the bother of buying a CD. Michael Huppe represents Soundexchange, the organization that collects royalties for the music industry.

MICHAEL HUPPE, GENERAL COUNSEL, SOUNDEXCHANGE: You have the stream that is paid for at a very low rate and you turn them into a download, it displaces those sales or displaces the sales of CDs. And even from Soundexchange's perspective, it can displace the use of other streams that when people should be hearing Internet radio and paying the statutory royalty.

GERSH: Royalties on Internet radio jumped more than 37 percent this year, sparking a bitter battle between Soundexchange and the web radio industry. Soundexchange offered to cap royalty down payments at $50,000, if Internet radio sites promised to use software to prevent stream ripping. In a statement released this week, Jonathan Potter, executive director of the Digital Media Association said: Soundexchange has demanded enforceable technology mandates that are unreasonable, unworkable and way off-topic. They seek to leverage this absurd fee to impose mandates that they have unsuccessfully sought elsewhere. Soundexchange says it is only asking web radio channels to block stream ripping if the software that does it is quote feasible and available on reasonable terms, end quote. But with so much stolen music already on the Internet, Forrester analyst James McQuivey says the music industry should concentrate instead on finding ways to build its business.

JAMES MCQUIVEY, VP FORRESTER RESEARCH: Internet radio is going to become a more significant part of our lives as long as the music industry can overcome the essentially emotional reaction that's driving them to try and pin down Internet radio, because they maybe lost other battles in the past.

GERSH: This battle is also about the future. As more powerful wimax (ph) broadband technology is rolled out across the country, analysts expect web radio will be available in cars, making it a regular part of the daily commute. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.