e.Digital Corporation (fka EDIG)

[Tinroad]

Real Progress in Secure Music
By Brad King
2:00 a.m. June 7, 2001 PDT
http://www.wired.com/news/print/0,1294,44365,00.html

RealNetworks appears on the verge of controlling the digital music security platform after the company brokered a deal between three major labels and Napster.

The recording industry has continually demanded that Napster adopt security measures that include tracking software and digital rights management.

On Tuesday, Warner Music, BMG, and EMI agreed to license music to Napster once the company developed a secure system. According to sources familiar with the deal, Napster will roll out the first version of its new secure format in the summer with content from independent and non-major label artists.

Sounds easy enough: Create a secure system, get the content. So far, that goal has been rather elusive -– until RealNetworks stepped in.

The MusicNet deal now offers not only a potential distribution network that would rival any offline retail store, but also sets up RealNetworks to develop the standard for music delivery on the Internet.

Once Napster proves it can deliver content in a secure manner, it will then be allowed to deliver music from the major labels.

This is where it gets weird. The major labels appear to be forcing Napster to prove its competency. The thing is, for Napster to deliver music through MusicNet they will have to use the RealNetworks security system.

It all adds up to a situation where RealNetworks should be able to -- by virtue of its huge customer reach -- set the standard for delivering music over the Internet in a way that protects content providers from having their product ripped off.

This is because standards can't be developed until everyone is on board. Until Napster's deal with MusicNet, the five labels and the technology community didn't have a real reason to come together -- outside of the potential revenue boost that might come from adopting a standard.

When RealNetworks and MusicNet CEO Rob Glaser said "if you combine the reach of RealNetworks, AOL, and Napster, we have a very far reach," he might have made the understatement of the year. By a conservative estimate, the new service could reach over 100 million users.

While 100 million is a lot by any standard, when compared to television ratings, the reach gets more impressive. According to the Nielsen ratings, just under 11 million people tuned in to watch the No. 1 rated show, 60 Minutes.

That might be apples to oranges, though, comparing ratings to potential reach.

So the MusicNet reach would also be comparable to the reach of televisions across America, as Nielsen's estimates that just over 100 million households in the country have TVs.

That gives the company a huge online distribution base –- one that each of the labels will want to have for their music.

Sony and Universal -- the other two major labels -- aren't part of MusicNet; those companies started their own service called Duet.

RealNetworks knew that if Napster negotiated a deal with Duet, it could get shut out. After all, Napster has 70 million registered users, and if Napster had access to all the music content, it could set the security standard.


So there is a clause in the Napster/MusicNet licensing agreement that keeps Napster from deploying its .NAP security wrapper as the standard, secure digital media file.

And this is how RealNetworks positioned itself to become the default security setting in digital music.

"We are precluded from working with Duet, but we want to work with all the labels on this," said Napster CEO Hank Barry during Tuesday's press conference announcing the MusicNet deal. "We're hoping we can have Sony and Universal music through MusicNet, since clearly there is a desire on the part of the consumer to have an integrated music experience."

Oh, and one more thing. MusicNet –- a music subscription licensing company jointly owned by RealNetworks, Warner Music, BMG and EMI -- doesn't even have a system in place yet.

Despite the sketchy details on how the system will be deployed, RealNetworks (RNWK), America Online and Napster will be using the service to sell and distribute music later this summer.

Of course, all of this would have been impossible had the recording industry's initiative to create a secure standard not imploded.

The Secure Digital Music Initiative, an international organization put together by the major record labels in conjunction with hardware and software makers, has continually sputtered on its way to developing secure digital media standards.

The group was already limping along after its first year, but many attributed any success the group had to its executive director, Leonardo Chiariglione. When he decided to leave in January, the group's problems were magnified.

A public challenge to hackers inviting them to try to break the four watermarking technologies being considered as standards led to a fight with Princeton University professor Edward Felton. Felton and his team wanted to publish the results of their four hacks, but SDMI pressured the team into silence.

On Wednesday, Felton asked a federal court to grant his team permission to publish their results later this summer at a conference.

The consortium also decided to take a recess over the summer, allowing companies to come back and strategize on how to proceed. With its watermarking technologies hacked and without a leader, the group has decided to reconsider its mission.

Over the last two years, SDMI has seen its membership grow to over 200 companies. While SDMI doesn't keep a running tally of its turnover rate, the organization has filed over six petitions with the Federal Trade Commission informing the government agency of changes.

In its last filing on April 24, SDMI lost a net total of 17 companies, including ArtistDirect.com, Digital Media on Demand and Cognicity.

Several companies have left the organization for economic reasons. AudioTrack ceased its operations, while Supertracks has laid off a large majority of its staff while searching for a buyer.

Digital music service provider Hit Hive, however, said the changing nature of the organization caused them to reconsider their involvement with the group.

"We didn't feel that our business model made our participation important anymore because we are technology agnostic," said Cynthia Land, Hit Hive's director of public relations.

"It's much more important to spend time putting together business agreements. We can't spend the amount of time on this project, and frankly, whatever SDMI decides, it's not that important to us because we can work with any technology."