Copyrights And Wrongs

The record biz could lose by winning its lawsuit over XM's recorder


I'm a fan of Bob Dylan's new Theme Time Radio Hour show on XM Satellite Radio (XMSR ), but I'm often not around at the times it is aired. So the idea that Pioneer's brand-new inno portable receiver can record XM broadcasts seemed perfect. But there's a problem. The recording industry doesn't want consumers to be able to buy an inno -- or anything like it.

A group of record companies, backed by the Recording Industry Association of America (RIAA), has filed a suit in federal court in New York claiming the inno's recording ability violates copyright law. The complaint seeks a ban on the sale plus damages -- as high as $150,000 for every song XM plays.

Unlike the music industry's fight against file sharing, this dispute has nothing to do with piracy. The inno, which we'll look at in detail in a future column, can store music recorded from XM. But once saved, the songs are locked in the device until they are deleted or the XM subscription lapses, when they vanish. And XM is paying about 7% of its gross revenues in music royalties. In other words, XM pays for broadcast rights and would-be pirates are thwarted.

THE CONSTITUTION AUTHORIZES COPYRIGHTS specifically "to promote the progress of science and useful arts." But the record companies, like the movie studios, are using copyright laws to try to protect their business models from innovative but disruptive technologies. This hurts us all.

The XM suit is complicated. (Surprise.) The basic claim is that the royalties XM pays allow it to provide an "evanescent satellite radio broadcast," but because the inno can record, XM effectively becomes a download service. XM has not formally responded to the suit, but Chance Patterson, vice-president for corporate affairs, calls it "baseless and without merit." The suit claims that the inno would discourage subscribers from paying for legitimate downloads. Wrong, says Patterson. The inno lets users tag songs they want to buy, he notes, and when they connect it to a PC, the tagged songs are automatically marked for purchase at Napster. (NAPS ) Complete the purchase, and the songs download to the inno as MP3s.

Like all such lawsuits, this one's about money; the record companies want to extract more of it from XM and competitor Sirius Satellite Radio (SIRI ). The latter avoided a lawsuit by signing a license with three major record companies to pay extra royalties for its recording-capable S50 player. XM refused to roll over. But the XM case is also part of the futile effort by entertainment companies to control how customers use their products. More than 20 years ago the Supreme Court ruled it was permissible for consumers to tape television shows for personal viewing at a later time. The entertainment companies have been trying to win back ground ever since.

The studios say recording is allowed only if customers listen to the tracks exactly as XM sends them out. "The [XM] service is not designed for the purpose of permitting the user to listen to the program at a more convenient time...," the suit argues. "[But the inno] is designed to free subscribers from ever having to experience XM's transmissions as a unified, integrated radio broadcast."

I am not a lawyer, and I have no idea what the judge will do in this case. But I think this is one battle the record companies could lose by winning. The entertainment industry has grudgingly yielded ground in efforts to control how customers use its products. The TV networks have gone furthest toward giving up their established business model by letting customers watch selected shows where and when they want. Rather than emulating the movie studios, which are trying to defend their control over the times and places that films are available in different forms, the record companies should follow TV's lead and give customers what they want.

Changing a successful business model is painful. But businesses that fight the tide of consumers who want to push new technology to the max are likely to end up drowned.

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By Stephen H. Wildstrom

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