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The music industry's piracy tune gets old Add to ...

The end of summer means back to school for millions of college students across North America.

But welcome week won't be much fun for at least 500 students at some of the best U.S. schools. Waiting on campus for these chosen ones are special "prelitigation" settlement offers from the Recording Industry Association of America.

The latest flurry of legal letters is part of a crackdown by the major music labels, targeting heavy downloaders who use powerful university computer networks to swap songs.

The recipients - at schools ranging from tiny Bryn Mawr College to sprawling UCLA - have an "opportunity" to resolve legal claims at a "discounted rate" - typically about $3000 (U.S.) - before they're hit with a formal copyright lawsuit, according to the RIAA. The message: Settle now or face hefty legal bills down the road.

Going after a few hundred students may seem like legal overkill. But new research suggests piracy has become a threat, not just to the industry, but to the overall U.S. economy.

The annual drain on the economy includes $12.5-billion in output, 71,060 jobs and $422-million in federal, state and local taxes, according to a new study by Stephen Siwek of the Institute for Policy Innovation.

"The true cost of sound-recording piracy far exceeds its impact on U.S. producers and distributors ..." the study concludes. "Piracy harms not only the owners of intellectual property, but also U.S. consumers and taxpayers."

Indeed, Mr. Siwek argues that the direct effects - lost CD sales for retailers and record companies - understates the true cost by half. He says a multiplier effect swells the final tally as the industry's losses ripple through the economy via lost jobs and wages.

"This report echoes the sentiment of other economic analyses, namely that there exists a tangible harm from music piracy," says intellectual property lawyer Alan Fisch of Kaye Scholer LLP in Washington, D.C. "Efforts to reduce music piracy must continue to focus on both the supply of and the demand for bootlegged works."

The industry isn't relying solely on litigation, which began with its pursuit of Napster and other peer-to-peer computer networks seven years ago.

On the supply side, the industry is belatedly getting its head around the idea that it can be a player in the distribution of digital music, not just a purveyor of hard-copy CDs. Six years after the iPod and more than a decade after computer users started swapping digital music files over networks, the digital music market seems to be slowly opening up.

Universal Music Group, the leading music company, announced earlier this month that it has begun "testing" digital sales of copy-protection-free songs in MP3 format through major online retailers, including Wal-Mart, Best Buy, Amazon.com and Rhapsody. The arrangement means buyers will be able to load those files onto any device they like.

Unlike Apple Inc.'s iTunes online store, the music can be played on any MP3 and will cost a few cents less a song.

Separately, RealNetworks said last week that it's merging its subscription-based Rhapsody music service with MTV's Urge music store and Verizon Wireless's V-Cast, which offers song downloads for cellphones.

All this opens up new, legal ways for people to acquire and own music.

But the industry is already very late to the game. MP3 players, cellphones, fast Internet, and cheap mass storage devices have revolutionized the way people listen to, share and acquire music.

And record companies continue to maintain roadblocks to buying music legally. Most songs purchased anywhere other than on iTunes can't be played on iPods - the dominant MP3 player - because of embedded copyright protections. Consumers may also find the latest Universal test unsatisfying. It only involves songs from Universal artists, and even then, only part of the company's vast collection. And it's only for a limited time (until January, 2008) as the company assesses the impact on piracy and sales.

For years, the recording industry focused almost exclusively on trying to stamp out piracy by suppressing demand through lawsuits. And it's their right to continue to do so.

The industry's dilemma might be a lot more manageable today if it hadn't been so late to embrace digital music as the innovation that it is, rather than a threat to be thwarted at every turn.


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