Pirates sing a new tune

Digital technology is proving a deep source of worry for the big record companies, writes Hilary Clarke

AS THE digital revolution takes off in earnest, an orchestra of new recording devices is flooding on to the market. But far from being music to the ears of the world's major record companies, the new products currently hitting the high streets at a fast and furious pace are a gift for bootleggers and copyright pirates, who are already stealing more than pounds 3bn world-wide from the profits of the big record companies.

The issue is a particularly important one for Britain. The British music industry has foreign earnings of more than pounds 1.2bn per year, more than any other EU country, and employs 115,000 people full- time. The Government has already stated that it wants to make the enforcement of copyright laws in cyberspace a political priority.

At the moment, however, the legal test cases pitting equipment manufacturers against the record companies are taking place across the Atlantic.

Last week the Recording Industry Association of America (RIAA) failed to obtain an injunction at a US Federal Court against the distribution of Diamond Multimedia's Rio portable MP3 recording devices. The machines, which resemble small Walkmans, download songs directly from the internet, and then play back CD-quality music. Because the devices have no moveable parts, they are ideal for use in cars or by joggers. Whilst the court did support the industry's claim that the machines would fall under US legislation governing audio recording devices - meaning therefore that royalties would have to be paid - the US music industry was disappointed that it didn't get a temporary injunction to enable it to work out with the hardware manufacturers exactly how those royalties would be collected. The RIAA has already launched an appeal against the Federal Court's decision. Perhaps even more worrying for the record industry, Rio is also mooting plans to sell software to enable people to store their existing CD on to their computer, and then put it in to the machine.

Further fuelling the industry's alarm at these new machines was the announcement last week by Samsung, the Korean electronic giant, that it was to start mass manufacturing its own credit card-sized version of the MP3 player called the yepp. A deluxe version of the yepp can also record external sound such as radio broadcasts or compact discs. Yepps can store up to 10 four-minute tunes at any one time.

The new recording devices come hot on the heels of the launch in this country of the recordable compact disc, or CD-R, introduced two weeks ago in the UK by the maker of the original CD, the Dutch electronic giant Philips. For just pounds 3, it is now possible to make perfect copies of any CD providing, that is, you have a recorder.

The British press last week carried an advertising campaign by Dixons for the CD recorders, currently retailing at around pounds 300, a price that is expected to fall quickly. "Basically, any compact disc player over pounds 100 will become a recordable compact disc," said a Philips spokesman.

The International Federation of the Photographic Industry (IFPI), which represents the major recording companies, is clearly worried by the birth of the CD-R. "We were left at the starting gate with the introduction of the CD-R," said Jay Berman chairman-elect of the IFPI.

The IFPI claims that the new recorders circumvent the so-called Serial Copying Management System - an electronic circuit in the tape recorder that stops copies being made from copies. The music industry believes that Philips has also violated an agreement made in Athens between manufacturers and music firms by which an initial "first-generation" copy of a disc or record could be made easily, but which also prevented copies being made from that copy.

"We don't think that Philips is playing fair by Athens and we need a new set of rules," said Nic Garnett, director-general of the IFPI. "The ones we have are 10 years out of date. We are looking to see what action can be taken." Philips strongly denies its new devices break any copyright rules.

The issue will surface in a fierce debate currently under way in Brussels. The European Commission is trying to establish pan-European rules for copyright in the digital age. But the directive has triggered a clash between the music industry and the telecoms companies, who want to be clear of any liability for illegal copying from the internet. Record companies fear that if the companies that operate the infrastructure of the internet are not liable for any copyright violations, they will have no incentive to maintain regular dialogue with the suppliers of the music content. "We are going to be facing a huge amount of piracy on the internet," said Mr Garnett. "The nature of the beast is that you cannot actually get at the person who is doing the infringement.

"In the physical world of piracy we are always trying to get to the factory to stop the problem, but you can't do that with internet piracy - if the wholesaler is given a blanket exemption from any liability, then we are lost."

The big record labels are not the only ones to be suffering from the current state of flux. "When you do downloading for nothing, it hurts the independents just as much as the majors," said Ricky Adar, founder of Cerberus.

Cerberus, a UK company, recently launched its digital jukebox in Levi jeans shops across Europe. Customers can make their own compilation albums on these by selecting tracks and then burning them on to their own CDs. Cerberus is planning on installing 1,000 kiosks in the UK over the next 18 months.

However, whilst the Cerberus machines, made in partnership with the US computer giant Gateway, are designed so that royalty payments are made to record companies, the company does not yet have the rights to the major labels catalogues.

Mr Adar says that at the moment there is not the demand for mainstream music at his digital kiosks. "If you want a copy of a Spice Girls album your best bet is still to go to Our Price," he said. "What most people want to hear is dance music." Eventually, Mr Adar believes, digital transmission of music will increase record sales.

The major record companies are also benefiting from the sale of CDs over internet- based companies such as DCNow.com. The US-based company, which recently set up a distribution centre in the UK, already carries more than 350,000 titles, which is far more than even the high street megastores can carry.