S. HRG. 106–1060 MUSIC ON THE INTERNET: IS THERE AN UPSIDE TO DOWNLOADING? HEARING BEFORE THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION JULY 11, 2000 Serial No. J–106–96 Printed for the use of the Committee on the Judiciary ( U.S. GOVERNMENT PRINTING OFFICE 74–728 WASHINGTON : 2001 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 11-MAY-2000 13:55 Oct 05, 2001 Jkt 074728 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\B728.XXX pfrm07 PsN: B728 COMMITTEE ON THE JUDICIARY ORRIN G. HATCH, Utah, Chairman STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, JR., Delaware JON KYL, Arizona HERBERT KOHL, Wisconsin MIKE DEWINE, Ohio DIANNE FEINSTEIN, California JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York BOB SMITH, New Hampshire MANUS COONEY, Chief Counsel and Staff Director BRUCE A. COHEN, Minority Chief Counsel (II) VerDate 11-MAY-2000 13:55 Oct 05, 2001 Jkt 074728 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 E:\HR\OC\B728.XXX pfrm07 PsN: B728 C O N T E N T S STATEMENTS OF COMMITTEE MEMBERS Page Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 1 Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin, prepared statement .............................................................................................................. 60 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 4 Schumer, Hon. Charles E. a U.S. Senator from the State of New York ............. 73 WITNESSES Barry, Hank, Chief Executive Officer, Napster, Inc., San Mateo, CA ................ 15 Ehrlich, Fred, President, New Technology and Business Development, Sony Music Entertainment, Inc., New York, NY ........................................................ 27 Griffin, James Hazen, Founder and Chief Executive Officer, Cherry Lane Digital, Los Angeles, CA ...................................................................................... 46 Hoffman, Gene, Jr., Founder, President and Chief Executive Officer, EMusic.Com, Inc. Redwood City, VA .................................................................. 34 Kan, Gene, Gnutella Developer, and Founder, Infrasearch, Inc., Belmont, CA .......................................................................................................................... 38 McGuinn, Roger, Former Member and Co-Founder, The Byrds Musical Group, Windemere, FL ..................................................................................................... 13 Rosen, Hilary, President and Chief Executive Officer, Recording Industry Association of America, Washington, DC ........................................................... 55 Robertson, Michael, Chairman and Chief, Executive Officer, MP3.COM, Inc., San Diego, CA ...................................................................................................... 21 Ulrich, Lars, Member and Co-Founder, Metallica Musical Group, New York ... 9 QUESTIONS AND ANSWERS Responses of Fred Ehrlich to Questions from: Senator Kohl ..................................................................................................... 80 Senator Thurmond ........................................................................................... 81 Responses of Gene Kan to Questions from: Senator Kohl ..................................................................................................... 83 Senator Thurmond ........................................................................................... 82 Responses of Robert H. Kohn to Questions from Senator Kohl ........................... 84 Responses of Lars Ulrich to Questions from Senator Thurmond ........................ 89 SUBMISSION FOR THE RECORD Bergman, Marilyn, President and Chairman of the Board, on behalf of the American Society of Composers, Authors and Publishers ................................ 90 (III) VerDate 11-MAY-2000 04:37 Oct 06, 2001 Jkt 074728 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 E:\HR\OC\B728.XXX pfrm04 PsN: B728 VerDate 11-MAY-2000 13:55 Oct 05, 2001 Jkt 074728 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 E:\HR\OC\B728.XXX pfrm07 PsN: B728 MUSIC ON THE INTERNET: IS THERE AN UPSIDE TO DOWNLOADING? TUESDAY, JULY 11, 2000 U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, DC. The committee met, pursuant to notice, at 10:05 a.m., in room SH–216, Hart Senate Office Building, Hon. Orrin G. Hatch (chair- man of the committee) presiding. Also present: Senators Leahy, Kohl, Feinstein, and Schumer. OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH The CHAIRMAN. We are happy to welcome you all out to the hear- ing this morning. It is a very important hearing. It has a lot to do with so many things that go even beyond the music business. This morning’s hearing focuses on issues that have been much in the press and are near and dear to many of us on the dais and those of us listening in the audience. In case you missed it, there has been an upheaval of sorts con- cerning how music is copied over the Internet. What Newsweek magazine dubbed ‘‘The Noisy War Over Napster’’ involves more parties and has much broader implications than that moniker im- plies. Fortune magazine has called the technology embodied in Napster and Gnutella ‘‘The Next Big Thing’’ for the Internet. At the outset, let me make it clear that it is not this committee’s purpose or intention to interfere with the litigation and settlement discussions that are presently taking place. Nor do I see our discus- sions entering into the wider array of issues concerning technology standards for players or related topics. Our reasons for holding this hearing are to learn more about what is taking place in the marketplace and, in doing so, better equip us to advance the interests of consumers and creators. Inso- far as consumers are concerned, they desire access to downloadable music which is not unnecessarily restrictive or unduly burdensome. I want to ensure that the marketplace provides them with the op- portunity to access the music they want to hear over the Internet and to do so legally. Insofar as creators are concerned, I want to ensure that artists and creators are protected through an approach to copyright that empowers them to generate maximum revenue for their creative works. Recognizing the potential the Internet offered consumers and cre- ators, I led the efforts to pass, and Senator Leahy and I did, the (1) VerDate 11-MAY-2000 13:55 Oct 05, 2001 Jkt 074728 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\B728.XXX pfrm07 PsN: B728 2 Digital Millennium Copyright Act which sought to harmonize the copyright laws with the technological changes taking place. Now, this law sought to ensure that copyrighted content would continue to be protected by copyright law in the digital environ- ment, but also sought the flexibility necessary to allow the Internet technology and businesses to flourish while making copyrighted content available. For the most part, passage of the DMCA has proven to be a pre- scient achievement, settling many complex liability issues up front and allowing the online businesses to grow. It was our hope that it would give creators incentive to make their products available on the Internet. In short, it was believed that a stable, predictable legal environment would encourage the deployment of business models which would make properly licensed content more widely available. Sadly, this has not yet occurred to any great extent in the music industry, and the DMCA is nearly 2 years old. As chairman of the Judiciary Committee, I take it as a basic premise that our copyright laws must play a role, a strong role, in protecting creative works over the Internet. These protections, how- ever, must be secured in a manner which is mindful of the impact regulation can have on the free flow of ideas that a decentralized, open network like the Internet creates. We must protect the rights of the creator, but we cannot, in the name of copyright, unduly bur- den consumers and the promising technology that Internet pre- sents to all of us. With this in mind, it is my hope that we can learn more about the online music marketplace and why there is so much dishar- mony. We have with us this morning a number of different models of online music services. MP3.com is a music service provider and offers a number of dif- ferent services to users. MP3.com shares revenues with artists, often on a 50/50 basis. And we have Emusic, which offers downloads of singles or whole albums, paid for either per song or per album. Emusic has deals with many independent record labels and offers deals to artists that are structured similarly to recording contracts. Both Emusic and MP3.com can track usage levels to accurately account to the artists for use of their music and pay them accord- ingly. And both Emusic and MP3.com are structured with a central server Web site that makes music licensing relatively easy for cre- ators and consumers. Their organization is similar to the chart on display which diagrams a traditional Web-based search engine, where an individual’s computer deals with information sources through the intermediary