'Some dubious motive or initiative'?

At the Interactive Music XPO, mp3 everywhere but no SDMI

The Interactive Music Xpo (IMX) debuted at the Javits Center last week to the tune of guitar riffs, hip-hop beats, and breakdancers—as well as tech-heads conversing with metalheads, and music producers making deals with Web producers. Colorful booths hung with Marshall speakers not only made it the loudest Internet convention so far, but also the first to fully acknowledge the next e- commerce trend: downloadable music.

Everyone from mom-and-pop Web labels offering custom CDs and MP3 downloads to giants like Micro soft and Lucent was there to show off their latest digital desktop players, compression technology, and portable MP3 players. You could see the impending competition between the different technologies and Web sites, as each exhibitor claimed that their player/compression/business model was better than any other. Everyone wants to go public, or at least make sure their stock doesn't follow the current IPO trend of dipping below its initial price (ahem, MP3.com).

But they all agreed on one thing: SDMI—the much talked-about Secure Digital Music Initiative—is confusing, to say the least.

"If you're going to ask me any questions on SDMI, I have no clear answers for you," quipped one tech-head working at the Lucent booth. "I just don't understand it." Lucent was unveiling its own compression technology, called ePAC—a more advanced type of compression technology than MP3.

SDMI, a consortium of big record labels like BMG and Universal Music Group and even bigger technology companies like Microsoft and AT&T, officially formed last December to create a standard for secure digital downloading of music files. The Recording Industry Association of America (RIAA), the largest trade group for record labels and an integral part of SDMI, encourages the distribution of music online. They just want to make sure consumers pay for it and don't post it on a site for free downloading. SDMIstandards will set the framework for a digital download process.

In other words, consumers will eventually be able to buy music tracks online by downloading them, but will not be able to duplicate or upload these files to the Net—illegally ripped music tracks are currently rampant online. The RIAA didn't want record companies and their musicians to get ripped off by the inevitable MP3 revolution.

"No artist, no matter how visionary, will ever forgive you if you fuck up their sales at Wal-Mart," Hilary Rosen, CEO and president of the RIAA, told the crowd in her keynote address.

Furthermore, SDMI claims that its standards—whatever shape they ultimately take—will be "open format," meaning you should still be able to play your existing MP3 tracks, Liquid Audio tracks, .wav files, etc., on whatever kind of desktop player or portable player you choose. The standards won't enforce a particular format, like MP3 or Liquid Audio, but will judge a format's ability to work within the secure framework.

But the conference exhibitors are skeptical about the consortium's claim that it won't interfere with formats. "SDMI?" says Bob Kohn, chairman of emusic.com, a music download site. "It really stands for Some Dubious Motive or Initiative. It'll suffer the same demise as DIVX [a pay-as-you-play video format that lost to DVD]. I don't trust the process."

Even the heavyweights are being cautious. "It's been a political nightmare," says Steve Ball, audio program manager at Microsoft. "We'll have to wait and see what they come up with. We're going to remain format-agnostic."

Standards bodies—people who set industry standards—typically become deadlocked over minor issues and specifications. Even though the goal is to make the standard as open-format as possible, every company that currently has some kind of download or player system will have to bend a little to meet the standard. And retro-coding software is an expensive proposition, no matter how small the change. Each company would prefer the standard bend to its existing format and have the rival companies tweak their codes.

But Rosen is confident there will be something on paper by June 2000.

"People didn't think we'd get the standards for portable players out in 18 months," she says of SDMI's recently announced ruling on portable MP3 players like RIO and NOMAD. The new specs, made available through their site, sdmi.org, will prevent portable players from playing illegally dubbed or ripped files. "I wasn't even sure we could do it. But," she adds, "I'm convinced creating standards for secure downloading can be done in time as well."

Meanwhile, companies like J. River, Wave Systems, and InterTrust are hedging their bets. They've already created secure digital download processes, while remaining part of the SDMI consortium. And if these companies can't wait for the SDMI standards, consumers probably won't either. Enterprising independent labels or Web labels may soon offer secure digital downloads for revenue—way before next June.

MCY.com, a German company that already sells tracks through its site, launched its U.S. site in February. Tracks typically sell for anywhere from 90 cents to $1.90. Their software makes downloaded files secure by allowing only the purchaser to play music files, using a proprietary player called Netrax.

Another secure system developed by InterTrust, a digital rights management company, has gained a lot of industry support. Under that system, the user downloads any kind of file, whether it's an MP3 or a Microsoft Word document, into what's called a DigiBox, a digital lockbox. The file unlocks when paid for.

The advantage to this system is its ability to secure any kind of information. It also allows the rights holder to tailor the level of access to the information. In other words, Sarah McLachlan can serve up her next album in a number of ways. Either for one-time listening, multiple listens, or even forever—at appropriate prices for each. Whatever the artist chooses. Files manipulated under the DigiBox system can be uploaded and e-mailed to friends, but will still be subject to the same conditions. Your friends will also have to pay for rights to access.

And in addition to this apparently secure process, InterTrust may well become the de facto download standard based on its impressive client roster. Universal Music Group and BMG have deals with InterTrust. Even Microsoft has invested in software company Reciprocal, which uses InterTrust's technology. The Santa Clara–based company filed for an $85 million IPO a few weeks ago. SDMI may end up being a drawn out formality.

Another SDMI issue that could leave a sour taste with consumers is privacy. No matter what the download solution, part of SDMI's forthcoming standards will inevitably involve watermarking the downloaded files. The watermarks will tag purchased files with the consumer's personal information, such as name, credit card number, or e-mail. Consumers might shy away from this, since they can buy CDs at their local record shop anonymously—without the record label, or anyone else, knowing what they bought and when.

Cost may become a huge sticking point for consumers as well.

"The marketplace is tricky," Rosen says. "I don't know what it will be; it's up to the consumer to decide. But look at Amazon. They don't make money now because they spend so much on marketing and promotion—getting people to their site. The hard costs of [marketing] music online may not be that much different than [marketing] CDs."

Consumers may bristle at the thought of paying as much to download music as to buy CDs, but it's clear that this particular e-commerce model will take on a practical form very soon. SDMI or no SDMI.

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