By Victoria Shannon

Wednesday, January 24, 2007
CANNES
A year ago, the music industry was in near hysteria over the French government's proposal to impose a global license fee that would stand in for royalty payments on the purchases of digital music over the Internet.

This year, with music sales still sinking like a rock, the record labels are no longer apoplectic about the possibility of such a fee, which could be collected by Internet service providers through their customers' monthly subscription charges.

"It's a model worth looking at," John Kennedy, head of the International Federation for the Phonographic Industry, said at a press briefing last weekend in Cannes at Midem, the annual global music market. "If the ISPs want to come to us and look for a blanket license for an amount per month, let's engage in that discussion..."

But Mitch Bainwol, head of the Recording Industry Association of America, who was the co-host of the briefing, quickly interjected: "...on a voluntary, commercial basis."

What's going on here? Is it really possible that we could get the right to copy the music we own digitally and move it among our various music players in return for something as simple as a monthly fee? One group a year ago proposed the fee at €6.66, or $8.66, a month, which would then be distributed by the traditional collecting societies to musicians and other copyright holders.

Three key changes have taken place in the past year that make the environment a bit friendlier to such a proposal, at least from the point of view of the major recording companies, which the phonographic industry group represents.

One is the steady erosion in music industry sales. Revenue from digital downloads did double in 2006, but revenue from retail CDs fell even more. This leaves Kennedy, at his most optimistic, hoping for overall music sales this year to be flat.

The second change is that such a fee is precisely the way that Microsoft structured a deal with Universal Music Group over its Zune player.

This fall, the two companies agreed to a plan that gives Universal a fixed amount of money for each digital music player Microsoft sells. While no one is calling it a piracy fee, an "interoperability" license or even anything similar, the deal is nonetheless a precedent. Jason Reindorp, head of marketing for Zune, said Microsoft was in talks with all of the other major labels over a comparable arrangement.

And thirdly, the global discussions about "interoperability" — whether or not you can play your purchased digital music on whatever device you want — are heating up again, at least in Europe.

On Monday, consumer groups in Germany and France allied with their counterparts in Norway, Denmark and Sweden to push Apple to make songs sold from its iTunes online store compatible with music players other than iPods.

Norway has set a September deadline for Apple to change its approach, while in France, a government commission is being established to take up complaints over interoperability on a case-by-case basis.

On Tuesday, Apple acknowledged the heat by releasing a statement. "We've heard from several agencies in Europe, and we're looking forward to resolving these issues as quickly as possible," the company said.

"We shouldn't kid ourselves," Kennedy said. "Steve Jobs holds the biggest key to interoperability. He faces advice from us and pressure from various governments around the world." As far as Jobs giving in, he added, "it's going to be at the stage where he thinks it is commercially advantageous to him."

With each passing day — and some insiders are saying that CD sales in 2007 are already markedly below a year ago — it is becoming clear that someone will have to pay to make the digital music business easier for consumers.

Whether it is the device makers like Microsoft and Apple, Internet access companies or the music industry itself, I don't think it matters much to consumers: The cost will get passed down to us in the end, anyway.