Congressional digital music hearing focuses on Apple

Although Apple's name was brought up repeatedly during a congressional subcommittee hearing on digital music Wednesday, the company was nowhere to be found, much to the ire of the subcommittee's chairman, Republican congressman Lamar Smith of Texas, who also pointed the spotlight at Apple's current dominance of the commercial online music download marketplace. The hearing on "Digital Music Interoperability and Availability" took place in Washington, D.C., in front of the House of Representatives Committee on the Judiciary's Subcommittee on Courts, the Internet and Intellectual Property.

The goal of the subcommittee, according to Smith, is to "work to update music licensing for the digital era." At the core of the subcommittee's concern, said Smith, is that "Legitimate questions have been raised regarding the impact of digital interoperability on consumers."

Apple in the spotlight

Smith focused on Apple's closed ecology when it comes to Digital Rights Management (DRM). When it comes to taking commercial downloaded music with you, songs purchased through Apple's iTunes Music Store will only work on Apple's own iPod music players, while other services that use Microsoft's Windows Media Audio (WMA) DRM technology can work with various manufacturers' music players.

An effort made by Real Networks dubbed "Harmony" to make music bought through their store work with iPods was quickly shut out by Apple last year. "Apple objected to this effort, calling it 'hacker like' and invoking the [Digital Millennium Copyright Act]. Apple blocked Real's software from working a short time afterwards," said Smith.

"This interoperability issue is of concern to me since consumers who bought legal copies of music from Real could not play them on an iPod. I suppose this is a good thing for Apple, but perhaps not for consumers. Generally speaking, companies with 75 percent market share of any business, in this case the digital download market, need to step up to the plate when it comes to testifying on policy issues that impact their industry," Smith said.

A word from the competition

Although Apple was not present, the subcommittee heard from an executive affiliated with one of Apple's major competitors, Dr. William Pence, Chief Technology Officer of Napster Inc.

Pence noted in his opening remarks that his company has been asked if "digital interoperability might be the magic bullet" that finally puts an end to the proliferation of music theft through peer-to-peer file sharing services and other "black market networks."

Pence explained that he sees the music itself and DRM as "two essential software components," but cautioned against congressional oversight in this regard. "DRM technology is still in a stage of rapid innovation," said Pence. "... DRMs are still being developed, tested, challenged, and upgraded -- and I encourage Congress to welcome and promote this innovation and the improved music offerings that result," said Pence.

Apple has "chosen not to license their technology platform under any terms to services and manufacturers eager to offer innovative business models to consumers," said Pence, who added that Napster thinks that Apple should open the iPod to work with other companies' DRM schemes. "Nevertheless, I do not see Government intervention as the solution, as it would stifle competition and innovation that will benefit consumers and copyright owners at a very early stage of the market's development."

More questions than answers

Michael Bracy, policy director of the Future of Music Coalition, an organization that advocates on behalf of musicians, had more questions for the committee than answers.

Bracy pointed out that the burgeoning digital music market is giving rise to "new business models that allow greater independence" for musicians, along with more direct contact with their fans and, ultimately, more control over their professional destiny.

The transition to a digital music marketplace is complicated, said Bracy. "It includes multiple competing markets, dependent on evolving technological innovation and regulatory policy decisions."

"Will Congress listen to the concerns of the music community by addressing consolidation of the commercial radio industry and accusations of structural payola that limit the songs that appear on the public airwaves? Will the FCC be permitted by Congress to expand the wildly popular non-commercial Low Power Radio licenses to urban markets? Will Digital Audio Broadcasting be implemented in a way that addresses the fundamental concerns about localism, competition and diversity in the radio marketplace? And will digital radio be brought in line with other non-interactive digital transmission platforms that are required to pay an additional performance royalty to performers?" queried Bracy. "Most importantly, will Congress be able to defend the ability of musicians and songwriters to compete in the marketplace by ensuring access to high speed networks?"

"Don't give in to platform envy"

Ray Gifford, president of the Progress & Freedom Foundation, a think tank focused on digital content and public policy.

"Much of the brow-furrowing over interoperability in digital music stems from the success of Apple's iPod platform. I urge this Subcommittee not to give in to the politics of platform envy, however. Instead of being concerned with the business decisions of a firm, and the preferences of consumers, the Committee should celebrate the triumph of the iPod platform as Schumpeterian competition at its best," said Gifford.

Gifford invoked Joseph Schumpeter, an economist who articulated the concept of "creative destruction," in which capitalism is driven by entrepreneurs who stimulate long-term economic growth by developing new innovations that ultimately lay waste to the value of established businesses that exercise monopolistic power.

"Digital music is a new market, and the iPod platform and its remarkable success is the harbinger of that market and what it can be. In turn, this competition for the market has spurred other innovation, other platforms and other business models to emerge to challenge the iPod platform. This is a type of competition that benefits consumers immeasurably," said Gifford.

The Progress & Freedom Foundation counts Apple as one of its supporters, so Gifford's lionization of the iPod and Apple's efforts as a vehicle of economic change is, perhaps, understandable.

By contrast, Gifford added, government-mandated interoperability quells this sort of innovation and investment. "No one calls for access to failed platforms, say the Betamax, the Commodore 64, or the Digital Audio Tape," Gifford said.

This story, "Congressional digital music hearing focuses on Apple" was originally published by PCWorld.

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