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Labels See Perks in File Sharing

Music: Independent record companies embrace 'peer-to-peer' networks as a boon to CD sales.


Like millions of other music lovers, Martin Hall misses the pioneering service from Napster Inc. that let consumers download songs from one another's computers for free.

But Hall isn't your typical music fan. He works for a record label, Merge Records, whose songs were being copied without a dime in compensation.

Merge is among a group of independent labels and artists that view "peer-to-peer" networks as an effective tool for boosting CD sales. The major record companies and many well-known artists, on the other hand, are fighting on multiple fronts to drive consumers away from those systems.

Whereas Merge and others have used peer-to-peer systems to promote little-known artists and new releases, the major labels have sued Napster, Audiogalaxy, Kazaa and three other file-sharing networks, alleging copyright infringement on a grand scale. They also are injecting bogus files onto the most popular networks to stop users from downloading new songs, and they are contemplating lawsuits against consumers who offer huge collections of songs to copy.

The divergent views about file sharing reflect the wide gap in sales and resources between the five major record companies and the many small independents, which say they can't spend the sums needed to get their songs played on commercial radio stations or their music videos aired on cable. That's why it's tough for the music industry to present a unified front--not just on file sharing but also on such technology-driven issues as Internet radio royalties, digital music formats and copy-protected CDs.

The split could pose a problem for the major record companies in their legal battles against the leading peer-to-peer networks. In particular, the efforts by the independents could undermine the major labels' argument that these networks have no significant legitimate use.

"Because we're shut out of [the major labels'] distribution system, we have to get our records out, we have to get our records heard, whatever way we can," said Hall, director of publicity and promotions for Durham, N.C.-based Merge. "If it means giving it to Napster, so be it.... We have to find some way to let people know that the record is here."

Said Cary Sherman, president of the Recording Industry Assn. of America, the industry's largest trade group: "It's up to the artists or label to choose whether to use peer-to-peer service for these purposes. It shouldn't be up to the peer-to-peer service to decide that they're going to take your material and make it available whether you like it or not."

The RIAA has nothing against peer-to-peer technology, Sherman said, as long as copyright holders' rights are respected. That's the approach taken by CenterSpan Corp., whose technology limits file sharing to files the copyright holders have approved for copying.

There's a third approach emerging too: companies that distribute authorized promotional material to users of Kazaa and other hotbeds of piracy. Two examples are Altnet Inc. and FileFreedom, which enable labels and artists to offer samples of their works, identify and expand their followings and even sell downloadable music files.

Altnet, which is co-owned by the original developers of the Kazaa software, tries to direct Kazaa users to copy-protected versions of the songs they are seeking. FileFreedom monitors what its users download from any Internet source, offering information about the artist and, in some cases, promotional material paid for by similar acts.

MaddWest, a hip-hop duo from Indiana that has moved to Los Angeles, is using just about every available peer-to-peer tool to promote its new release. The self- titled CD came out July 2 on 2KSounds Corp. of Woodland Hills, an independent label distributed by EMI, one of the five major record companies.

Will people still buy the CD if they can get it for free?

"To think that people who [download] have no sort of ethics, I think that's a little bit of a jump," said AceHa, half of MaddWest. "I think that people have some loyalty," he said, adding that e-mails from fans show that they are, in fact, shelling out cash for the CD.

On the whole, though, CD shipments fell 10% in the U.S. last year, when Napster's popularity peaked and a new generation of file-sharing services emerged to supplant it. And sales so far this year are down even further, Sherman of the RIAA said, particularly in countries with widespread high-speed Internet access.

Those figures have convinced many top labels and artists that the file-sharing sites are teaching consumers to switch from buying music to stealing it. But other labels disagree, saying their fans will pay for music they think is good.

Merge promoted its releases on Napster, which shut its service in response to a court order, and Audiogalaxy, which dropped file sharing after the major labels filed suit.

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