Future of Music Policy Summit 2002: Speeches

Remarks of Konrad Hilbers
CEO, Napster
January 7, 2002

Good afternoon, and thank you for the opportunity to speak to such a diverse and committed group or artists and writers, policy professionals and industry representatives. The size and importance of this audience and the speakers attending this conference testifies to the importance of the Future of Music Coalition’s mission, and their skill at executing it.

I am especially pleased to be here because I believe that Napster and the FMC share the same vision: a thriving contemporary music industry that gives consumers virtually unlimited access to music of every variety, and effectively rewards the people who produce that music. We will surely have our differences. But I believe that a world with the viable Napster we are building will be a world in which more of the artists and composers that form the core of this organization can quit their day jobs and make music full time.

It is appropriate that this conference take place in Washington D.C. – where so many of the issues affecting the balance between creator and consumer - have been resolved. It is in Washington where artists fought for repeal of the Work-For-Hire provisions in 2000. It is in Washington where consumers petitioned Congress to pass – and achieved passage of – the Audio Home Recording Rights Act. It is in Washington where the major record labels petitioned the Congress in recent years to establish a performance right in digital sound recordings, extend the protection term for copyright, and create the DMCA’s anti-circumvention provisions. And it is in Washington where we will once again see the Congress attempt to achieve a proper balance between artists’ and consumers’ rights on the Internet.
On its homepage, the FMC declares its intent to, “identify and promote innovative business models that will help musicians and citizens to benefit from new technologies.”

That is our goal, as well.

But we face tremendous challenges. The digital music marketplace is still creating itself. The technology is there, but the larger marketplace goal of aligning the interests of consumers, artists, labels and publishers, and digital providers is not yet possible. This will change. Because eventually, I believe, all the players in our business will come to realize that the music industry is ultimately driven by those at the far ends of the creative spectrum: consumers and creative talent. And, by stepping back from short-term business concerns for a moment and looking hard at the best ways to satisfy the needs of these communities at either end of the spectrum, we can create an environment which allows new business models to emerge and flourish, one that in the long term will also benefit all intermediaries in this industry.

To realize this goal of a stronger and more responsive industry, three things need to happen:

1) Napster and companies like Napster have to create systems and technology that allow immediate access to content while protecting and rewarding artists and other stakeholders.
2) Traditional music companies need to recognize the opportunities new technologies offer.
3) And the government must establish a competitive environment that allows new ideas and firms the opportunity to flourish.

Consumers have the passion, artists and creators produce the product and we have the means to link them more efficiently than ever before - bringing consumers greater choice and more convenience, artists greater freedom and income, and the industry a new era of growth and eventually profits.

At its peak, the original Napster community topped 60 million unique users. 42% of those were 25 years and older, 58% between the ages of 13 and 24. They traded songs, opinions and news, and listened to every piece of music there is. Napster users actually increased their CD spending. Nearly 70% of them used Napster to try out music before buying, and they bought nine CDs every six months, on average, more than three times the national average. In many ways, they were very different from one another. But they all shared a passion for music.

That base, and that passion, that opportunity for sales and income are still there. But the marketplace has, to date, been unable to offer licensed services at a price and quality that will bring users into the sanctioned market. The major labels recently launched their own digital offerings - MusicNet and PressPlay -- and this is good news in some ways. They confirm by their very existence that there are no longer significant technology, security, or DRM impediments to licensing independent services. They also reflect a growing recognition on the labels’ part that the Internet is a legitimate distribution channel for music. The question remains whether they see it as a parallel channel – one that advances competition across traditional markets – or as a unique one. The growing consensus among consumers, artists, and policymakers appears to be that the major labels view the Internet as a more limited, unique distribution channel that can be controlled.

Napster takes little satisfaction from reading these critical reviews and comments. After all, if Napster expects to tap into the passion of music lovers, we must obtain major label content, and this remains our greatest obstacle. Napster’s initial success was driven, in part, by the depth of content that users were able to find. So, the next step for Napster is to reach a content agreement with major labels – an agreement that will give consumers a reason to log on and download, and give Napster a real shot at economic viability. Ironically, an inability to bring consumers Dave Mathews will also make us unable to offer music from thousands or tens of thousands lesser-known acts.

So we must encourage the labels to work with us and leave the past behind. We have stated it emphatically and I repeat it here again that Napster recognizes that artists deserve compensation for their work and we believe that consumers want to see artists and songwriters compensated. They don’t expect Alicia Keys to sing for free. They don’t expect to download Aimee Mann for nothing. The vast majority is, and always has been, willing to pay a fair price for music.

We are creating a system in which rightsholders - be they major labels or garage bands - feel comfortable with the way we operate the service and ensure when their music is shared by Napster’s millions of users they will be compensated. Napster will provide all artists who wish to take advantage of the service with self-registration tools so that they can expose their music to Napster’s member community, promote CD sales and tours, and track the success of their music online, in real time. An open market like Napster is what is best for creators and, in turn, best for consumers and that is why all of us at Napster are so confident it will succeed.

Napster has had an important influence in the development of the digital music market, and I can promise consumers that we will not stop our efforts until they can obtain the music they love in a manner that is consumer-friendly -- both in quality and price.

So, I hope that the music labels will listen to its critics – as we have listened to ours. Rather than slow development of Napster and similar services and hunt down other free services one-by-one, the more effective way for labels to address the challenge of emerging “free” services would be to close the gap between the creator and the listener communities by offering the services that people want, for the kind of payment that consumers are prepared to pay.

Consumers want what they can’t always find at Tower, available 24-7, and available now. Consumers want to browse. Consumers want opinions – from critics, peers, and experts. Consumers want to talk about their music, especially younger buyers. Music is status, it’s sophistication, it’s danger and it’s fun. Late at night, when the first hearing of a new disk blows you away, you want to tell somebody else, and you do that online. And consumers want to customize their playlists, putting together the theme disk that lets them set the soundtrack to their own lives. How are we going to get this for them? You can’t do it in a store. But you have to do it to make the industry grow.

Like any businessperson, I am hesitant to bring government into the marketplace. But I do believe that government has the obligation to step in to set standards that promote competition and benefit consumers, especially in the area of copyright. If no agreement between rightsholders and new, independent distribution initiatives can be achieved in the short term, Congress will have little choice but to consider the compulsory licensing of sound recordings. If they do so, they should consider a system that allows filesharing of music files so long as services agree to pay artists, songwriters, and the record labels.

We will support this until we obtain the content we need to operate an open market and that allows consumers to enjoy it in a way that they want. If not, a safe harbor should be established for such services while the Copyright Office is instructed to expeditiously set the appropriate rate. I am increasingly confident that Congress will soon, when the war and the economy are not such immediate concerns, return to this area.

Again, I am optimistic these days that we can get commercially negotiated agreements with the music industry, but time is of the essence and, unfortunately, we have not been able to achieve these license deals so far. The music business is, of course, a business. But far more than virtually any other commercial sector, the nature of media businesses are defined by the Congress. It is government that defines the limits of copyright and consumer rights therein. Historically, Congress lays the foundation around which the marketplace has operated.

Consistent with this history, the entertainment industry has recently petitioned the Congress to pass legislation that will establish technology standards for digital rights management. That is their right and it remains to be seen whether anything will come of the Senate Commerce draft bill. But it seems only equitable that, should the Congress consider such a measure, it also should consider the establishment of standards for content licensing. In addition, Napster will continue to press for passage of the Music Online Competition Act because, among other things, it will enhance the rights of artists in the marketplace.

Reading the biography of Theodore Roosevelt in an effort to fill some of the holes in my knowledge of American history, I learned that Roosevelt proposed as early as the beginning of the last century, “More and more it is evident that . . . the nation has got to possess the right of supervision and control as regards the great corporations which are its creature.” This premise drove Roosevelt to challenge the legality of trusts and, eventually, to push through Congress a bill strengthening America’s antitrust laws and creating the Department of Commerce.

Not only are corporations – to use Roosevelt’s word – “creatures” created by the nation, but so too are the copyrights that are at the center of our businesses future. In the end, I trust that in this country, Congress, the Commerce Department, and others will come to recognize, that there is a role for government in maintaining a healthy competitive environment for commerce and intellectual property. And, this will be good for consumers, artists, and the music business.

At Napster, we are working to build a new world of promise, in which constant consumer demand and universal availability liberates and enriches artists who can reach a hundred million people from a basement server; songwriters who can distribute and track their work around the world, and record companies who can find new talent and reach new markets with an efficiency unimaginable five years ago.

I believe that day will come, and I am proud that Napster has done so much to bring it closer. I can’t promise you that Napster will get there. But if the marketplace remains open and there is licensing of content, we will get there and the artists, the songwriters, and businesses will find an opportunity for success far greater than any they have ever known.

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