Sleeping with the enemy

An inside look at the record industry's digital-download security plan.

DRESSED IN BLACK jeans and equally black Dr. Martens boots, Todd Sawicki still looks like he could be a member of the cool clique at his alma mater, Duke University. Instead, for the past six months, he's been holding court with 200 of the world's most powerful music moguls and high-tech executives.

The 27-year-old Sawicki works for Encoding.com, a company that converts CDs, videos, and films to digital formats for clients, including all the major record labels. So when the record industry decided to fight the rapidly spreading, open-format digital download technology known as MP3 late last year, Encoding.com sent a representative to the table to get an inside line on how any changes will affect its business. Sawicki therefore became part of the elite group known as the Secure Digital Music Initiative (SDMI), an attempt to impose a copyproof digital-file-download standard on the world. "The labels are concerned about MP3," he says, standing amid the clutter in the former church that is Encoding.com's makeshift Seattle headquarters. "They need to take charge, and they're trying to do this with SDMI."

Traveling to Los Angeles, New York, and London, Sawicki was privy to the SDMI specifications, being announced this week, that will alter the way music is distributed over the Internet and how it is played back on portable devices. In the short term, he learned, little will change. For the first year or so, players such as Diamond Multimedia's Rio will be regarded as compliant with SDMI even though they don't distinguish whether a song was recorded legitimately or pirated. This is known as "Phase I."

But in what's being called Phase II, to take effect at a yet-to-be-determined date, music downloads will be required to carry "digital watermarks"—invisible implants that will allow SDMI-approved players to discern whether a download was obtained legally. The record industry is hoping this will put an end to the current open system, in which anyone can upload a song from a CD onto a hard drive, convert (and compress) it into an MP3 file, then copy it repeatedly.

From the record companies' standpoint, the two-phase system isn't ideal, as it allows—at least temporarily—the unabated flow of unprotected music; popular songs by groups such as the Offspring have become hits with Internet users, many of whom aren't paying a dime for the copies they download from unauthorized Web sites. "Believe me, they would like it dead," Sawicki says of MP3. "The labels said that they don't want the players to support MP3. But the hardware device makers said they wouldn't ignore what is the biggest market today."

The compromise hasn't squelched the controversy. The San Franciscobased Electronic Frontier Foundation continues to rail against SDMI, arguing that MP3 copies are no more illegal than cassette dubs taken from CDs. Many independent artists have also decried the planned overthrow of MP3, on the grounds that it is the artists' right to distribute music as they wish, not as some corporate overlords tell them.

Sawicki counters that this is business, and that the record and technology companies need to protect their property. The attacks against SDMI, he explains, are misguided. "It's perceived to be this closed-door thing, this evil, scary, terroristic organization, but it's really not. It's really about how we are going to make this all work," he says.

How the SDMI works may have implications beyond the digital delivery of music. With broadband connections becoming more widely available, the world of Internet video and film distribution isn't far off. And they could spring to the forefront of Internet culture remarkably quickly, as the blazing onset of audio distribution demonstrated.

FOUNDER MARTIN TOBIAS started Encoding.com in 1996, after retiring from Microsoft at age 33. He intended to work primarily with video. The business grew steadily, and then late last year came a jolt: Diamond Multimedia introduced its Rio MP3 player and the record industry reacted swiftly, scrambling to get in at the forefront of the digital download revolution and bringing CDs by the truckload to Encoding.com to get the music converted into MP3 or secure formats, most notably Liquid Audio. "When this company started, our business was 90 percent video, 10 percent audio," Todd Sawicki recalls. "Late last year it completely reversed. Overnight. Video continues to grow, it's just that audio went zoom."

So is the film industry ready for such a transformation? Tobias says no. Already, he points out, there's an illegal video copy of the full-length Keanu Reeves hit The Matrix available from an alleged pirate in Hong Kong. It's not a significant threat, because it takes 15 hours to download with a T-1 line. (Think of it as a proof of concept.) But it is reminiscent of the situation that snuck up on the record industry, leading to SDMI. "Luckily for the film industry," Tobias says, "the record industry will go through a significant amount of pain trying to figure it all out."

Will the suffering be worthwhile? Despite all the criticism levied against SDMI, and despite all the red-eye flights Sawicki and his newfound friends endured to convene for meetings, he says it's for the best. "The reality is that the record industry serves a purpose," he declares. "It promotes artists. It acts as the venture capitalist to fund new artists. It invests in new technology like SDMI. Maybe they're not perfect, and maybe they'll have to do a better job justifying their value in the future, but that's OK."

 
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