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Wednesday, November 05, 2003 - Page updated at 12:00 A.M.
Loudeye's hard music lesson plants it in center of controversy
By Kim Peterson
By week's end, the digital-media company was in defensive mode after the service which it supplied with songs was shut down.
Now it's not saying anything as it stands at the center of controversy.
The company's predicament demonstrates the bewildering issues that surround digital music. New and evolving technologies are forcing the recording industry into uncharted territory, where the rules are so murky that even a student research project cannot escape scrutiny.
Loudeye supplied tens of thousands of songs for a campuswide electronic music library developed by students at the Massachusetts Institute of Technology. The company issued a news release praising the system, the Library Access to Music Project, or LAMP, when it launched last week and emphasized the system was legal.
"LAMP is an innovative approach to enabling legitimate digital-music distribution at universities," said Chief Executive Jeff Cavins in the release.
But Loudeye did not have the right to provide the music, the recording industry said. Copyright concerns raised by at least one record label prompted MIT to shut down the system Friday.
MIT said it would like to get LAMP running again but not until the legal issues are resolved. Loudeye is not commenting on the issue at all.
LAMP evolved from a two-year research project by two students studying electrical engineering and computer science. The students wanted to develop a way to instantly access songs from a campuswide library without breaking copyright law.
They found the answer in MIT's cable-television system. Users could choose a particular song or compact disc from LAMP's Web site, and the music would be broadcast over one of 16 cable-television channels. Students could not download or copy the music files.
The songs were broadcast over a non-digital source, and LAMP won praise as an elegant way to get around some of the stringent copyright and distribution laws associated with digital music. Some observers even hoped it would quell the rampant music piracy at universities by providing an alternative source of music.
LAMP creators Keith Winstein, 22, and Josh Mandel, 21, spent about $25,000 to buy hard drives stocked with about 48,000 songs from Loudeye, which makes money by providing content to online music stores, such as Apple's iTunes.
MIT put LAMP through a yearlong legal review before it went live. It concluded the project's licensing requirements were similar to those governing campus radio. MIT already pays for blanket licenses to broadcast songs on its radio network. LAMP got the green light to launch Oct. 27.
It didn't take long for the project to hit a snag. Universal Music Group contacted Loudeye with concerns about improper licensing, according to a source familiar with the discussions. Loudeye brought those concerns to MIT.
The university shut the project down after five days, although hopes are high LAMP will rise again.
In a statement issued Friday, MIT seemed to lay much of the blame for the debacle on Loudeye.
"We relied on Loudeye to provide us with authorized content and for Loudeye to facilitate and obtain the appropriate licenses," the university said. "We have been working with Loudeye on obtaining content since October 2002, and Loudeye assured us on multiple occasions that the content they provided to us was prepared fully under authorization from the record labels and on behalf of the publishers."
Finger-pointing from the recording industry also appeared to be aimed at Loudeye. Universal Music Group, a unit of Vivendi Universal, said it has been contacted by MIT and will work with the university.
"It is unfortunate that MIT launched a service in an attempt to avoid paying recording artists, union musicians and record labels," Universal said. "Loudeye recognized that they had no right to deliver Universal's music to the MIT service, and MIT acted responsibly by removing the music."
Analysts say LAMP has become an embarrassment for Loudeye, which touts its extensive inventory of encoded music and its licensing agreements with the five major record labels.
"Loudeye should not have let this happen," said Phil Leigh, an analyst who follows the digital-music industry. "They're moving very fast and they just made a misstep here. It's going to cost them from a public-relations perspective."
The issue hasn't affected Loudeye's stock, which dipped slightly over the past week but closed yesterday up 4 cents at $2.64.
Perhaps investors are used to the complexities surrounding digital-music deals.
"It can be a quagmire to try and navigate through the process," said Yankee Group analyst Paul Ritter. "It's not black and white about what's legitimate and what's not considered kosher."
Kim Peterson: 206-464-2360 or firstname.lastname@example.org
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