All Things Digital

The legal broadside Hollywood lobbed at RealNetworks (RNWK) last week has upset the company’s carefully prepared plans to offer a mainstream means of legally copying DVDs. A judge has issued a temporary ban on sales of Real’s RealDVD software in the wake of a lawsuit brought against it by the Motion Picture Association of America. Point your browser at the RealDVD site today and you’ll be greeted with the following message:

Due to recent legal action taken by the Hollywood movie studios against us, RealDVD is temporarily unavailable. Rest assured, we will continue to work diligently to provide you with software that allows you to make a legal copy of your DVDs for your own use.”

Good luck with that, folks.

As I’ve noted here before, RealDVD is a nice idea–a $30 software program that easily copies entire DVDs, right down to the menus, bonus features and cover art. And it does so in an ostensibly legal way. What it doesn’t do, though, is prohibit users from ripping DVDs that they rent. Effectively, users are on the honor system, which isn’t exactly a Hollywood-approved DRM scheme.

Well, that didn’t take long at all, did it? The Motion Picture Association of America has filed suit against RealNetworks (RNWK), seeking an injunction to stop the company from distributing its RealDVD DVD-ripping software. The MPAA argues that RealDVD violates the Digital Millennium Copyright Act because it circumvents the copyright protection that protects DVDs from piracy.

The MPAA “RealNetworks’ RealDVD should be called StealDVD,” said MPAA Executive Vice President and General Counsel Greg Goeckner in a statement. “RealNetworks knows its product violates the law and undermines the hard-won trust that has been growing between America’s movie makers and the technology community. The major motion picture studios have been making major investments in technologies that allow people to access entertainment in a variety of new and legal ways. This includes online video-on-demand, download-to-own, as well as legitimate digital copies for storage and use on computers and portable devices that are increasingly being made available on or with DVDs. Our industry will continue on this path because it gives consumers greater choices than ever. However, we will vigorously defend our right to stop companies from bringing products to market that mislead consumers and clearly violate the law.”

Turns out RealNetworks Inc.’s new DVD ripper, RealDVD, is as legal as its creator is litigious. RealNetworks (RNWK) debuted RealDVD this morning and along with it, a preemptive lawsuit against the Hollywood interests that will inevitably attempt to litigate it into oblivion. Brought against the DVD Copy Control Association and a who’s-who of major studios, the suit asks the court to rule that RealDVD complies with the DVD Copy Control Association’s license agreement not only by retaining the “content scramble system” used to protect DVDs, but by enhancing it with an additional layer of digital rights management protection.

“RealNetworks took this legal action to protect consumers’ ability to exercise their fair-use rights for their purchased DVDs,” the company said in a statement. “We are disappointed that the movie industry is following in the footsteps of the music industry and trying to shut down advances in technology rather than embracing changes that provide consumers with more value and flexibility for their purchases. For nearly 15 years RealNetworks has created innovative products that are fully legal, great for consumers, and respectful of the legitimate interests of content creators and rights holders. RealDVD follows in that tradition. We expect to successfully defend our right to make RealDVD available to consumers and consumers’ rights to use it.”

We’ll see, I guess. Clearly the silly little “RealDVD is for saving a DVD you own” disclaimer attached to the software isn’t going to cut it with Hollywood. I imagine we’ll be hearing from the Motion Picture Association of America before the day is out.

RealNetworks Inc. (RNWK) CEO Rob Glaser calls RealDVD, the company’s new “legal” DVD ripper, “a compelling and very responsible product that gives consumers a way to do something they have always wanted to do.” But really, what it’s giving them is a more cumbersome way of doing something that they’ve already been doing for years now with DVD Decrypter, AnyDVD, Handbrake, MacTheRipper, RipIt and the like.

Like other DVD rippers, the $30 software program easily copies entire DVDs–right down to the menus, bonus features and cover art. But unlike those rippers, RealDVD does so in an ostensibly legal way. It copies them without breaking their digital rights management schemes by installing a second layer of DRM on the ripped files that prevents users from sharing the DVDs online.

What it doesn’t do, though, is prohibit users from ripping DVDs that they rent. Effectively, users are on the honor system. And last I checked, the honor system isn’t a Hollywood-approved DRM scheme.

In a 2004 email to Steve Jobs, RealNetworks (RNWK) CEO Rob Glaser asked the Apple (AAPL) CEO to consider a “tactical alliance” with his company. License us your Fairplay digital-rights management system, allow our customers to play their digital music collections on the iPod, wrote Glaser, and we’ll make the iPod our primary device for the RealNetworks store and for RealPlayer software.

It was an astonishing offer at the time, especially coming from Glaser, who had been a vocal critic of Apple and its decision to make digital music sold through its iTunes store playable only on iPod (”I bought an iPod and can only shop at one store,” Glaser once said. “What is this? The Soviet Union?”)

But it was an offer that Jobs found unappealing. The Apple CEO rebuffed Glaser, declining even to meet with him over lunch to discuss it.

Glaser, of course, took it poorly and spent the next few years slagging Apple and Jobs for declining the partnership. “We think Apple Computer, and Steve personally, are making a mistake by making the software proprietary,” Glaser said at the Digital Living Conference in 2005. “There’s no reason we should penalize Apple customers for Steve’s pigheadeness.”

Course, in the end Real didn’t penalize Apple’s customers. Apple’s customers penalized Real. And today Apple’s iTunes is the largest music retailer in the states. And Real? Well, Real’s “embracing” the iPod.

Funny how that worked out.

This morning the company announced a new MP3 store whose unprotected music files can be played anywhere–even on an iPod. Like Apple’s iTunes, the Rhapsody MP3 Store offers music from all four major music labels at 99 cents per track, or $9.99 for an album. Over five million songs will be made available, at 256k-bit rates. Visitors can preview them in their entirety instead of the 30-second samples offered by iTunes and the like. And, if they’re Verizon (VZ) subscribers, they can download music directly to their phones with the company’s V CAST Music with Rhapsody service.

“We’re no longer competing with the iPod,” said Rhapsody Vice President Neil Smith. “We’re embracing it.”

Pigheadeness, be damned.

Seems AOL and Yahoo were a bit off on their estimates of the back royalties they owe music composers, writers and publishers for streaming their work over the Internet. The two companies had proposed paying just $632,879 and $889,402, respectively, in 2006 royalites to the American Society of Composers, Authors and Publishers. Yesterday, a federal court ruled that what the two really should pay is $5.95 million and $6.76 million, respectively.

Under the terms of the court’s order (PDF), AOL (TWX), Yahoo (YHOO) and RealNetworks (RNWK) as well must pay ASCAP
2.5% of their streamed-music revenues between 2002 and 2009. That could amount to as much as $100 million for ASCAP and its membership.

Quite a windfall and one that ASCAP was quick to ballyhoo. “The Court’s finding represents a major step toward proper valuation of the music contributions of songwriters, composers and publishers to these types of online businesses–many of which have built much of their success on the foundation of the creative works of others,” said Marilyn Bergman, president of ASCAP. “It is critical that these organizations share a reasonable portion of their sizable revenues with those of us whose content attracts audiences and, ultimately, helps to make their businesses viable. This decision will go a long way toward protecting the ability of songwriters and composers to be compensated fairly as the use of musical works online continues to grow.”

The Recording Industry Association of America demands damages of $150,000 per song for file-sharing infringements, yet it pays the artists who create those songs pennies for their work. And now it wants to pay them even less.

The RIAA and its online counterpart, the Digital Media Association, have petitioned the Copyright Royalty Board to slash the so-called mechanical royalties paid to musicians and music publishers for digital downloads, subscription music services and ringtones. Seems the RIAA and DiMA feel they’ve suffered unfairly during the transition to digital distribution and they’d like artists to share in their misery.

The National Music Publishers’ Association, noting the favorable economies of digital distribution, asks for a royalty of 15 cents per track for permanent digital downloads. The RIAA argues that a royalty of approximately 5 cents to 5.5 cents per track is more reasonable. The DiMA–which represents Apple, Amazon and RealNetworks, among others–suggests cutting that royalty further still.

Find that astonishing? Just wait; it gets worse. For streaming music services, the NMPA proposes a rate of the greater of 12.5% of revenue, 27.5% of content costs, or a micro-penny calculation based on usage. The RIAA finds 0.58% of revenue more reasonable. And the DiMA says there really shouldn’t be any royalty at all. “Fundamentally, this fragile marketplace is showing signs of promise, but it cannot be saddled with additional, excessive costs,” the DiMA argues. “The board should be careful not to impose a royalty that kills the proverbial goose and deprives songwriters and publishers of their golden egg.”

An interesting choice of metaphor and one in which the DiMA and RIAA might easily figure as the giant at the top of the beanstalk:

Fee! Fie! Foe! Fum!??
I smell the blood of a musician.
Be he ‘live, or be he dead,
I’ll grind his bones to make my bread.”

Grind his bones to make my bread, indeed.

Said Rick Carnes, president of the Songwriters Guild of America: “Our opponents have to recognize that this rate-setting is not a matter of gamesmanship for songwriters, but rather one of survival. As I stated in my testimony, in response to a question from those seeking to cut the mechanical royalty rate in half and to denigrate the importance and contribution of professional songwriters to the music industry, ‘Yes, songs are plentiful, just as rocks are plentiful. But if you want diamonds, you are going to have to pay the miners a living wage.’ “

Yahoo took some time off from fretting over its uncertain future today to ditch its also-ran subscription music service.

This morning the company said it’s exiting the subscription-music market and throwing its support behind Rhapsody America, a joint venture company owned by RealNetworks and Viacom. In the coming months, Yahoo Music Unlimited subscribers will be transitioned over to Rhapsody and Yahoo will begin promoting the new service on its properties.

The deal leaves us with a subscription services market of three: Rhapsody, Napster and Microsoft’s Zune Marketplace. And among those, Rhapsody–with just under 1 million subscribers–will be the leader. “This takes away a competitor, and gives Rhapsody potentially some marketing muscle,” Jupiter analyst David Card told USA Today. “This is good for Rhapsody.”

Indeed. But only if the deal lasts. And there’s good reason to believe it won’t, given Microsoft’s hostile bid for Yahoo. The software giant and Real aren’t exactly old friends.

Note: John Paczkowski is on vacation and won’t be writing or posting videos until he returns Monday.

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Retailing behemoth Wal-Mart will sell digital-music downloads on its Web site without copy protection, Reuters reports. The so-called digital-rights management software insisted on by some record labels can stymie where the average user plays the songs.
2. Taking on the juggernaut of iTunes, MTV and RealNetworks are forming an online digital music venture called Rhapsody America. According to The Wall Street Journal, Verizon Wireless has signed on as mobile distributor of the joint content.
3. Adobe Systems’ warhorse Flash Player is getting a makeover named “Moviestar.” The update, says InfoWorld’s Paul Krill, will bring high-definition video technology to downloads, affording clearer and smoother playback of images.
4. Increasingly popular online video site Metacafe got a shot in the arm in the form of $30 million in financing. VentureBeat reports that the latest cash infusion was led by new investors Highland Capital Partners and DAG Ventures.
5. Acknowledging it did bad (though not evil), Google announced last night that it would make credit-card refunds, rather than Google Checkout credits, to those owed after the company terminated its download-to-own/rent service of Google Videos. PC Magazine disclosed that the search giant will also allow users an additional six months to watch the videos they have already downloaded.
6. Fretting over security and productivity concerns, half of all companies in a recent survey are blocking employees’ access to Facebook. The poll of 600 workers by online security firm Sophos also found that two-thirds of all employees believe their colleagues are revealing too much information on the social-networking site, exposing them to cybercriminals bent on data theft and their companies to network hackers.
7. Bebo, the U.K.-centric social-networking site, has announced a partnership with Microsoft on a new instant-messaging service. According to Webware, the Windows Live Messenger hookup is only that–and not a signal of any impending acquisition.
8. Joining the social-networking parade, online business network CollectiveX has launched Groupsites. According to Michael Arrington of TechCrunch, the new product opens up the buttoned-down service to allow users to create social profiles as well.
9. Upping the ante in the competition for giving laptop users more memory, Toshiba announced today that it will release a 320-gigabyte hard drive for its laptops by the end of the year. According to IDG News Service, for users of multimedia laptops–where storing video is paramount–the extra space will come as a welcome feature.



10. In a bow to color choice and the sexes, researchers have found that there’s truth in the the time-honored (if sexist) adage that girls like pink, boys like blue. Reporting on a study from two scientists at Newcastle University, the Independent did not confirm whether the findings were borne out in colors chosen by men and women for iPod skins.

–posted by Associate Editor John Sullivan