Internal theft is toughest piracy issue facing record companies
By JACK KAPICA
Thursday, December 4, 2003 - Page B10
The music recording industry may have a legitimate beef with copyright pirates, but there's one kind of pirate it doesn't like to mention very often: itself.
The toughest piracy issue facing record companies actually happens before a track or an album is released, and that can happen only when industry insiders get their hands on a copy before the record company is ready to launch it.
In fact, industry theft was not mentioned much in polite circles until a small Canadian startup company called Musicrypt, based in Richmond Hill, Ont., developed a system that can cure the malady, often worse than the kind we normally mean when we talk about Napster or Kazaa.
With pop music, timing is everything. It takes large amounts of money to develop artists, record them, crank up the publicity mechanisms and get them on the radio. Record labels can spend half a million dollars just launching a new rock band -- which is why the Recording Industry Association of America is so eager to drag a welfare preteen and a doting grandfather into court for downloading MP3 versions of various songs.
But most of the damage is not done by kids and their grandparents, but by the dozens, perhaps hundreds, of people who have access to the music before even before a single track or entire CD is ready for the stores.
A band must go into a recording studio, and may make several recordings of a single song before it's ready for burning onto a CD. Before they're finished, the tracks may have to be mixed at another studio, and they have to be shipped to head office and back, as the producers and marketers approve the right mix and select the track they will promote as the "single." Many copies are made of the album.
Traditionally, the music has been recorded on tape, and shuttling tapes from place to place been a physical process. Along the line, secretaries, marketers or shipping clerks might make a private copy.
Several hundred unauthorized copies never really hurt the industry seriously; the business considered getting a prerelease copy as something of a perk. Until Napster. Then one unauthorized copy of an unreleased track or even an entire CD could end up on all over the world before being officially unreleased.
Then the industry can say goodbye to its investment in launching, marketing and promoting a pop act, because it's already old news to Kazaa downloaders.
The industry even has a name for it: It's called a "leak." Three notable leaks occurred last year: singles by Britney Spears (I'm a Slave 4U) and Lenny Kravitz (Dig In) and a whole CD by Radiohead called Hail to the Thief -- a deliciously ironic title, considering its role in this story.
To appreciate the problem you'd have to be in the business, as were two 25-year music-industry veterans, Peter Diemer (from EMI and MCA Records) and Clifford Hunt (a producer for various labels). Together they worked out a high-tech answer to a high-tech problem.
They figured the best way to fight digital piracy is to use the system against itself. All it needed was a secure system of transfer and that would cut down -- if not eliminate -- illegal copies floating around.
Others had tried various systems, most based on password-protected encryption, which failed because passwords can be passed around so easily. Their plan was to wrap the music up in a biometric encryption program. They settled on an algorithm developed by SRI International of Menlo Park, Calif., called BioPassword, which uses usernames and passwords only as texts so it can analyze typing style. The system requires users to log in eight times before they're approved.
Radio stations can download a song the day it becomes available, and not before, and then only certain people can do it, explained Musicrypt president John Heaven the other day. The system was developed originally for the U.S. military, he said, but at 98-per-cent reliability it wasn't good enough for the Pentagon, but it would serve the music industry very well.
So far, he said, record company EMI Group has signed on to deliver its records with Musicrypt, and the system is being tested by BMG Music Service, Universal Music Group and Warner Music Group.
But Musicrypt is still facing two major hurdles. It's hard to get the five major players to agree on a single system (Sony is working on its own algorithm, but radio stations demand one system for all). Next, it's hard to get the 700 radio stations in Canada and the 13,000 in the United States to recognize the severity of the problem -- "Radio stations have not yet learned how leaks can hurt them by undermining their audience," Mr. Heaven said.
But so far, Musicrypt has a good penetration here. The system is being used to send tracks and albums to about 200 key market stations, which are the ones used by Nielsen Broadcast Data Systems of New York, which tracks off-the-air music to create music charts. The latest to benefit is Canadian Idol winner Ryan Malcolm, whose debut CD was shipped across the country just last week by Musicrypt.
"We're like an electronic Brink's truck," Mr. Heaven said