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`You can't stop the kids sharing files'

Monday, Oct 20, 2003, Page 11

Music companies should have been mastering techniques for buying music online, instead they tried to thwart file swapping technology in a mistaken effort to keep people buying overpriced CDs, says James Chen of Kuro.com.tw -- Taiwan's largest file-sharing community. PHOTO: CHIANG YING-YING, TAIPEI TIMES

Taipei Times: The music industry claims that peer-to-peer music file sharing infringes their copyrights and is already suing three local P2P enthusiasts. The industry claims that your Web site encourages people to break the law. How do you respond to those charges?

James Chen (陳國華): People who understand technology wouldn't say that. Our business is a legal business. Subscribers to our site pay for our software and services.

Of course the music labels have their reasons for making these claims. One of these is that revenues from CDs have been very bad and decreasing for the past few years. Between five and 10 years ago the Internet was not as widespread as it is now. I already realized at that time that sales of CDs were down. The most important reason is that consumer entertainment patterns changed. Previously, young people could only go to a record store or a bookstore. But Taiwan's entertainment venues increased at that time.

Now we could go to pubs, discos, Internet cafes - a lot more places, meaning our NT$1,000 had to be divided among many more places. That's the first point. But the second most important point is that technology changed, particularly CD burners. Before the widespread use of the Internet, when a burner cost less than NT$10,000, the music industry was already affected. Now burners cost US$80 to US$100 and are much faster. Both these factors led to the crash of the local music industry. P2P then put more pressure on top of that.

"I need to make a clarification here. There are no songs on our server. This shows that the music industry does not understand the technology. We place a list of file names on our site, not files."

James Chen, CEO of Kuro.com.tw

TT: What about the price of CDs? Did that hurt the market?

Chen: I remember cassettes. They cost around NT$170. Why, when content was exactly the same, did CDs cost more than NT$300? The price was almost double for a different delivery package. Consumers didn't have a preference for cassettes or CDs per se, but they realized that CD quality was better. Cassettes slowly disappeared, and now you don't see them anywhere. But by doubling the price, you opened the door to piracy. That's why there are so many pirated disks now.

I've been in the music business a long time - about 15 years - and in that time I've come to realize that today's music industry managers don't understand the big picture. The market can no longer tolerate a controlled channel way of doing business.

In 2000, I discussed music downloads with the managing directors of labels in Asia. At that time they weren't willing to discuss digital music downloads. Their opinion was songs should be packaged in CDs, not sold individually. Now they are slowly realizing that MP3 files can be sold individually, but it's too late as the market has moved way ahead of them yet again.

They have done too little too late. I am sure that within two years, the music labels will be using P2P, but who knows what new technologies or inventions will be around then.

TT: The music industry has approved Apple Computer Inc's iTunes music download Web site which sells each song for US$0.99 of which a portion is royalties. Would you consider following the Apple model?

Chen: I have already discussed this with the music labels. In Taiwan they have no plans to operate this model. The local managing directors also do not have the power to decide this matter. They can only decide for local music content.

I asked them to tell me how they could co-operate with me. If they are not satisfied with my offer of how much to pay them, they should tell me how much would satisfy them. The next problem is how to divide the money, and finally how much copyrighted material we could use, but they didn't reply to me. We had discussions on May 26, June 10 and June 17. The fact that they couldn't come to an agreement with us shows that their aim is not to co-operate with anyone but try to control the market themselves.

Our request is that there is a level playing field where music can be sold as CDs or over the Internet on an equal basis, but their priority is on the CD with the Internet as a secondary channel.

TT: You did offer to charge your subscribers an extra NT$50 on top of their standard monthly fee of NT$99 and pass this on to the music labels, but your offer was rejected as it did not pay royalties on each title every time it was downloaded. Are you going back to the negotiating table with any new offers? If so, what, and if not, why?

Chen: The NT$50 charge we offered was not cast in stone. We came up with that figure from our own market research, but did not rule out a higher charge. But the music companies said it was too low without saying how much would be acceptable.

There are 300 million people in the world sharing music files. Only two companies can collect fees, and they are both Taiwanese -- Kuro and EzPeer. Kuro has proven that we have the capability to collect money from peer-to-peer and we have the intention to co-operate with the labels. That is the major difference. We are sure we can create a new revenue stream, and by doing so we can help the labels convince the other P2P service providers to control their services.

P2P -- which allows computer users to locate and download over the Internet music files from any other computer that shares the same P2P software and is logged onto the Web -- can make the music-listening market grow much bigger. In China, for example, piracy is a huge problem. But if we can agree on revenue sharing with the music industry, we can collect more revenues in China. We have shown that it can work. I am willing to sit down and talk any time, anywhere.

TT: The music industry has requested you stop placing their copyrighted material on your server until you have reached an agreement about licensing. How do you respond to their demand?

Chen: I need to make a clarification here. There are no songs on our server. This shows that the music industry does not understand the technology. We place a list of file names on our site, not files. The files are stored in the users' computers.

The industry needs to accept the power of the Internet as a tool. It used to be it would take up to a year for a new song or singer to reach the far reaches of the market in Taiwan and China through the CD channel. But with the Internet, new music can flow to every part of the market within a few hours.

TT: Will you be investing in new technologies, for example MPEG4 video downloads?

Chen: We have developed a digital multimedia magazine in-house, and we currently have around 60,000 downloads per week of that. We create the content ourselves. We are trying to prove that P2P is a killer application. You probably don't know that your ICQ, Yahoo or Microsoft Instant Messenger has a P2P mechanism inside. Kuro endorses this technology so much. The music application is one of the services we provide. We are developing many more on top of this ? like software and movies. We are ahead of time, much further ahead than the music labels.

But the problem we have at the moment is bandwidth. ADSL in Taiwan is just not fast enough. It is 1.5 megabytes per second. The minimum you need for downloading movie files in 6 megabytes per second.

TT: Recent cases launched by the RIAA in the US and the IFPI here have put music consumers -- and your customers -- in court. Has this hurt your business and how do you react to these tactics?

Chen: Recent changes to the Copyright Law (著作權法) said that if you make less than five copies of a song, or the market value of your copy is less than NT$30,000, you are not breaking the law. Also many users buy a CD and make copies for personal use - that is reasonable. You can't say people can't copy CDs onto their computer. We have lost 10 to 15 percent of our business. But users quickly forget. The behavior model has changed. Users listen to music as MP3 files now, not CDs.

TT: But the changes to Copyright Law also gave rights holders the right to claim royalties for songs that are distributed over the Internet. Doesn't that apply?

Chen: The definition is if you are distributing the song for commercial purposes, so this does not apply to P2P. Users of P2P are not collecting money, they are sharing the file. It is not a business activity.
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