Peer to Peer Piracy on University Campuses: An Update

October 5, 2004

Washington D. C.

Peer to Peer Piracy (P2P) on University Campuses: An Update

Good Morning. My name is Alan McGlade. I am the Chief Executive of MusicNet, a leading digital music service provider and one of the first companies to legally license and distribute digital music online.

I want to thank you very much for the opportunity to speak to this committee today. The original hearing you held last year regarding campus piracy has spurred the music industry and university community to action, yielding the progress on which I will report today.

To give context to my update, I should explain that MusicNet is a business-to-business provider of music download and subscription services. What this means is that we do not provide music directly to consumers; instead, we partner with companies like America Online, Virgin and others that use our music licenses and technologies to offer online music services to consumers under their own brands.

MusicNet and the university community have teamed with a company called Cdigix to provide students with a viable, legal alternative to peer-to-peer piracy. We selected Cdigix because it focuses exclusively on serving the needs of the university market, and provides colleges with a suite of digital media services ranging from academic content to music and video on demand.

This partnership with Cdigix has resulted in the creation of Ctrax, a state of the art music service tailored to the unique needs of the college market. Let me explain what makes Ctrax unique. First, we can offer students at participating college’s unlimited access to over a million songs for one low monthly fee. With a comprehensive selection and unlimited downloading to the PC, the experience is so good that it effectively replaces the need for unlicensed peer-to-peer networks. Second, the record labels have agreed to provide exceptionally low pricing to on-campus music services, allowing us to offer special student subscription rates of about $3 each month. The cost is even better at some universities where the administration is helping to underwrite the cost. There is no longer an economic excuse for students to turn to piracy. Third, billing is typically handled through the campus bursar, so that students do not need credit cards and parents can subsidize the cost if they desire. And finally, the music is stored on local campus computer networks, ensuring an exceptionally high-speed experience. By crafting a solution specifically to meet the needs of students and colleges we have created a low cost, high-quality, extremely satisfying alternative to illegal peer-to-peer piracy.

And, I am please to announce, our efforts appear to be working. A number of schools have already launched or have signed on to launch Ctrax. This list includes Purdue, the University of Denver, Tulane, Wake Forest, RIT, Ohio University and Yale, creating a target student base of nearly 300,000 students. As our success attracts publicity, we are being approached by a steady flow of new schools seeking to offer these legal alternatives. We anticipate that Ctrax will be available at 20 schools in the spring 2005 term and many more in the fall 2005 term.

The early results of this program are significant. For example, the Ctrax music service was launched at Purdue University just over a week ago. During the first week, 2,000 students signed up without any real on-campus marketing. Those users have already been downloading approximately 20,000 songs each day.

This success reflects the changing conditions in which we find ourselves. Students now recognize that the services we offer are not just legal, but that they also now provide a great user experience. In early 2002, MusicNet only had 37,000 licensed tracks. With such limited selection, it is no surprise that peer-to-peer services were dominant. Today we have over 1 million songs from the major music companies and thousands of independent labels, with a projected 1.2 million tracks available by year-end.

When you speak with students you will actually find that, while they recognize the ethical issues involved in piracy and are aware of the enforcement initiatives by the RIAA, they are beginning to turn away from peer-to-peer networks because of the inconveniences of those services. Peer-to-peer networks are fraught with viruses, spyware that track user activities and adware that bombard users with unwanted pop-up advertising. Moreover, a large proportion of the files available on peer-to-peer networks are spoofed, meaning that they are corrupt, mislabeled, or otherwise adulterated versions of the music students seek.

Legal music services represent a great opportunity for college administrations. Offering these services help universities stay competitive, promote the on-campus residential experience, decrease expensive bandwidth costs from peer-to-peer activity and support ethical behavior. Simply put, students are beginning to demand legal options from their universities. Just as cable television is offered in residence halls, music services are now becoming the expectation.

In addition to our work with Cdigix, we have also worked with the Campus Action Network, an effort led by Sony BMG Music Entertainment and other records companies, to support the launch of legitimate music services at colleges around the country. Campus Action Network provides universities with introductions, information and support on a broad array of online music services, and does not recommend or endorse any one service or technology to institutions. Campus Action Network also provides valuable marketing support to campuses around the country which are launching music services. With many colleges on deck as a result of Sony's Campus Action Network initiatives, we expect numerous schools around the country to have a service up and running this year.

Chairman Smith and Congressman Berman, I applaud you for your leadership on this important issue and the commitment you have each shown to the development of legal alternatives to piracy for college students and your efforts to increase enforcement of the copyright laws. I encourage you to hold additional follow-up hearings next year to keep the spot light on this issue.