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Copy-Protected CDs Taken Back
by Chris Oakes - Wired

BMG Germany says it has a major piracy problem on its hands, blaming rampant copying of audio CDs for a drop in music sales. That's why the German division of the U.S. record label decided to give copy-protection technology a try.

The company debuted the first copy-protected audio CDs last week in German music stores.

No go.

By week's end, the company was faced with a backlash from consumers complaining that some of the copy-protected CDs were unplayable.

"The consumers started getting back saying it doesn't play on car CD players and several types of normal players," said Matthias Immel, head of product coordination and new media at BMG Germany. "We were really shocked."

Approximately 100,000 protected CDs were sold, and 3 to 4 percent were returned, Immel said.

Copy-protection technology is meant to prevent computer users from copying music CDs, but it has yet to see widespread deployment in commercial CDs. The BMG test was limited to the German market.

Immel said the company's CD supplier felt confident that the copy protection technology, Cactus Data Shield, developed by Israeli software firm Midbar would not cause problems with players.

After testing the copy-locked CDs on 1,000 different players, BMG Germany issued two new rock titles on 24 January. One was from the popular band Him, whose CD immediately became the No. 1 seller in Germany.

Just as quickly, the company got the word from frustrated consumers. BMG stopped the trial late last week and shipped additional orders of the CDs without copy-protection.

"We wouldn't have done it if it had been clear to us that we would have problems," Immel said. "We don't want consumers to be upset."

Immel said music piracy caused a 9.8 percent slump in sales during the first six months of 1999 over the same period in 1998, citing figures from the International Federation of the Phonographic Industry.

"The more or less obvious reason for the shrinking market is the CD burner issue here," he said.

BMG Germany plans to give copy protection another go. Immel said the company will work with Midbar to develop an alternative CD protection scheme.

Gene Hoffman, founder and CEO digital music distributor EMusic questioned whether piracy was really to blame for the sales decline.

"The ability to copy CDs has been around for at least a year," Hoffman said. "What is the true underlying cause of that decrease in sales? Is it really piracy?"

A critic of copy protection, he said BMG's failed effort was a harbinger for digital music copy-protection schemes such as SDMI.

"With copy protection you drive up the failure rate," Hoffman said. "And I don't think that's going to be acceptable to real customers who are putting out money to buy content."

If piracy is the problem, enforcement of anti-piracy laws -- and fairer pricing of music in the first place -- are better solutions, according to Hoffman.

He further predicted that other copy-protection schemes -- most notably the still-missing Secure Digital Music Initiative -- would suffer a similar fate in the market.

SDMI representatives were not immediately available for comment.

"It's a cost-benefit to the company. If copy protection can drive 50 percent more sales, then maybe it's worth it," Hoffman said.




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