RIAA Chairman/CEO Cary Sherman

Let’s start by discussing the growth of digital music vs. physical CDs. What does the RIAA see for the future of digital music’s growth?
We don’t actually make [specific] projections about growth, but we certainly expect the market to transition to ever more digital from physical. We also expect the market to become more ‘access models’ than unit sales. Those have been the trends over the last decade really, and they’re continuing just as we would expect.
There’s no question, this is now a digital industry. The point we’re trying to make is that it’s not just our future, it’s out present. It’s more than 50 percent digital already, and when you consider the fact that our first real digital revenues were in 2004, that’s a very short period of time to be reaching more than half the percentage in such an established industry. That’s an extraordinary pace, and well beyond the pace of other industries that are involved in the digital transition. [The music industry’s pace is] hugely different than newspapers, books, movies or television. So, we’re way ahead of the curve, but we still have a ways to go.

How does the digital transition compare to other media transitions the music industry has gone through in the past? Such as cassettes to CDs…
That’s an interesting question. The only comparison I can think of where you had as fast a development was the onset of CDs. CDs took off like a rocket. It was a great format that consumers loved, and so they acquired CDs in huge numbers from the time of its introduction, because it was such a great format. There was a very quick take-up of CDs. I don’t think there have been other formats that have been taken up as quickly as the digital format, compared to physical.

What is the RIAA’s position on Clear Channel’s recent royalty deal with Big Machine?
Obviously we’re very pleased that the CEO of the largest radio group in the United States has acknowledged that payments ought to be made to artists and record labels for the broadcast of their music over the terrestrial radio stations. We have had a hard time getting that kind of acknowledgement from the NAB, so it was very rewarding to see Bob Pittman acknowledge that promotion isn’t enough, that royalties ought to be paid. But, this is one radio group making a deal with one record label that has a handful of artists on its roster primarily in one format. We’ve got tens of thousands of artists who have not benefited from that agreement at all. We obviously need an industry-wide deal in order to correct this inequity, and that’s what we’re urging the radio broadcasters to work on with us.

How about other major royalty issues facing the industry? What is the RIAA’s take on streaming royalties? Is it currently too high a hurdle for entry into webcasting? For example, Saga Broadcasting recently stopped streaming some smaller market stations due to the costs.
It’s an interesting issue, because I think the radio industry is beginning to understand that they need to be part of the digital revolution too. That whether they’ve managed to retain market share in a changing environment or not, the fact is that change is happening and it’s happening quickly. Their dominance in the car is changing. Satellite radio is a completely new factor. The fact that you can bring your cell phone into your car and suddenly be able to stream through your car all sorts of Internet radio services is going to change the dominance of radio.
So they need to be part of the future. Right now they’re grabbling with how to become part of the future when they have to pay royalties for their digital business, but they get away with not paying royalties for their terrestrial business. What we’re saying basically is, “There’s a business solution there, and we all ought to agree on it.” They ought to be paying royalties across all of their business units, and we ought to be paid for all of the commercial uses that they’re making of our music. There’s an economic solution here, and we ought to be working together to find it.

Where is the RIAA currently at in its battle against piracy? There are still a few outstanding court cases that seemingly are never ending, but obviously the RIAA has stopped going after individuals. The onus is on the ISPs nowadays, correct?
ISP’s are just one example of the kinds of intermediaries with whom we’re working to try and do something collaboratively about piracy. The strategy is to appeal to responsible business partners, in the Internet ecosystem, to come up with cooperative, collaborative strategies to make a difference. If everybody does something, the net impact can actually be pretty significant. If advertisers try to ensure that their advertising doesn’t appear on rogue websites, so they don’t inadvertently wind up financing piracy, that will make a difference. If payment processors don’t process credit card transactions for rogue websites that are selling our content for their own profit using Visa and MasterCard, that will make a difference. If ISPs educate their customers that it violates their terms of service to engage in peer-to-peer piracy on an ISP network, that will make a difference. Those are the kinds of things we’re working on with a wide range of intermediaries, and so far we’ve been very pleased with the response we’ve gotten from these industry players. They recognize we all have a common interest in an Internet that is open and free, but not lawless, and they want to participate in some reasonable and responsible way. That’s what we’re working out with them.

You were quoted a few months ago saying that most of the ISPs were on track to launch software that blocks file-sharing by July. Are they still on target for this month?
It will be later this year, but it won’t be by July. The infrastructure that needs to be developed, having a completely operational independent review system, having the technology by which we identify infringes validated by third parties…all of those things are taking longer than expected, so the program won’t launch until the second half of the year. It won’t be July, but it’s still on track and we’re delighted with the efforts of the ISPs to get this thing up-and-running.

There was just an article about the RIAA going after software that lets users rip songs from YouTube videos, an example of yet another way to fight piracy.
We’ve appealed to CNet and download.com as responsible parties in the Internet ecosystem. They’re making an editorial decision to put up software that is being used to simply strip off the audio from YouTube videos, so that basically YouTube becomes a download service instead of a streaming service. That’s how the software is being used. Everybody knows that’s how it’s being used. It’s being downloaded from download.com because that’s the use people want to make of it, in huge, ridiculously high numbers, anddownload.com is profiting from the advertising they get from offering these kinds of programs for downloading. We’re appealing to them as responsible partners, and asking them to consider whether this is something they really ought to be highlighting as a great product for their users to download. That’s all. We are basically reaching out, but it is not a legal issue.

Does the RIAA have any position or input on the potential Universal Music-EMI merger, or does the organization just stay out because it is involved with all parties?
We are watching the developments with great interest, and with no involvement whatsoever. We have companies on different sides of the issues, so we obviously need to remain neutral. We represent all of them, and therefore in a situation like this, we do not take positions and we let the companies take their own positions.