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Music Store Cold War

By Frank Ahrens
Sunday, October 22, 2006

An online music store in Russia caused headlines and created some unintentional yuks last week.

AllofMP3.com is a music download service that works like Apple Computer Inc.'s iTunes: Give them a credit card number, click on a song, buy it. There are a few key differences between AllofMP3.com and iTunes, however:

· "AllofMP3.com" ain't exactly a snappy name. Henceforth, we'll call it "A3."

· Price. For example: Beck's most recent album, "The Information," costs $11.99 on iTunes. On A3, it costs $2.62.

· ITunes is legal. Just about everyone except the Russians thinks A3 is not.

The Recording Industry Association of America (RIAA), the music industry trade group, and the U.S. government have been pressuring Russia to shut down A3. They say it violates copyright because even though it charges for music, none of the royalties find their way back to U.S. artists. Visa no longer allows customers to use their cards to buy music from A3, citing copyright uncertainties.

The U.S. trade representative has even made shutting down A3 one of the hurdles Russia must clear to get the United States' approval to join the World Trade Organization. Though there has been no explicit linkage to A3, there is concern in the United States that revenue from overseas music and movie piracy, thanks to lack of oversight and government corruption, can fund terrorism. Serious stuff.

A3 had been pretty mum until this past week. In the best Western tradition, A3 hired a PR agency and has gone on the offensive, saying it is being persecuted by the United States. A3 held an online press conference on Tuesday that USA Today's Kevin Maney dubbed "the strangest press conference ever." Here are a couple of excerpts, with answers from Vadim Mamotin, A3's "director general": (Is that a corporate title or a position in the Politburo?)

Q: So you aren't paying the recording industry or artists to distribute their music, how can that not be copyright infringement?

A: What more is AllofMP3 do?

Q: I have the impression that your company doesn't have a landline phone number at the Moscow office given on your [Web site]. If correct this doesn't create an air of transparency, rather a sense that your are hiding in the ethernet.

A: Look, we are an Internet-based company and so we use Internet-based technologies. Long live Skype!

Okay, then.

A3 maintains that it complies with all applicable laws in Mother Russia. It says it makes royalty payments -- 15 percent of every song or album sold -- to a Russian licensing agency called the Russian Organization for Multimedia and digital Systems (ROMS). A3 says it has offered to pay royalties to the RIAA -- which refused to accept them -- and to music companies elsewhere.

Yet, music companies in Britain say they've not seen one ruble of royalties from A3, one reporter on the press conference noted. The RIAA says it has never been approached with a payment offer from ROMS or A3. The RIAA also notes that ROMS was kicked out of the international umbrella licensing group in 2004 and does not have the authority to license A3.

On Thursday, A3 stepped up its counterattack, threatening to sue Visa for pulling its business from the site. A3's argument is that the U.S. government and recording industry are muscling A3 to get better terms on royalty compensation when they eventually capitulate to negotiate with A3, which A3 considers inevitable. A3 has called out U.S. Trade Representative Susan C. Schwab as being in cahoots with the record industry "cartel."

When I started looking at A3 several months ago, it looked like it might be trying to abide by copyright. Though not as white-hat as iTunes -- at least in the eyes of the U.S. government and record industry -- A3 appeared like it might be a gray actor. In recent weeks, it seems blacker.

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