Pity the Poor Media Conglomerate, Execs Tell Net Music Hearing

Somebody do something, quick! The life of the record industry is at stake!

That was the message that Edgar Bronfman Jr., executive vice chairman of Vivendi Universal (V Quote - Cramer on V - Stock Picks), took to Capitol Hill on Thursday, as a House Judiciary subcommittee tried to sort out what Congress might do to aid the development of music on the Internet.

Thursday's hearing, which featured the first public demonstration of one of the two online music services backed by competing camps of the world's five biggest record companies, highlighted a major rift between record companies on the one side and songwriters on the other. But the hearing left no clear indication of how the disagreement might be resolved or how long it would take.

As Vivendi Universal's Universal Music Group prepares to launch its Duet service with Sony's (SNE Quote - Cramer on SNE - Stock Picks) Sony Music Entertainment later this year, Bronfman told the subcommittee there was "a limited window of opportunity for the industry to launch legitimate services" for online music, before new services arise to replace the music industry's bete noire of copyright infringement, Napster. Any delay caused by copyright negotiations with songwriters and their representatives, music publishing companies, "could ultimately harm the industry irreparably," Bronfman said.

Indeed, one Wall Street analyst who follows the online music industry points out that usage of Napster-alternative Gnutella has risen 60% over the past month and a half. Citing statistics collected by the company Clip-2, Raymond James analyst Phil Leigh wrote, "Even though the record label industry won a clear victory in the courts, it appears that former Napster users are finding easy-to-use alternatives."

The biggest obstacle for smooth sailing appears to be disagreement between record companies, which own rights to individual recordings of particular songs, and music publishers and songwriters, which collect royalties to cover the creation of the underlying words and music (though some companies, such as Vivendi Universal, are both labels and publishers).

Bronfman, MP3.com (MPPP Quote - Cramer on MPPP - Stock Picks) President Robin Richards and RealNetworks (RNWK Quote - Cramer on RNWK - Stock Picks) CEO Rob Glaser all complained of a logjam in negotiations with music publishers, with each making a different suggestion of how Congress or the U.S. Copyright Office could fix things. Glaser also demonstrated the basic workings of the online music service MusicNet, scheduled to be launched later this year and owned by RealNetworks, AOL Time Warner's (AOL Quote - Cramer on AOL - Stock Picks) Warner Music Group, EMI Group and Bertelsmann's BMG Entertainment.

But, speaking on behalf of the National Music Publishers' Association trade group, songwriter Mike Stoller said the record labels were making songwriters scapegoats in online music development. Solutions offered by record companies to streamline development of online music are just efforts to avoiding paying publishers a fair share of the income they'll generate from online music, he said.