Online Music Loses Court Fight, Wins Anyway (GOOG, AMZN, AAPL, SIRI, P, TWX, SNE)

A federal judge has ruled that music locker service MP3tunes has, in fact, infringed on the copyrights owned by music companies by allowing users to use a program to locate music on the web and then transfer it to their own lockers. That’s a victory for the music business. But that’s not the end of the story.

In the same ruling, the judge rejected the music industry’s claim that MP3tunes benefitted from the infringement. More important, the ruling stated that users, not MP3tunes, controlled the files put into their own personal lockers. If that part of the ruling is upheld, digital music locker services from Google Inc. (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN), for which the companies pay no royalties to the music companies, ought to be legal as well.

Apple Inc. (NASDAQ: AAPL) has its own locker service, but the company pays a fee to the music company for the privilege, and users of the iTunes service must own the music they store in their lockers. The ruling could also affect radio-station web sites like Sirius XM Radio Inc. (NASDAQ: SIRI) and Pandora Media, Inc. (NYSE: P) and streaming services such as Spotify, Rhapsody, and others. Music copyright owners, including Warner Media Group, recently sold by Time Warner Inc. (NYSE: TWX) to a privately held company, Sony Corp. (NYSE: SNE), EMI, and Universal Music Group are sure to fight the ruling.

For Google and Amazon, the ruling vindicates their position that users are responsible for storing only music they own in the companies’ locker services. If one of the copyright holders believes the music has been illegally obtained then it is the copyright holder’s responsibility to file a claim with the locker service to have the offending tune removed. Provided that the locker service removes the tune from the offenders locker, it is then covered by the safe harbor provision of the Digital Millennium Copyright Act.

By putting the burden of proof for copyright infringement on the copyright holder, the ruling effectively means that the music rights holders must find individual users and request the locker service to remove the offending tune. That promises to be costly.

What the music companies could have done, and might still be able to do, is negotiate some kind of minimal licensing fee from the locker services. They chose instead to fight — as they always do — and that fight could cost them.

The locker services are not now and never have been any threat to music copyright holders. At the same time, the locker services are not likely to be very attractive to users. The services are, essentially, another shelf on which to store music. At best, these are back-up services unless the music can be streamed to devices other than the computer on which it originally resided.

Far more likely to provide new revenue streams to the music companies are services like Spotify and a new service called Boinc that pay upfront licensing fees for the right to stream music to users’ computers and mobile devices. As long as the music industry doesn’t get too greedy — a big if — the streaming services offer the companies the best chance to monetize their catalogs.

Spotify, which launched in the US just about a month ago, now claims 1.4 million users and 175,000 paid subscribers to its US service. The company has more than 1.6 million paid subscribers in Europe. Satellite radio service Sirius XM reports 21 million subscribers.

Google’s shares are up about 0.7%, at $501.90, this morning, in a 52-week range of $447.65-$642.96. Amazon’s shares are up 2%, at $181.90, in a 52-week range of $122.25-$227.45. Sirius shares are down about -1%, at $1.70, in a 52-week range of $0.95-$2.44.

Paul Ausick