Bits Blog: A Conversation With T-Mobile US Executives

As Downloads Dip, Music Executives Cast a Wary Eye on Streaming Services

Now even that certainty seems to have disappeared, as downloads head toward their first yearly decline.

So far this year, 1.01 billion track downloads have been sold in the United States, down 4 percent from the same time last year, according to the tracking service Nielsen SoundScan. Album downloads are up 2 percent, to 91.9 million; combining these results using the industry’s standard yardstick of 10 tracks to an album, total digital sales are down almost 1 percent.

After enjoying double-digit growth in the years after Apple opened its iTunes store in 2003, song downloads began to cool several years ago. But the rate of decline this year — weekly sales began to lag in February, and the drop has accelerated rapidly in recent months — has caught the business by surprise.

Music executives and analysts disagree about exactly what is causing this slowdown, but many cite streaming music services like Pandora, Spotify and YouTube as one possible cause. After a decade, consumers may be losing interest in buying downloads and instead turning to the streaming services, which make millions of songs available at the tap of a smartphone app, free or for a few dollars a month.

Even as downloads decline, however, some experts say that rapidly growing income from streaming may finally help turn the overall industry toward positive results. Last year, streaming and subscription services generated $1.03 billion in revenue, up 59 percent from the year before, according to the Recording Industry Association of America, and many of these providers are reporting robust growth this year.

Whether streaming has had any demonstrable effect on sales remains intensely debated, though. Do Spotify and YouTube, which let users choose the songs they play, cannibalize sales, or lead listeners to songs they may buy later? And do Pandora and other radiolike providers — Apple introduced a similar feature, iTunes Radio, last month — compete with sales at all, or just with radio?

“We just don’t know that consumers are abandoning one to go to the other,” said David Bakula, a senior analyst at Nielsen.

Some experts also point to the rise of Android devices as a possible factor in the drop in downloads. While phones using Google’s operating system now represent a majority of sales, Google’s Play store remains eclipsed by iTunes, by far the dominant music retailer.

Some research also suggests that Android users may spend less money on music than Apple customers. The NPD Group, a market research firm, reported this year that 54 percent of iPhone users — whose operating system is iOS — said in a survey that they were likely to buy music, compared with 30 percent for Android customers.

“As Android expands its market, and if Android users are less likely than iOS users to pay for music, we should expect to see evidence of changes in digital sales,” said Glenn Peoples, the senior editorial analyst at Billboard.

No publicly available sales data directly supports this premise, however, and others dispute it. Mr. Bakula, the Nielsen analyst, said that “whether or not Android users download less than iOS users, there’s no reason to think that that is having any impact on year-over-year sales.”

A Google spokeswoman declined to comment.

Whatever the reason for the decline in downloads, many analysts and executives say they are bullish on the industry’s prospects, largely because of the rise of streaming.

“A variety of access models are collectively generating a healthy amount of revenue for labels and artists,” said Jonathan Lamy, a spokesman for the recording industry association. “We’ve still got a ways to go, but when you add up revenues from all of these models, in the aggregate, they represent real revenues now and prospects for a bright future.”

Executives Press European Antitrust Chief on Google

The letter, organized by one of the original complainants in the case, a British online shopping service called Foundem, asked the E.U. competition commissioner, Joaquín Almunia, to take a hard line in ongoing negotiations with Google to produce concessions that would protect small European competitors.

Google, which is used for more than 80 percent of the searches conducted in Europe, could face fines of up to $5 billion or 10 percent of its 2012 revenue if a settlement is not reached.

The commission, which has expressed concerns about Google’s use of algorithmic standards to rank its own services ahead of those of some competitors, is studying Google’s own proposals to avoid litigation.

“We are becoming increasingly concerned that effective and future-proof remedies might not emerge through settlement discussions alone,” said the letter signed by the group. “In addition to materially degrading the user experience and limiting consumer choice, Google’s search manipulation practices lay waste to entire classes of competitors in every sector where Google chooses to deploy them.”

Al Verney, a Google spokesman in Brussels, declined to comment specifically on the letter, saying “We continue to work cooperatively with the European Commission.”

Antoine Colombani, a spokesman for Mr. Almunia, said by e-mail that competition officials were reviewing the proposals from Google. If a settlement were reached, Mr. Colombani said, there would be no legal finding that Google had infringed on E.U. law.

Mr. Almunia, a Spanish jurist, asked Google in December to submit its final proposals to settle the case, which began in February 2010 when complaints were filed in Brussels by Foundem; Ciao, a German price comparison site; and Ejustice.fr, a French legal advice site.

The letter was signed by senior executives at six European online businesses: Foundem, and Streetmap EU, both in Britain; Twenga, a French-based price comparison site; and Visual Meta, Hot Maps Medien, and Euro-Cities, three German online businesses.

Executives at two U.S. Web businesses, Expedia and TripAdvisor, also signed, as well as the directors of three German associations representing the publishers of newspapers, magazines and independent telephone books.

Mr. Almunia has favored negotiated settlements over protracted litigation in his three years as the top antitrust official in Europe. Google has argued that it is impossible to exert monopoly control over the huge online marketplace, and has criticized some of the complainants for belonging to professional groups set up by its archrival, Microsoft.

Microsoft had urged the U.S. Federal Trade Commission to bring a suit against Google over its search engine practices, but the U.S. agency closed its own two-year investigation in January after Google agreed to make voluntary changes to its practices.

Heiko Hanslik, the president of the German Association of Independent Directory Publishers, known by its German acronym VfT, said his members worried that European officials would not take a hard line in their negotiations with Google. The European inquiry focuses on complaints that Google favors its own competing services in the placement of search results.

Mr. Hanslik, whose association represents German publishers of online and print directories and telephone books, said a typically relevant Google search — for example, to find a painter in Saarbrücken — would not turn up a directory of one of his members until the fourth page in search results on Google. “Google is exploiting its market position here in Europe and many, many online retailers will not be able to survive if this isn’t fixed,” he said.

Mr. Almunia has been cautious about his negotiations with Google. In February 2011, he met with Eric Schmidt, then the chief executive of Google, who asked him to give the search engine a chance to propose its own solutions before Mr. Almunia issued a so-called statement of objections, a legal instrument used by the European Commission to lay out its antitrust case and set the clock running for a response from the company.

Last May, Mr. Almunia asked Google to present suggestions for resolving the conflict. In the autumn, he asked Google for more information and eventually gave the company until the end of January to propose solutions.

Google has provided those suggestions, according to one person with knowledge of the situation who was not authorized to speak publicly. Mr. Almunia and his staff are examining them, but it is unclear whether the E.U. agency is close to reaching a decision on whether to accept the proposals and settle, or proceed with a prosecution.

In their letter, the complainants, including Foundem, made it clear that they would prefer Mr. Almunia to issue a statement of objections, and then, with greater leverage under the threat of fines and legal sanctions, enter negotiations with Google.

“We will respectfully withhold judgment on Google’s proposed commitments until we have seen them, but Google’s past behavior suggests that it is unlikely to volunteer effective, future-proof remedies without being formally charged with infringement,” the group wrote in its letter. “Given this, and the fact that Google has exploited every delay to further entrench, extend, and escalate its anti-competitive activities, we urge the Commission to issue the Statement of Objections.”

Mr. Almunia’s decision will have far-reaching consequences in Europe “because it will set standards for the digital world,” said Christoph Fiedler, the managing director for media policy at the German Federation of Magazine Publishers, known by its German acronym VDZ.

James Kanter in Brussels contributed reporting.

Italian Appeals Court Acquits 3 Google Executives in Privacy Case

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Italian Appeals Court Acquits 3 Google Executives in Privacy Case

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Chinese Telecom Executives Deny Government Control at U.S. Hearing

WASHINGTON — Executives of ZTE and Huawei, two of the largest phone-equipment makers in China, tried to dispel allegations by U.S. lawmakers that their potential expansions could lead to an increase in cyberattacks and spying.

But in what was described as the first appearance by Chinese executives at a congressional hearing, they heard accusations that they had not cooperated with an investigation or shown that they were independent of a government that has been accused of stealing U.S. intellectual property.

After the hearing Thursday, one member of the House intelligence committee joined a colleague in urging the Washington office of law firm DLA Piper to reconsider representing ZTE, citing “threats your client may pose to the national security of the United States.”

In his testimony, Charles Ding, a senior vice president of Huawei, said, “We have been hindered by unsubstantiated, nonspecific concerns that Huawei poses a security threat.”

The exchanges showed that the Chinese companies might face more restrictions on supplying telecommunications gear to power networks used by U.S. consumers, as well as banks, utilities and technology companies to transfer data around the country.

The hearing also showed continued tension between the United States and China. In Washington, the U.S. ambassador, Gary Locke, said that the renminbi needed to appreciate against the dollar. The Republican presidential candidate, Mitt Romney, has said that if elected, he would label China as a currency manipulator on his first day in office.

Huawei and ZTE, both based in Shenzhen, told lawmakers at the hearing that the companies were not controlled by the Chinese government. Mike McConnell, former U.S. director of national intelligence, has called China the “the most prolific” state thief of U.S. intellectual property.

But the committee chairman, Representative Mike Rogers, a Republican, said during the hearing that the companies had not provided full answers and had supplied “very few” documents that related to the committee’s inquiry.

“We need answers to very specific questions. And when they don’t answer those, it just raises more suspicions,” Mr. Rogers said after the hearing.

“There’s concern because the Chinese government can use these companies and use their technology to get information,” said Representative Dutch Ruppersberger, a Democrat on the panel.

But Huawei’s founder and chief executive, Ren Zhengfei, said the United States would “eventually” accept the company.

“The U.S. still needs time to understand us,” Mr. Ren said in an e-mail sent out by Huawei after the hearing.

“The U.S. is such a big country, after we explain everything clearly to Texas, we need to explain again to Virginia, and then Boston. It will be a long process.”

Zhu Jinyun, ZTE’s senior vice president for North America and Europe, said that ZTE had set “a new standard for a Chinese company in cooperating with the U.S. government.”

The Republican representatives Sue Myrick of North Carolina, a member of the intelligence committee, and Frank Wolf of Virginia wrote to DLA Piper to say they were disappointed the law firm was advising ZTE.

Ms. Myrick and Mr. Wolf said that ZTE had appeared to violate U.S. sanctions by selling equipment that would allow the Iranian government to monitor mobile, landline and Internet communications.

DLA Piper had no comment, John Merrigan, a Washington-based partner, said in an e-mail.

During the hearing, Mr. Zhu, the ZTE executive, told Ms. Myrick that the company had not sold gear to the Iranian government.

“We conduct normal business operations in Iran, but we are gradually reducing our present operations, and we are not starting any new business operations in Iran,” Mr. Zhu said.

Mr. Zhu also testified Thursday that ZTE was not state-owned or government-controlled. But according to the U.S.-China Economic and Security Review Commission, an independent body that advises Congress, government- affiliated entities appear to retain a majority of ZTE’s stock.

Mr. Ren founded Huawei in 1987 after leaving the Chinese military, building it into the world’s second-largest maker of equipment for phone networks, after Ericsson of Sweden.

Mr. Ren’s military record and his selection to the 12th National Congress of the Communist Party of China in 1982 have been cited by U.S. lawmakers as reasons why Huawei might pose a threat.

According to the company, though, Mr. Ren has not maintained any ties with the military since his retirement and the government and military hold no stake in Huawei.

In 2010, Mr. Locke, then-Commerce Secretary, expressed concern about Huawei’s participation in bids for a network upgrade by the U.S. company Sprint Nextel. Sprint Nextel instead awarded the contract, worth as much as $5 billion, to companies from France, Sweden and South Korea.

In 2008, Huawei and Bain Capital dropped a bid to buy a computer equipment maker, 3Com, after U.S. officials opposed the transaction. Last year, Huawei withdrew from purchasing patents from a computer-services company, 3Leaf, after U.S. objections.

About 70 percent of Huawei’s $32 billion revenue comes from outside China, Mr. Ding said in his testimony. Huawei is owned by its employees, and the Chinese government “has no influence over Huawei’s daily operations, investment decisions, profit distributions, or staffing,” he said.

In an interview after the hearing, Mr. Ding added that Huawei would remain in the United States. “We’ll be in the U.S. forever,” he said. “We have customers here.”

The company sells handsets and other telecommunications equipment and is seeking to sell network equipment in the United States, Mr. Ding said.

“I did my best to answer all the questions,” Ding said. “I understand they have concerns about companies from China.”

Chinese Telecom Executives Deny Government Control at U.S. Hearing

WASHINGTON — Executives of ZTE and Huawei, two of the largest phone-equipment makers in China, tried to dispel allegations by U.S. lawmakers that their potential expansions could lead to an increase in cyberattacks and spying.

But in what was described as the first appearance by Chinese executives at a congressional hearing, they heard accusations that they had not cooperated with an investigation or shown that they were independent of a government that has been accused of stealing U.S. intellectual property.

After the hearing Thursday, one member of the House intelligence committee joined a colleague in urging the Washington office of law firm DLA Piper to reconsider representing ZTE, citing “threats your client may pose to the national security of the United States.”

In his testimony, Charles Ding, a senior vice president of Huawei, said, “We have been hindered by unsubstantiated, nonspecific concerns that Huawei poses a security threat.”

The exchanges showed that the Chinese companies might face more restrictions on supplying telecommunications gear to power networks used by U.S. consumers, as well as banks, utilities and technology companies to transfer data around the country.

The hearing also showed continued tension between the United States and China. In Washington, the U.S. ambassador, Gary Locke, said that the renminbi needed to appreciate against the dollar. The Republican presidential candidate, Mitt Romney, has said that if elected, he would label China as a currency manipulator on his first day in office.

Huawei and ZTE, both based in Shenzhen, told lawmakers at the hearing that the companies were not controlled by the Chinese government. Mike McConnell, former U.S. director of national intelligence, has called China the “the most prolific” state thief of U.S. intellectual property.

But the committee chairman, Representative Mike Rogers, a Republican, said during the hearing that the companies had not provided full answers and had supplied “very few” documents that related to the committee’s inquiry.

“We need answers to very specific questions. And when they don’t answer those, it just raises more suspicions,” Mr. Rogers said after the hearing.

“There’s concern because the Chinese government can use these companies and use their technology to get information,” said Representative Dutch Ruppersberger, a Democrat on the panel.

But Huawei’s founder and chief executive, Ren Zhengfei, said the United States would “eventually” accept the company.

“The U.S. still needs time to understand us,” Mr. Ren said in an e-mail sent out by Huawei after the hearing.

“The U.S. is such a big country, after we explain everything clearly to Texas, we need to explain again to Virginia, and then Boston. It will be a long process.”

Zhu Jinyun, ZTE’s senior vice president for North America and Europe, said that ZTE had set “a new standard for a Chinese company in cooperating with the U.S. government.”

The Republican representatives Sue Myrick of North Carolina, a member of the intelligence committee, and Frank Wolf of Virginia wrote to DLA Piper to say they were disappointed the law firm was advising ZTE.

Ms. Myrick and Mr. Wolf said that ZTE had appeared to violate U.S. sanctions by selling equipment that would allow the Iranian government to monitor mobile, landline and Internet communications.

DLA Piper had no comment, John Merrigan, a Washington-based partner, said in an e-mail.

During the hearing, Mr. Zhu, the ZTE executive, told Ms. Myrick that the company had not sold gear to the Iranian government.

“We conduct normal business operations in Iran, but we are gradually reducing our present operations, and we are not starting any new business operations in Iran,” Mr. Zhu said.

Mr. Zhu also testified Thursday that ZTE was not state-owned or government-controlled. But according to the U.S.-China Economic and Security Review Commission, an independent body that advises Congress, government- affiliated entities appear to retain a majority of ZTE’s stock.

Mr. Ren founded Huawei in 1987 after leaving the Chinese military, building it into the world’s second-largest maker of equipment for phone networks, after Ericsson of Sweden.

Mr. Ren’s military record and his selection to the 12th National Congress of the Communist Party of China in 1982 have been cited by U.S. lawmakers as reasons why Huawei might pose a threat.

According to the company, though, Mr. Ren has not maintained any ties with the military since his retirement and the government and military hold no stake in Huawei.

In 2010, Mr. Locke, then-Commerce Secretary, expressed concern about Huawei’s participation in bids for a network upgrade by the U.S. company Sprint Nextel. Sprint Nextel instead awarded the contract, worth as much as $5 billion, to companies from France, Sweden and South Korea.

In 2008, Huawei and Bain Capital dropped a bid to buy a computer equipment maker, 3Com, after U.S. officials opposed the transaction. Last year, Huawei withdrew from purchasing patents from a computer-services company, 3Leaf, after U.S. objections.

About 70 percent of Huawei’s $32 billion revenue comes from outside China, Mr. Ding said in his testimony. Huawei is owned by its employees, and the Chinese government “has no influence over Huawei’s daily operations, investment decisions, profit distributions, or staffing,” he said.

In an interview after the hearing, Mr. Ding added that Huawei would remain in the United States. “We’ll be in the U.S. forever,” he said. “We have customers here.”

The company sells handsets and other telecommunications equipment and is seeking to sell network equipment in the United States, Mr. Ding said.

“I did my best to answer all the questions,” Ding said. “I understand they have concerns about companies from China.”

Tech and Media Executives Are Likely to Debate Piracy

But lately some of the highest-paid executives at the world’s largest media companies have talked a lot about the lessons they learned from a failed industrywide attempt to pass antipiracy legislation six months ago.

In January, the technology industry led by Google, Facebook and Wikipedia revolted against two bills called SOPA and PIPA — short for Stop Online Piracy Act and Protect Intellectual Property Act. The legislation, largely the product of media companies to protect movies, television shows, video games and music against online theft from rogue foreign Web sites, sparked a reaction that quickly shifted from an arcane policy debate to an online consumer rebellion.

Wikipedia went black to protest SOPA and more than seven million people signed online petitions, many of which said the bills would “break the Internet.” Congress, overwhelmed by the popular opposition, quickly backpedaled, leaving the legislation to die.

“They tsunamied the conversation with rhetoric, and we were unprepared to fight back,” Tom Dooley, chief operating officer at Viacom, said of the technology industry. “We’re going to have to find a solution that works better for everyone.”

On Tuesday, the titans of both media and technology will convene in Sun Valley, Idaho, for an exclusive annual conference sponsored by the boutique investment firm Allen & Company. It will be the first time since the piracy debate went viral that top technology and entertainment executives will assemble en masse on neutral ground to discuss major issues affecting both industries.

“There’s an agreement on both sides that there should be some period of time when everyone steps back and reassesses,” said Michael O’Leary, a senior executive vice president for the Motion Picture Association of America.

The Sun Valley conference, known as “summer camp for moguls,” is off limits to reporters (though dozens still turn out) and famously private. In between bike rides, hikes and cocktail parties, the executives will hold meetings, listen to a variety of speakers and attend panel discussions with luminaries from sports to politics.

A preliminary list of attendees at this year’s conference includes Rupert Murdoch and Chase Carey, the chief executive and chief operating officer of News Corporation; Philippe Dauman, chief of Viacom; Jeffrey L. Bewkes, chief of Time Warner; and Mark Zuckerberg and Sheryl Sandberg of Facebook. Tim Cook, chief of Apple, and Google’s co-founder Sergey Brin are also expected to attend.

In the months since the SOPA debates, media executives have discussed piracy with obvious shell shock.

“I think we didn’t help ourselves down in Southern California by trying to jam something in Congress; we screwed that up,” Ari Emanuel, co-chief executive of the William Morris Endeavor talent agency, said at the All Things D conference in May. He added: “When SOPA died, a lot of conversations died. But they’ll start up again.”

In the aftermath, Hollywood has increased its efforts to get online payment companies, cloud services and Internet service providers to voluntarily help curtail pirated movies, TV and music, particularly from foreign Web sites.

Months before the debates erupted in January, American Express, Discover, MasterCard, PayPal and Visa agreed on a set of best practices to reduce the sale of counterfeited pirated goods. In 2010, Yahoo, PayPal, GoDaddy, Google and others formed a nonprofit intended to combat the sale of illegal pharmaceuticals online, one issue SOPA and PIPA were initially meant to address.

The Sun Valley conference could provide a tranquil backdrop for the continued construction of a fence between media and technology.

“We thought about what’s in the long-term interest of the Internet ecosystem. And that’s a set of best practices that people feel comfortable with,” said Cary Sherman, chief executive of the Recording Industry Association of America.

Tech and Media Executives Are Likely to Debate Piracy

But lately some of the highest-paid executives at the world’s largest media companies have talked a lot about the lessons they learned from a failed industrywide attempt to pass antipiracy legislation six months ago.

In January, the technology industry led by Google, Facebook and Wikipedia revolted against two bills called SOPA and PIPA — short for Stop Online Piracy Act and Protect Intellectual Property Act. The legislation, largely the product of media companies to protect movies, television shows, video games and music against online theft from rogue foreign Web sites, sparked a reaction that quickly shifted from an arcane policy debate to an online consumer rebellion.

Wikipedia went black to protest SOPA and more than seven million people signed online petitions, many of which said the bills would “break the Internet.” Congress, overwhelmed by the popular opposition, quickly backpedaled, leaving the legislation to die.

“They tsunamied the conversation with rhetoric, and we were unprepared to fight back,” Tom Dooley, chief operating officer at Viacom, said of the technology industry. “We’re going to have to find a solution that works better for everyone.”

On Tuesday, the titans of both media and technology will convene in Sun Valley, Idaho, for an exclusive annual conference sponsored by the boutique investment firm Allen & Company. It will be the first time since the piracy debate went viral that top technology and entertainment executives will assemble en masse on neutral ground to discuss major issues affecting both industries.

“There’s an agreement on both sides that there should be some period of time when everyone steps back and reassesses,” said Michael O’Leary, a senior executive vice president for the Motion Picture Association of America.

The Sun Valley conference, known as “summer camp for moguls,” is off limits to reporters (though dozens still turn out) and famously private. In between bike rides, hikes and cocktail parties, the executives will hold meetings, listen to a variety of speakers and attend panel discussions with luminaries from sports to politics.

A preliminary list of attendees at this year’s conference includes Rupert Murdoch and Chase Carey, the chief executive and chief operating officer of News Corporation; Philippe Dauman, chief of Viacom; Jeffrey L. Bewkes, chief of Time Warner; and Mark Zuckerberg and Sheryl Sandberg of Facebook. Tim Cook, chief of Apple, and Google’s co-founder Sergey Brin are also expected to attend.

In the months since the SOPA debates, media executives have discussed piracy with obvious shell shock.

“I think we didn’t help ourselves down in Southern California by trying to jam something in Congress; we screwed that up,” Ari Emanuel, co-chief executive of the William Morris Endeavor talent agency, said at the All Things D conference in May. He added: “When SOPA died, a lot of conversations died. But they’ll start up again.”

In the aftermath, Hollywood has increased its efforts to get online payment companies, cloud services and Internet service providers to voluntarily help curtail pirated movies, TV and music, particularly from foreign Web sites.

Months before the debates erupted in January, American Express, Discover, MasterCard, PayPal and Visa agreed on a set of best practices to reduce the sale of counterfeited pirated goods. In 2010, Yahoo, PayPal, GoDaddy, Google and others formed a nonprofit intended to combat the sale of illegal pharmaceuticals online, one issue SOPA and PIPA were initially meant to address.

The Sun Valley conference could provide a tranquil backdrop for the continued construction of a fence between media and technology.

“We thought about what’s in the long-term interest of the Internet ecosystem. And that’s a set of best practices that people feel comfortable with,” said Cary Sherman, chief executive of the Recording Industry Association of America.