The recording industry has "blacklisted" Internet file-sharing services and is preventing other companies like RealNetworks Inc. from doing business with them, according to music and technology industry officials.

The record labels' attempts to isolate song swapping "peer to peer" networks like Grokster and Morpheus have blocked deals that could have potentially brought in millions of dollars in revenues, the sources said, and might violate antitrust laws.

"If the last names of the CEOs of most major record labels ended in a vowel they'd be calling this behavior racketeering," said former Grokster president Wayne Rosso.

Record labels say they are simply refusing to work with companies they regard as illegal.

Some 9.5 million Internet users log on to peer-to-peer networks each day to copy music and other material from each others' hard drives.

The recording industry says such unfettered copying has cut into CD sales, and it has sued both the networks and roughly three thousand of their users for copyright infringement.

Even as the two sides are locked in litigation, several peer-to-peer firms have tried to open talks with the industry.

So far, recording companies have shown little interest.

"There is a big difference between exploring a new business model in a legitimate and open business manner ... and going into business with the taxicab driver who just ran the red light and hit me," EMI Group Plc Executive Vice President John Rose told the Senate Commerce Committee last month.

Peer-to-peer firms have also run into a brick wall with other technology companies that distribute licensed content.

British download service Wippit Ltd. broke off plans to advertise and sell music on Grokster last year after officials determined that Universal Music Group would cut them off.

"UMI have expressed concern about our relationship with your company and even though we are providing you with a legitimate service they will not license music to Wippit if we have any dealings with your company who they consider 'pirates'," Wippit CEO Paul Myers wrote Grokster in a May 2003 e-mail.

"We had some opportunities, and unfortunately those opportunities were taken away from us," Myers told Reuters. He declined to elaborate.

"We have the right and the sense not to do business with people who aim to profit or otherwise enable the theft of our artists' music," Larry Kenswil, president of Universal's eLabs division, said in a statement.

Other label officials said privately that their contracts commonly are written to ensure that their material is not sold alongside illegal or objectionable content.

Also last year, RealNetworks abandoned negotiations to bundle its music-playing software with Morpheus, a deal that could have eventually steered Morpheus users to paid content distributed on Real's Rhapsody service.

"The labels have blacklisted you guys ... which means I'm probably not going to get much latitude to do anything as far as Rhapsody goes," RealNetworks general manager Ryc Brownigg said in a phone message to StreamCast Networks Inc. last September.

Brownigg did not return a call seeking comment, and a RealNetworks spokeswoman declined to comment.

Two other download services have also declined to work with Morpheus because of pressure from the labels, StreamCast CEO Michael Weiss said, adding that confidentiality agreements prevented him from saying which were involved.

The record labels have a right to forbid partners from working with peer-to-peer companies as long as they do so individually and not as a group, one antitrust expert said.

"If it's done individually, then I think the question is, 'Is this a reasonable condition on the contract,' and the answer is yes," said George Mason University professor Ernest Gellhorn.

But the labels are shooting themselves in the foot by ignoring such a large audience, said one music-industry executive who declined to be identified.

"If they could get one dollar out of these peer-to-peer users ... that's $10 million in the kitty toward the artists and writers. That's a step forward, and one song sold is one song not illegally downloaded," the executive said.

Source: Reuters