What They'll Never Tell You About the Music Business

by Peter M Thall

  Amazingly, the European Commission and BIEM found that the agreements reached by both CISAC members and BIEM constituted a monopoly in restraint of trade and was therefore in breach of European Union competition rules. As of January 1, 2005, the Santiago Agreement was declared null and void, and the agreements signed in 2000 expired on December 31, 2004. Similarly, the Barcelona Agreement, being analogous to the Santiago Agreement, became invalid as of January 1, 2005. It is truly remarkable that rather than welcome a fantastic solution to what has been a commercial disaster for those who wish to use music via the Internet, the European Commission essentially forbade the members of both confederations to implement the agreements they had reached.

  The decision of the European Commission to void both the Santiago and Barcelona Agreements has had a chilling effect on efforts by various international confederations, including IFPI (the International Federation of the Phonographic Industry, which is the world recording industry trade arm), to establish an integrated music industry standard for Internet licensing and other digital services.

  Still Trying: Database Integration

  In April 2002, the Executive Bureau of CISAC persuaded ASCAP and SACD (Société des Auteurs et Compositeurs Dramatique, a French rights society) to transfer to CISAC two database subsystems—the Musical Works Information Database (WID) and the International Documentation on Audiovisual Works (IDA). They also managed to establish some general guidelines for fixing an applicable price scale for system access. These institutions, along with BIEM, are discussing the establishment of an integrated music industry identification standard through which information about songs and recordings will be collected, tagged, and stored in a database—whether WID, IDA, or some new system—that can be integrated with existing management systems.

  Once competent and accurate song and recording identification is established on a global scale, it will be relatively easy to facilitate the licensing of rights wherever they may be requested and to whatever extent their use may be sought. Whether their efforts will come to fruition or be countermanded by actions on the part of the European Union remains to be seen.

  Similarly, CIS (Common Information System), a series of tools that establish a global digital copyright administration standard, has been developed under the auspices of CISAC. According to the CISAC information releases, it will streamline the exchange of information among member societies and is the foremost international development effort being pursued in the field of online collective administration of intellectual property rights.

  In the spring of 2006, a group consisting of major record labels, technology companies, and publisher groups formed the Digital Data Exchange (DDEX) to create standards for communicating information necessary to license and sell digital information globally.

  The Internet is forcing copyright and technology interests throughout the world to address and reconcile—quickly—issues involving music clearance, rights licensing, and the transfer of digital music, videos, artwork, photographs, and other information accurately and speedily. As a result of the cooperative efforts noted above, the interoperability of the world’s licensing organizations has already been greatly enhanced, and the best is certainly yet to come.

  THE FAIRNESS IN MUSIC LICENSING ACT

  For as long as people and companies have had to pay for the right to publicly perform music for profit, there have been attempts by the users to chip away at both the amount of the cost and the obligation to pay. The latest attempt resulted in the passage by Congress of an amendment to Section 110(5) of the Copyright Act. This provision, the Fairness in Music Licensing Act (FMLA) of 1998, exempts an enormous number of users of music, including restaurant owners, from the obligation of having to obtain licenses to perform (play) music. The name of the act belies its intentions. Writers and publishers see nothing fair in this new law, nor do our trading partners around the world, most of whom are signatories to international treaties that provide for the payment of license fees for the very uses exempted by the US act.

  The ostensible purpose of this act was to protect mom-and-pop stores from having to dig deep into their pockets to pay for the use of music in their restaurants. Of course, the copyright interests’ position is that people pay for electricity, heat, interior decorators, and decoration, all of which create ambience for restaurant owners, and that music provides a similar bottom-line value. Indeed, if it has no value, why fight so hard to use it? It became apparent to everyone that the self-righteousness expressed by the proponents of “fairness in music licensing” was a smokescreen for the simple desire to save money, and some of the exemptions the original drafters of the legislation wanted to include did not find their way into the act as passed.

  Passage of the FMLA has already had serious financial consequences for writers, publishers, record companies, and artists in the United States. Over 50% of the income from the world’s music performance and mechanical fees is generated by US creations. A phenomenal amount of income that would have otherwise flowed into the United States has been, and will continue to be, lost because countries whose income-producing laws are diametrically opposed to the US “fairness” statute will not apply those laws to US authors’ works.

  THE COPYRIGHT TERM EXTENSION ACT: A LESSON IN LEVERAGE

  As part of a quid pro quo in the world of congressional compromise and intrigue, many procopyright interests (particularly those representing music catalogues that were fast racing toward expiration of copyright protection—such as the big-time Broadway writers and their heirs, the Gershwins, Rodgers and Hammerstein, Cole Porter, Irving Berlin, and Leonard Bernstein—as well as the Walt Disney Company, which was concerned that early Mickey Mouse drawings would become part of the public domain) looked the other way when the FMLA was passed so that the Copyright Term Extension Act of 1998 (widely known as the Sonny Bono Copyright Term Extension Act or CTEA) would also make it through Congress. The Sonny Bono extension was duly passed, extending the term of copyright protection from fifty years after the death of the last artist or author of a work to seventy years. Most observers of this trade-off thought that FMLA would eventually be voided but that the copyright extension would stand.

  It didn’t happen. In fact, anticopyright interests are aggregating their bullets and hoarding them for the next receptive Congress, hoping to restore some of the initiatives that did not find their way into FMLA as enacted.

  MP3: HOW TWO LETTERS AND A NUMERAL TERRORIZED AN ENTIRE INDUSTRY

  As most people living in our society know by now, a number of companies have figured out how to compress musical sounds (that is, entire recordings) and to transmit them over a relatively narrow bandwidth to consumers who acquire them via the Internet, transpose them back into sound, and go their merry way enjoying the music they have downloaded. The ease by which this methodology works has caught the attention of millions of people across the globe. You have read enough, in this book and elsewhere, to understand the enormous threat that such processes present to the recording industry, which, one must not forget, includes the artists and songwriters whose art is virtually exclusively expressed in the audio tracks themselves.

  MP3.com, Inc. is a publicly held company that operates a commercial Internet site at www.​mp3.​com. MP3 is a free technology protocol, developed by the Moving Picture Expert Group (MPEG), that enables a user to convert large .wav files contained on ordinary music CDs into files that are ten to twelve times smaller than the originals. Since MP3 files consume considerably less computer storage space than .wav files, they can be transferred much faster and have accordingly become the preferred modality for moving audio files through the Internet and among computers (the latter being the catalyst for Napster-type exchanges among users).

  MP3 has not been greedy. Unlike Sony and its Betamax, or Apple and its Macintosh, MP3 has generously allowed its conversion software to be made available for free in order for consumers to create MP3 files, with Microsoft, RealNetworks, and others providing the conduit for such
availability.

  NAPSTER AND POST-NAPSTER

  What was Napster? This was the well-publicized software created by a then nineteen-year-old which permits multiple (read: upward of 250 million) Internet users to access each other’s collections of MP3 files for free. Most of these MP3 files were never licensed, and accordingly the users had been shown the way to wholesale infringement. No one was paid: neither the record companies, nor the artists, nor the union pension and welfare and health funds, nor the record producers, nor the mixers, nor the songwriters, nor the music publishers.

  In the fall of 2001, the big guns of the recording industry, having at least temporarily stopped Napster, were trained on the USA’s MusicCity Networks’ Morpheus and Grokster Ltd., a West Indies–based firm. Both base their music sites on Kazaa, a program developed by the Amsterdam company FastTrack, which does not rely on computers operating through a central clearinghouse, as Napster does. They are file-sharing networks that allow users to search the network of users for those with the most powerful computers, or those with fast modems such as DSL or cable modems. The large worldwide network of other computers, for the time they are being captured, become a search hub, or “supernode,” that other users can utilize in order to search the rest of the network—and do multiple transfers, one at a time, from other users. In effect, Morpheus users are “borrowing” the power of others’ computers to complete their own private tasks. Sounds like something extraworldly (and maybe it is).

  Unlike Napster, Grokster and Morpheus had absolutely no means to suspend users and therefore they cannot possibly be expected to control those users. At issue, then, was whether peer-to-peer file-sharing services could, if they did not control their networks but merely facilitated their creation, be held liable. In 2005, the Supreme Court once again ruled in favor of copyright interests. In a unanimous decision, the Court stated, “We hold that one who distributes a device with the object of promoting its use to infringe copyright is liable for the resulting acts of infringement by third parties.” The opinion for a unanimous Court, delivered by Justice David Souter, found that Grokster was clearly taking “affirmative steps…to foster infringement,” by third parties participating in peer-to-peer sharing. And what happened to that nineteen-year-old Sean Parker who was portrayed so effectively by Justin Timberlake in The Social Network, the film about the development of Facebook? Parker owned a bunch of shares in Facebook which he purchased with his (some would say ill-gotten) gains from the company he created, Napster. When Facebook went public in 2012, those shares were worth $2.5 billion. Enough said.

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  THE MORE THINGS CHANGE, THE MORE THEY REMAIN THE SAME (OR DO THEY?)

  Changes in the music world are happening fast and furiously. Methods of distributing music are challenging the government’s ability to figure out how to monetize them. For example, there are webcasts, podcasts, limited downloads, variations of performance-based communications via the Internet and those with mechanical reproduction characteristics which foreign societies can handle more efficiently than our American system where performance and mechanical organizations are separate. The Webcaster Settlement Bill of 2008 is aimed at resolving rate disputes among webcasters (such as satellite radio) and rights owners, but the challenges of figuring out what rights are being exploited and how to monetize them is just beginning. What only a few years ago we considered a finite number of exploitation possibilities is now exploding in the area of streaming alone. Social networks—particularly Facebook—are further complicating the analysis of what rights owners can claim and how they can either prove the use of their music or how to charge for it.

  Podcast producers don’t mind paying mechanical royalties for the music which is embodied on the program, yet they have no control over how many people access (perform/download) the programs. A company with a $100,000 budget for a podcast will be very surprised if a million people access it, thereby resulting in mechanical royalty obligations which would bankrupt the producing company.

  YouTube presents yet another array of problems. Neither YouTube nor rights owners have any control over what is posted on its site. Only when an owner comes forward to identify its song will YouTube either take down the posting or, with the copyright owner’s permission, attach advertising to the post and share income with the rights owner. Notwithstanding YouTube’s claimed good faith effort to avoid infringing works on its site, Viacom sued them claiming that they should have known more than they claim they did. This is yet one more lawsuit by a rights owner which, while legitimate on its face, can only delay the day of reckoning when extraordinary new means of authorized, licensed distribution are the order of the day. Ben Sisario, in a recent New York Times article pointed out another quirk in the modern-day music business which is making rights owners and users crazy: the constant reshaping, resizing, and reprising of the very same product. For example he points out that a recent Dave Matthews record has a CD version, a deluxe version, a super-deluxe boxed set and even an accompanying live disc. (He notes that the Beastie Boys “hid” a new single among random copies of a deluxe edition reissue of its 1992 album “Check Your Head.” Once these variable products hit the Internet, who is to know which versions are being distributed? One artist, Ben Folds, has even considered re-recording a song, or at least modifying it, for a fee, so that the person ordering the recording can hear his or her own name or the name of a spouse or other loved one actually sung by the artist on his hit recording. Whatever floats your boat, I guess.

  A larger social policy issue here involves the conflict between making commercial products available to all at reasonable prices and at the same time respecting the creative and financial investment of those individuals who bring the property to fruition in the first place. For example, it costs just pennies to manufacture numerous brand-name drugs sold by major pharmaceutical companies, but the R&D investment required to both create the first of the pills and put them through development and testing, as well as go though the Food and Drug Administration approval processes in each country, can cost hundreds of millions of dollars. How do you suppose the pharmaceutical industry would respond to the idea that peer-to-peer sharing is a citizen’s right? Currently, the copyright interests, in association with or at least in the same ballpark as, the technology industry, are trying to develop a business model for the MP3 delivery via a Napster-style software that will permit peer-to-peer sharing but at the same time protect the artists and copyright owners.

  What of the future? New and powerful partnerships are developing that will force copyright issues onto the public stage for courts, legislatures, and, ultimately, the people themselves to resolve. There is an ebb and flow of political sensibilities toward, on one side, copyright protection, and, on the other, the right of the public to have free and easy access to public domain material.

  All of this brings us to where we are today: a disgruntled public used to getting music for free (whose culture is it anyway? they ask), a rigid legal doctrine blocking peer-to-peer sharing, and a barrage of news coverage—all imagining a world without copyright, but positioning themselves, and expressing one level of hysteria or another, on totally opposite sides of the issue.

  Copyright: Can we live without it? Can we live with it? Read on.

  24 • COPYRIGHT

  Can’t Live With It—Can’t Live Without It

  And art made tongue-tied by authority,…

  —WILLIAM SHAKESPEARE, SONNET LXVI

  Rarely have governments conceived of a more obscure body of law. Even more rarely has something so ephemeral, and intangible, affected so many. What a surprise, then, when, at the dawning of the 21st century, technological developments catapulted copyright into the public consciousness. Many believe that a world without copyright would be a world without art, literature, and music—a virtually cultureless society. Others believe the opposite. Most governments acknowledge that a world without copyright would devastate most of the advanced economies on earth. Why, then, have so many in the wo
rld disdained copyright? Why is there so bitter a dispute among equally intelligent people about whether it is a good or bad thing that a person can be identified as the owner of a melody, a lyric, an image, a word? Has copyright gone too far in protecting “artists”? Have the multinational conglomerates abused their “copy” rights by controlling their markets to such an extent as to actually impede the flow of ideas whose very manifestation into fixed forms like books, records, and films was the goal of copyright in the first place?

  Many feel that nothing can be said that hasn’t been said before and that it is illogical to give exclusive copyright protection to something like West Side Story or RENT when their debts to Romeo and Juliet and La Bohème are so obvious. Many celebrate the fact that digital technology has opened to shared expression what they perceive to be prison gates, which have long been closed to the average citizen. Others believe that the gates in question are more aptly compared to floodgates, the opening of which will let loose into the public’s control hard-earned assets that would never have been assets were it not for copyright law.

  The Internet has laid bare some inherent flaws in copyright law. Whereas copyright law (and lawyers) used to be concerned about performance and copying violations, now an anonymous infringer can distribute copies around the world in a matter of seconds. Indeed, merely calling up a file on one’s computer constitutes a copying of the underlying work.