What They'll Never Tell You About the Music Business

by Peter M Thall

  Here is where a particularly strained use of reason intervenes to counter the passion argument. The freeloader feels that he has not been given what he wants, when he wants it, by the powers that be. If he is not offered what he wants, when he wants it, whether or not at a fair price, is he operating outside of the natural order by downloading music by unauthorized means? Is he a thief? Is his behavior the same as if he were to steal a CD from a record store (which, of course, he never would think of doing)? Herein lies the dilemma.

  The loss to the industry via piracy is valued in terms of tens of billions of dollars. Efforts to stop it, by seizing domain names, legislating three-strike laws (for example, in France), enforcing laws generally, education of the public, suing college students, have all failed. The only rational solution has been to offer the same rights (and more) for a price. Streaming, subscription services, legitimate download services have all served to diminish the effect of piracy and, at the same time, led people to legitimate sites where the companies who financed the creators, and creators will be paid. Unfortunately, piracy in the copyright arena, as in the trademark arena, and others, will never go away, but its impact has been counterbalanced by the legitimate sources made available by rights owners!

  So, we now know that if a freeloader is offered the chance to buy music at a fair price, as I predicted in my book, given that chance, he or she would do so.

  Surprisingly, this new “model” has gone a long way toward solving the piracy problem absent the assistance of the courts or Congress. The good news, then, is that legitimate sources of music have become royalty generators for both record companies and artists.

  Of course, we cannot talk about offering music legitimately at a fair price without pointing out Apple’s extraordinary success in catapulting this model along. Apple’s iPod fundamentally changed the way people listen to music. Who are these people? They are young; they are entering the commercial marketplace and, unlike us grownups, they are not used to owning music and they are not used to paying $18.00 or £25 for an album when they only wish to possess (I didn’t say own) the right to listen to their favorite song. We cannot deny that billions of legitimate downloads (of mostly individual tracks) have indeed happened. While this may be a drop in the bucket of what sales used to be during the music industry’s heyday in the 60s through the 80s, it is a significant turnaround from what were universally depressing statistics about record sales over the past five years. To show you just how successful the iPod has been for Apple, it now represents one-third of Apple’s total revenue and 75 percent of the market for digital download players. Apple offers more than three hundred accessories. It is an industry unto itself, and this upstart company, known for its design marvels and rabid fans, while breaching a mere 5 percent of the computer market, has done it again.

  WHEN AN APPLE BOOMERANGS

  But all is not quite as it appears. Consider 100 million downloads of singles; divide by 10 and you have the equivalent of 10 million albums—something Whitney Houston, or Michael Jackson could have sold in a nanosecond during the now departed “golden age” just a decade or so ago. And now Japan has threatened to tax downloads. Just what the industry needed! And this, after 1 million songs were sold in just four days in Japan after the launch in August 2005 of the iPod in that major music business market.

  Observe what we have seen.

  We have seen that college kids and millions of others prefer to act according to their own whims and will pay attention to the laws of copyright only when sued. After all of the bad press the music industry has been receiving, there is a widely held perception that, given a chance, many in power in legislatures throughout the world will turn against the music industry. Indeed, observe the near disaster caused by the French legislature recently. In the US, the copyright interests are extremely worried that if they cannot negotiate a mechanical and performing “uni-license” with Internet subscription companies, the US Congress will do it for them—at considerably lower rates than they feel entitled to. Those negotiating against them, represented largely by the audio and video rights trade association DiMA (the Digital Media Association: www.​digmedia.​org) seem confident that if they do not get what they want via negotiation, they will by congressional mandate. This sense of entitlement by those who depend on their survival by the use of the content of others is new. Contrary to copyright interests’ reluctance to look to Congress during this period of an anticopyright mood among citizens, DiMA is quite comfortable urging Congress to amend the Copyright Act. Similar sentiments will inevitably be pursued around the world. These interests’ goals are not just to help facilitate technological development, but to make things easier for users of the Internet as well. Indeed, many of the changes they seek have the ring of reason behind them. For example, in the United States, tech companies are seeking to amend the Copyright Act by, among other things, replacing what they refer to as the “dysfunctional” Section 115 compulsory mechanical license with a comprehensive statutory blanket license.

  Furthermore, there are not a few pundits who believe that the record and music publishing segments of the music industry will be taken over by the computer giants whose hunger for “cleared content” is insatiable. Elements of the music industry have even turned against each other. You may recall in the United States, the work for hire controversy (during which the RIAA sneaked an amendment into the Copyright Act in the dead of night to defeat the interests of “their” recording artists) wasn’t exactly pretty. And the recording industry is relentlessly chipping away at music publishers’ rights and control in all fields, not just the digital world. And why not? The major music publishers are all owned by the major record companies. We have seen newspaper headlines and talk shows that have eviscerated the music industry. We have seen avarice and ignorance succeed over wisdom and reason.

  Yet I cannot help but believe—notwithstanding the instructive reread of the Medea myth—that the natural human state is one of reason, virtue, fairness, and justice. The music industry, and its counsel, have an opportunity to oppose the rule of passion and to apply reason to find ways to satisfy both their own vested interests in protecting the copyright structure on which our entire intellectual property industry is based, as well as the expressed needs of those who consider the music industry’s creations as their own property. Some of this will be achieved through education, some through example, and some, inevitably, through lawsuits.

  So, is the music industry living a Greek tragedy? Sounds like one to me.

  WHEN CULTURE TRUMPS COMMERCE

  Let us now consider the social, legal, and economic consequences of having multinationals own what citizens of the world perceive to be theirs.

  Vogel calls music the most fundamental and widespread basic human need and emotion-inducing type of product in the world. As I noted earlier, only the expression differs from population segment to population segment, from country to country, from continent to continent. Naturally, people want to have what they believe is theirs. In a word, their own “culture.’

  For a discussion of how the changes in copyright law, technology, and enforcements have (in some peoples’ opinions) changed our culture from one that is broadly open (if not exactly free) to one that is a closed, (ie. “proprietary,” or “by permission”) as Lawrence Lessig refers to it, see chapter 24, this page.

  How Copyright Owners Have Sacrificed Reason for Passion and Co-opted the (il)Logic of the Illegal Downloaders

  I am not certain that a balance between copyright interests and consumers can be achieved without a better understanding by copyright owners of their customers—the consumers (yes, the very ones the RIAA was suing). As long as they do not understand them, the copyright community is vulnerable not only to the wholesale theft of its assets, but to the rejection by the public as well.

  In the famous allegory of the cave, Plato showed us that darkness is tantamount to ignorance. In order to survive—or at least to survive with a semblance of the model in which we currently
live and work—we have to teach “those kids” to penetrate the darkness. And we have to teach ourselves that unless we understand human nature, we will not have a clue as to how to fix this mess we’re in.

  Some of you will say that good conscience cannot be taught. In the myth of Gyges, the protagonist finds a ring that allows him to make himself invisible. What did he do when he could get away with murder and not be caught? He killed the king, raped the queen, and took over the kingdom. No punishment? No problem. Some will say that this is what we are seeing among the peer-to-peer sharers. But there’s a reason they are called peers. They are of a similar mind that has neither been taught correctly nor effectively, and they act as if they can do whatever they want because they won’t be caught. Like Gyges, they only think of what they can do—not what they should be doing or not doing. Yet, as we have observed in the record piracy area overseas, making available what people want, when they want it, at a reasonable price, is the best policing we can achieve in the marketplace. Wise business decisions will neutralize those who would take advantage of the vacuum and provide alternatives to hungry consumers. Apple’s iPod has proven this point quite well indeed.

  Which brings us to the second part of this chapter: the self-destructive behavior of copyright owners themselves.

  COPYRIGHT OWNERS: POWER (NOT) TO THE PEOPLE

  In addition to the digital evolution, something else tipped the balance between copyright owners and consumers which had stabilized the relationships among copyright owners and users for many, many decades.

  It may have been copyright clearance that did it.

  Those who hold firm to the outdated concepts of contemporary copyright law see abuse wherever they look and they see the benefits of technology being twisted into support for protections that are no longer valid. The last thing they want to face is one more technological breakthrough that threatens the status quo of their traditional licensing models. For example, no one, you would think, would support a law that would require three, four or more different licenses to be secured merely for one use. But that is exactly what has happened. An interactive Internet file will implicate the mechanical, synchronization and performance rights; a karaoke producer will do the same—but add print rights to the other three. (Some entertainment lawyers recommend that a composite license be composed—a so-called uni-license. But to date, there really is no such thing available.) An EMI Music Publishing spokesman points out that this is simply the way it is—that the “law couldn’t be clearer.” That is the problem. And that is the solution as well. Once Congress hears the cries of the bedeviled users of music, they will see that the law indeed could not be clearer. And they will change it. The fear among the copyright community is that they will change it in ways that will satisfy no one.

  I will not reiterate the evolving concept of intellectual property law dealing with “misuse of copyright,” which I discuss in chapter 24. But the wholly legitimate, and legally sanctioned, actions of copyright owners are enough to make one wonder if reason has totally taken a vacation. The stories are legion:

  • Recently, a public company, was planning a promotion with DJs around several hundred of their stores. It was reminded that they would require performance licenses from the three American performing rights societies: ASCAP, BMI, and SESAC. Their new VP in charge of promotion complained that at other companies he had never cleared performance rights. “It’s just music,” he sputtered. “We want to do the right thing, but we now learn that in addition to your legal fees, we have to pay SESAC, the smallest performing rights society, three to four times what ASCAP, the largest, is charging.”

  • When I was asked to clear five songs and five masters for use in a television show that initially appeared on PBS (and were covered by a special provision in the copyright law for those specific broadcasts), negotiations for nonpublic television rights, a DVD, foreign broadcast rights, etc. were required among more than thirty different companies and departments and the paperwork took six months to complete.

  • Use a photograph or likeness of Elvis Presley or Marilyn Monroe in a book? Forget about it. Whereas the right of publicity was always assumed to have died with the subject, many states are now passing laws to keep their citizens alive. I call the Tennessee law reviving Mr. Presley’s publicity rights from the afterlife the “Help the Balance of Payments of Tennessee—Keep Elvis Alive” law.

  • A prestigious art-book company wishes to digitize an Andy Warhol photograph of Marilyn Monroe on the cover of its book: The Culture of the 20th Century. The Warhol estate doesn’t care; but the Monroe estate does.

  • Documentary filmmaking is a particularly rich source of complaints about claimed excesses of copyright owners. By definition, documentary filmmakers have to quote existing transcriptions (whether print, video or audio) in order to tell their story. Documentary films’ budgets are notoriously small, and the films are usually completed before the directors know what they are going to use to tell their story. They fear the costs when they can find the owners, the risks when they cannot, the eagle eye of their insurers who demand proof of 100% clearance, the need to self-censor rather than take their art where their muse carries them, and the imprecision of the fair use doctrine (which no attorney can assure a client he actually comprehends). When they shoot their factual moment in the frame of their documentary camera, they must be conscious (and cautious) enough to turn off the television or radio while filming lest they end up having to negotiate with Disney, or Fox, for a few immaterial, nonintegral, background seconds of The Simpsons; or they have to pay attention to the possibility of innocently reproducing the background sound of a cell phone ringing out the theme from Rocky. (Try it! It is not cheap.) Documentary filmmakers refer to this recurrent nightmare as “the clearance culture trap.” It is no wonder.

  • What happens when a company desires to use a copyrighted work, is willing to pay any price for a license, and cannot locate the copyright owner? An honest company will be discouraged from using it and presumably the consumer is worse off as a result. Works whose progeny or current ownership is unknown or uncertain are often referred to as “orphan works.” While the owners or administrators of music and film works are fairly well documented and public, the same is not true of works of art, illustrations, cartoons, etc. This issue has drawn the attention of the Copyright Office and Congress, but their proposed solutions are suspect. One resolution of the problem has the potential user posting an “intent to use” on a public registry. The failure of the copyright owner to identify himself or itself will free the user from any liability unless and until the copyright owner shows up—at which point, his or her claim will be limited to a fixed fee for uses prospective from the date he or she appears. This amounts to the opposite of the exercise of the copyright owners’ vaunted exclusive rights.

  • Sampling. The practice of capturing sounds from a previously recorded and released recording and incorporating them into a new recording. Contrary to the belief of some, most sampling is not simply an easy way out for producers and other authors who are too lazy or untalented to create the sounds themselves. Their real intent is to capture a mood, a memory, a feeling of a specific time or experience, and to blend that into their own creation. DJs have “sampled” for years. But what they have been able to do in a club live is prohibited when duplicating their feat on a permanent recording—even if the recording is available only via the Internet through a download or streaming facility. Most composers, and the courts, find sampling anathema to the concept of private property; others find the process similar to making a salad—the ingredients that make up a contemporary recording naturally include elements that went before. What else is culture than the accumulation of a civilization’s art over time? Sampling is now part of most every genre of music—from hip-hop to rock to pop. Even electronic classical works are utilizing samples from our everyday culture just as a hip hop composition might.

  While another source of business for us entertainment lawyers, the l
aws written during the predigital/Internet age (or their application) often invite frustration and anger—not to forget the expense—of legitimate, creative users of music who want to reach citizens around the world and convey to them the fruits of their creations. No wonder some companies would rather hide than call us—or simply give up their creative urges and become engineers.

  Among the most important functions of entertainment attorneys is to provide their clients with a “rights road map” to navigate: show them how to comply with copyright laws, identify the risks they must avoid or manage, and somehow find them a way within the law to publish their book, write their musical, or record their song.

  Too often, we are unable to achieve these goals for our clients. Our frustration is mirrored in the frustration and anger of those who wish to use copyrights in a responsible manner. The possibilities offered by the Internet have merely added exponentially to the mood among copyright users when they keep running into stone walls in an effort to seek permission, and—yes—pay a reasonable fee for the rights they seek. Their frustration is finding support among academics and, more importantly, powerful lobbies that single-handedly are reversing the thinking of the author-friendly legislatures of the past 230 years. Are they justified?

  It used to be that building on the art of others was the hallmark of genius. Now it is an invitation to a lawsuit. Sampling on contemporary sound recordings is illegal without the permission of the owner of the music sampled. Fine. But the cost and liability of clearing rights which ranges from impossibly difficult to nearly impossible is encouraging both a lack of creative use of our culture’s output and a widespread violation of copyright owners’ rights. Neither result is welcome; either result is unproductive and destructive.