Future of Music Policy Summit 2002:
Notes from Monday

download Monday's notes as a Word document

1.7.02. Gaston Hall, Georgetown University.

8:45 a.m. Introduction – Dean of Graduate School.

8:50 a.m. Opening remarks – Jenny Toomey.

“Isn’t this cool?” Last year: mergers, lawsuits, tech revolution, etc. Bold statements from Samuelson, Chuck D, Griffin, Peters. Debate was beginning, and hence the coalition was formed. Headlines for MP3, Napster, RIAA. Easy discussion.

This year’s event should be much cooler. Far different place. Optimism, idealism, and curiosity. Today: strongest minds focusing on citizens and creators. Puts artists into the middle of the debate.

Markets determine the “value” of the music artists produce. Ways to understand and quantify and guard the value of artistic labor. “Pennies from Heaven” (by David Sanjek) “Three Strikes” (by Howard Zinn et. al.)

Something else. Something connected to the value of music. Finale of “The War Room” documentary on Clinton’s campaign. Stephanapolous asks Carville. “Most sacred thing person can give is their labor. Combine labor and love, you’ve made a match.” Next to love, labor is second most. Give both, it’s even better.

Structures treat musicians poorly. Debt. No access. No c-right. No health insurance.

Sure, it will be regulated by market: two categories: geniuses and don’t-quit-their-day-jobs. [sarcastically] Markets, perhaps, haven’t found all the geniuses yet.

What about the word genius? Market means that they’re commercially successful. Danny Goldberg: artist needs to sell 250,000 to break even. How difficult is that? 1999, less than 1% of records released sold more than 10,000 copies. (How much money does 250,000 copies generate for an independent?) Distinction is often a matter of promotional cash.

What would happen if Microsoft had paid all 100 independent musicians that provided music for Xbox games? Instead, they pushed a deal, where the artists get promotion and no money. (What would Microsoft pay a programmer?) Why are some disciplines not either/or?

Theory. Ex: Encarta, actors read scripts. Actor’s union wanted residuals; negotiation; Microsoft agreed to pay triple scale. The group that was organized. The market doesn’t seem to care about collective organizing. Though not illegal, what Microsoft does is sad. Could it be undone? Or does it set a precedent?

Artists and citizens hurt. Also businesses hurt. Ex: huge promo campaign for XP. Microsoft wants to sell XP to musicians. Yet another arm of the company is saying musicians’ labor can be used but not paid for.

This is what happens with an imbalanced market.

Speaking tour themes: Historical, legal, and industry structures combined to devalue musicians’ labor. Artists and citizens not served.

Often, only two choices are presented: let the market take care of everything OR ban advertising, ban business models. Black and white. Ahistorical – we have often limited free market, with huge benefits. (Min wage, child labor, abolishing slavery – protecting rights of citizens and laborers.) Idea that you only have two choices is ridiculous. Always at least three products on the shelf!

Answers: collaboration, balance, gray (not B & W). Some areas where there are two choices. Watching Kevin Cordt at Henry’s playing for tips. Father’s question: should we accept the world as it is, or should we work to change it?

9:10 a.m. – Congressman Rick Boucher, D-VA.

[Judiciary committee, internet and IP subcommittee. Proposals to promote competition. Fundamental legislation for internet.]

Commend FMC for organizing conference. Work is a great help in effort to educate a broad range of policymakers on IP law to promote fairness for artists and to ensure availability for consumers.

Serves as one of 2 co-chairman of internet caucus. Promote growth and development of the internet. Music-related internet policy debates will be focus of talk. Concerned about another issue, though, first: apparent lack of fairness in laws of some states that deny to music artists the same limits on term and length of personal service contracts. Supports efforts of Conyers and others to have Congress review this matter, perhaps holding hearings, to assemble a record sufficient to write legislation for fair treatment of artists.

“The internet is your friend.” If you’re concerned about relationship with labels, the internet is part of the answer. Challenge: how to nurture broad availability of music over the internet, and to ensure fair compensation for owners. That’s the balance to which we’re devoted and committed. That was the goal of the Cannon-Boucher bill.

Of the view that music fans will pay a reasonable fee for permanent downloads. Napster example (one part of equation absent: compensation.) Barriers to the new outcome. Bill seeks to address these barriers. Music Online Competition Act. Goal is to encourage development of legitimate models.

Competition will arise. Important provisions.

Rapid payment. Webcast money directly to recording artists. Regardless of recent RIAA agreement, there’s still a need for this. Many artists are not part of the major-label system, and shouldn’t be subject to deductions. And what if artists left SoundExchange?

Other provisions:
Change the ephemeral recording exception to make it useful. Current law says one copy may be placed on temporary basis on delivery mechanism (server), erased after 6 months. But multiple copies are required, and in different file formats. Multiply this by the number of caches placed over the internet. Before long, you need 40 or 50 copies. This provision should be modernized.

Expand exemption for sampling. Today you can listen to sample of whatever music you’re interested in. Exempted under copyright law, because it EXPANDS the market for music. Same isn’t true on the web, but it should be. Can listen to a sample, but the cost is passed on to you. Should work the same as the “bricks and mortar” store.

Allowing backup copies made by consumers. Current law: clear anomaly. Software can be backed up. But if you purchase music, you can’t make a backup copy. Hard disk crash means you buy it again. Should work the same.

Fully exempt “buffering” from copyright. Buffer copies have no independent economic value. Do nothing to harm the copyright owner. Yet they’re important for the consumer.

Section 115 mechanical license more serviceable. Publishers and songwriters compensated, but many cannot be identified. Current law: obligation rests with the webcaster. Instead, let’s create an escrow account with the copyright office. Later, the songwriters can come forward.

Next: what everybody’s talking about. The controversial sixth measure. A way to make sure competition arises in the delivery of music over the internet. Applaud steps the labels have taken in establishing MusicNet and Pressplay. (At least it’s some response.) Each of these sites will have access to 40% of world’s inventory of music. Sites are directly affiliated with record labels. Establishing two vertically-integrated market-dominant sites. No indication they’d be willing to licenses to companies like Listen.com or the new Napster. “Not able to get licensing. We want for that to happen.”

“Provides a guarantee.” If an owner licenses any site, it will be required to license other services on similar terms. “We think that’s essential” for competition.

Simply following the model of cable. Analogous to program access provisions in 1992 cable act. Share programs with competitors. Direct broadcast satellite industry – now a viable competitor to cable TV.

Would seem that the labels should be eager to license their inventory. MusicNet and Pressplay are “tethered and temporary music on the web.” Requires a monthly subscription fee. When you stop paying, you lose the music. Music will be rented, not owned. Music can’t be transported to another device. No space-shifting. Can’t transfer to an MP3 device. “I frankly doubt that this model is going to succeed.” The new technology, peer to peer, the new generation, will be legally immune. Best approach for the major labels will be to provide portable music.

[PCD: Note the shift in the nature of property rights described in the above paragraph.]

Best way to assure the American public is going to receive service as well is competiton. Record labels should stop fighting the internet and everyone would benefit.

This year, Congress will pass legislation to enable online music delivery. Many of the key provisions have broad support. Better ephemeral right, buffer copies, and most people agree we need a more efficient means to pay songwriters. Copyright Office has recommended as much. Other stuff more controversial. Non-discrimination provision.

I am very concerned about the operation of the DMCA. One provision, § 1201, makes it a criminal offense to circumvent a technological protection measure. Doesn’t matter why the circumvention occurs. If the circumvention is for otherwise lawful types of activity, why should it be punished? People have been punished for things with lawful and harmless aims.

Controversial bill will be introduced. Time to debate. Only time it’s unlawful to circumvent copyright protection is when copyright is to be infringed. Exercise fair use rights and other activity would be lawful. Hard cases, e.g. Prof. Felten.

Sympathetic viewpoint. Pro bono. Independent artists. “public interest at heart. I want to thank you for organizing this forum.” “amazed at the level of attention.” Colleagues came to me and said “we read in the paper about that forum at Georgetown. Should give you confidence. Large numbers in attendance are impressive. Assure you that those of us in Congress are watching and listening.

Questions for Rick Boucher

(1) Karen Allen, RIAA. (a) mechanical – necessary? (b) cross-licensing is happening. Is it time for Congress to step in?
w/r/t § 115 mechanical license for songwriters. Agreement reached is progress. It is not truly complete b/c it does not accommodate the entire universe. Sufficient for the major labels to do business. But there are people outside that system, who have right to sue regardless of damages (there are minimum statutory damages for each instance of distribution). The bill would provide immunity from suit if escrow damages paid.

w/r/t movement to license some other competitor sites. Just beginning. Not clear how far it will go. The very concerns expressed in MOCA have been expressed by the DOJ, who has a major investigation is underway. Outcome is as yet unclear, yet there will be hearing in about 6 weeks to 2 months. Goal is competition. If that comes w/ voluntary action, great. But if they don’t, it will happen one way or another, whether a bill or a major anti-trust action.

(2) Rebecca Hansen, XM satellite radio. Internet webcasters aren’t only companies covered: 2 digital satellite radio companies are covered. Performance complement – restrictions on songs within a certain period. This isn’t imposed on terrestrial radio. Can’t focus on careers of artists. Best invention of 2001 in Time, Fortune, etc.

Satellite radio is a tremendous advance, looking forward to subscribing. He agrees that satellite players should have same opportunities. Ought to have opportunity to play an album, to focus on an emerging artist for example. Piracy is the fear. Piracy is illegal. Should punish pirates, perhaps even more. But we shouldn’t punish technology.

(3) Terri Cox, songwriter. rate establishment. how will songwriter’s interest in rate procedure be protected? Only at 7.55 cents, lowest in the world.

Don’t believe Congress is a good place to set rates. Insufficient information for songwriting, utilities, etc. Power delegated to an expert agency, such as state public service commissions for utilities. In this case, the Copyright Office handles it. CARP proceedings. Broad participation. Bill doesn’t upset that process. Perhaps the process doesn’t work perfectly, but Congress should set rate or enshrine a formula.

10:00 a.m. Panel #1. “State of the Union.”
Moderator: Whitney Broussard
Panelists: Phil Gobbsen[sp?] (songwriter), Eben Moglen (free software foundation, Columbia), Cary Sherman (RIAA), Marybeth Peters (Copyright Office), Jonathan Potter (DiMA), Jonatha Brooke (songwriter), Mark Cuban (founder Broadcast.com sold to Yahoo!).

WB: Difficult to know where to start. Hard to pinpoint what happened in online music space. But something has changed. Last year, Sen. Hatch shared a lot of concerns of people and seemed to understand things. Very heartened today by the specific action plan. MOCA bill is out there to discuss, like it or not.

MC: DMCA was a business mistake and a disaster.

WB: Defining moment?

MC: People gave up. People got in for the easy money. 2000 all the stupid money disappeared. 2001 transitioned from an entrepreneurial world to a legislative world. Some companies have survived. But no impact from new business.

CS: Saw the launch of legitimate subscription services online.

MC: Have consumers subscribed?

CS: Dec. 21st. Too soon. This is version 1.0. Evolving business model. Will see lots of changes.

JP: MusicNet and Pressplay launched. Several companies have been trying for years to release music. Defining moment: licensors licensed themselves. Music world have compulsory licenses and statutory rates – generally, media is heavily regulated. Industries invite decades of intense scrutiny from competition authorities. Record labels overcame fear of others and innovation by trying to capture it all internally.

JB: Change is becoming very rapid. Compensation for artists needs to be there.

MC: Entrepreneurs weren’t reluctant to pay. Thought there was a way to pay songwriters. People would have paid for costs of goods to download. Could have avoided destroying the music mall.

CS: Napster wouldn’t negotiate a license.

PG: Clear perception of songwriters that our private property rights are not respected. Won’t be a lot of progress.

MC: That’s just RIAA rhetoric. They’re about control. I’m on both ends. Can’t negotiate for myself, “I have to live downstream.”

JB: There’s no cap on what you [MC] would make.

JP: MOCA would actually have made songwriters more money. HFA would rather sue the artists than pay them.

JB: Gun to head with compulsory license. They’ve screwed me more than they’ve screwed you, but at least there’s a mechanism to get paid.

EM: Same little corner of their failing game. Process of coercion is over. 2001 – what didn’t happen – smacked down Napster, and now they have Morpheus. What can be shared, will be shared. Technology allows people to cooperate. Pay the people you want to pay. Lowest possible cost. Technology will work from the studio to the eardrum. Thugs and the green-eyeshade thieves go away. People will do music because they love it and people who love music will pay when they choose.

[PCD: Above describes the neoclassical model of sectoral shifts in labor. Dorothy cites Marx, “The German Ideology.”]

PG: Is EM thinking he’ll give his work away? Why isn’t clothing for free? Quotes EM, “no doubt there will be some immediate pain for artists. Selling t-shirts.”

MP: Seeing legitimization of music industry is the biggest piece of 2001, but it’s hard to make it work. Looking to the c-right office isn’t the solution. C-right office has always been opposed to statutory licenses. Expensive proposition. How do you pay the songwriter? How do you find them? What effective mechanism is in place?

WB: Isn’t the copyright office there to administer copyright law?

MP: Compulsory licenses are failures in the marketplace. International conventions prevent them.

CS: Elsewhere, it works through collecting societies. European rate. And really, that’s how it works here, and CARP is a backstop measure.

WB: So isn’t that the same as a compulsory license?

CS: No, because the publishers have decided that they want the blanket license. And here, that’s really how it works.

WB: Isn’t it strange that when the market functions, there’s [effectively] a compulsory license [for an individual songwriter]?

JP: ASCAP, HFA, etc. are discussed as though they were the marketplace is working, despite the anti-trust and other government activities. “schizophrenia”

CS: Able to agree on the structure of a licensing. Private negotiation – no rate-setting. RIAA-HFA agreement.

JP: CARP is a backup in the private agreement.

EM: Business models are all based on forcing people to pay for music. If technology weren’t made by the middle man. Ogg Vorbis could include a “mall-in-a-song,” to borrow John Parres’ phrase. When the people who make and the people who love.

JP: Who builds the database?

MC: Songwriters sold the copyright. The person you negotiated with is presenting you with a structure.

JB: Asks if EM gets a salary.

MC: Harder it is to sell music, the worse the artists are. RIAA is not about profitability, because the number one job is to keep your job. Premium is on control.

JB: Was on three major labels before. Made a choice to do it herself. The model now is designed for a 21 year old. Had a fan base. Knew enough not to give up publishing rights or creative control. Lesson: don’t make enemies.

PG: Confusion between performers and non-performers among songwriters. Huge animosity toward the record labels. Good news for songwriters is that they’re necessary.

CS: Only way to respond: the music is out there. You must release your music online.

JP: MusicNet and Pressplay are different from each other. Would like to see 10 other competitors. Maybe it would converge eventually anyway. Pressplay: now you can pick your 10 songs for $14.95. Consumers need faster, and they need a broader array of rights. Piracy and free aren’t the way. Decades-old relationships are in the way.

Questions

(1) Brian Austin Whitney, Just Plain Folks. What do we tell the artists about compulsory licenses?

PG: Join a PRO. Problem with compulsory – son is an aspiring artist – it is a maximum. Could someone get more than that.

MC: Go straight to Morpheus, and say let’s make a deal. When someone searches for your song, up pops a little ad to buy the latest version virus-free, best format, etc, for this many cents. Go to a place where music buyers congregate.

(2) Phil Leigh, Raymond James. Does anyone have concrete evidence to show whether Napster, Morpheus, etc. are increasing or decreasing sales?

CS: Lots of evidence.

JP: Joke about college record stores.

MC: More or fewer CDs released in 2001 versus prior years? [No answer.] Based on Soundscan, number of CD units actually went up, as did the retail price. Sounds like business is good. Based on Billboard stats.

JP: No doubt that the internet was promotional. Labels pissed away 60 to 70 million users. Should have offered something immediately, not free. People would pay. Napster allowed you to hot list people, to see what people are listening to. Should recapture that excitement.

CS: No question that is going to happen. Complicated business to license.

MC: Morpheus is kicking your ass right now.

(3) Songwriter. How do I audit Pressplay and MusicNet?

JP: Trust the servers more than the piece of paper. E-cast, interactive jukebox. Give labels realtime access to servers. Constant auditing is possible from an internet company that wants to pay royalties.

EM: Free means you don’t force people to pay. Should trust people who love it. Trust them, they will pay you.

PG: What I create is mine.

CS: Copyright gives people with your philosophy the right to do what they want, but others have the right.

EM: Might 100% of the artists go elsewhere? Real issue is keeping the artists away from the technology of freedom. Don’t want them to see the power of the technology. Agrees that Phil and Jonatha have rights. They’ll get paid more cutting out the middlemen who take 94% of the [revenue?].

(4) Songwriter. Who’s supposed to be getting paid?

CS: No question that technology in back office has not kept up. Databases of sound recordings and all musical works are needed. That would facilitate payment of royalties.

(5) Audience. Who owns that database?

JP: Can’t have a database that ensures payment and also not have someone control that, be able to input data, etc.

MC: Go where the consumer is. Triggered ads. Take out the risk. Don’t go to where the legislation is. Only job is to convince the consumer.

JP: Many databases possible. Doesn’t have to be one in the whole world. Even a third party will have a database.

(6) Songwriter. Love between musician and listeners is there. Structures are in place. Songwriters are individuals, in general. Songwriters and individuals have very much in common. 2 or 3 jobs, no health insurance. Looking to make admin asst money. Issues for the songwriters are fundamental and basic. We have some functions are entrepreneurs also.

(7) Gary Himmelfarb, indie record label and indie publishing. Sales shrinking at brick and mortar. How can indie labels be included?

CS: Can’t speaking to business decisions. Well-established mantra of record companies is to aggregate as much content as possible. Indies should be in a good position to license.

JP: Internet could exacerbate a consolidation-of-marketplace issue. Radio, etc. consolidation.

CS: Internet = great leveler.

(8) Fred von Lohmann, EFF. Saddened that Phil thinks we’re (the EFF is) the enemy of artists and copyright. Jonatha Brooke has $20. Also $20 for anyone else she likes. Not a penny to any middle man.

EM: Grateful to see this doesn’t happen only in Universities. We are talking about a revolution. We can have this because we love freedom.

PG: ASCAP is member owned. 15% isn’t a lot to pay for the collection. My choice to sign up with ASCAP. I want to write songs, not get involved in business at this level.

JB: Lots of people out there who think music who should be free. Kids don’t understand.

MC: Kids think $21.98 for a CD is a lot. How much do you make from selling a CD for $20?

JB: Only make $1.50 out of $20.

PG: Shirt analogy – the designer of a shirt gets paid.

MC: Shirt is a bad analogy. Designer of shirt doesn’t own the shirt; couldn’t take it off your back.

PG: But he gets a salary…

JP: …and artists don’t want to be a work for hire.

WB: Discussion of Nusrat Fateh Ali Khan. Concert was like Elvis and the Beatles together. Audience would take all the cash and throw it at the artists. Security people tried to stop them.

11:10 a.m. Panel #2. “Taking Care of Business.”
Moderator: Dave Marsh.
Panelists: Jay Cooper, Dean Kay, Johnny Temple, Bernice Johnson Reagon, Toshi Reagon, David Sanjek.

DM: First, copyright did not come down with Moses. It’s something with a past. There was a past, with music, that did not have copyright. Second, the way things are is not the way things are going to be. Why didn’t Shakespeare starve to death?

JC: Musicians going back to Haydn, Handel, Mozart were paid by patrons, persons of the court. Paid to compose, paid to perform. Not to be found anymore. In lieu of a patron saint, we have the copyright law. Came in with the Constitution. CSO, Boston, etc. are endowed orchestras. Monies go to pay the salaries. Creators do need something, “protection of some sort.” Composers are paid to create their work. All that aside, copyright is a necessity. Guarantees that creators can earn a living from that which they create. Copyright is not dead, far from dead, will never be dead. People need to pay their rent. All that being said, lots of problems with the music business. Contracts used to be 3 pages long – today they’re 60 to 100 pages long. Business is very complicated, because of changing technology and litigation, as well as archaic business practices and models. To guarantee a high percentage royalty – that’s a misnomer, b/c 20% is really 10% -- deduction for packaging, free goods, 10% for CD technology. 20% works out to 10% or less. Caused to make the contract look good for the artist. Over the last few years, he has worked to write 6-page contracts. “When a record gets sold, you’ll get paid X.” The provision specifying payment relating to retail price probably saved 40-50 pages. 38,000 records issues in 1998. 52 records were responsible for 38% of sales. 78% [???] sold less than 1000. Somewhere, there must be gigantic errors.

DM: DS works at BMI, author/historian.

DS: Lamentable. Not a lot of public information about differences between Universal and Capitol. Information not there to the degree we’d like. One issue: ACCESS. From two perspective: (1)creators, (2)consumers. We’d like access to be as broad as possible. Also, that creators have greatest access to listeners. Second issue: THE HUGE ROLE OF TECHNOLOGY. Music as hardware versus software on which we play it. Music industry is often led by the manufacturers of hardware. Where do their interests really lie? Interesting comment by Paul Goldstein, Stanford Law: “At a minimum, there’s a 15-year lag between technology introduction and coverage by the law.”

History. (1) Relation between owners and artists. Demonize people whose decisions we don’t like, and idolize the artists. But this blurs distinctions. Ways people relate in the music industry are different. (2) See history through metaphor of David v. Goliath. Author of “Sound of the City” admitted he used the metaphor, and concluded it was weak. More complicated. Both ignoble and noble acts have been committed by people at both ends. (3) Position of race, gender, and class in deciding roles of musicians. Composition of musical unions: e.g. country performers.

DM: DK is a songwriter, works with ASCAP. From your point of view, are the issues pretty close to being settled?

DK: I think we’re right on the same path as any new technology. Huge change at this particular point. Change involves lawsuits, figuring out where people fit. Moving to a place where business can be done on the ‘net. Last year, Sen. Hatch said we’d better see progress, providing opportunities to buy music. He was threatening to do something. Stunning change in last year. ASCAP has 3000 licenses on internet. Deals with MP3.com, MusicNet, Pressplay. Things starting to operate. Want music to be used in any way possible. Major problem is getting paid. Some technologies aren’t coming to us. Music City, Kazaa (ignoring court), Napster – haven’t come to us or are still negotiating. Negotiating who should get paid. Marketplace negotiation. Don’t want Congress to enact anything.

ASCAP is a perfect model of how things should operate. Owned by songwriters and publishers. Paid directly to writers and publishers. Provides other valuable assistance. Good place.

DM: TR with a political view and a business view.

TR: Live in Brooklyn. Had a great career in music. Been able to make her living. Like a bus driver, or someone who makes cool shoes. A lot of things are wrong, but there are a lot of things right. Every industry has its problems. Raised with mindset that she could do what she wanted to do.

DM: Do you see in all this new technology, do you see an opportunity to change things to be better for artists?

TR: Every technological change is an opportunity to move things or shake things up. Everyone might have different ways they want things to be. Allowed people to make records easier and cheaper. Everyone wants to own everything, and parts of everything, for all time. That’s what makes the music industry. Without changing that, everything will be “same as it ever was.”

DM: BJR was a founder of Sweet Honey in the Rock. Contrast between career beginning within the civil rights movement of the early 1960’s versus today?

BJR: Fighter against racism – SNCC. Member of freedom singers. Introduced to music industry who didn’t want movement to pass without participating. Gave movement access through those structures. Raised money for the cause. Folk revival and topical song movements. Top 10 earning artists of those genres. “We Shall Overcome” was the most important song, and was outside of the structures of the industry. Keeps her close to where the music really comes from. Major copyright process of “We Shall Overcome.” 3 men who wanted to copyright it knew they hadn’t created it – money goes to a fund. BJR sat on the advisory board. Copyrighting had nothing to acknowledge the struggle that made the song valuable. That provides her perspective. Music industry is a process separating people who need something, from that thing, and force them to buy it. Lawyers are a strange breed. Part of any culture driven by capital. Copyrights songs to get money to reallocate it the way she’d like. There’s no change with this technology.

DM: JT is an artist, runs a label, started book publishing. Is there a way to create new structures.

JT: Difficult to answer. Run gamut from handshake deals with T&G and Dischord to 60-page Geffen deals. Huge chasm. Admired the indie model. Profit-split model. But the problem is that there’s no profits to split. Very lucky to sell 20-50k. No health insurance. Rents skyrocketing. Big companies can provide lump sums of cash. Yet most artists don’t make much money from advances after recording is factored in. Ex: tour in Europe, community center with gov’t funding, knew there would be food, lodging, payment. “We’re liberal musicians, we like big government.” Tackling health care issue is complex. So, getting back to questions, there are alternatives, but there’s no money for health care in the indie world. Might not want to demonize big companies, but there is a responsibility of labels to find health care for their musicians. Exit clauses – terrible to be strung along, especially for less profitable acts. “I look to the great independents for inspirational business models, but that doesn’t help the fact that they’re cash-poor.”

JC: The good: there’s access [to technology? to the internet?] for many people. The bad: how do you find an audience. Putting music up on a website is not enough to find an audience. The ugly: contracts are not fair, haven’t been, and probably won’t be. Looks like, with advent of Pressplay and MusicNet, the record companies will be renting music. Less than $10, 100 downloads and 100 streams. Fans don’t get possession of those things. Under what clause does the contract give these rights? Manufacturing is covered. What royalty – 50% of everything else, or is it the provision that gives you 10% of what we receive? Under provisions with escalations, do the internet sales count towards escalations? Determination of advances depends on retail sales – does this mean advance for the next album will be reduced?

Questions

(1) How could the record labels think that artists won’t give their music away as a loss leader, and then sell other products like T-shirts or microphones? Also, what’s going on with movie music copyrights?

JC: Songwriter contracted with motion picture company. Main difference: the company owns 100% of the publishing. In other contracts, the artist can often keep 50% of publishing rights, which means they get 75%.

DK: What advantageous to an artist is a strong copyright.

DS: Don’t repeat history, and BMI works the same as ASCAP.

(2) Decide whether to profit-maximize or to do it for love. As far as financial preparation for artists, who helps artists? Where are the resources?

DK: ASCAP website.

DS: BMI website.

(3) Tom Paxton, artist. Reminded of exam at Harvard – discuss impact of fishing industry on New England. One student wrote from point of view of the fish. As a fish, I speak. Member of ASCAP for 40 years. Cherry Lane music for the whole time. 20 different record labels. 2 major labels early, and got dropped. Since then, earn money doing performances and performing. Can the internet business model do as well?

12:05 p.m. Kevin Murray – State Senator from CA.

Honored to be here, because of admiration of artists. Artist fighting for rights, notes the logo. Prior to being an elected rep, he represented artists at the William Morris Agency.

Artists give joy, passion and truth. Artists control their work, subject to fair use. Here to discuss role of government. Music is an art form, and it is a business. Completely dependent on government for its existence. No business without international copyright law.

Internet will be the great leveler? “Forget it.” Reasons: (1) to reach large numbers of people, you need a significant financial investment. There could be other models, but there must be investment. (2) Middle america does not have high-speed internet. Many companies are going out of business. (3) Biggest time for record sales: Christmas. Gift-giving.

$40 billion. 4 times the game systems combined. Trade surplus (rare). Policies to create a fair and level playing field, and encourage innovation, is gov’ts role. Government is inadequate, and always behind. When policies are changed or updated, the artists are rarely heard from. Don’t have a unified voice. AFM and AFTRA are great, but record deals are individual. Guilds don’t represent copyrights. Can’t really represent interests. Every other interest group has a trade group or organization advocating for them. No such group for artists, or specifically musicians.

The RIAA is a multi-million dollar organization that is very effective. On most issues, their interests are the same. Sometimes the RIAA protects artists. Yet the interests diverge. Music is often an individual pursuit, and doesn’t lend itself to collectives.

Government reps want to know that numbers are behind the interest groups. It’s the reality of a representative democracy. (It’s not just evil, as it may sound.) AARP and Catholic Charities have influence, despite no money. Every interest is a special interest.

Musicians need to think of what they make as a product. Providing music as a service. Think of it as a product. Need an organization. Employ lobbyists. Endorse and oppose candidates. Artists have often given of themselves for charity. They have never, until recently, used their power to take care of themselves.

Work-for-hire activism. Recording industry unleashed a sleeping giant. RAC.

United front and a continued effort. Continuing relationship with government.
1987: No Napster. No one had heard of the web. “Dirty Dancing” top album. Bangles at top of the chart. U2, Los Lobos. In 1987, the RIAA was in Sacramento, changing a state law.

In CA, there’s a seven year rule. Personal service contract. 1880s to protect employers who had placed ads. Jobs weren’t lasting long enough, so they were limited to 2 years. 1987 lengthened it to 7 years. 1937, Olivia de Halivand won a huge victory, couldn’t waive the 7-year rule. After 7 years, every individual should be given opportunity to test their value in the marketplace. Not just a labor issue. Lasted 50 years.

Today, artists are still the only exception to the PSC law. Committed to one record per year. Most artists don’t put out one record per year. [???] Had a lobbying force, and artists didn’t have anything. Tilted playing field in favor of recording industry.
Legislation submitted today by [state] Sen. Murray’s office.

Which side can present a compelling case. Adversarial system in legislature, just like in court. Most structured argument will win the day.

We have the best system on earth, despite its flaws. In a free marketplace, it is always better if the participants present a unified voice. We’re all fans in government. Reality is that Socrates and all philosophers knew that influence was fought for. Now is the time for artists to organize. “Battle is just.” “No organization on earth is more powerful at reaching the hearts and minds of the public than an army of artists.”

Questions

(1) Is there a seed of an organization?

Sure, the RAC. Website. Restructuring the board to make it more accessible. Started as high-profile artists.

(2) How do you get millions of artists to care about each other?

Need the big stars to attract people. RAC announced series of concerts. When it comes to business decisions, but artists always act self-interested. Some artists might be afraid of criticizing or irking their A&R person. Can’t berate people into activism.

(3) George Ware. Working on restoring George Clinton’s copyrights. He personally worked on a farm, sharecropping. Yet comparing this to artists’ situation, the tenant farming situation appears lucrative. Artists shouldn’t pay all costs out of their tiny share.

Artists are like indentured servants. Breakage deductions. Still taking a packaging deduction.

(4) Patricia Pollock, AFM. Radio stations performance royalty. AFM and AFTRA lobbied beginning in 1960s to create such a right, but the broadcasters won the day. DPRSR designed to benefit artists (i.e. 50% to artists).

Thank-you to the president of AFM and to AFTRA. They have helped in the seven-year statute discussion. Need more artists to be involved with their unions to work on advocacy. One issue that needs fixing is pension and health benefits. Earning enough to get health insurance was always the talk among comedians and actors. Hope for a unified way to achieve pensions and health benefits.

2:10 p.m. Panel #3 – “To Legislate or Not to Legislate.”
Moderator: Bill Holland, Billboard Magazine
Panelists: Chris Israel (deputy asst. secretary in Congress for technology policy, worked for AOL), Peter Jaczi (American University), Walter McDonough, Debra Rose (house subcommittee on IP), Manus Cooney (Napster), Ann Chaitovitz (AFTRA – Sound Recordings).

BH: Do you play an instrument, or ever played in a band?

CI, PY: No. WM: cover band. DR: french horn, 5th grade. MC: acoustic guitar. AC: No.

BH: Congress seems to believe in theory that is a triangulation that wants to give equal or nearly fair rights to creators, users, and consumers. Some law profs aren’t sure that’s the right way to go. So, PY, do you think Congress is right?

PY: Classic three-legged stool. Consumer/end-user – hateful words, “convey passivity.” One way to revise this: drop distributors (i.e. “users”). Large, well-capitalized distribution entities have had a critical role to play. So much so, that looking at history, the distributors have driven the development of c-right. Raises a question about continued significance of these distributors. Should we re-think this? Why should the distributors have such a critical role?

BH: Are lawmakers beginning to understand this?

PY: Yes, beginning is the right word. Evidence in this morning’s speeches.

DR: Environment has changed. Members of Congress are trying to understand all the interests in the music sphere. Complex area of law. Don’t know.

BH: Partisan lines?

DR: No, it definitely does not break down along party lines. Most legislation has been unanimous. New members have a different perspective. Congressman Isa [sp?] from consumer electronics field.

MC: Sure, we’re starting to see a re-thinking. Consumers are getting more involved and more active. Bipartisan. Republicans and Democrats both trying to do what is best. One problem for consumers, and independent artists, it’s difficult to seek perspectives of the range of views of what can be done by Congress.

Hard to have consensus about what Congress should do. When Congress tries to address these issues, sometimes they address yesterday’s technology issue.
[cont’d] Sitting watching panel last year. Potter and Moglen. Potter encouraged artists to organize and seek consensus, engaging political process in a real way. Moglen, technology will have the final say. Crowd gravitated toward Moglen. Lots of frustration. Revolutionary side is drawn to the anarchists, but in the end, those who fail to engage the political process and the legal process do so at their own peril. What would the consumers be fighting for?

BH: Compulsory license angle. There aren’t many compulsories. Usually you negotiate a contract.

AC: Compulsories are frowned upon internationally, and tend to devalue music. We have a few compulsories here. Often, artists do better with the compulsory license than with their record company. Money gets split.

H: AFTRA’s position?

AC: Fact specific. Would depend on the specifics. Generally compulsories harm them. Lots of income streams. AFTRA’s job to make sure that artists share in all income streams.

WM: Policy goals of FMC. (1) direct payment of royalties (2) Radio, (3) competition for SoundExchange, (4) compulsories for back catalog. Jawbreaker $200 on Ebay. Opportunity to license back catalog. IBM has won big licensing their patents. How could compulsories for back catalog hurt? Could get this done if we focus on it as a goal, as Sen. Murray described.

BH: Conyers will be here tomorrow. Expected to announce an artist-oriented bill. Have FMC and AFTRA been talking to Conyers?

WM: Ask Michael Bracy. [MB: yes.]

AC: Yes.

BH: Talk about whatever you want, Chris.

CI: Spring, perhaps a markup on MOCA…[Debra Rose: NO.] Trying to understand the new dynamic. Challenge for government: stay on top of that. Consumers’ reactions. No reason to think that the internet won’t have a beneficial impact. Often, however, there have been disruptions, which have played out in the market or with compulsory licenses.

BH: How long did drafters work on the 1976 revision?

PY: Started in 1962, worked for 13 or 14 years.

BH: When might we expect profound changes in the copyright law?

PY: The legislative model employed in the 1960’s and the 1970’s is probably not a model we can use now. Stakes are so much higher than was perceived in the 60s and 70s. Deliberation, proposal, counter-proposal, etc. Should there be an Office of Technology Assessment again? Recent developments have mobilized consumers around IP policy…yet “it’s not clear how coherent that expression of consumer sentiment is going to be.” “I’m not even sure it’s going ot be possible for those groups to remain consistently engaged.” It’s critically important that they do. One of my great regrets, looking back to DMCA, is that mainstream consumer organizations haven’t perceived this as important enough. So that means some other voice, some other institutional voice is called for.

WM: If the day comes when someone tries to copy a Wu-Tang record, and it can’t copy it because it’s copy protection – suddenly CNN and FOX will have stories, then there’d be action. Personally sees music librarians worried about losing jobs.

BH: Doesn’t think Congress is going to look kindly on a consumer movement.

WM: For past 20 years, people have been able to make copies of records. Copy protection would be very unpopular.

DR: Answering e-mails that Harold Kobol got about Napster. 300-400 from 14 year olds. “Record company makes too much money as it is.” Wasn’t overwhelming. I want to have free stuff, and you’re taking away my ability to get free stuff. Another issue, when people can’t get the Fox channel. They call, they know how to get in touch. Napster created a lot of buzz, but it didn’t have sustained power.

MC: Marketplace built around internet and PC. Many users felt e-mail is just as valid. Many offices said that over 1/3 was about Napster. There is something to be said, when the perception is that it ought to be about getting something for nothing, clearly something must be done differently. Needs to be specifically worded policy action stuff.

BH: A couple of sentences on whether there will be legislation and whether it will pass.

CI: Conyers will examine them carefully.

PY: Lots of bills introduced, but not the year of passage. Multi-year passage. Form of consumer organization and musicians’ organization is very important, for that reason.

WM: Different place than 5 months ago. De-emphasized. SSSCA won’t pass – bill about devices put into PCs to actually control software. Controlling device that plays the music. Change the law over 10 years. Place to start = DMCA.

DR: Chairman Kobol sees no need for a DMCA overhaul. Recent litigation seems to bolster his opinion. Chairs are open to different issues. Actual problems, people knocking on the door. Copyright office report: little evidence of actual harm to consumers. Chairman Sensenbrenner is open.

WM: Fairness in Music Licensing Act repealed?

DR: Kobol has had hearings on recent report of copyright office. Good discussion of difficult issues; members getting educated. Continue including Boucher, Cannon, and others in discussion. Issues included in MOCA?

MC: Important to bear in mind that the judiciary committees are the principal committees on copyright. Also terrorism, DOJ, free speech, etc. Low priority. Year for experimentation in Congress, since experimentation wasn’t vigorous. A year ago, RIAA said there’d be experimentation. Technology is clearly there.
Broadband infrastructure will be a core issue. Growing view of executives and Wall Street is to invest in broadband. Fire hydrant is one thing, but its another to assume that the public is willing to pay for access plus content is another. Consumer demand.

Questions.

(1) Enforcement of copyright a problem?

WM: Suge Knight enforces his copyrights effectively. It’s possible to do it.

PY: Whenever one puts law in conflict with practices of people not accompanied by guilt, the law will be discredited, with or without enforcement. Recent Copyright Office report about how there’s no need for a digital first sale rule. Yet people engage in first sale behavior. Disturbed by law that’s at odds.

(2) What about copyright’s importance in BOP?

AC: No legitimate alternatives exist. Most people don’t steal cable. When alternatives are provided, people will pay for it.

CI: Globally, copyright is a huge part of the domestic marketplace. Government needs to protect U.S. copyright abroad. Certainly a big piece of. 301 process. [?] Macroeconomic sense, government recognizes potential impact of unleashing digital universe in a way that’s efficient is a missing piece of the broadband equation.

(3) Terri Cox. Songwriter’s perspective. Compulsories?

WM: Tremendously articulate opponent of compulsories, guy from CRRA. Every few years, the rate for the song goes up. Without compulsories, it would be difficult for people to cover songs. Controlled composition clause is what gets in the way. Do artists get paid enough? No. But that’s the balance struck.

MC: Broadcasters would have kept us at 3 channels on television. Congress promoted cable industry. Over time, it’s better to be a screenwriter today than 20 years ago, because there are more channels. More television content available to consumers. Compulsory license would grow the pie. People who aren’t getting anything now would be made better off.

AC: Songwriters share 50-50 because it’s in ASCAP and BMI’s rules. Different.

WM: Songwriter is paid from record one on mechanicals. Songwriters retain the copyright.

3:10 p.m. Konrad Hilbers, CEO, Napster.

[Michael Bracy intro. Leadership at AOL Europe, BMG. 6 months at Napster.]

Testifies to importance of FMC’s mission and ability to execute it. FMC and Napster committed to same thing (perhaps): access for consumers to music in a thriving music industry. May differ about business models, but both support more artists quitting their day jobs.

Home page, FMC declares its goal to identify and promote innovative business models. Napster faces challenges, though. Worked hard to get experiment out. Technology there, but aligning the interests of consumers, artists, and distributors. These parties must recognize that the consumer will ultimately decide the structure.

Key issues: systems that allow immediate access while compensating creators. Largely accomplished in 2001. Also, government must establish a competitive environment.

At its peak, 60 million Napster users. 42% over 25. Increased CD spending. Nearly 60% used Napster to try out CDs. All shared a passion for music.
Major labels have launched their own digital offerings. Good news. There are no longer significant DRM issues. Internet is a legitimate distribution channel. Questions about whether it’s a unique channel or a parallel channel. Majors seem to view internet as limited. Napster frowns upon this. Still seeking major-label content. Next step is to reach a content agreement that will give consumers a reason to download. An inability to bring the Dave Matthews Band will also hinder Napster in offering independent artists.

Napster users don’t expect things for free. Vast majority is willing to pay. Creating a system in which rights holders – majors or individuals – are comfortable. Self-registration. Open market like Napster is best for creators, and in turn for consumers. Still confident. Will not stop efforts until it’s consumer friendly, in content and in price.

Consumers want what’s available at Tower, 24-7, and they want it now. Want to be able to talk about music. Want to customize their playlist. How to deliver this? Need to make the internet available.

Hesitant to bring government in, but believes government must step in to facilitate licensing. May have to consider compulsory license for sound recordings.
Perhaps even for file sharing. But “don’t get me wrong – I am very close to signing agreements with majors and I hope we’ll get it done.” Time is of the essence. Senate hearings upcoming. Should consider standards for licensing if they’ll consider DRM. Likes the Cannon-Boucher bill.

Reading book on Teddy Roosevelt, who felt government should exert control over corporations they created through anti-trust. Not only are corporations, but copyrights, creations of the government.

Napster is working to build a new world of promise that will liberate artists. Songwriters can distribute work around the world. Labels can find talent.

Questions:

(1) Phil Corwin. Distribution through P to P versus central server?

Cost advantage for peer to peer.

(2) Elizabeth Elmore: no plans to pay artists. Cut indie artists in now?

Peer to peer architecture will be part of the new service. Can offer music for payment or for free. Can elect to protect the music, to be paid quarterly by Napster. [What about music Napster has already traded?] Certainly, the course of the litigation has changed the philosophy of the company. Can’t speak to former intentions. Talking about finishing the litigation with the publishers, hoping for settlement before launch.

3:35 p.m. Panel #4: Competitive Licenses.
Moderator: Ric Dube.
Panelists: Ron Gertz (Music Reports), Rob Reid, Richard Conlon (BMI), David Carson (Copyright Office), Charles Sanders (NMPA, HFA), Chris Amenita (ASCAP), John Simson (SE, RIAA).

RG: Competing with SE with a company called Royalty Logic.

RR: Every major symphony recorded in Europe is available on Listen, though that will change soon.

RD: Commercial business – what do you do?

RR: Go to the five major labels. Several dozen independent labels. Publishing side. Easiest to go to NMPA – doesn’t cover everything. In theory, should be quick. In reality, the process has been ongoing for a year.

RD: Why so slow?

RR: Many different entities. Skittish. Natural reluctance to move too quickly. Five major labels own the 2 digital services, MusicNet and Pressplay. Might lead to their reluctance, given that they want to support the companies they own. No major label content.

RD: Is there a problem with the system, or is it just slow?

RR: To define system on a macro level, it has allowed technology to exist for five years without delivering to consumers. “We have a horrible market failure.” 150 million songs traded with no money changing hands.

DC: System takes time to catch up with reality, especially the legal system.

CS: Go forward with negotiations as quickly as possible. If private sector can’t come up with a solution, then we’ll ask for a CARP, and that process will run its course. Internet moves at same speed as everything else.

RD: Difference in the way RIAA sees the potential?

JS: SoundExchange, rate set with satellite subscription services. Not involved with the music downloads.

CS: There is a rate set for downloads. Equal to the physical rate. No problem whatsoever.

JS: CARP proceeding set rates for the satellite services, which is 6.5% of their revenues. No rate set for webcasting. Rate set by end of January or February.

RD: Why is your service better, Ron Gertz?

RG: There should be competition. Look at ASCAP, BMI, and SESAC. Didn’t get paid when music was on television. Figured out why. Trying to get money from users to artists as quickly as possible. No one can say what the marketplace is really going to ask for.

RD: [To Richard Conlon and Chris Amenita.] What can you tell RG and JS?

CA: Acquire a database. Sometimes a court proceeding is good way to acquire one. ASCAP has been dealing in the analogue world, ink and crayon. Cost of operation has reflected that. Believes technology will reduce operation costs.

RC: Validating radio playlists was difficult. Built out a digital infrastructure. Key to increasing speed.

JS: Because of the technology, they can take a census of every single performance. Can see exactly what got played. Committed to census. Allows for future of micropayments. SE has to find people. Amazing investigative job. Very fascinating. System keeps getting smarter. Up to 92% matching. System improves itself. Census data is important. Sampling requires processing. Only $1 million collected.

RR: What will ASCAP be doing?

CA: Goal is to distribute as much as possible.

RD: Apprehension about the SE collective. (1) Recoupment. (2) Fees fair. (3) No choice. Broken up the board. 50% control for artists. Artists paid directly. Significance of this agreement? Mystery more than suspicion?

JS: Significant that we’re controlled 50-50%. RAC, FMC, etc. Separately incorporated. Major issues people had are gone. Spun us in the right way.
[Jenny Toomey: We want public discussion, Walter will watch what happens as member of the SE board.]

Questions

(1) Dan Krimm. DMCA law. Isn’t it still possible to opt out of SE, bypassing the splits?

JS: By the agreement, 5 major labels agreed to pay directly. Prior members have to honor this. Majors will not join another collective.

(2) Dave Allen, Gang of Four. Collecting royalties. Feel in the dark about who would be collecting them and who would be distributing them. Who do we have to sign up to? Never received a check from ASCAP, also member of PRS in Europe. Question for Rob Reid – could you encode those tracks? Could you pay for it?

RR: No one knows the answer yet. Is people taking things for free actually indicative of consumer demand? Personally feels people will pay. Better than free? Something with really good navigation, something fast, something reliable, more sophisticated software. Put things in front of consumers that are clearly worth 1/5 of cable bill. Critical: need access to content that’s comprehensive. Portability is essential, but no one’s allowed to do this now. We’re offering something worse than what’s free. Need to work with rights holders to offer accessibility and portability.

RC: Consent decree. Don’t have ability to withhold rights. Major players refuse to deal. There’s a check and balance for BMI. Challenge to figure out how to get a good performing, mechanical, and label deal.

RG: Back up a step. Who likes getting royalties? How many people hate compulsory licenses? Cogent comment came from Marybeth. Compulsory licenses arise when markets don’t function. Yet most of money artists get come from such licenses. Royalties determined through negotiation. Can go to judicial forum to determine what’s reasonable. With all the statutory and compulsory licenses, the copyright owners have the ability to opt out. If they can make a better deal, they can make it. Systems aren’t as unfair as they were painted. Key becomes finding a fair way to distribute the money.

CS: Two keys. What you’re describing can’t function without anti-piracy work. If you’re competing against zero.

RG: That’s a different problem. My clients are not pirates, but they’ve spent 10 years litgating with ASCAP, BMI, and other companies to determine how big of a check to right. I love statutory licenses because this market is screwed up. Look at radio. Music publishers give up the right to say no. Music goes everywhere, yet everyone makes a lot of money. Clients pay hundreds of millions of dollars for that music.

DC: Not a compulsory license. May be in effect. Copyright owner can say no.
Doesn’t happen too often.

RG: Absolutely correct, but in effect it is compulsory for members of ASCAP and BMI.

CA: That aspect of the license works like this. We offer licenses to user groups. User groups can apply for a license in writing. Once that letter arrives, they’re technically licensed. Then parties discuss rate. If they can’t agree, go to judicial remedy. Something akin to a compulsory license, in practice, though, it’s not. It’s circumvented all the time. User groups want compulsory licenses like this: put pennies in a pot, and then the various artists, songwriters, etc. can fight over it. Fair market practices and principles.

RG: There is an industry-wide negotiation. If parties can’t agree, there’s a judicial determination.

(3) Phil Lehman. Just to deliver music online, do you have to pay the 7.55 cents 40 or 50 times, when considering ephemeral and buffer copies. Also, RR, what about symphony performers?

CS: New rate is 8 cents per copy downloaded.

RR: Listen streams music. We basically are streamers, so we’re independent of that particular discussion. Regarding symphonies, have to deal with the owners of the sound recordings, though not the composers. Dealt with Naxus [sp?], company in Nashville that swooped in after the Berlin wall fell to collect Eastern European orchestras’ work.

CS: 20th century classical compositions are protected by copyright.

(4) Jon Pareles, NYT. Statement: what Marybeth Peters said is that compulsories are a failure in the marketplace. Question: what’s kept you from getting licenses for listen, RR?

RR: Slow process because there are lots of parties. Many of the most important parties are large owners. Could turn online music into a duopoly. Hard to deal with an oligopolistic industry. Judicial scrutiny has inspired much of the activity.

(5) Ben Morgan. Concern about SE, wrote article. Most people aren’t aware. People are still not informed, and even the curious are still confused.

RG: A lot of the word will filter down when a rate is set.

JS: Been to all the conferences trying to speak. Various newsletters. Align with artist groups to get the word out. Under the current statute, can only pay the company (not the artist) if company isn’t part of SE.

RG: Convince company to join Royalty Logic.

(6) Duff Berschback. PRO question. Where are your organization in terms of speed of payment and accuracy? When will it be 3 months? Have either of your organizations considered investing in users to enable faster payment?

RC: We’ve built the digital infrastructure that takes a lot of onus off the website so that data can be transmitted instantaneously. Internet market has contracted amazingly. 10-20 major players have all the money. 1000s of others paying $250 a pop. Less than micropayments. Next component is dividing up the funds into appropriate pools.

CA: Analog business ($650 million) and internet business (not much). Will be able to turn around the digital money more quickly. Key thing in the equation: payment. On-time payment is difficult.

RG: Users have incentive to speed up payments. Court decisions allow users to pay societies on a different royalty structure. 2 weeks ago decision affecting BMI. If you’ll pay me in advance, we’ll offer a direct license. More ways to get money.

CS: On the other hand, the path to Congress and judiciary’s door has been worn to the floor by people who don’t want to pay at all.

RG: My clients pay the bulk of the money.

CS: People who want to pay are the exception. Think about restaurants.

CA: Ron takes advantage of choice. Penny today or a dollar tomorrow.

RG: What about $1 today? What about $1.20?

4:40 p.m. Panel #5. “Roadblocks to Copying.”
Moderator: Brian Zisk.
Panelists: Ted Cohen (EMI), Edward Felten (visiting at Stanford; Princeton), Robin Gross (EFF), Ted Tanner, Jr. (Microsoft), John Baker IV (Loudeye), Jim Burger.

BZ: Topic: issues in preventing copying. Getting more money flowing through. Want to put content on the net – what’s the state of the art?

JBaker: Fingerprinting. Project with Napster to add fingerprinting to their filtering system. Lots of interst in DRM and wrapping technology. Tracking music that’s out there now, and potentially filtering.

TT: Confusion on market – watermarking or signal monitoring is only good for persistent tracking. None of these are actually copy prevention mechanism. They’re copyright protection. Variations.

BZ: What are the relative advantages?

TC: All of them offer varying levels of protection and varying levels of compatibility and convenience.

BZ: You did a video interview on CNet on this topic. Don’t have it publicly available. Have to buy MusicNet.

TC: Has to be a good consumer experience. Great compatibility. Protected files have to sound as good. Get to the music quickly – music, not technology.

BZ: Tradeoff?

EF: Harsh tradeoff. Combines worst of past with worst of the future. Copy protection deployed. More jarring experience than we’d like. Doesn’t protect material for copying. No roadblocks, just speed bumps. Small part of a larger strategy. Pessimistic about ability of technology to tell difference between infringement and fair use.

JBurger: Mid-‘80s. Computer industry tried to protect stuff from copying. (1) Smart people can hack it. (2) Pissed off their customers. Tendency has been for protection to fail on this front. Music industry needs to figure out “how to deal with the consumers.” Consumer yawned when Napster was gone. 18,000 downloads of Music Net compared to 1,500,000 for Morpheus and 1,000,000 for Kazaa.

TT: Digital persona, not the bits. “Value add is in direct-targeted.” Mechanism in protecting digital persona is in asset management and rights management.

BZ: Robin, you have a record company. Release everything with an open license. Commercial success? What if your husband put a gate on it? Why might Boucher think it’s illegal to copy protect?

RG: I don’t think that’s the solution for independent musicians. Copyright doesn’t give total control to creators. Narrow rights. People get certain rights as part of the bargain. Fair use, first sale, public domain. Fair use, by definition, is unauthorized copying. Record labels, therefore, can’t decide. Distinguish between copyright law and copyright protection. Lots of these copy protection schemes collect revenue for royalties in AHRA; it’s like double-dipping.

JBurger: Makes money when copyright law expands. AHRA (1992) says the actual royalties come from blank media and consumer electronics devices. Those discs cannot be encoded to inhibit that first generation copy. FTC issue: fair and deceptive practice issue about notifying consumers.

BZ: Ted, how do you feel – copy-protected CDs generating AHRA money too?

TC: Want to know the definition of fair use.

RG: Doesn’t have a bright-line definition, as the Supreme Court has intended.

TC: What’s personal use?

RG: Space-shifting to hear music in a car. Mix tapes. Lawful personal uses.

JBaker: Discussion illustrates why there’s so little investment in legal distribution of music. Inherently consumer hostile to comply with laws. To get people to invest again: must do something about competing with free, not sure how to do that. May be a way to restrict distribution of files while allowing people to use files in an untethered way lawfully.

BZ: How many people feel people will have access to music, like it or not?

JBurger: That’s a “have you stopped beating your wife?” sort of question. Answer it this way. Mark Cuban going in that direction. Radio is free, TV is free in theory (though people now pay for cable TV). Distribute it in ways to make people want to pay for the experience because it’s better than free. Offer something that people can’t get for free. Would pay a service to deliver not just music that I know I like, but music I don’t know I like.

JBaker: Huge risk. Won’t get the service.

JBurger: Then we’ll be here 20 years later having the same conversation.

JBaker: Won’t eliminate piracy. Find a way to restrict online sharing to a manageable number. Needs a way to filter free.

EF: Not feasible. Not any way to get any kind of strong protection against illegal copying without severely curtailing use. Don’t see any way.

JBaker: Not strictly technological solution, though.

TC: Offer an experience to those who want to do things lawfully. Crippling experiences are bad for everybody. Will trade compatibility for copy protection. Don’t agree that the genie’s out of the bottle. Went to launch Windows XP. That particular copy was licensed to someone else.

EF: Classic example of negative tradeoff. You will have to pay again, being honest. Technology doesn’t inhibit people motivated to steal. Worst balance point.

TC: Forced to pay for my car. Can’t let music be some other category.

JBurger: Locked-in single commodity. Need to get to the value proposition. Can be alongside free. “Diamonds are a Girl’s Best Friend” example – driving to Tower versus Napster.

TC: Suspicious that Pressplay hired a programming director. Mission was a better experience. New artist’s fear of being pirated is dwarfed by fear of not being heard. So hung up on first week’s numbers. Ways through these services to get back to artist development. Get back to “breaking artists.” Fingerprinting enhances experience.

RG: Free music isn’t just about price. Like free speech, not like free beer.

TC: When CDs came out, what’s your feeling about ripping them off? Traffic on services about the benefit concerts. Was there a tip jar?

JBurger: Offensive question. All ripping off of copyright owners is wrong. Labels are responsible. Bertelsmann saw opportunity to take 60 million Napster users and make them customers. It’s wrong no matter who it is. Find a way to get the artist compensated.

TT: People pay for content of cable TV. Don’t give up the boat. Close to bigger problem – online identity. Cell phone number will be very important. Asset management tracking and rights management tracking. Meta data more important than the bits.

Question

(1) Movies and DVD protection, or CDs?

JBurger: Keep people honest system. Norwegian kid. Designed to spark robust sales of DVDs. Protected digital movies work, for now, because of bandwith constraints.

(2) Bill Rosenblatt, author of book on DRM. Standards? We know what happened with SDMI. Microsoft bundling copy protection into OS. Should there be standards?

JBaker: Any kind of tethering will have to be very standardized. Somewhat pessimistic that it could actually occur.

TT: How do you define DRM?

[Define it as managing a set of rights. More than just encryption or watermarking. Ranges from internal databases to the end user technologies. MPEG-21 considering proposals]

EF: Doesn’t make much difference. These standardization processes are similar to those in the computer industry. Technological barrier to DRM are high.

TC: Would have to work with lots of things.

(3) Craig, writer for the Tennesseean. SunCom’s technology. Copy protection. Limited to one bulletin board. Bought a new Lincoln SUV with CD-ROM technology and it wouldn’t play. Said to them: “fix this.” Reaction?

EF: If you’re talking about a CD protection mechanism designed to work with standard players, those technologies function by being incompatible. Won’t work with a certain category of players. That story reflects the designed result coming to fruition. Can’t get around this result.

TC: Early problem with enhanced CDs. One major label stopped saying the CDs were enhanced. Cramped the whole idea.

JBurger: Would like to know how many CDs were sold, and whether you could find it on Kazaa or Morpheus.

(4) Drew Clark, Nashville Technology & Data [?]. Benefit to consumers of DRM? Benefits from new business models?

RG: Fine line between stalking and really good customer service. Want to be offered products you’re interested in.

BZ: New Line Cinema has copy protection. Can’t view without violating § 1201.

Lester Chambers performance.

5:55 p.m. Panel #6: Major Label Panel.
Moderator: Eric Boehlert.
Panelists: Miles Copeland, Danny Goldberg, Hilary Rosen, Tom Silverman, Ted Cohen.

EB: Talk about the model, and does the model work. Not just the online model. 2001 not a great year by any stretch in terms of the business. Start with Hilary. News item: Boucher sending letter to RIAA about copy-protected CDs running afoul of AHRA?

HR: Not a copyright lawyer, and neither is Boucher. Lawyers tell her the answer is no. Bigger question: should people have the right to experiment with how to protect their product? First one was Charlie Pride on an independent label. What companies are going to go through, as technologies are protected (4 or 5 options exist), will be balancing ease of use and protecting their interests. Jury is way out on commercial viability. People clearly have the right.

EB: Come under a lot of attack in the last 18 months. Does the model work reasonably well, and what would you admit are the shortcomings?

HR: “Not enough hits. [silence] No one even chuckled…tough crowd.” Lots of radio consolidation. Weak state of retail. Have to look at impact of CD burning and online access. No one thing responsible for the dramatic slowdown in music sales. In terms of controllable issue, the industry needs to open up a little more. More direct advertising to consumers is needed. Broader recognition about – piracy bad word b/c it blurs distinction between commercial policy and home use – recognizing that’s an issue. Need to draw people back into the marketplace. Record companies are changing, have to change, but there needs to be a greater perspective.

TS: The mood sucks. Almost no record companies made money last year. Not going to get better this year. Everyone is trying to cut costs, but variable marketing costs are out of control. Tests to determine if record is really a hit. Less than 50 records that sold over a million. That’s basically all the majors can afford to be interested in. Average for other labels: 2,000 units. (24,000 releases.) Many records never got a fair test. Posthumous record, someone played Eva Cassidy and it’s a hit, many copies, no marketing costs. Put together a profitability chart. [SEE HANDOUT.] Independent label paying 20% distro fee, making $2-$3 unit, if you haven’t exceeded $2.50 per unit on marketing. No tour support; perhaps enough to get into Tower or Virgin. Only time you have profit is when you hit a home run. Radical reconstruction of industry needed. But there is hope. What can be done to revolutionize? There’s got to be a way, because people are going to want music. Despite consolidation of radio, touring, retail.

EB: 34,000 titles with 100 that sold a million.

MC: Music is so available and so free, we’re watching the march of free. Nobody can compete with free. If I can’t, nobody can. We have to rethink our business. May not be the record business. Huge battle for protecting IP. At the same time, big artists at RAC, are attacking the record labels – and I support an artist coalition – but to attack the business at the time we’re facing ultimate challenges. It’s like arguing about price of ticket while sitting on the Titanic. New artists say that fighting the battle is great. Big artists are just looking for more money for big artists. Courtney Love said: too money artists, why should rich artists pay for the new artists. Is she going to judge who’s an artist and who’s not? What will happen if artists can walk after 7 years, after 3 albums? 30/40/50 percent of income will have to be devoted to keeping artists. If we don’t have the leverage, we pay no more. Will suck out substantial funding to sign new artists. If the rich artists manage to reduce taxes, the little guys will get screwed. None of the indies can compete. How will we deal with this horrendous issue? More and more of us are paid to think. “Who’s going to invent the next disease for the next cure?” As a major-distrubuted independent, I love the challenge of breaking and making things happen for new artists. Now it’s too small a pie. All the risk, but just a sliver. Once the artist is broken, the manager can cash in. In a new model, where you only get 3 or 4 albums, the labels will have to do everything.

EB: What do you offer?

DG: Biggest rock group, Creed, is on a label smaller than Artemis. No bidding wars. Majors ignore movements in culture. No clarity about the next wave of culture. Not as sour on the current state of things – had an OK 2001. (Great 2000.) Kept things going for their artists. There’s a warp and a woof to the industry – copyright, marketing costs, and the other side is the musicians, the artists. It’s not rational to say 34,000 albums were “released.” There were 1000 records that were really promoted. Each major will put out 50 or 60. We put out 20. Year wasn’t so bad. –2.8% after years of growth. Majors need to create double-digit growth to stay in good graces with their corporate bosses. Each quarter over quarter. Independents tend to develop artists – not because they’re morally better, there are some scumbags – but because the agenda of an indie is to build an asset over a number of years. There’s a lot of energy going into the new model, I’ll try to emulate. 1000’s of artists want a public, but only a fraction will actually have a public.

EB: Is there hope on the horizon?

TC: New media – where is it going? Walked away from majors for a while. Came back to a real hesitancy to develop artists. It upsets me, the goal that’s put on the first week’s numbers. If it charts at number 2, and doesn’t go to one, it’s lost its bullet. New media can be the best artist development tour ever, short of touring. While it hasn’t been a great year, Coldplay broke over internet exposure.
Radiohead did well. Gorillaz did well, was a real surprise. Glimmer of hope, that if we find a way to compete with free, the net will mitigate. Airplay is expensive, but the net – whether it’s webcasting or XM – really allows for more exposure. It’s not about control, or harnessing the technologies, it’s about exposure and about using the technologies. Not easy. It is expensive. Partnership between artist and label. Need to get back to that. Lots of people at labels love music, and lots are concerned about finances. People care a lot about what they do. No label has ever signed a band to watch them squirm and fail. There’s someone who believed in that artist. Have to look at this in a less adversarial.

DG: We beg radio stations to play music. Support the idea that IP is important, the back end.

MC: If we’re not selling CDs, we don’t want radio to be free. If record stores going broke, then can’t give stuff away.

DG: It’s important not to let lawyers run the music business. Like a team of goalies. Where we got played, we had sales. Wanted to turn people on to artists. Yet we’ve sold 620,000 copies. Something about the song made people want to buy it. Mysterious force that keeps all this going. Finding big hits is just as valid an approach.

MC: Can’t assume the tenets of the business will be there. It’s happening before our eyes. Argument isn’t about today. Napster had a value short term. What does it lead to? Hitler analogy.

DG: Object of use of Hitler in this context.

EB: Free radio – how free is radio, what’s the price of it? And of getting in record stores?

TS: Real life example: #11 rap single. #1 on charts for 4 weeks, which is as long as any single. 20,000 albums. Cost us $1.2 million. That’s about $11 per unit. Between urban and crossover, cost about 350-500,000 per record to do it on the cheap. Albums that don’t go top five need to be supported. 100 listening stations now. Getting huge prices at the retailers. Used to spend $.50 a unit. Now spending $1.50 to $2.50 per unit, just at retail. Returns are up, too. As soon as a CD stops turning. Seeing 20-25% returns, not 15%. Records that don’t work are costing much more than before. Ones that work have to pay for the ones that don’t. One hit out of ten used to be great. Now, they’re not paying for the stiffs.

HR: Constantly slapped back with: we have no sympathy, b/c you have a bad track record. Looking at other consumer products industries, 5-6, 8-9% isn’t such a bad success/failure ratio. Shouldn’t be so much cynicism about the success rate.

TC: A lot of pressure to continually sign new acts.

MC: For a while, you think you have a gift, but that goes away. [Everyone nods.]

Questions

(1) Peter Jenner. First of all, I found a lot of this discussion about marketing, not music. That’s a problem. A reference to chunky peanut butter. An interesting thought might be not shooting for the mass market.

TC: That’s got to involve a re-education. Going back to the time…

MC: We sign them because we like the music. How much money do I get?
What’s the marketing plan? If I didn’t have to think about marketing, I wouldn’t. We have to use marketing as a tool. If they don’t know it exists, it won’t sell.

HR: Raises a good point, that there are huge opportunities for selling artists at the 10, 25, 50,000 copy level. Everyone hoped the internet could do that. “Two statistics stick out: (1) people love music, and (2) when asked why they don’t buy music, it’s because they don’t know what to buy.” The overhead and “the system they’ve built up is limited” in terms of how the majors can handle sales of 10, 25, 50,000 units.

DG: Internet was oversold. It will be a great way to sell to niche markets. Many of the internet companies were more cynical than the record companies in terms of huge growth fast. Misleading. It will happen eventually, perhaps 3-5 years down the line.

(2) Walter McDonough. Dispute on SE, over the last 6 months we reached a resolution. Wouldn’t it be better to work together on issues we agree on?

HR: Yes.

MC: That’s my argument with the RAC. There are so many things to work together on. Five distributors went broke. Where’s the fat cat record industry? All the old heavies are gone. “Is this some sort of disconnect? Don’t people read?” A lot of onus should fall on artists and their lawyers for the contract issues. If record labels are fighting for survival.

(3) Jay Rosenthal. RAC and other artist groups are not interested in prolonged conflict. It’s because of a dysfunctional record industry. Work for hire is not a minor issue. Trying to partner with labels. Record industry has a bad year, while movie industry has a good year. Movie industry said the same things 50 years ago about the seven year rule. Just saying, if you look at the artist as a partner. Don’t look at the artist as an employee. 90% failure rate…and the labels are getting screwed?

TC: Why don’t we partner across all revenue streams?

MC: “Movie company isn’t asked to take Schwarzenegger from zero; they pay him what he’s worth.” If I have to spend all the money, then I have to get a cut. I would be taking a safer bet if he participated in the other revenue streams. Because things happen, the manager’s an idiot, things that go wrong, and I bear all the risk. It’s also the case, at least 50 times, the act wouldn’t live up to an agreement.

HR: Any time, any day, any place – a number of record executives are willing to sit down and talk about areas of agreement.

(4) Focus on something else: Haven’t heard what you’re doing to combat piracy?

MC: Sent two investigators. What are you doing? Gave them list of bootleggers. To make this a crime worth going after, need to have 1000 CDs. Back room, 10-20 CD burners. Never have 1000 CDs of inventory. No one will pursue them. Incredibly difficult problem.

TC: Need more support from artists against it. Few artists will come forward. Major artists turned their head the other way.

HR: Online issue is interesting. We feel pretty comfortable about legal precedents, despite the pending suits. Lawsuits aren’t appealing because they’re slow. We’ve tried to broaden the incentive. We’ve been carrying the burden by ourselves. I love Metallica and Dr. Dre because they stood up. Songwriter groups, publisher groups, and benefitting tech companies haven’t done anything to step up in that way. Give them an incentive to start educating their users. Ideas about broadening alliance. Damned if you do, damned if you don’t. Half the people have strong opinions about going after individual consumers. In a decentralized world, that is more difficult, but the will just has to be broader.

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