FMC Sends Letter to Senate Judiciary Committee on the INDUCE Act

United States Senate
Committee on the Judiciary
224 Dirksen Senate Office Building
Washington, DC 20510

August 4, 2004

Dear Chairman Hatch and committee members:

The Future of Music Coalition would like to thank the chairman and this committee for their interest and concern about the state of the music industry. FMC is a Washington, DC-based nonprofit that works on the critical issues at the intersection of music, law, technology, and policy. Clearly, the music community is experiencing a seismic shift in the sale and enjoyment of music, as more and more people are able to copy and transfer music from one digital storage medium to another. This transformation has led to the creation of new ways for musicians to promote, distribute, and be compensated for their work. It has also allowed for music to be traded on peer-to-peer file-sharing networks, where artists and record labels are currently not compensated.

FMC appreciates this committee’s willingness to address the issue of peer-to-peer file-sharing. However, we are concerned that S. 2560, the “Inducing Infringement of Copyrights Act of 2004” (INDUCE Act) is premature and, arguably, irresponsible [Read an analysis of the INDUCE Act]. This piece of legislation is designed to target and provide legal remedies to punish entities and companies that willfully “induce” consumers and music fans to illegally download music, but if passed, it may have unintended and negative consequences beyond the stated goals.

FMC’s fundamental goal is to ensure that artists and musicians are properly and fairly compensated in the digital future. While we remain concerned about the long-term effects of P2P file-sharing on artists’ compensation via traditional CD sales, we also believe it is important to acknowledge the power of P2P networks as a promotional tool and distribution model. As a result, FMC favors a solution that emphasizes the efficient licensing of content and the creation of a transparent, artist-controlled, equitable payment system to ensure that creators, performers, and copyright owners are properly paid for the distribution and enjoyment of their works.

Below, FMC raises three points for the committee’s consideration in relation to this bill:

1. Creators are Stakeholders

It is of great concern to FMC that the RIAA claimed to represent all artists and record labels, as was implied during Mr. Bainwol’s opening remarks at the July 22 hearing. FMC would remind this committee that the music industry extends far beyond that which is represented by the RIAA and its member labels. There are many thousands of musicians who record, release music, and perform shows that are not part of the major label system. Many of these artists have different levels of concern about the effect of P2P file-sharing on their careers and livelihoods.

The music labels and the technology companies should not be the prevailing voices in establishing the rules that determine the parameters of how music can be distributed in the future. It is critical that policymakers ensure that artists, creators, and citizens have a full voice in all upcoming policy deliberations. It would be a great injustice to allow the same actors who have created imbalanced models in our analog present to simply replicate their dominance in our digital future.

2. The INDUCE Act assumes that all copyright owners do not want their works to be shared on a P2P network.

Under the INDUCE Act, it is the facilitation of the act of copyright infringement that is the target of legislation, irrespective of the kind of material being shared. This does not take into account the evidence that some musicians and copyright owners encourage consumers and fans to upload, share, or download their songs on peer-to-peer networks; in fact, FMC has discovered that many musicians and songwriters think file-sharing has improved their careers instead of hindered them.

In Spring 2004, the FMC worked in partnership with the Pew Internet & American Life Project and other musician-based organizations to collect opinions from musicians, performers, and songwriters about the Internet, file-sharing, and copyright issues in a balanced survey.

The preliminary results of the online survey -- completed by 2,755 musicians and songwriters – shows that musicians are sharply divided about the impact of file-sharing.

1. A. Some 35% of this sample agreed with the statement that file-sharing services are not bad for artists because they help promote and distribute an artist’s work; 23% agreed with the statement that file-sharing services are bad for artists because they allow people to copy an artist’s work without permission or payment. And 35% of those surveyed agreed with both statements.
   
2. When asked what impact free downloading on the Internet has had on their careers as musicians, 35% said free downloading has helped, 37% said it has not really made a difference, and 8% said it has both helped and hurt their career. Only 5% said free downloading has exclusively hurt their career and 15% of the respondents said they don’t know.
   
3. Asked whether online music file-sharing has made it harder to protect their music from piracy, 16% said the Internet had a big effect in allowing piracy of their music, 21% said it had a small effect, and 41% said it had no effect.[1]

This online survey indicates that there is no clear consensus regarding the negative or positive impact of online file-sharing for artists. While some artists think file-sharing is bad or has hurt their careers, others see file-sharing as a new promotional tool that helps to boost recognition, record sales, and attendance at concerts.

Unsigned bands are not the only group of artists who experiment with releasing music on P2P networks. Recently, Grammy-award winning musician and songwriter Steve Winwood released new material on P2P services Limewire, eDonkey, and RazorPop with the intent of promoting his latest release.[2] According to Winwood's independent record label, Wincraft Music, sales of About Time have sold up to eight times the number of records in some regions since June 15 when an audio file of one track appeared on peer-to-peer networks. The band Heart’s latest album, Jupiter’s Darling, is available via CD, as a legal digital download via iTunes Music Store, and as a limited-play free download on a number of P2P networks.[3] It seems that some musicians, even some that have much at stake in the outcome of these debates, are willing to experiment with P2P file-sharing as part of a broader marketing, promotion, and sales campaign.

Even many of the major labels themselves – the same parties that have sanctioned the copyright infringement lawsuits – benefit from P2P file-sharing by using the data collected on file-sharing traffic to inform their own promotion departments about what songs or artists are enjoying grassroots support.[4]

Assuming that P2P file-sharing networks are merely a menace discounts the ancillary value that the services have for musicians and labels as information sources, promotional tools, and distribution networks.

3. The INDUCE Act does not allow for market-based solutions to occur

As drafted, the INDUCE Act suggests that the only remedy left for the music industry is making peer-to-peer services subject to direct litigation for inducement. The FMC would argue that this remedy absolves key parties from considering a market-based solution that would involve the licensing of peer-to-peer services so that the copyright holders would authorize the distribution of music.

According to peer-to-peer service representatives, attempts made by certain peer-to-peer companies to acquire direct licenses from the major labels have not been successful.[5] In addition, there is evidence that several P2P companies have been “blacklisted” by the major labels, which has put a stop to P2P companies working with legal download services like Real’s Rhapsody.[6]

It’s clear from the creation of such well-loved consumer music services as Napster, Rhapsody, and iTunes that some of the most innovative business models have been created by companies outside of the music industry, but none of these models would prosper without careful negotiations and licensing deals with the major labels. As the iTunes Music Store demonstrates, many of these new models are doing exceedingly well. Given that iTunes, as a standard bearer, has only been available for a year and has already surpassed 100 million legal downloads, we would argue that the marketplace is adjusting quite speedily to the existence of legal, reliable, downloadable files. For more business models to develop and thrive, the major labels will need to continue to meet competitors and innovators at the table to consider licensing options.

Conclusion

We would ask the committee to consider the concerns outlined in this letter before voting on legislation that not only impacts copyright owners, but also creators, technology companies and music fans. We urge the committee to push for solutions that preserve the unique architecture and networking capability of the internet yet allow creators, performers, and copyright owners to be compensated for their work. Finally, we remind the committee that musicians and artists are the engine of creation at the source of this debate and thus deserve to be represented as stakeholders at the policy table.

Respectfully submitted,


Future of Music Coalition
August 4, 2004

Read an analysis of the INDUCE Act

Notes

1. “Preliminary results of survey of musicians,” by Mary Madden and Lee Rainie, Pew Internet & American Life Project, April 30, 2004 http://www.pewinternet.org/PPF/r/125/report_display.asp
A full report on the results of this online survey is forthcoming fall 2004.

2. “Winwood: Roll With P2P, Baby” by Katie Dean, Wired, July 2, 2004
http://www.wired.com/news/digiwood/0,1412,64128,00.html

3. “Heart Crazy On TrustyFiles P2P File Sharing Network Distribution”, company press release, July 19, 2004 http://www.trustyfiles.com/corp-press-heart.php
“Heart Embraces File Sharing”, by Jeremy Wagstaff, Loose-wire Blog, July 20, 2004
http://loosewire.typepad.com/blog/2004/07/heart_embraces_.html

4. “Media companies quietly using P2P networks” Reuters, November 3, 2003
http://news.com.com/2100-1037-5101550.html

5. Testimony of Michael Weiss, CEO of Streamcast Networks in front of Senate Commerce Committee during “The Future of Peer to Peer Technology,” hearing June 23, 2004

6. “Sources: Labels Blacklist Song-Swap Cos, Block Deals” Andy Sullivan, Reuters, July 15, 2004
http://reuters.com/newsArticle.jhtml;jsessionid=U5M0YSC42ENY0CRBAE0CFEY?type
=topNews&storyID=5684568

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