THE CAUSE AND A POSSIBLE SOLUTION FOR THE CRISIS THAT GRIPS THE DIGITAL MUSIC MARKETPLACE
Remarks of Bennett Lincoff
BennettLincoff@aol.com
Before the Winter 2005 Meeting of the Distributed Computing Industry Association
At Media Summit New York
February 9, 2005
The crisis that grips the digital music marketplace is the making of the music industry itself. It results from the industry’s failure to respond constructively to the changed circumstances imposed on it by the Internet.
I would like to suggest a possible solution to this crisis: One that simultaneously: Protects the integrity of copyrights; promotes technological innovation; facilitates the growth of all manner of digital audio services (including P2P); and meets consumer demand.
* * * *
I begin with this: The Internet is fundamentally incompatible with a sales-based revenue model for works of popular culture, especially music.
Every Internet user, whether or not involved in P2P, and every webcaster or other digital audio service provider in the world is a potential source of unauthorized mass distribution of recorded music.
Through the Internet, the market for sale of individual recordings can be ruined in short order and without payment of any royalties to songwriters, music publishers, recording artists or record labels.
Given this, the industry’s traditional sales-based revenue model – based as it is on the sale of hit recordings -- will soon no longer be sustainable. Neither law, nor technology, nor moral suasion will change this result.
Unfortunately, to date, the industry has resisted any meaningful change to its ways of doing business.
Instead, it has experimented with access restrictions and anti-copying measures; pursued legislation that limits business opportunities for tech firms, consumer electronics makers, and audio service providers; and sued consumers, seeking ruinous damages for conduct occurring in the privacy of people’s homes.
But the market forces at work at the intersection of copyright and the Internet are wildly asymmetrical and to the disadvantage of the music industry. So, despite the industry efforts, unauthorized music downloading continues unabated; P2P uses proliferate; and new means of mass distribution, such as podcasting, have arisen.
Meanwhile, the industry’s efforts have had collateral consequences. They have:
-- Slowed deployment of broadband for the consumer market;
-- Blocked electronics makers and tech firms from offering new devices with next generation capabilities;
-- Limited the growth of webcasting by requiring operators to accept unprecedented program content restrictions;
-- Chilled free speech and interfered with academic freedom on college campuses;
-- Spawned the despicable practice of spoofing, where children who search for song files are sent pornography instead;
-- Caused distortions in the music licensing marketplace, such as where music publishers and the performing rights organizations they dominate, charge both a mechanical and a performance license fee though only either a stream or a download, but not both, are involved;
-- And, of course, they have exposed consumers to liability for enjoying music when, where and how they want.
And for it all, there have been fewer licensed transmissions of fewer works and fewer royalties than otherwise may have been earned.
The industry now supports services that provide partial, restricted, DRM-encumbered P2P. But the RIAA has already warned that such licensed music sales destinations cannot thrive if unlicensed sources of music continue to operate.
It’s a conundrum: Any licensing scheme that falls short of allowing full, unfettered, DRM-free file-sharing leaves the sales-based revenue model vulnerable to technological attack by hackers and widespread infringement by consumers who refuse to comply. Yet, even if the industry licensed the full range of P2P capabilities that consumers demand, so long as its fortunes are tied to the sales-based revenue model, it must continue its campaign to stamp out infringement and to suppress free markets for technology, consumer electronics and audio services.
In my view, public policy should strongly support the opportunity of music industry rights holders to derive ample rewards from their contributions to culture and commerce. By the same token, however, the industry has no right to demand that public policy support its desire to do business in a particular way.
What is needed is an alternative to the sales-based revenue model for musical works and sound recordings.
I suggest this:
Congress, working with the Copyright Office, and appropriate private sector representatives, should aggregate the rights of songwriters, music publishers, recording artists and record labels in their respective works, and create a single, unified digital transmission right.
This new right would replace the parties’ now-existing reproduction, public performance and distribution rights for purposes of digital transmissions only. It would cover all acts implicated in the digital transmission of music to end users, including, with respect to P2P, downloading works from the network, as well as offering works to others.
Under the new right, all that would need to be known was whether a work had been transmitted. Thus, it would no longer matter whether end users only listen to, or also download transmissions; how many copies, if any, are made in the course of a transmission; whether copies are stored on a temporary or a permanent basis; or whether works are used on one audio playback device or another.
The right would be enforceable against all those directly and purposefully involved in digital transmissions of music. These would include, for example: site operators who offer streaming; those who offer downloads; P2P network operators; and P2P software program users.
On the other hand, software developers and distributors, tech firms, telecoms and ISPs, as such, would have no liability.
The new right would not depend on access restrictions or anti-copying measures for its success. Nor would it require continued suppression of free markets for technology and consumer electronics.
Rather than limiting access to music, rights holders would have the incentive to encourage the most extensive uses possible. This would free the industry from pursuit of unhackable DRM, allowing it to focus instead on development of monitoring systems to support royalty distribution.
And with respect to royalties: Because they can be, they should be paid on a census of all licensed transmissions. Only through a census can we assure that royalties go only to those whose works are actually transmitted; and that all rights holders, large and small, receive that share of royalties that is precisely proportionate to the license fees paid for transmissions of their works.
The digital transmission right would be bullet proof against copyright infringement.
Unlike the reproduction and distribution rights that underlie the sales-based revenue model, but like the public performance right, the digital transmission right cannot be subverted by one – or even several – unlicensed services, networks, or end users. Whether or not particular transmissions are licensed would not affect the market for this new right over all.
The experience of ASCAP and BMI with broadcast licensing proves this point. Even if the largest station or group of stations is not licensed at a particular time, the rights organizations’ ability to license the thousands of other broadcast outlets is not impaired.
Despite infringement by the few, the vast majority of broadcasters operate lawfully by securing the public performance licenses they need. Those who act outside the law can, and should, be sued for copyright infringement.
So too with P2P. If the music industry offered what consumers really want, the vast majority would pay for it. And having met consumer demand, there would be no further justification for public outcry over the industry’s campaign against those who continue to infringe.
In order to be effective, the digital transmission right will have to be subject to a statutory license.
There are millions of copyrighted songs and recordings, and hundreds of thousands of rights holders. In a free market, multiple licenses on inconsistent terms – including possibly incompatible DRM – may well be required for each work. And of course, in a free market, the largest rights holders may simply refuse to license their works; as they are doing now.
A statutory license would provide a one-stop shop, guaranteeing those who qualify a single license for all rights in all works transmitted. The license would contain non-discriminatory fees (freely negotiated, though backed by compulsory arbitration); and it would provide for centralized payment.
To qualify for the statutory license, one need only comply with music use reporting requirements, and pay license fees on time.
And while a statutory license is warranted, a parallel free market could also operate in which rights holders and anyone needing a license could enter into voluntary, non-exclusive agreements on any terms they find mutually acceptable.
Some are holding out for a fully free market; as if such a thing ever actually existed for music.
The Constitution instructs Congress to treat copyrights differently than all other forms of property; and from the beginning, Congress has regulated the music marketplace by setting the rights and responsibilities of copyright owners and music users alike.
Thus, statutory licensing or its equivalent has long been standard, if not universal practice in the music industry. The record business itself is built on the backs of songwriters and music publishers through the compulsory mechanical license.
Given the experience to date, experimentation with a free market for the digital transmission right would likely result only in continued market failure.
To be sure, a digital transmission right would represent a major shift in leverage and economics within the music marketplace; and it almost goes without saying that those rights holders – and the organizations that represent them -- who have enjoyed the strongest position historically, will resist voluntary negotiation of such an alternate arrangement.
However, implementation of this proposal would enable transmissions of music to be made available from the largest number and widest array of competitive licensed sources – including through the P2P distribution channel – anytime, anywhere, to anyone with Internet access.
If one looks beyond the interests of the music industry alone, and also considers those of tech firms, consumer electronics makers, audio service providers, and consumers, it is clear that a digital transmission right subject to a statutory license would enhance the free market over all.
Change is surely needed. Congress should act to induce it.
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