[FMC] IP in a post-Grokster World

IP in a post-Grokster World
Preeta Bansal Partner, Skadden Arps (moderator)
Chris Amenita Senior Vice President, ASCAP Enterprises Group
Mia Garlick General Counsel, Creative Commons
Cary Sherman President, RIAA
Siva Vaidhyanathan Assistant Professor of Culture and Communication, NYU
Don Verrilli Partner, Jenner & Block
Fred von Lohmann Senior Intellectual Property Attorney, EFF
Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.
Bansal: This decision had something for everyone.
von Lohmann: Will this change the environment for p2p file sharing? Probably not. Fans enjoy having access to full catalog. We need to get artists paid. EFF likes a collective licensing approach– allow sharers to keep doing what they’re doing and still get the artists compensated. This is not going to solve our porblems any more than the 14,000 lawsuits against file sharers.
Bansal: Will this decision have a chilling effect on technology?
FvL: No fundamental objection to inducement standard. Grokster did not answer our other questions: can you build a tech if it turns out it can be used for infringing? Whenever you hvae to call lots of lawyers to figure out if you can create something, that is, by definition, a chilling effect, whether it is a sampling artist in his basement or an inventor in her garage. The effects may extend far beyond just P2P.
Verelli: The underlying activity (unlawful downloads of music and movies) is a problem of staggering scope. In the court of public opinion, there was a question of whether the activity is lawful. That debate is over, as far as the law is concerned, and will have an immense effect on public opinion. You can’t go out an build a business based on expropriating other peoples’ copyrights. The law in this area must strike a balance between protecting interests of copyright owners and allowing technological innovation. Increasing legitimate channels of distribution.
Bansal: What specific tools has Grokster added to the entertainment industry’s tools?
PV: Inducement liability can be used against a business that is intentionally inducing copyright infringement for damages or injunctive relief. The inducement cause of action itself is a pretty potent cause of action.
Garlick: Ultimately, the lawyers are the ones who benefitted from Grokster. The fact-specific test means that lawyers have to get involved in product design, marketing development.
Bansal: Where does the public end up after Grokster?
Siva: The public remains confused and engaged at the same time. Is there evidence that p2p sharing has decreased since Grokster?
Verelli: Not as such, it is just a prediction, but companies will move to legit business models.
Siva: Remember that what people do is from what companies do. There are many non-commercial services. Souter managed to dodge the Sony issue. The real quesetion is how much liability to companies have for what consumers do downstream. But the effect will be on marketing, and that there will never be another product with -ster at the end of its name. That won’t matter, because consumers aren’t that dumb. I have seen no evidence that the usage of p2p has decreased since Grokster.
The problem is the internet. The internet makes this all possible. This is an almost uncontrollable system of communication at this point. Any sophmore computer science major can create a powerful p2p search engine.
The entertainment industry has been whacking moles for 6 years now, and it hasn’t made a difference. People are still file sharing and supplementing it with other forms of distribution.
Bansal: But they’re not profiting from it.
Siva: The individuals were never profiting from it and know how to stay ahead of the lawyers. And these are communications students who want to work for MTV, not computer science circuits.
Bansal: What’s the response to Grokster in the recording industry?
Sherman: Lot’s of behind the scenes acticity and unbelievable activity in terms of p2p companies still in existince rethinking their business models and licensing/settlement discussions that gives us a lot of hope with transformation to legit business models.
For example, iMesh may launch within a week as a legit service. This demonstrates the power that system can have when it’s not hiding from the copyright law and taking advantage of knowing who the sharers are and what they want. p2p was always about community. This will be a combination social networking, dating and music sharing service.
We’re seeing investment capital start to flow into services. Licensed p2p is the next phase.
Bansal: How does the prevalence of legit p2p models serve you?
Sherman: The goal was never to get rid of p2p, but to get rid of infringement. We’ve lived with physical piracy and will live with online piracy. We want to move people to legitimate p2p services where aartists are compensated.
[OK, so why didn’t the industry license to Napster in 2000 and would have pretty much avoided the escalating file sharing wars of the last few years?]
Bansal: What is the impact on creators, and what’s happening now in the actual marketplace?
Amenita: The decision helped clarify the marketplace. The general public now understood that the activity going on in Grokster was illegal. We never wanted to shut down the technology itself, but the way people use the decision.
Bansal: In Justice Breyer’s opinion, this was the first time that the Court referred to creators separately from the entertainment industry. Creators were amici on both sides of the case.
Amenita: Business itself is not fair. What this decision did was clarify what one could expect to get compensated for. A handshake and a pat on the bat does not send kids to college.
Bansal: What will be the business models of the entertainment industry going forward? The celestial jukebox? The iTunes model? Live performances replace recordings as the driving force behind the industry? Open licensing?
Sherman: The variations on the per-track or subscription services will be interesting. There are some sites that will give out free music in exchange for watching an ad. Major corporations may begin to sponsor musicians (as patrons) and give away the music for free. There may be time-limited or limited quality free downloads. There may be a new relationship between artists and labels or artists and publishers– like the WB e-label that lets artists release songs in various size chunks (singles, albums, EPs).
It will be easier to sell to niche markets on the internet.
Bansal: Has p2p raised the hand of aritsts in breaking the control of labels over the industry?
Sherman: Not necessarily p2p, but the internet. Word of mouth can have a big impact on the internet regardless of having music on p2p or a legit service. [Like MySpace.] Artists can still give away their music for free if the artist decides to .
Siva: The industry has gotten a good idea in the last 36 months after a slow start.
p2p and the internet are largely the same thing. What is legit p2p? Who controls it?
Sherman: Sometimes, it’s actually a transfer from user to user, but the service tests whether it’s a good copy and then transfers it from a user, or from a central server if there is no other good copy.
Siva: Distributed content with filters, and the filter is governed by the license terms. By moving towards this model, you’re moving away from the true p2p model. in unfiltered p2p, you’re talking about every member giving up something (bandwidth, disk space). Under this new system, how can you make it worth the time to give up the bandwidth and space, so what will the consumer get?
Sherman: That will be the interesting test– will the sense of community to be enough to keep users engaged? But that’s what’s interest about iMesh it combines Friendster with p2p.
Bansal: What are some of the other legit p2p business models.
von Lohmann: The baseline reality is that BigChampagne reported that July 2005 saw a new high use of file sharing, which is interesting, because it comes after Grokster and during summer, where college students are at home and using p2p less.
If the goal is to restrict fans, to constrain fans, then the services will not work. But largely agrees with Sherman that experimentation is good. But today’s services have high prices and limited selection and clearing tracks one by one is not a way that the. Music fans are still looking for something as good as napster Classic.
PlayLouder, an ISP in the UK, signed a deal with Sony BMG to let PlayLouder users freely share Sony BMG music among themselves. EFF has been suggesting a model like that. Yahoo can charge $5/month for access to their whole library. Users want more catalog, fewer restrictions.
We want a world where the instinct to be a fan does not depend on incompatible music files and seeing which service has excusives.
Bansal: Where’s it all going to end up when we have unlimited hard drive space?
von Lohmann: The model where you have a blanket license is more flexible and more successfull than any other. Look at the PRO’s. They’ve done a good job of being flexible. It’s about getting paid, not getting
Bonsal: But what happens when users have all the music created already stored on their hard drive? Don’t people pay for cable tv because they don’t have enough storage?
von Lohmann: People pay for cable television because they want to see this season of the Sopranos, this season of Six Feet Under. Music fans are always buying new songs and new albums.
Sherman: PRO’s don’t license every listener in a restaurant. They license every business owner. In Fred’s model, we have to license every single user or sue the individual who isn’t licensed. Aren’t we trying to get out of that game?
von Lohmann: With the internet, the kind of thing that used to have a factory to do can now be done by an individual at home. The fact that you can cut out the intermediaries and go directly to the fans is a great opportunity.
Garlick: p2p and the internet enables direct relationships between artists and fans, especially with things like Mmagnatune. Where Creative Commons is showing is that there are a variety of different ways to publish creative works for publicity.
Bonsal: What’s coming?
Siva: It’s hard to make predictions without data. All these companies will try different ways of doing this. Most will fail, some will succeed, and this will benefit all parties. Five years ago, some people were arguing that the RIAA would be out of business at this point– even then that seemed far-fetched. However, we’re not going back to the time when Backstreet Boys roamed the Earth.
Consumers are about to have a DRM revolt, largely because of the iPod, and will recognize that the only people who benefit from DRM are the companies that build weak DRM.
von Lohmann: For a century, every new tech that has been first attacked by the entertainment industry has ended up growing the entertainment industry: the player piano, radio, the VCR. The internet will not be the first technology for which this is not true. This is not the beginning of the end, but the beginning of the beginning for the entertainment industry on the internet. There will be more creativity and more competition, which will be great for artists and great for fans.
Sherman: DRM takes so many hits as being a limitation on consumers, when in fact is it an enabler of different business models that give consumers more choice to get more music at more prices for different types of uses. The problem needs to be solved, but that problem could be solved at the flick of a switch tomorrow if Apple and MSFT agree.
Amenita: One thing won’t change. You need someone to create in the first place– the songwriter. Since everyone believes that artists should be compensated, let’s see the money.
Verrilli: The debate now isn’t the same as 5 years ago. The debate 5 years ago was over whether copyright as a whole was a dinosaur. The question now is how to move forward in a way that respects copyright with a variety of different business models. The Supreme Court’s decision has helped to take this forward. The risk calculus today is very different than it was 5 years ago.
Garlick: It’s going to be about there being more choice and more flexibility as to what models will work. There is a new relationship between creators, business and users.

[FMC] Representative Rick Boucher (D-VA)

Mechanical license is outdated and needs to be updated from its paper-based, individual.
Reform should exempt buffering, cacheing and ephemeral copies from §115.
§114 places differing rates and services based on medium– broadcast radio pays no fee, while satellite, digital cable and internet radio all pay different rates.
Archival copies of digital media should be a fair use.
Electronic database at the Copyright Office to replace the paper files on file at this time.
Need to have a safe harbor arrangement for use of song where it’s not possible to find the copyright owner, and place royalties into an escrow fund held for the artists.

[FMC] Sampling and Shared Art

Rick Karr former NPR cultural correspondent/Technopop (moderator)
Whitney Broussard Partner, Selverne, Mandelbaum & Mintz
Jeff Chang Author, Can’t Stop Won’t Stop
Shannon Emamali Exec Director, DC Chapter, The Recording Academy
Bob Kohn Chairman and CEO, RoyaltyShare, Inc.
Hank Shocklee Music Industry Producer, Founder of Public Enemy, President of Shocklee Entertainment
[Unfortunately, Broussard isn’t here for the panel…]
Has the law changed the aesthetics of hip-hop?
Siva: It’s detracted from the sense of play in the art form. There was a beautiful libertarian moment in the late 70s where people could build something great out of what’s around them.
To get through the Reagan years with any sense of optimism, I depedended on Public Enemy to make life seem beatuiful– on George Clinton to make life seem hopeful.
We’re thinking about cultural policy here. We should be very careful when we ask the government to influence or regulate cultural expression. We don’t live in a society where people can do whatever they want with marketable cultural items.
We should ask is it contributing to the next generation of artists or locking in power for the already established?

Kohn:
Is a fan of sampling– in particular, parody, satire– to use a work to criticize the work itself (satire) or culture at large (parody.)
Feels somewhat responsible for the Bridgeport decision, which took 8 paragraphs from his book, where he was commenting on what the law is, not what the law should be. The law says that you’re allowed to do sound-alike recordings. When you’re sampling someone else’s working, you’re potentially infringing 2 separate works and the standard for the infringement is different.

Shocklee: Where is the menu items that a kid can go to and know if he’s taking this how much he’s going to have to pay for it? No one, not even in this room, knows the price of samples.
Emamali: Balance between sampler and samplee. There needs to be some type of system where, particularly aspiring artists, can go to to figure out how to sample legally, and then properly credit and compensate the samplee.
This has been a windfall for music publishers.
Chang: This has created two classes– the super-sampler class who can afford to pay whatever it takes to get the record out, like Diddy or NAS. Any hip-hop jam will drop a sample Apache, but only NAS can afford to do that for a record. Hip-hop is not asking for any kind of OK for doing that.
Folks are doing that now on the indie level– rappers and dance hall artists rhyming over The Cure.
The kids who were inspired by PE/Shocklee or by Pete Rock, they know that they’re going to have to turn in a list of all the samples that go into a song, and try to give the credit (and royalties) to the brokest of all the sampled artists.
RK: Is there a better way we can structure this legally?
Kohn: There’s an analog in the patent world, where developers have to work out licenses for patented processes. There’s similar negotiations when placing music into films. These rules are essentially the establishment of property interests.
If you are creating something new, transforming, and using the work, like a Bob Dylan song, for parody or satire purposes,
If you don’t know where you’re sampling from, then don’t do it. If you do, tell your lawyer and pay the fees to the rightsholder. If you’re out there just to disobey the rules, you’re going to get burned.
HS: We did go to the copyright owners, at least what we see on the record. We go out and make a deal with those people, then go out and get a call from someone else who is also a rightsholder.
Siva: The transaction costs are really high. There’s no central place to go to find out who owns the master or who owns the publishing? The Copyright Office doesn’t keep track of this.
HS: If I want to re-record a sample, the costs are really high, too. Taking a single Phil Collins snare hit for the sound, instead of going in, finding the same console, the same effects, the same mics. Should I have to go in and do all that, or can’t I just take that one sound and do something completely new and different with it? Or does Phil need to be compensated for that? [About 20% of audience applauds heartily.] Should I have to compensate the engineer who got the sound? Because how much of that is the actual performance and how much of that is the vibe of the recording?
Kohn: Plugs his new company, Artist Share that attempts to manage the royalty relationships.
SE: We need to establish a threshold for what needs to be compensated and figure out a way to create a central info registry for that.
Siva: The Copyright Office is studying orphan works…
Karr: Suggests an arbitration panel for sampling that decides what a fair price is for sampling.
HS: The record companies have an incredible database of sampling claims. Sampling is not just limited to hip-hop artists anymore. The kids doing it don’t understand how much it costs, especially when all the big pop hits on the radio are sample-based.
Peter Jenner: None of the sample money goes to the drummer or the guitar player who played the part that was sampled. The copyright law has gone completely up its own ass. Why does the composition copyright owner get to profit off of a few notes, but the musicians don’t?
Siva: There hasn’t been a good fair use case made in sampling law, with someone who took the subtleness and takes from the toe of the work, not the Vanilla Ice sample that goes to the heart of the work [The Nation.] The case law has not reflected the analysis.
Barbie Bayless: How do you come up with a rate sheet? How can all of us in the industry come up with a common rate?
HS: We don’t know what people are charging. How can we give away more than 100% of publishing?
Karr: You take the heart of the work (Siva: like the riff from “Purple Haze”), then you should have to pay for it.
We have a situation where the market dictates what happens. If a mid-level hop-hop artist takes a sample from a Harry Chapin record, the hip-hop sampler has much less bargaining power.
RK: Statutory license?
SE: How do you set the rate? For some songs, 5 seconds is the essence of that song, then the law should have to take into account the difference.
RK: HS, what if some White Supremacist band samples PE?
HS: If they pay us, it’s good. The sampling is about taking the sound. When you talk about paying that license, how little of a sample needs to be compensated?
SE: We’re focusing so much on the payment.
Siva: Copyright law should be concerned with the work yet to be created. It’s in the Constitution. Right now, this is a system with grand winners and grand losers. There are windfall profits and there are people who can’t market what they create out of fear. A statutory license lowers these barriers to entry. It makes it possible for the next Public Enemy to pay a reasonable fee. It eliminates the hold-out problem. It’s a market rigged by some agreement or state intervention that would work for more people in more situations.
Audience member who negotiated a lot of Polygram/James Brown sample licenses between 92 and 97: 50-50 split with the artist and the label. some of that actually did trickle down to the funky drummer. There are people who want to do well by the art form.
[FWIW, I think that sampling reform requires both the addition of a de minimis analysis to allow people to sample short (<2 seconds?) clips without permission and a complulsory license for samples that represent a larger, but still not central part of the work, and then a market-based system for sampling that goes to the heart of the work. More later.] Useful links:
Bridgeport Music, Inc. v. Dimension Films (6th Cir., Jun. 2005).
Newton v. Diamond (9th Cir., Nov. 2004).
Astride Howell, Sample This: “The controversy surrounding digital sampling and the legal rules
of thumb generated in response reveal that there is quite a bit of mis-
understanding among musicians about copyright law and samplingthe songwriter or, by assignment, a music publisher.”
Previously: Bridgeport, Audio Sampling and Transaction Costs

[FMC] George Clinton and Hank Shocklee

Special Interview with legendary funk artist George Clinton and Hank Shocklee Music Industry Producer, Founder of Public Enemy, President of Shocklee Entertainment. Hosted by Rick Karr
Clinton: “I thought it was a DJ on the radio talking over the record.”
“I heard a guy rapping over “flashlight” and thought it was cool and record it. Then I learned that the kids in the Bronx were already doing it.”
“The first artist found who sampled p/funk was De La Soul.”
“It’s just a new way of making music. The guitar, they didn’t want it around, the saxophone wasn’t in the orchestra. I always gravitate towards what people– what parents hate– cause that’s the next big thing.”
“When hip-hop came out I was glad to hear our songs [sampled], because we were getting on the radio.”
“I’d figure out a way to make money of it. We went back on the road and started making money playing the long version of the songs.”
Is sampling lazy?
“My mother called us lazy, too. She said that we just vamped– got on a groove for 20 minutes and jammed and that was lazy. There are some people out there who aren’t lazy. Hank Shocklee is not lazy… it’s probably twice as hard to make that blend… That’s not lazy there.”
Some say that the sampling law has changed– even killed– hop-hop, that you need to have the budget of a [Dr.] Dre to do a sample-heavy record?
“If you clear beforehand, it’s not bad. But when you take the whole song, or don’t have permission, then it’s going to cost.”
[Enter Hank Shocklee]
HS: When the courts say that we have to get a license, who is that protecting? The artists?
GC: We haven’t gotten hardly any of the money from the sampling.
HS: I know for a fact that we paid a LOT of money to Bridgeport. You look at the fact that these guys have been suing for a long period of time and a lot of money isbeing made and we should get a license for sampling, who is this actually benefitting? The original artist who made the song or the person who just happens to be the [rightsholder]?
HS: If I’m sampling 30 seconds of the song and using that for my whole song or if
Who determines who gets a license? Who determines the rates?
RK: What happens to the kid in his basement in
HS: If you took 8 bars of a song, then you’d have to get a license. Now, there’s basically no parameters. If the sample only constitutes 1/8 of the song, how does that justify giving up 50% of the publishing?
[Remember, there are two different rights involved in clearing a sample– the copyright in the composition and the copyright in the phonorecord. Based on the 9th Circuit’s ruling in For the composition, there is a de minimis level of taking that is not copyright infringement, but based on the 6th Circuit decision in Bridgeport Music, there is no de minimis analysis for sampling of the phonorecord.
HS: 3 different publishers each wanted 50% of the publishing, but how do you give up 150% of royalties?
GC: Well, you have to do it beforehand.
HS: Should you be allowed to go backwards and basically sue people retroactively for something that was done in the past and was legal then?
HS: Sometimes, we sample because we want the performance, sometimes we want the sound, like the particular sound of a Moog synth. The best way to get that is from a recording that was already done.
HS: Sampling is not about stealing other people’s material, it’s about capturing some of that vibe.
GC: That’s why we put out a [sample CD] where you can get the handclap, the guitar from Flashlight… I think that’s the future of publishing, with a compulsory license for samples. We’ve had people that sampled our record from a [3rd generation sample].
HS: There’s a difference between sampling the performance and sampling the sound. That would be like having to clear Fender every time you use a Rhodes, or Tama will charge you a royalty for the snare sound. [HS is making the case for a de minimis use analysis for sampling of sound recordings.]
HS: [plays 4 notes from Flashlight] How much should I pay for that? Talk to some producers, then want 10k, plus a rollover rate at 10k units, or 50% of publishing.
GC: What if you ask them in advance?
HS: This is what they seek when you ask in advance.
GC: When you cover a song, that’s pennies a song.
RK: that’s a compulsory rate.
GC: It’s blackmail the way it is now. [for sound recordings]
HS: Is that the performance or is that the sound?
GC: That’s recognizable. If you play the next part [one hit from Flashlight], that would be different.
HS: So what do I pay for this?
GC: The 6th Circuit says you’ve got to pay for it.
HS: Let’s try to loop it [a one-note hit] and create something different. I could make it sound different, smooth out the glitches, change its pitch, change its tone. Now, when you’re looking at sampling at that level, am I stealing a performance or creating?
RK: This [next panel] is such a let down…
[This interview was much more awesome than my notes reflect.]
Related Links
Bridgeport Music, Inc. v. Dimension Films (6th Cir., Jun. 2005).
Newton v. Diamond (9th Cir., Nov. 2004).
Astride Howell, Sample This: “The controversy surrounding digital sampling and the legal rules
of thumb generated in response reveal that there is quite a bit of mis-
understanding among musicians about copyright law and samplingthe songwriter or, by assignment, a music publisher.”
Previously: Bridgeport, Audio Sampling and Transaction Costs

[FMC] License to Cover: Section 115

Room 307: License to Cover: Section 115
Ken Kaufman Partner, Skadden Arps
David Jones Counsel, Subcommittee on Intellectual Property, Senate Judiciary Committee
Jonathan Potter Executive Director, DiMA
Josh Wattles Entertainment and Technology Attorney

Kaufman:
Compulsory has acted as a benchmark for negotiations.
What licenses are required for caching of streams?
It hsa become mroe and more difficult for mechanical rights societies to get rights to all works.
Proposals:
-abolition of all compulsories
-expansion of compulsories to public performance for reproduction,distribution rights for digital services.

Potter:
DiMA represents AOL, Yahoo, MSN, Apple– legit services
There is a consensus among all constiuents that the system is broken– legit services are having truble getting going because the music licensing system doesn’t work.
The major victim? Songwriters. The price per song and price per performance composition royalties are getting hurt. Others? consumers– all the music isn’t available legitimately; services– can’t offer all the music they need to compete with Grokster & eDonkey.
3 or 4 ways to fix it– discussed since 1999. Problem is that Congress is in the business of defining rights, publishers are asking Congress to set a rate.
The law was written to accomadte old-line industries and the laws just don’t fit.
What’s the price of modernization? Songwriters and publishers are seeking 2x-3x royalties.
NARAS: If the recording and publishing industries can’t get together, then the industry (as a whole) can’t compete with illegal P2P. The winners are Grokster and Kazaa, the losers are everybody else.

Wattles:
It’s really only about money.
Impetus for change is coming from the tech side (unlicensed, uncompensated P2P draining the marketplace.)
The Yahoos and AOLs are simply buyers, publishers and labels are simply sellers.
Publishers only know how to think in terms for 200%-300% rate increases. On the other hand, streamers are selling music for nothing (marginally) and want to have to pay the publishers as little as possible.
The government really should get out of the way as much as possible.
The music industry has grown up around the mechanical compulsory since 1909 and pulling it out will bring dysfunction to the market. The public performance right is working while the mechanical isn’t.
Publishers are the only group that has sold its product to multiple differentiated markets simultaneously– to movies, record labels, ad agencies, etc. They know how to adjust to different markets. They also know how to ask for 4x too much money.

Jones:
Until there’s a functioning market, there’s no way to know what the market price is. Government is not well suited to setting prices.
This is a really screwed up area of law.
Some of the proposals:
-Outright repeal of §115. Some good principled arguments for it, but may be too much of a disruption to the market.
-Merging the rights
-Unilicense/super-agent– not fully fleshed out– anti-trust? who adjudicates?
-Collective licensing
-Making §115 a blanket license. This gets rid of some of the transaction costs. Who administers it? What’s the scope of the license?
Potter: If any of us are giving music away for free, we’re still paying the royalties to do so. One thing our companies are doing are competing on price, marketing and programming. Can’t yet compete with Grokster on repertoire.
Potter: Performance or distribution/reproduction? An on-demand stream may substitute for a CD sold, but it is non-sensical to consider that a reproduction. because an activity might substitute for distribution doesn’t mean that it should pay a mechanical. It’s just a higher-value performance. A tethered download is not a performance, even though it may substitute for it.
In 1988, Canada eliminated the compulsory and has a copyright board…
Fred Von Lohmann (EFF): If everytime a new tech develops, there may be more chaos everytime there’s something new. Move towards more collective licensing. Like Peters’ proposal to eliminate §115 and replacing it with MRO’s. Other than disruption and chaos, is there any principled reason for eliminating §115?
Potter: It is absurd to have to go back to Congress every time there is a new technology. Laws were written in ways that were microscopically written to apply only to existing uses. There is no admin agency that serves as a general regulatory body to serve as a rulemaking body for copyright law. THe party that doesn’t want to modify the law can hold up reform in the morass that is Congress.
Wattles: Collective licensing is the solution for this particular, isolated, potentially major or minor use of music buy these online services. The price for legislative collective licensing is government stepping in and creating a regulated market. Let’s try to make it about money, because that’s something we all know how to make deals for. Is this the time to create architecture or an environment which creates a place to haggle with functional, interim solutions?
Potter: DiMA members pay ~5.25% of revenue total to ASCAP/BMI/SESAC for on-demand streaming. Publishers are getting ~8.5% from downloads.

[FMC] Is Digital Distribution a Good Deal for Artists?

Panel 05: Is Digital Distribution a Good Deal for Artists?
Walter McDonough General Counsel, Future of Music Coalition (moderator)
Kevin Arnold Founder/CEO, IODA
Slim Moon Owner, Kill Rock Stars
David Pakman Managing Director, eMusic/Dimensional Associates
David Printis President/CEO, DE-Urecords.com
Tim Quirk GM, Music Content and Programming, RealNetworks
Having an online presence allows a band to hang out and get drunk with its fans without actually hanging out and getting drunk.
No one is making a profit running a $0.99/download service. Labels are making money, artists hopefully are making money off of it. Apple is making money off iPod sales. Any of the other services making money are making money off of subscriptions.
Moon: Most of our costs [as a label] are marketing. Difference between 10 songs at $0.65/song and the cost of selling wholesale for $8.50 is larger than the cost of making the physical product.
It’s the connection among people that will get people to enjoy music. Advocates for music make a big difference.
Rhapsody avoids caling its recommendations “picks or recommendations.” Tries to recommend based on playing habits of listeners.
eMusic uses personality to cull its indie catalog and make recommendations with personality.

[FMC] State of the Union

Panel 04: State of the Union
Jim Griffin CEO, Cherry Lane Digital (moderator)
Mitch Bainwol Chairman and CEO, RIAA
Shawn Fanning Founder and Chief Strategy Officer, Snocap
Joe Henry ASCAP artist and songwriter/producer
Andrew Moss Senior Director, Technical Policy, Microsoft
Marybeth Peters Register, US Copyright Office
Gary Shapiro President and CEO, Consumer Electronics Associatio

Shapiro: HD Radio will be big. Every big company starts small.
RIAA’s digital radio content restriction system will hamper the development of digital radio– a strong defense of the right to do what you’ve always been able to do– Audio TiVo.
Bainwol:
Thanks to Jim for keeping [him and Shapiro] separate, otherwise it may devolve into physical violence.
Rolling out HD Radio in a quick, expeditious way makes a ton of sense. Anything that enhances the experience of listening to music is a great thing. Why create a world that will eviscerate the future of music? HD Radio is about performance, not about a download. Made remarkable progress in the last two years and will make remarkable progress in the next two years.

Fanning:
Snocap isn’t really a major shift between what he hoped to accomplish with Napster. As Napster classic began to build its business, there was no way t
Providing an open rights registry to connect creators and businesspeople who want to use the work.
Smaller companies that want to innovate will have an opportunity to
Providing more music to more people through more panels.
Strategy to start with major rightsholders and eventually open it up and create a level of awareness among the independent creative community. Allow the opportunity to get into multiple retail channels without having to do multiple direct deals.

Peters:
[Introduces Compulsory licensing reform.]
Digital phonograph delivery (DPD) was first performance right available to holders of phonorecord copyrights. Today, no one is sure what a DPD is today.
Heard that online b’casters were having problems getting rights from rightsholders.
Online streaming implicates 3 rights– performance, reproduction,
Trying to look at a better way to effectuate music licensing.
Her own preferred solution is that the market generally works and that compulsory licenses should only work when there is complete market failure.
What kind of reform is possible?
§115 is reproduction and distribution. Publishers say there is a right to get reproduction and distribution rights when there is an interactive stream, but not when there is a non-interactive stream (just performance right.)
In Europe, there are societies that combine the ability to license reproduction and distribution of phonorecords along with the public performance right. Of course, those societies have other problems, but it is a one-stop shopping.
Copyright Office drafted a bill and 3 hearings. This was a trial balloon floated that didn’t really have any viability.
The music industry has a problem to solve. If it is a revised statutory license, if it is a market solution, if it is MRO’s (Music rights organizations), then we need to find it. Compulsory rates and the scope of a license are the big stumbling blocks.
Griffin: Do we need more competition and more intermediaries or fewer intermediaries and less competition in the licensing scheme.
Peters: Don’t know what the route is, but the goal is to make the most efficient way to obtain rights. Is it efficient to go to 25 PRO’s? Probably not. But the 3 PRO’s here manage to compete effectively. There is an efficiency of scale in combining rights, but need to have more than 1 MRO to have competition, but at some point, there are too many.
Henry: There is plenty of choice for performers among PRO’s. The point is communicating that music has value. It enriches the world and has real value.
Griffin: We are in a transition to world of ‘we’ to world of ‘me’– from broadcasting to narrowcasting. How do you reach your potential audience?
Henry: The basic concept is the same between downloads or 78’s. There has never been more opportunity then there is now. There more opportunity now. It’s potentially better for everybody. If there wasn’t a lot more money to be made in the music business then there was 15 years ago, then we wouldn’t be here talking about it.

Moss: We have to find an appropriate balance to enable ways for people who are creative for their way of life and allow people to enjoy the fruits of that creativity.
The problem with the analog hole exists because we are in a state of transition.
We’re moving everything to digital. Creators will have the ability to decide how to distribute the fruits of their labor, in a way that encourages the people that use those tools that makes it exciting for the people who are using digital equipment to enjoy content. It’s a fine line.
The transformation that we’re going through now is a few ways out.
Griffin: There are legitimate reasons why people want to make copies (fair use, personal backup), but some creators want to restrict that right to complete and total restrictions on copying. CEA has always enjoyed copyright’s leaky bucket.
Moss: It’s a matter of balance. Creators should have the right to determine how content is used. If those rights are too restrictive, no one is going to want to use it, so neither the devices or content will be sold. In the last 5-10 years, there has been a major revolution in devices that create and distribute content (HD camcorders, computers.) We need the same sort of innovation that occurred on the tech side to happen on the business side.
Moss: Some magazines I buy subscription others I buy at the newsstand for a flight. There will always be different models. Balance needs to be struck by the rightsholders and creators.
Bainwol: We tend to reduce the debate to dichotomies– rights vs. uses. We perfectly fine with timeshifting, with personal use. This not about being able to burn a copy for your car, or your boat, or your kid.
We need to find a balance between rights.
Half the songwriters in Nashville are out of business. Artists are suffering. The investors are hurting– jobs are lost, artists are compromised. The more you invest, the more product you get, even when that product is culture.
Shapiro: I agree with everything that [Bainwol] said, except the last 4 minutes.
The growth in tech has been unparalleled and somewhat disenfranchised the RIAA members. Tech has made a way for people to ggo around the people who manufacture CD’s. The RIAA member sales are not the measure of the health of the RIAA members. There is more creativity going on in the country than ever before.
Teenagers are putting more money into videogames than into music.
Everything that Peters said is about the interests of rightsholders. No one up here is talking about the interests of users. The rightsholders want to make the rights so broad and nebulous to make the most potential of such rights.
Cars are not restricted as to how fast they can go (no hardwired speed limit.)
We are being attacked. We develop products and technology that are not as dangerous as a speeding car.
We represent 2000 technologies that just want to invent stuff. No one represents consumers, and they’re the ones that suffer.

Griffin: When the elephants fight, the grass suffers.
Bainwol: We’re a small industry– [CEA] dwarfs us.
We can solve these problems if you [Shapiro] tone down the rhetoric. We can have creativity and great technologgy at the same time.
Griffin: Joe [Henry], would you like to see the recording industry give up its compulsory over your work, so that you can negotiate the price of a mechanical license?
Henry: Sure. Why should there be a cap on the maximum earnings for a song?
Griffin: Mitch, are you ready to give that up? Should there be a free market?
Bainwol: The problem is piracy, not the compulsory. We like the idea of marketplace. We have a shared future here– publishers, artists, songwriters, record labels are on the same team.
Griffin: Have compulsories worked well?
Peters: We may see more compulsories than fewer, which I’m not happy with. The outcry against eliminating the compulsory came from songwriters– they feel they don’t have the bargaining power to negotiate deals that pay them enough.
My goal is to empower the songwriters, and the the intermediaries have to be there to ensure that songwriters get the money. Most songwriters feel that doing away with the songwriters.
Griffin: Shawn, how do you listen to music these days?
Fanning: I’m not happy with the selection on the $0.99/song services.
Griffin: Do you still use P2P services to find music?
Fanning: No comment.
Griffin: Can you tell us which ones have the Shawn Fanning seal of approval? Do you think the market can bear the need to spend $10k to fill an iPod?
Fanning: I actually like subscription services. There are so many attributes of distribution channels online. There’s no question that free P2P has grown far beyond what Napster was. But it’s still not good. It will be possible to have services that provide users with reliable results and connect users with the best possible sources.
Griffin: Joe, has digital changed the way you create?
Henry: No longer a need to wait for people to get money from a major label to record my work. This has facilitated a lot more work getting done. That’s fantastic. Nothing is cheapened by the fact that more people are participating.
Griffin: How do you listen to music?
Henry: I travel with an iPod, I live with it. I have a Mac-based stereo at home. I have a vinyl collection, but I’m not tied to it.
Griffin: Mitch, what devices do you use?
Bainwol: We have 4 iPods in my house, my kids bought some songs yesterday. I have a {Zen} (I think), still in box.
Griffin: Shawn, if you could spend a day with Mitch’s family, what would you show them to rock their world? A celebrity audio makeover.
Fanning: [laughs] Um…
Griffin: WHat does MSFT have in store for the future?
Moss: We already have the ability to create, the ability to enjoy, and we’re working on the ability to find. How to find new things, get recommendations, discovery.
Griffin: What’s the difference btw Google and Napster (classic)?
Fanning: We still lack a sense of community combined with distribution of a broad base of content. Google enjoys a safe harbor with notice and takedown, while P2P doesn’t have protection against use of works in grey area.
Peters: Many creators don’t register with us. The goal is to find authors. ASCAP has a list, Snocap has a list. The benefit to our registry is that the data is available online. The people who need to find works will find them.
Shapiro: I’m a classical guy, because the copyrights have expired and I can do what I want. Consumers operate by fairness. They want to reward the creators. Kids know what’s right. There are very few consumer advocates. We’re working for technology companies. Even the government isn’t working for the consumers.
Bainwol: Discussions about terms are irrelevant here. We’re talking about people using music created in the last few years.
Henry: I’m fine with people covering or sampling, just so long as I’m paid for it.
Bainwol: The question here is not that we’re going to permit timeshifting.
Shapiro: If timeshifting and personal use is legal, are you going to allow that in a statute?
Bainwol: We don’t need a statute for that. We [RIAA] don’t pursue timeshifting or personal uses.
Bainwol: Whatever comes along, we’ll try. But, you ahve to get piracy contained, because there is a return for the investment and protect the integrity of the piracy. If we get distracted with these false fights, like whether it is ok to have 20 burns for your personal use. We know we need to be flexible with your models.

[FMC] Music Policy 101

Michael Bracy Policy Director, Future of Music Coalition (moderator)
Fred Cannon Senior VP, Government Relations, BMI
Mike Godwin Legal Director, Public Knowledge
Rebecca Greenberg National Director, Recording Artists’ Coalition
Mike Mills Bass player, R.E.M.
Hal Ponder Director of Government Relations, AFM
Johanna Shelton Democratic Counsel, US House Energy and Commerce Committee
with FCC Commissioner Jonathan Adelstein staying on.
Greenberg: RAC is interested in musicians want to realize the value in their copyrights for themselves.

Godwin:
Thought Grokster turned out with the best result that anyone could ask for. Worryed that the Court would outlaw P2P technology in general. Technologists worry that outlawing P2P would outlaw the internet. At the PFF Aspen Summit, Pam Samuelson thought that the decision in Grokster was very good.
Public Knowledge has also worked to fight the broadcast flag. The flag would put the FCC in a position to completely regulate technology and be a gatekeeper for a whole sector of the economy. Now dealing with Congress to stop broadcast flag legislation.
RIAA is seeking content protection for digital radio. Digital radio is a nice, not revolutationary improvement. Digital radio is still lower quality than a CD. An MP3 at 128kbps is better sound quality than digital radio. Some part of the music industry sees this as an opportunity to authorize the FCC to put copy controls in place for recording stuff of radio broadcasts. That would be bad for consumers, general public and musicians, too. Don’t necessarily want recording equipment to be turned against you.

Cannon:
There is a positive model out there: BMI, ASCAP, SESAC. We make money for creators and are growing and continuing to grow. We’re being attacked by other organizations in the industry who are trying to take the PRO’s piece of the pie.
on a Federal level, probably need to streamline licensing and reform it. There’s a pie out there that’s not going to grow, so it’s going to be your royalties that are affected. Beware, beware, beware.

Ponder: The value of copyright is very valuable to AFM members and that
Performance rights is totally inequitable that songwriters get royalties while musicians get none. This inequity has increased since DMCA since 1995 which imposes a compulsory license on digital streaming, but not on traditional radio.
Cannon: We can make the pie bigger. Labels get bulk of the digital download (iTunes) price. Songwriters get nothing. Unhappy with AOL giving away music that creates commercial value for AOL, but not for songwriters.
Mills: Um, without songwriters there are no songs. Without performers there is no music. Of course, in REM, we do both ourselves, so the revenue streams are fungible, but they both have to be there.
Adelstein: FCC is trying to enhance the transition from analog to digital– stations can do 3 digital stations in the same bandwidth it takes for one analog station.
Shelton: A number of calls that 2 major pieces of law are out of date: Copyright Act and Communications Act. So, this brings up the question of what is fair? Things have shaken out in court with Brand X and Grokster, and now there are discussions going on among the stakeholders, among the committees. Some of these issues are difficult for Members of Congress to figure out because there are so many different interests around as well as quickly changing tech. Very conscious making things future-proof and not having to redo things every time a new technology comes along.
Audience: Will payola investigation hit satellite radio, too?
Adelstein: Doesn’t see why not. Sat. radio is broadcast, so regs apply. This is unlike indecency, which doesn’t apply to sat. radio, because sat. radio is a subscription service.
Cannon: Going back to innovation and tech, remember that music drives technology.
Godwin: Technology development drives music, too. [For example, album format comes from tech limitations of the LP.] Don’t want to create a policy that shuts doors to technological innovation. Public Knowledge worries that many of the ideas may stifle technological innovation.
Greenberg: Technology and artistic creators are not mutually exclusive. Can develop means to pay artists, and “we don’t think they’re asking too damn much.” Like the ideas that allow creators to decide how their music is used.
Just about out of battery, so that’s it for this session…

[FMC] Interview with FCC Commissioner Jonathan Adelstein

What is the FCC?
The FCC is a lot more than a place where we do indecency. Started when radio broadcasters interfered with each other and with marine communications. Regulates wired and wireless communications technology– the traffic cop of all the spectrum (and .
The Commission is not really partisan. The things that get a lot of attention (like media ownership) are partisan votes, but generally communications policy is not political.
Who are you? Why is music important to you?
Thinking about ways to make music more vibrant. Localism in radio is important to musicians. Setting payola rules,
I like it all, and play it all, like bluegrass flute. Was in a band for a while, called the Screaming Elmers, and tried to blend all these roots rock together into this loud thing.
Media Ownership
I just walked into this situation where then-Chairman Powell was set to roll back ownership limits tremendously. Went out into the country to talk to people and found that people were unanimously against consolidiation– radio had become homogenized and boring– and people did not want what happened to radio to happen to television. The plan the Commission adopted was so bad that the 3rd Circuit struck it down.
Something like 1 in 100 people in the US contacted FCC about media ownership reform, and that grasroots effort had a major influence.
The Commission needs to listen to the consensus– get feedback on draft proposals before adopting rulemaking. Plan to go and seek comments on media ownership reform.
Payola.
It wasn’t until Eliot Spitzer came around to subpoena people and investigate payola, that the Commission found out it was true. The most widespread, flagrant, systematic abuse of FCC rules. Broadcast regulations require disclosure of pay-for-play schemes. Spitzher came out with such a vast array of evidence that the Commission has to step up and investigate. Spitzer has 2 rooms full of evidence that found violations of both NY state and federal law. Payola really saps the vitality of radio.
Is there a linkage between the structural reforms, payola, and more indecent content
Radio is losing its real life force and is also losing market share to satellite radio (and iPods and streaming). As these companies get larger and larger, there is a loss of the soul of music, like the local DJ who is in touch with the local music scene and can take a band from a local/regional exposure to break nationally.
What power does the FCC have over the radio stations to enforce payola regulations?
The FCC does have the authority to revoke license. Array of penalties available– civil fines, consent decrees. If the broadcaster wants to retain its license, can put in place policies that will prevent payola. Radio station is required to operate in the public interest and follow rules. We knew there was smoke, but until Spitzer used subpoena power to get the evidence, we didn’t really have the evidence as to what is going on.
Why isn’t the Commission investigating like Spitzer? Does the FCC have subpoeana power?
Genreally, the FCC reacts to complaints, rather than investigating from the outset. Now, there’s enough evidence just to go through that and figure out what violations of law occurred and be busy mining that information. FCC has subpoena power, but rarely uses it, generally only to pursue investigating complaints. There’s institutional intertia that makes it difficult to investigate, but the Spitzer info is helpful. It would be a good idea to investigate on our own.