The Limewire Ruling: New King of the Hill for Illegal Downloading Decisions

The U. S. District Court for the Southern District of New York ruled against LimeWire and its parent company, Lime Group, finding them liable for inducement of copyright infringement based on the use of their service by subscribers. 

U.S. District Judge Kimba Wood issued the 59-page decision Wednesday, siding with the 13 record companies that sued Lime Wire LLC and founder and Chairman Mark Gorton through the RIAA claiming copyright infringement and unfair competition.

In finding the company liable, Wood opined that LimeWire had optimized its application to "ensure that users can download digital recordings, the majority of which are protected by copyright," and that the company actively "assists users in committing infringement."  Wood also found that the defendants knew their technology was being used to download copyrighted tunes and took no "meaningful steps" to prevent the infringement. In addition, Lime Wire marketed its software to people "predisposed to committing infringement" and assisted those people, the judge ruled.

Major labels, as represented by the RIAA, were predictably thrilled with the outcome.  "This definitive ruling is an extraordinary victory for the entire creative community.  The court made clear that LimeWire was liable for inducing widespread copyright theft," RIAA chairman and CEO Mitch Bainwol relayed.

Lime Wire Chief Executive George Searle issued a statement saying the company "strongly opposed the court's recent decision."  The statement continued:

"Lime Wire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission," Searle said.

Searle did not say whether Limewire would appeal the ruling.

The Recording Industry Association of America proclaimed the decision was "an important milestone" in the battle against online copyright infringement, because Gorton was found personally liable, in addition to the company of which he was the chairman.  Personal liability against a corporate director is rare.

"The court has sent a clear signal to those who think they can devise and profit from a piracy scheme that will escape accountability," Mitch Bainwol, chairman and chief executive of the RIAA, said in a statement.

LimeWire, launched in 2000, is one of the largest remaining commercial peer-to-peer services left on the Web. The company claims to have more than 50 million monthly users.  The company has managed to defend itself against major label legal action for years.  

In issuing her opinion, Wood relied heavily on the 2005 Grokster ruling, in which the Supreme Court said that a file-sharing service was liable when customers were induced to use it for swapping songs and movies illegally.  The test established by the Supreme Court in MGM v. Grokster for provider liability is whether the company actively induced users to commit infringing activities.  While LimeWire argued that it did not, Judge Wood noted that the company actively  “markets LimeWire to users predisposed to committing infringement.”

The record companies that sued Lime Wire included Arista, Atlantic, BMG Music, Capital, Elektra, Interscope, LaFace, Motown, Priority, Sony BMG, UMG, Virgin and Warner Brothers.

HR 848 passes committee

Rep. John Conyers, Chair of the House Judiciary Committee brought the Performance Rights Act (HR 848) up for markup this morning. 

HR 848 created no small amount of disagreement among radio broadcasters, minority broadcasters, trade unions and civil rights groups.  However, a group  of minority artists, including Duke Fakir of the Four Tops, Dionne Farris and Jon Secada, recently sent a letter indicating support for Rep. Conyers and this legislation.  The letters stated in part: 

As minority artists, we support a strong and vibrant local radio industry. We know that minority broadcasters play a vital role in our communities. And we support efforts to create accommodations in the legislation for small, minority-owned stations. But the creation of a fair performance right cannot be delayed further. We have already waited far too long. “Not now” is not an acceptable answer.

To address the concerns of minority broadcasters, Conyers offered the following amendments at today’s markup:

Affordable payment for small, rural, nonprofit, minority, religious and educational broadcasters

· Any station that makes less than $100,000 annually will pay only $500 annually for unlimited use of music

· Any station that makes less than $500,000 but more than $100,000 annually will pay only $2500 (half of the amount in introduced bill) annually for unlimited use of music

· Any station that makes less than $1,250,000 but more than $500,000 annually will pay only $5000 (the amount in introduced bill) annually for unlimited use of music

Relief for current economic situation

· No payment for 2 years by any station that makes less than $5,000,000 annually

· No payment for 1 year by any station that makes more than $5,000,000 annually

Parity for all radio services

· Establishes a “placeholder” standard to determine a fair rate for all radio services that will encourage negotiations between the stakeholders

Cannot hurt local communities

· Assures that this legislation cannot affect broadcasters public interest obligations to serve the local community

Assures consideration of relevant evidence

· Evidence relevant to small, noncommercial, minority, and religious broadcasters and religious and minority royalty recipients must be considered by the Copyright Royalty Judges

Other minority and civil rights groups that sent letters expressing support for the act included the Leadership Conference on Civil Rights, Pennsylvania Legislative Black Caucus, Rhythm and Blues Foundation and the A. Phillip Randolph Institute.

The executive director of the musicFIRST Coalition, Jennifer Bendall, supported the committee’s decision:

“We applaud Chairman Conyers and Committee members for their work on the Performance Rights Act and for supporting artists, musicians and rights holders in their fight for fair compensation when their music is used by AM and FM radio stations.

The Performance Rights Act will bring fairness to artists, musicians and rights holders and one that’s fair to radio and its counterparts. It also includes accommodations for small and minority-owned broadcasters. musicFIRST looks forward to the next chapter and to Congress to ensure that U.S. artists and musicians receive the performance right they deserve.”

Now that HR 848 has cleared the committee, it will be brought in front of the entire House for debate and vote. 

Technorati Tags: Performance Rights Act,Legislation,Radio Broadcasters,PROs,music industry Events

Judiciary Committee holds hearings on HR 848, the “Performance Rights Act”

The House Judiciary Committee will hold hearings on H.R. 848 (this year’s version of HR 4789) tomorrow morning at 10:00 a.m.  Although the Committee’s website does not identify any witnesses at this time, I am informed by musicFIRST that Smashing Pumpkins’ founder Billy Corgan and Mitch Bainwol, chairman and CEO of the RIAA will be speaking on their behalf at the hearing.

H.R. 848 was introduced to the 111th Congress by Rep. John Conyers on February 4, 2009 then referred to committee on the same day.  It was co-sponsored by Tennessee representative, Marsha Blackburn.  If passed, HR 848 would amend The Copyright Act (specifically Title 17) to provide “parity in radio performance rights” under the Copyright Act.  In other words, the Bill would grant a performance rights in sound recordings performed over terrestrial broadcasts (i.e., traditional radio broadcasts, not satellite).   S. 379 is the Senate’s complimentary bill, introduced by Senator Patrick Leahy.

The act has certain provisions to accommodate concerns by the broadcast industry, such as the provision which establishes a flat annual fee in lieu of payment of royalties for individual terrestrial broadcast stations with gross revenues of less than $1.25 million and for non-commercial, public broadcast stations; the provision which grants an exemption from royalty payments for broadcasts of religious services and for incidental uses of musical sound recordings; and the provision which grants terrestrial broadcast stations that make limited feature uses of sound recordings the option to obtain per program licenses. 

The Act specifically states that it will not adversely affect the public performance rights or royalties payable to songwriters or copyright owners of musical works.   In particular, the Act prohibits taking into account the rates established by the Copyright Royalty Judges in any proceeding to reduce or adversely affect the license fees payable for public performances by terrestrial broadcast stations. Requires that such license fees for the public performance of musical works be independent of license fees paid for the public performance of sound recordings.

The full text of the bill can be found at govtrack.us.

One provision I found interesting was Section 6, (1)(A), regarding payment of certain royalties, that states, in full:

A featured recording artist who performs on a sound recording that has been licensed for public performance by means of a digital audio transmission shall be entitled to receive payments from the copyright owner of the sound recording in accordance with the terms of the artist's contract.

Emphasis added.  This last clause intrigues me.  What I find interesting about it is that under the current structure, the record labels own most, if not all, of the commercial sound recording masters, i.e., they are the “copyright owner of the sound recording.”  This clause entitles the “featured recording artist,” e.g., Madonna, Michael Jackson, etc., to receive payments from the owner “in accordance with the terms of the artist’s contract.” 

In most artists’ contracts, payments are based on a percentage of the gross revenues from sales of physical units – current artist contracts do not have provision for payment of performance royalties on the sound recording.  It would seem that under the Act as written, there is silence as to what happens in this instance where these specific payments of performance royalties are not addressed in the artist’s contract.  One possible remedy would be for the legislators to draft language that would apply, such as what they have done with regard to the “non-featured artists in subsection (B) of the same Section 6.   This Section 6 is not found in the Senate’s version of the legislation.

All of this makes me curious about what will happen to performance royalties that are paid under this Act to the owners of the sound recording copyrights, i.e. the record labels if there is no language in the artists’ recording agreements to specify as to what percentage the artist is entitled?  One thing is certain:  an artist who is not recouped under his artist recording agreement will never see any of these performance royalties under such time as his balance is recouped.

One proposal you might suggest to your representatives is that they consider a payment structure similar to that of the current performance rights organizations that collect and pay performance royalties for musical compositions, wherein one half of the royalties go directly to the songwriter and the other half directly to the publisher.  If this were the case under the new Act, half of the royalty payments would filter directly to the artist and the other half would go to the record labels.  If there truly is a concern about the recording artists not getting paid for his or her performances, this is the only method that would assure this happens.

If you are a recording artist whose performances are being playing on local FM and AM radios, you should investigate the impact this legislation will have on you.  Call you Senators and Representatives and ask them to keep you updated.

Technorati Tags: legislation,HR 848,performance rights act,2009,111th Congress,record labels,music industry,entertainment industry,recording contracts,entertainment law,music law,music lawyer

musicFIRST defends rights of artists

By Jennifer Bendall, Executive Director of musicFIRST

Did you know that every time you hear your favorite artist’s hit songs over the airwaves he or she doesn’t receive a single penny from the radio stations broadcasting the song? Sounds crazy, right? While AM and FM music broadcasters rightly pay the writers of these songs, they refuse to compensate the performing artist as the performer of the song.

In fact, AM and FM music radio stations earn a cool $16 billion a year in advertising revenue without compensating the artists and musicians who bring music to life and listeners’ ears to the radio dial.

The fight for a fair performance right on radio has been going on in the U.S. for more than 80 years. Frank Sinatra was a leader in this fight 20 years ago, and his daughter Nancy carries the legacy today. In 2008, Nancy Sinatra testified before a House subcommittee on behalf of the musicFIRST (Fairness in Radio Starting Today) Coalition, telling members of Congress about the life of an artist:

Imagine struggling in your job, perhaps for years, to make the best product you can – a product made of your blood, sweat and tears. Now imagine people taking that product to use to build their own hugely successful businesses. Just taking it – no permission, no payment, and no consequence.

A fair performance right is not only beneficial for the musicians and artists behind the music, but also for the U.S. economy. Currently, the U.S. is the only member of the 30-country Organization of Economic Cooperation and Development (OECD) that does not fairly compensate performing artists when their songs are played on the radio. This puts the U.S. in the company of countries such as Iran, China and North Korea who don’t pay royalties to performers for their intellectual property. Plus, since we don’t have a performance right here in the U.S., artists lose out on the royalties collected overseas for the play of American sound recordings.

The musicFIRST Coalition, a group of artists, musicians and music community organizations, supports the creation of a performance right on AM and FM radio. The Coalition formed in June 2007 to ensure that all performers – from aspiring and local artists, to background singers and well-known stars – are fairly compensated when their music is played on the radio. On February 4, 2009, bipartisan legislation – the “Performance Rights Act” – was reintroduced in the House and Senate. MusicFIRST supports this measure and plans to remain at the forefront of the fight for fair pay for airplay.

AM and FM radio remains the lone holdout in providing a fair performance right for artists and musicians. All other music platforms – Internet radio, satellite radio and cable television music channels – pay a fair performance royalty for the use of music. It’s time that radio broadcasters are held to the same standard.

Eighty years is far too long for AM and FM radio stations to refuse to compensate performers for their work. Let this be the year fairness is provided to the talented performers who bring to life the music of our lives.

My special thanks to guest author of today’s article, Jennifer Bendall, and Lindsay Dahl for making this article happen.  For more information about musicFIRST and the great work they’re doing, go to www.musicfirstcoalition.org, or click on the picture above.

Technorati Tags: performance royalties,mechanical royalties,artist,music lawyer,radio broadcasts

Fair is not always "Fair Use"

The concept of “fair use” is a very misunderstood concept.  The first common misunderstanding that people espouse is that the concept of “fair use” is a right or privilege granted by copyright law.  It is not.  Secondly, many people mistakenly believe that so long as they do not make any money from an infringing use of copyrighted material, then the use is a fair use.  This is also an incorrect assumption. 

Fair use is not a right or a privilege to be exercised at one’s whim.  Rather, the doctrine is an “equitable rule of reason” that may be used as an affirmative d

efense in a copyright infringement action.  The purpose of the rule is to balance the equities between the desire to protect and therefore encourage the creation of new ideas and the desire to encourage the free exchange of speech in the marketplace of ideas.  The tension was described by Justice Souter as “simultaneously protect[ing] copyrighted material and allow[ing] others to build upon it.”  Nonetheless, the thing to remember is that application of the fair use defense is declared by judicial fiat in the context of a copyright infringement action.  It is applied on a case-by-case analysis of the factual situation.  Thus, fair use is not a presumptive right or privilege that may be exercised by the infringing party.

There are four factors weighed by the Supreme Court in making a determination of whether a derivative work constitutes a “fair use.”  These factors are (1) the nature of the work itself; (2) whether or not the work is commercial in nature; (3) the amount of the copyright work that is used; and (4) the effect of the use on the potential market or value of the copyright at issue. Folsom v. Marsh, 9 F. Cas. 342 (C.C.D. Mass. 1841), codified at §107 of the 1976 Copyright Act.

The nature of the work refers to the “nature” of the unauthorized derivative work, not the original copyright work.  In order for such an unauthorized use of copyrighted material to be entitled to the“fair use” defense, the new creation must transform the original copyrighted material.  A “transformative work” is defined by the U.S. Supreme Court as one that “adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.”  See, Campbell v. Acuff Rose Music, Inc., 510 U.S. 569 (1994).   While all factors must be considered, this is perhaps one of the more critical factors in the analysis.  Merely modulating the pitch of a song or inverting the sequence of a chord progression would probably not be considered transformative.   A very good example of a derivative work that is transformative in nature is Alice Randall’s The Wind Done Gone, the same story as Margaret Mitchell’s Gone with the Wind, but told from the perspective of a mulatto slave who is the half-sister of Scarlet O’Hara, the main character in the original work.  See Suntrust v. Houghton Mifflin Co., 252 F.3d 1165 (11th Cir 2001) per curiam, opinion at 268 F.3d 1257.  In that case, the Eleventh Circuit extended the protection of a musical parody in Acuff Rose to the novel.

With regard to the second factor as to whether a use is commercial in nature, it should be noted that this does not necessarily mean that the new creation has to generate profits.  If the new work create a significant fan, donor and/or advertiser base, those factors tend to lead to a conclusion that it is commercial in nature.  A person simply does not have the “right” to use copyrighted works in any manner as long as no profit is generated from the use.   It is also evident that this factor does not mean that simply because a derivative use does in fact generate profits, that it is by default not a fair use.  In Acuff Rose, 2 Live Crew’s parody version of Roy Orbison’s Oh Pretty Woman had sold over 250,000 copies, yet was still considered a “fair use.”  The thing to be remembered is that this is but one of the factors.

The third factor is fairly easy to evaluate: the more material “borrowed” from the copyrighted source, the less likely the infringer is to have a “fair use” defense.  Again, another misconception is that there is a bright line test for fair use:  that a few measures of a song, a couple of lines from a poem, a few hundred words of a paragraph, or a few paragraphs from a book, are considered fair use.  This misconception has no basis in either the Copyright Act or the case law interpreting it.  It is merely folklore.  The factor, as used by the courts, is more of a sliding scale based, again, on the quantity of the material used from the copyrighted work as compared to the total material.

Finally, the last factor weighs the impact on the infringing use on the potential market and value of the copyright.  This was an integral part of the Supreme Court’s ruling in Acuff Rose that 2 Live Crew’s parody of Roy Orbison’s Oh Pretty Woman did not impact the potential market for the original.   The more a derivative work negatively impacts the potential market for and value of the copyright, the less likely it will a "fair use."

In summary, as you may have noticed, the fair use doctrine is by no means a bright line test.  Each “fair use” defense is, by its very nature, evaluated on a case by case analysis in the context of a copyright infringement action.  Fair use is not something to be relied on as a presumptive right.

Technorati Tags: Fair Use,Copyright Infringement,Parody,Music Lawyer,Entertainment Lawyer,Music Law,Entertainment Law,Campell v. Acuff Rose

New Copyright Legislation, H.R. 4279, being considered by House Committee on the Judiciary

The U.S. House of Representatives introduced a 69-page bill entitled the "Prioritizing Resources and Organization for Intellectual Property Act of 2007."  The legislation is significant in that it increases civil penalties for copyright infringement, expands criminal enforcement, and creates both a new federal agency and a new division of the Attorney General's office of the Department of Justice.   The full text of the proposed legislation is here:  H.R. 4279.  I have established an RSS feed in the column of my blog for tracking purposes. 

It is important to realize that, up front, that this is proposed legislation.  This is the first step in the legislative process. The first step in the life of a bill, if you recall your Schoolhouse Rock song, I'm Just a Bill, is referral to a committees that deliberates, investigates, and revises the proposed legislation before it is recommended that it proceed to general debate by the full House of Representatives.  This process can take a long time, or get stalled.  In fact, the majority of bills never make it out of committee.  The ones that do often do not resemble the proposed legislation very much at all, as sometimes the text goes through numerous iterations before it gets recommended, if at all. Other times, sections of a proposed bill may be incorporated into another bill, and in those cases the original bill, as it was introduced, is abandoned.  That is say that a lot can happen before this process ends.  Once a bill is approved by the House of Representatives, the process starts all over again in the Senate!

The major sections of the proposed legislation are:

* TITLE I—Enhancements to Civil Intellectual Property Laws  One of the more significant amendments to Section 104 of the Copyright Act, pursuant to this proposed legislation, is that it would allow courts to make "multiple awards of statutory damages" when compilations are infringed or when both derivatives and the original are infringed.  

 

TITLE II—Enhancements to Criminal Intellectual Property Laws   This is one of the more extensive expansions of the proposed legislation, allowing for stricter enforcement of willful, criminal infringement. 

TITLE III—Coordination and Strategic Planning of Federal Effort Against Counterfeiting and Piracy

This title is perhaps the most sweeping part of the proposed legislation.  The effect would be the creation of a new federal bureaucracy called the United States Intellectual Property Enforcement Representative (other reports state that is it called the "White House Intellectual Property Enforcement Representative, or WHIPER, but that designation does not appear in the proposed legislation). The head of this new agency would be a member of the Executive Branch and, therefore, would be appointed by the president and confirmed by the Senate.

The new post would report directly to the president and serve as his or her principal advisor and spokesman regarding intellectual property matters, including, for example, identifying countries that don't adequately protect IP rights or are not in compliance with international treaties.

As part of this new agency, a new "interagency" committee would be established for the purpose of intellectual property enforcement.  The new committee would be composed of the enforcement representative, who would chair the committee, and senior representatives of various departments and agencies involved in intellectual property enforcement, appointed by the respective heads of those departments and agencies.  Those agencies include the DOJ, the Trademark Office, the Copyright Office and Homeland Security, just to name a few.

TITLE IV—International Enforcement and Coordination

Under this section, the Trademark Office will appoint 10 intellectual property attachés to serve in United States embassies. The 10 appointments shall be in addition to personnel serving in the capacity of intellectual property attaché at United States embassies or other diplomatic missions on the date of the enactment of this Act.

TITLE V—Department of Justice Programs

In this section, the proposed legislation would created within the U.S. Justice Department's an "Intellectual Property Enforcement Division" to subsume the IP-related functions that the department's computer crime section in the criminal division currently performs. The new division would receive $25 million per year to start with.

This is by no means an exhaustive analysis of this proposed legislation, so take the time to read it for yourself and, if appropriate, contact you local representative to comment on the proposed legislation.

 

Technorati Tags: Copyright Legislation,Copyright Law,House of Representatives,Statutory Damages

Expert Witness Fund established to defend against RIAA Lawsuits

The Recording Industry v. the People, an anti-RIAA blog operat ed by New York attorney, Ray Beckerman, is cooperating with the Boston-based non-profit, The Free Software Foundation, to establish "a fund to help provide computer expert witnesses to combat RIAA's ongoing lawsuits, and to defend against the RIAA's attempt to redefine copyright law."

The Free Software Foundation was established to promote the development and use of free software.  It manages several campaigns to achieve that goal, including one called "BadVista.org," fighting the adoption of Microsoft Vista, and "DefectivebyDesign.org" which was established for the purpose of eliminating digital rights management in music and movies from "Big Media."

As of the end of November, the fund had raised over $4,000.  The fund will be administered by Mr. Beckerman and will be disbursed to technical witnesses hired by RIAA litigation defense teams on a variety of criteria, including the basis of the importance of the case to critical legal issues.

To donate to the fund, click here.

Technorati Tags: RIAA Litigation,Digital Downloads,Recording Industry,Copyright,MP3

The Magic Bubble Bursts: Did the Record Labels made their own grave?

For almost a decade now, the major labels (at the beginning there were five of them, now only four, EMI, Sony BMG, Vivendi Universal and Warner) have declared that illegal downloading is ravaging their business by destroying the sales of physical product.  One may question this declaration, however, in few of the fact that ever since the RIAA filed its 1998 litigation again the manufacturer of the Diamond Rio MP3 player and extending to its most recent lawsuits against individuals across the country, the music industry has committed more public image faux pas than Dan Quayle and George W combined, making it one of the most hated industries among high school and college students.  It should be apparent to everyone now that it is not illegal downloads that is causing the downturn in music sales, as there are many other contributing factors.

This marred image is evident.  According to an article in Rolling Stone magaine entitled The Record Industry's Decline:

About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Last year the eighty-nine-store Tower Records chain, which represented 2.5 percent of overall retail sales, went out of business, and Musicland, which operated more than 800 stores under the Sam Goody brand, among others, filed for bankruptcy. Around sixty-five percent of all music sales now take place in big-box stores such as Wal-Mart and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artists.

Nonetheless, a new research study on the issue, commissioned by the Canadian government to explore issues related to copyright reform, was recently released.  The study is entitled The Impact of Music Downloads and P2P File-Sharing on the Purchase of Music: A Study for Industry Canada, and was written by Birgitte Andersen and Marion Frenz, of the Department of Management at the University of London in England.  A PDF version of the study is published here.

The results of the new study affirm many of the conclusions found in an earlier study entitled, The Effect of File Sharing on Record Sales: An Empirical Analysis.  This paper was published in the February 2007 issue of The Journal of Political Studies, and was written by Koleman Strumpf, professor of business economics at the University of Kansas Business School and Felix Oberholzer of the Harvard University Business School.  Both studies directly contradict the claims of the music industry that file sharing is related to revenue losses.

In fact, the new study supports an opposite assertion, i.e., that distribution of music files on P2P networks actually promotes the sale of physical product.  Andersen and Frenz found, among people who actually participate in P2P file sharing, downloading actually increases the sale of physical product by a ration of 2 to 1, in other words, on average when a P2P file sharer downloaded the equivalent of two CDs in files, he or she would purchase of one physical CD (Note:  I have extrapolated here, as the numbers set forth in the study actually say that for every 12 P2P songs downloaded, physical purchases increased by 0.44 CDs).  It is important to note that the study concluded that, when incorporating the Canadian population as a whole (i.e., including the group who participate in P2P file sharing along with those who do not), file sharing on P2P networks has neither a positive nor a negative impact on CD sales.

One fact in the report I found very intriguing is its conclusion that the owners of MP3 players are less likely to purchase physical product.  This is interesting, in my mind, because I believe it is connected to the popularity of the iPod and iTunes.  If a person purchases the iPod and uses iTunes, there is really no need to buy physical product, whereas when a person uses a different brand of MP3 player, he or she is, in my humble opinion, more likely to go out in search of alternative means of finding music, including purchasing CD's.  I would like to see a study which compares iPod owners with owners of third party MP3 players.  It may turn out that the biggest culprit in the demise of the record industry is Apple!

One story I found really revealing is the Rolling Stones article on The Record Industry's Decline.  In it, the author tells the story about how the major labels were unable to come to a settlement with Napster which would have given them immediate access to Napster's 38 million users.  I don't know the details of that meeting, but it seems to me that when the industry burst that bubble, those 38 million users disbursed into millions of subgroups on P2P networks so varied that it become virtually impossible to get the magic back.  Hindsight is, of course, always better than foresight, but this event certainly seems to me to one of the biggest turning points in our industry's history.

Is the music industry going to survive.  Of course!  It will certainly not be in the form many traditionalists in the industry wish it to be.  CD's eventually be ancient relics of the past, sought after by collectors much as jazz lovers currently seek out old vinyls and record players.  The radio industry will not have control over marketing and thus the role of radio consultants on the industry will be diminished.  Marketing efforst will shift to television outlets and Internet marketing.  Search engines and online communities will continue to surface new music and expose the long tail.  Major labels will no be the sole repository of the major talent, as independents will rise to fill the void, fueled by venture capital from investors.  Whatever happens, it going to be an interesting ride!

Some further reading:

The Freakonomics of Music

File Sharing:  Zero Effect on Downloads

The Record Industry's Decline

Technorati Tags: Record Labels,Recording Industry,Entertainment Industry,CD,Digital Downloads,Diamond Rio,Major Labels,File Sharing,P2P Networks,P2P,Music Lawyer,Entertainment Lawyer

Return fire by the music industry - artists to testify before Senate

The Senate Judiciary Committee is holding a high-profile hearing  today on the subject of imposing additional performance royalties on so-called "over-the-air" or "terrestrial" radio stations (I'll just call them OTA's in this article).  Investigative hearings such as these are usually precursors to legislation being introduced on the subject.  Grammy winner, Lyle Lovett and Chicago-based singer-songwriter Alice Peacock testified before the Committee this morning at 9:30 ET.  Their testimony was broadcast live at C-SPAN.

So, what is the issue.  OTA's and the music industry are currently engaged in one of the biggest industry and lobbying battles to hit Washington in quite some time.  The OTA's fired a recent shot when a concurrent resolution was passed by Congress.  Now, the music industry is firing back. 

One of my recent blog entitled New concurrent resolution, H.Con.Res 244, introduced to combat performance royalties for record labels gives some background on the issue, which is basically this:  Currently, OTA's pay performance royalties to ASCAP, BMI and SESAC in the U.S. for airplay performances of the musical composition copyright.  They do not, however, pay a performance royalty to the owners of the sound recording copyright for over the air performances of the copyright.  The sound recording copyright is distinct from the musical composition copyright.

This is because when Congress introduced new legislation in the mid-90's to grant sound recording copyright owners a right to performance royalties, it specifically excluded OTA's from the legislation on the basis that the artists and record labels who owned the sound recording copyrights benefited from the publicity of over the air performances, which offset the need for payment of a performance royalty.    Keep in mind, again, that this does not apply to the performance royalties paid to songwriters and music publishers.

The effect of the Digital Performance Royalty in Sound Recordings Act of 1995 is that only digital performances of the sound recording copyrights are entitled to compensation.  This applies only to Internet webcasters, Cable Radio and Satellite radio stations.  These types of services -- Pandora, Sirius, XM Radio, Last.fm, for example -- pay performance royalties to both the owners of the musical composition copyright and the sound recording copyright.  Many industry groups are rallying to rectify what is viewed as an unfair advantage for OTA's.

One such group is musicFIRST, which stands for "fairness in radio starting today."  This organization is made up of a large and impressive group of recording industry groups and well-known artists.  Unfortunately, the RIAA's involvement in this organization has diminished its reputation on many blogs, such as this article entitled Lovett goes to bat for radio royalties, the credibility of which is call into doubt by the fact that the writer is ostensibly unaware of Lyle Lovett's reputation and notoriety.  But don't make the mistake of slanting your opinion against musicFIRST based on that organization's involvement.  Check out the website and seriously consider the issues and you'll probably understand their perspective.

There is tremendous validity to the argument that radio broadcasts no longer hold the same sway over consumers that they did in 1995.  One research study conducted by Dr. Stan Leibowitz, an economics professor at the University of Texas, compared record sales and music radio listening habits in nearly 100 cities across the United States and found that exposure for a song on the radio was a substitute for purchasing the music and, therefore, actually had a negative impact on sales of music.  Critics point out that the study was funded, at least in part, by the musicFIRST coalition and say that there are studies which indicate the opposite, that is that radio airplay stimulates interests in new music and therefore encourages sales.  Think about your own habits - when was the last time you heard a song on the car radio and rushed to buy it?

Another argument propounded by the OTA's in opposition to payment of royalties to the owners of sound recording copyrights is that it would put them out of business.  They simply can't afford to pay more royalties for the music they use.  Of course, Internet webcasters and Satellite and Cable radio providers are saying "talk to the hand . . . call waiting!"   But the truth is that OTA's get the bulk of their revenue from advertisers and their revenue increases if they attract larger audience by playing the latest music.  Furthermore, stock analysts are predicting that advertising revenues, in general, are on the increase for the foreseeable future.  One researcher, George Williams, reportedly found that the annual growth of radio advertising rates from 1996 to March 2007 was 10% a year, outpacing the Consumer Price Index by more than three times its 3% a year rate.  It is very doubtful that OTA's revenues would be seriously altered by this legislation, in fact, the OTA's would more than likely simply pass the additional costs on to advertisers.

The bottom line, in my view, is that the legislation, when it is finally proposed, will create a level playing field for the broadcasting industry, providing that both digital and OTA's are required to pay the same royalties.  This just seems fair, doesn't it?  Now, whether the powerful OTA lobby will prevent the passage of such legislation is a blog for another day. 

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