Turn over the bootleg CD and nobody gets hurt

The Tennessee State Legislator is currently considering a bill that would require police intervention for copyright owners or their authorized representatives to request purveyors of counterfeit copies of their works to voluntarily surrender the illegal copies. Such counterfeited works, which are better known in the music industry as either pirated or bootleg copies, are often sold at flea markets or in local independent record stores.

If the Bill aims to strike a balance between protecting the rights of copyright owners and the rights of legitimate vendors--all of which are laudable public policy goals--it is seriously off the mark. It is already a crime in Tennessee to illegally take someone's property. That is not what rights holders do when they approach a vendor selling a bootleg. The bootleg is not the vendor's property in the first place. The criminal code already protects legitimate vendors. This Bill simply removes the self-help solution available to rights owners. Which would be fine, if the State of Tennessee was willing to fund a statewide taskforce to police such piracy.

For background, there was an excellent article in the Nashville based Tennessean newspaper today that highlights the competing interests involved. (That article can be found by clicking here.) Also the Recording Industry Association of America (RIAA) has an excellent website highlighting the economic and social impact caused by physical piracy.

The interesting issue here is that copyright holders, like those represented by the RIAA and similar organizations, have a legitimate interest in both protecting their copyrights and assisting legitimate vendors who often must compete with pirates who have an unfair competitive advantage. The involvement and education of local law enforcement in this effort should be encouraged by our laws. Also, a funded law enforcement taskforce would legitimize efforts of rights holders who do attempt to confiscate counterfeit copies of their works. Such official procedures could make the process more effective. Having a local uniformed police officer busting a bootlegger at the flea market would have a clear deterrent affect.

The law fails, however, to provide local law enforcement with the resources necessary to meet a mandate such as that found in the Tennessee Bill and does not add any protection to legitimate vendors. It simply protects pirates. If your local police force does not have the proper resources, this Bill will simply tip the balance in favor of the pirates. That possible unintended consequence should be seriously considered before such a bill is made law.

Music Access

I just finished reading the Digital Music Report 2009 authored by the International Federation of the Phonographic Industry (IFPI). The IFPI is the organization that represents the interests of the recording industry worldwide and has 1400 members including the Recording Industry Association of America.

The report goes into great detail describing the shifting business model from a sales and distribution based model to one that monetizes access to music. According to Nielsen SoundScan single track downloads in the U.S. crossed the one billion mark in 2008. That represents a 27 % increase in one year.

Considering the recent defeat of former Eminem producers F.B.T. Productions, this new business model could be the savior of the record labels. But is it unfair to the musicians? Let me know what you think by answering my latest poll.

Choice Overload and Radio

I just finished reading an excellent interview by Kyle Bylin, Associate Editor of Hyperbot.com. Bylin interviewed Barry Schwartz, who is the Dorwin Cartwright Professor of Social Theory and Social Action at Swarthmore College and author of the book The Paradox of Choice: Why More Is Less. In this interview, Bylin probes into the impact of the paradox of choice on the music industry. Professor Schwartz explains in the interview that when people are given overwhelming options (i.e., choice overload), such as in today's music culture, if they do make a decision they tend to take one of two courses of action: (1) they rely on habit to make decisions or (2) they rely on filters to tell them what to choose.

The second course of action is very interesting to me in light of our previous discussions of the most recent version of the Performance Rights Act. Let's take my prior argument as true, that Radio hinders the sale of music overall (again, I'm not saying radio hinders individual albums, artists, or songs; I'm saying all music). Could radio still be benefiting the labels and some artists, by acting as a filter in our choice overloaded society?

From an economic standpoint this could make sense. For years (I'm talking 50 or more) record labels have operated a generally static business model. They payout advances to bands, the bands record an album, the album is shipped out into the world and marketed, the band goes on tour to further market the album, singles are released into the world via radio, and 90% fail. Yes, that's right, 90% fail to ever make a profit. The other 10% make the labels back their money and a profit. Consider the failures to be R&D. The problem in the last 8 or 9 years is that the other 10% are not selling that many albums either because of the file-sharing problem ushered in by digital technology.

It has been clear for years that record labels have to change their business model. First, they need to find other streams of revenue to stay viable--hence the Performance Rights Act and the push for 360 deals. Second, they need to increase the number of acts that actually turn a profit. Gone are the days when 10% can sell enough units to carry the other 90% and generate a healthy profit for the label.

Could the power of Radio be harnessed by the labels, in this choice overloaded society, to improve their current 10% success rate? In other words could the labels use radio as a filter to improve their sales of individually selected acts? Some say that is what radio has been doing all along, and manipulation of that system (ever heard of payola?) also has a longstanding tradition. But that still only resulted in a 10 or 20% success rate at best.

I'm talking about a more efficient business model. One that takes into account the current realities of of exceedingly large numbers of individual songs on the Internet. One that abandons payola and where labels no longer package 8 bad songs with 2 good ones so that they can charge $15 per album to turn a profit. I don't know what this business model would look like yet, but it is an interesting thought.

One last thought: if they could harness the power of radio in such a way, would that violate antitrust law?

Focus? What does that have to do with Copyright and Music Law?

Check out the slide show in the post below. It is interesting, funny, and helpful. But you might ask yourself what it has to do with copyright and music law?

The slide show's topic is how to keep focused. At the beginning there is a slide that talks about knowledge work, and that got me thinking about my previous blogs. People who create intellectual property (yes I'm talking about copyrights and music) are the quintessential knowledge workers. They don't crank out widgets for a living; they create. With all the talk in the music industry focused on developing new streams of revenue (see my posts below on monetizing radio airplay), our artists, songwriters, and even us attorneys may lose sight of our main focus of our knowledge work, whether that be creating music or writing contracts.

To make money creating (i.e., as a knowledge worker) you must gain a competitive advantage over others who are in your field. One competitive advantage is to do the same thing as your competition, but do it more efficiently, which is known as a cost advantage. The other way is to do it better than your competition, which is known as a differentiation advantage.

So if you are a creator and you want to make money from your creative efforts, you need to focus your creative energy in a productive way. The following slide show will help with that, I promise.

Who Moved My Brain? Revaluing Time and Attention

Check out this SlideShare Presentation:

Who Moved My Brain? Revaluing Time and Attention

View more presentations from merlinmann.

How do you compete with free?

To continue on with my last two posts, I have a question for you: How do you compete with free? That is a common question posed by many in the recording industry. The question is usually given in the context of the ravages of digital technology on music sales. While I think this is an overly simplistic question, I am posing it regarding radio.

That's right, over-the-air terrestrial radio. Our prized AM/FM radio. I'm currently reviewing some of the testimony given to congress recently. Professor Ashbel Smith from the University of Texas at Dallas makes some very good points in his statement before the Committee on the Judiciary regarding the Performance Rights Act.

One such result of his research is that if people are listening to free music on the radio, they are not listening to prerecorded music ... seems like a no-brainer. I'd like to say he has a wonderful grasp of the obvious, but it is gospel in the music industry that radio airplay drives music sales. So if that is the longstanding industry belief, that radio airplay drives sales, why do we believe this? I'll admit that radio air play can drive up the sales of a single song or album, but does it actually increase overall record sales? That is the important question, the question that Professor Smith addresses in his statement.

It is an interesting idea that radio airplay actually hinders the sale of prerecorded music instead of promoting it. What do you think? Answer the survey at the right to weigh in on the debate.

Performance Rights Act, Part II

So, where do I stand? To follow up on last week’s post, I support the act. Why? Well, at the outset let me say that it is not simply because I work in the Music Business. As I tried to point out in my previous post, the battle lines over this legislation have been drawn through the middle of the music industry. I have close friends and business associates on either side of this issue.

The reason I support this legislation is that it serves the greatest good—sounds Utopian, I know, but please let me explain before you write me off as a hopeless socialist.

I am a constitutionalist. My view of copyright legislation is seen through the lens of Article I, Section 8, Clause 8 of the U.S. Constitution, which states that “Congress shall have power…To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their Writings and Discoveries.” The specific words “To promote the Progress of Science and useful Arts” establish a utilitarian policy that guides Congress when enacting such laws.

It stands to reason that the grant of a copyright—which is nothing more than a monopoly (albeit a limited one)—must benefit more than the individual holder of that right. Indeed, very few monopolies are tolerated in the U.S. market without a utilitarian justification. Otherwise you simply have an unfair restraint of trade benefiting the few at the expense of the many.

Some argue that the utilitarian policy underlying copyright is contrary to the American ideals of self reliance and property rights. Yet, if authors are not given protectable property rights in their creations, some of them will stop creating for want of economic incentives. In other words, if you can’t make a living doing something, you are likely to abandon the endeavor and pursue a more lucrative path—that sounds very American to me.

As the U.S. Supreme Court stated in MGM Studios Inc, v. Grokster, Ltd. “… the administration of copyright law is an exercise in managing the trade-off” 125 S. Ct. 2764, 2775 (2005). While the court was speaking specifically of the tradeoff between technological innovation and artistic creation, it was also speaking more broadly to the tradeoff in all copyrights cases of balancing of the greatest good.

In applying this doctrine to the Performance Rights Act we can look to the vast majority of developed nations that have long ago mandated the payment of such royalties without a devastating impact to their over-the-air broadcast media. When compared to the devastating impact digital technology has had on the music industry, it is clear to me that the greatest good will be served with the passing of this act.

Without an objective economic impact analysis concluding, with some degree of certainty, that the trade off is a greater risk (i.e., that terrestrial radio in the U.S. will be driven out of business if forced to pay such royalties), the Performance Rights Act should be passed and signed into law.

The Performance Rights Act, H. R. 848, S. 379

Many people like to blame Shawn Fanning. While Mr. Fanning’s creation of the specific computer code that became commercially known as Napster was not inevitable, digital file sharing was. As equally inevitable are our current struggles regarding how to adapt—both socially and economically—to digital technology.

One attempt at adaptation is the most recent version of the Performance Rights Act currently before both houses of Congress. To me, one of the most interesting aspects of the legislative process is the demarcation of battle lines within an industry impacted by a specific piece of legislation. The many versions of The Performance Rights Act has created its share of feuds within the music industry.

The purpose of the bill is simple: require standard AM and FM radio stations (technically known as “terrestrial radio” to distinguish them from Internet and satellite radio) to pay performers royalties for the broadcast of their recorded music. Up until now, terrestrial radio stations paid only the songwriter a royalty.

The airplay of songs, so the theory goes, promotes album sales and that is how the artist and their label receive compensation for their creative efforts. Indeed that theory worked well into the late 1990’s. As we all know, the advent of digital technology made that theory about as useful as the one about the earth being flat.

Of course you can easily see the conflict this legislation created. Artists and their record labels (e.g., Warner Bros. Music, Sony/BMG, Universal Music, EMI, etc.) are supportive of monetizing the airplay of their music. But terrestrial radio is, of course, opposed to paying royalties on music they have been using free for years. To complicate matters, every business in the nation is reassessing and cutting back on advertising.

Yet, there was, at the beginning of the drafting stages of this bill, another not-so-obvious conflict that arose. The songwriting community joined terrestrial radio in opposition to the performance royalty. Songwriters and their music publishers were concerned that a performance royalty could cause a reduction in their royalty payments from terrestrial radio.

To address the concerns of the songwriting community, the drafters of the Performance Rights Act inserted Section 5 into the Act. Section 5 mandates that the songwriters’ royalties “shall not be reduced or adversely affected in any respect” by the implementation of the performance royalty. Thus the drafters limited the opposition to the bill.

Considering that the two major streams of revenue for a songwriter and their music publisher are the sale of music (which we all know is shrinking daily) and radio royalties, the insertion of Section 5 into the bill was critical.

So, where do you stand? Let me know by answering the survey on the right. I will let you know where I stand on the bill next week.