ILAW: Fisher on the Future of Entertainment

Jul 9, 2003

Next up here @ ILAW: Professor William "Terry" Fisher in a session entitled "Content: Law," exploring the laws surrounding digital distribution of content: music and films.

Terry: I'm going to begin with a survey of the 1/ potential benefits of new technologies, 2/copyright law circa 1990, 3/ seven cycles of reform--cycles of innovation and resistance, 4/ defects of the law resulting from the seven cycles, and finally, if we have time, 5/ one possible solution to the problem, as explored more deeply in my forthcoming book.
Potential benefits first. Three forms of accessing digital entertainment: downloading, interactive streaming and nointeractive streaming.
Why should we seek to encourage or enable these forms of distribution? Both benefits and harms. Benefits: 1/cost savings. Currently 38 percent goes to retailer. 8 percent goes to distributor. 14 percent goes to "overhead" for the recording industry. 5 percent A & R. Manufactuer and marketing each get 8 percent. Only one percent profit. The artist gets paid, yes--but they must pay back for the initial investment of the record label.
Traditional functions of recording industry: 1/ procure artists, 2/produce, 3/promote, 4/distribute and 5/risk spreading. They take a loss on the majority of performers, but make it up through the hits.
Digital tech has changed this: rapidly dropping studio costs, less dependance on radio promotion, etc. Somewhere in the neighborhood of 1/3 of the costs are dropping away.
Potential benefits of digital distribution: 1/cost savings, 2/eliminate over and under productions, 3/convenience and precision, 4/increase in number and variety of musicians, and finally, 5/increase in what I call "semiotic democracy." Mass participation in meaning-making.
Possible harms: 1/threatens the revenues of creators, 2/threaten moral rights, 3/threaten audience interests in stable culture. Example, no familiar canonical version of a Beatles single.
You would think that the goal of the legal system would be capitalize on the benefits while avoiding most of the harms. We've done a bad job so far.
So: copyright law circa 1990 (US law). Objects of protection: 1/musical composition, w/exclusive right to reproduce it, to prepare derivative works, to distribute the work to the public, and to perform it publicly. The entitlement most surprising to non-lawyers may be the right to public performance.
2/sound recordings, w/rights that don't map precisely to the above. Previously, there was no public performace right here. The radio station doesn't pay the record company. To the contrary. The record companies pay the radio stations.
Exceptions and limitations to copyright: 1/ first sale doctorine, 2/complulsory licenses (jukeboxes, etc.), and 3/ fair use.
[Shows complex diagram of who pays whom within the music industry.]
The oddity in this arrangement is payola. The core idea is that the record companies pay radio stations to play their music--but they do it through intermediaries. This is basically an expensive promotion device. There is a statute that bars people from paying stations to play particular artists. But the intermediaries do it.
Lisa Rein: Wasn't there something that went on recently where record stores were paid for giving certain CDs more prominence?
Terry: Yes, that's been going on for some time, but we've only had a fuss more recently. [...]
Retailers have gotten hurt just as the labels have, but the punishment is uneven. Mom and pops are doing okay, and so is Best Buy. But the big ones like HMV are going down. Best Buys demand substantial payments for offering certain CDs. The array of music that you can get in Best Buys are therefore much narrower.
Participant: Where can we rank Amazon.com and others?
Terry: Amazon continues to grow; not much money, but continues to grow. The short answer is that they are largely unaffected. Intermediate groups.
Lisa Rein: So paying for shelf space is not illegal, while paying radio DJs is--why?
Terry: Because with the shelves the costs to consumers are not hidden costs, presumably.
[...]
In the film industry, the situation is different. Aggregation: assembling all rights. The producer gives to the studio a worldwide agreement--it licenses the films to everyone else.
[...missed a bit here...]
Fair use doctorine: 1/purpose and character of use, 2/nature of the copyrighted work, 3/how much was used, 4/impact on potential market.
Betamax case--key to understanding Napster, Grokster, Aimster cases.
[Provides slide for an overview of how film studios are currently compensated for the broadcast of films.]
VCR was a threat--advertisers were concerned; they threatened to pull out. So the film industry got concerned. They had to sue someone. Who? They did not sue the individual users of the VCR. Rather than sue their customers, the studios went after the manufacturers: Sony.
It was a very close case. It was one of three cases in US history that the Supreme Court heard twice. Final holdings, 5-4: if a device is capable of substantial noninfringing uses, it is okay; and time shifting is fair use.
Lisa Rein: So it's illegal to archive? To make a copy and put it on your shelf for your children?
Terry Fisher: Yes, it is. But there's an exception for software.
[...]
The rap group 2LiveCrew can invoke the fair use doctorine--it's a parodic song.
JZ: What impact does this have on a genre like Jazz?
Terry: You can copyright any musical work, but it has to be a decent length. A riff may not be long enough. Glenn's video promotion of Creative Commons is right in the sense that the law no longer requires a CC notice. But it does require that the work be fixed in a tangible medium. [...]
[Terry demos the six degrees of seperation w/regard to copyright infringement...missed a bit here...]
Participant: Who cares for the copyright of Bach?
Terry: Even after the Sonny Bono Copyright Act and similar legislaton elsewhere--Bach is just too old. [Laugh.]
Now: to the cycles of innovation and resistance: 1/DAT recorders, and legal response, the AHRA.
AHRA requires serial copyright management, tax and royalty system, and a safe harbor for noncommercial copying.
2/encryption circumvention, response is the DMCA.
Encryption initiatives: CSS, SDMI, RealMedia copy-protection switch, eBook reader.
DMCA penalties harsh: up to half million in fines, etc. Streambox, Reimerdes, Felten, Sklyarov.
Lockers: MyMP3.com--Beam-it Service, Instant Listening Service. UMG brought suit and won. Nonpermissive copying, no fair use defense, settlements w/four and paid penalty to one, which used the money to buy the company.
"Live 365", aftermath. Webcasters pre-1996--didn't have to pay twice. Now they do.
[...]
How much do they pay? It depends on the type of webcaster (interactive/noninteractive/size). There was an unpopular CARP ruling, and then the Library of Congress cut the fees in half. The amount appears to be small. But small webcasters would actually pay over a million a year.
There has been some small softening through legislative action. A reprieve, but not for long.
So, to the Napster case: the industry claim paralleled that in Sony. Napster lawyers made the same defense as Sony--but the argument failed.
Other P2P systems: Aimster/Madster upheld, etc. The only exception to this pattern was the recent Grokster decision.
Last of the cycles: CD burning. Response: CD copy protection. There has been a significant consumer backlash. Likely outcome: shift to DVD-Audio.
Copyright law has been the vehicle of resistance to innovation.
As a result of these cycles, we realize none of the potential benefits of digital distribution: 1/high transcation costs, 2/prices remain high, 3/no "celestial jukebox," 4/encryption etc. threatens fair use, 5/loss to semiotic democracy.