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Chilling Effectsvs.

Internet Radio

Doc Searls & Allan Gregory, Fellows Hour, 2009/08/04

A couple of quotes:

Wendy Seltzer: Chilling effects are "the shadow of the law…"

Adam Gopnik: "Law is the practice of rules in a context of deals, and Lincoln believed in both."

So does the music industry.So does Congress.We (VRM folks) would like to

thaw this thing.But first some history.

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The music industrydeals with four things:

1. Compositions2. Mechanisms3. Recordings4. PerformancesThese are the threads.Their history is not pretty.They make an ugly braid.The Net ties that braid in knots.

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Composers felt screwed from the start.1790: The first copyright law only

covered maps, charts and books.1831: Congress makes music eligible for

copyright. Composers' rights covered just sheet music. Not performance.

1864: Stephen Foster, hugely popular, dies, martyred, with 37¢ in his pocket.

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The music business in the U.S.began as the composing business.

1885: The Music Publishers Association of the United States formed.

1886: The Treolar Copyright Bill inaugurated some now-familiar ambitions:

• Create a register of copyrights • Expand protections for public performance of

copyrighted works, including music.• Extend the copyright term by 22 years—

• from 24 years and a 14 year extension (38 years) to 40 years and a 20 year extension (60 years).

• Extend the manufacturing clause of the 1891 International Copyright Act to include most items excluded in 1891, including music.

• Treolar was shot down, but set directions the industry still follows.

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The recording business began with Edisons wax cylinders.

1877: Thomas Edison invents the phonograph, and patents it.

It's mechanical. No electricity required.Yet "mechanical rights" wasn't Edison's

issue. In fact, wax cylinders lost out to flat disks in the marketplace.

He still made plenty off the invention.

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The player piano's popularitycaused copyright law changes.

1720s: Bartolomeo Cristofori invents the pianoforte, later called the piano.

By the end of the 1800s, pianos were enormously popular instruments.

By 1902, there were seventy-five thousand player pianos in the U.S. and over a million piano rolls sold.

1897: Adam Geibel sold White-Smith the copyright to two songs for sheet music reproduction. Apollo Co. made piano rolls of the song, without permission. White-Smith sues.

1908: The Supreme Court finds for Apollo, pissing off everybody else, especially composers, and then Congress.

1909: New copyright act passes. 7

The recording business took offwith Emile Berliner's platters.

1887: Issued Grammophone patent1888: Invents recording on discs1895: Founds Berliner Gramaphone Co. +1897: Gramophone Company, London1898: Deutche Grammophon, Hanover +1899: Berliner Gram-o-phone Co. of

Canada, Montreal1899-1903: Frank Seaman of "Zon-O-

Phone" and Columbia sue Berliner and Eldridge R. Johnson's Consolidated Talking Machine Company, who counter-sue, win, merge and name their new company Victor Talking Machines Co., taking the assets of the loser, and use "Zonophone" as their cheap label until dumping it in 1910.

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In 1914, Herbert, Berlin, Sousa, found ASCAP, which still rocks on.

1897: Congress grants composers the exclusive right to perform their songs — but only "public" and "for profit."

1909: Victor Herbert's testimony to Congress helped pass the 1909 Copyright Act, which inaugurated the "compulsory license," giving composers 2¢ per recording.

1914: Joined by Irving Berlin, John Phillips Sousa and others, Herbert founds the American Society of Composers, Authors and Publishers — ASCAP

1917: Herbert v Shanley goes to the Supreme Court. Herbert wins. Composers advance.

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Herbert v Shanleygot ASCAP's snowball rolling.

1916: Herbert walks past Shanley's, hears his "Sweethearts" inside. He makes no money from that. So, to test the 1909 law and ASCAP, he brings suit.

Shanley's says the performance was not "for profit," since the music was provided for free.

1917: After losing the first round, Herbert wins in the Supreme Court.

Oliver Wendell Holmes: "The defendants' performances are not eleemosynary…If music did not pay it would be given up."

ASCAP begins to collect fees from cabarets, theaters — everything they can.

Next target: Radio.

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ASCAP pwnd radio at its birth.1917: 1XE (later WGI) fires up at Tufts. A handful of "first"

radio stations follow.1921: Dept. of Commerce makes "broadcast service" a

category of license. The first K and W stations come on the air.

ASCAP gives free licenses to early stations to seed growth for harvesting later.

1922: Feds rule that amateur radio stations can no longer air music or sports.

1922: ASCAP hits up WEAF in New York for $1k/yr, accepts $500. WJZ offers $0 and stops playing ASCAP music. Bambergers' WOR plays but doesn't pay.

1923: ASCAP wins Witmark v Bambergers. After that, some stations paid, other banned recordings, playing live bands instead.

1923: The National Association of Broadcasters (NAB) was formed, mostly as a way to fight ASCAP.

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ASCAP begets BMI — and the royalty system in force since.

1931: ASCAP forces stations to start logging ASCAP songs, and to take out "blanket" licenses. Non-ASCAP composers excluded.

1932: ASCAP negotiates fees based on a percentage of ad sales. Soon most radio programming is music.

1935: Dept. of Justice begins investigating ASCAP, radio.1936: ASCAP's fee re-set at slightly more than 2% of ad sales.1939: ASCAP fees reach $4.3 million. Broadcasters form BMI.

Composers take sides . Mainstream stays with ASCAP. BMI signs country, blues, jazz artists ignored by ASCAP.

1940: Network contracts with ASCAP expire.1941: 660 of 796 stations now with BMI. They boycott ASCAP,

play BMI or public domain music. "Jeannie with the light brown hair," a Stephen Foster song in the public domain, is a big #1.

1941: ASCAP signs a consent decree for lower rates, non-exclusive licenses, other limitations.

This established the music royalty regime for radio which has persisted ever since.

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Performers' powerpeaked during WWII.

1920s – WWII: Musicians displaced by recordings on radio and juke boxes in bars and restaurants — and come to oppose "canned" music.

1942: Led by James Petrillo, American Federation of Musicians (AFM), founded in 1896, votes to stop making recorded music.

1944: Labels cave to demands for an AFM welfare fund.

Compared to composers, record companies, radio stations and equipment makers, performers had power as a group just this once, but failed to leverage a piece of the recording action.

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The recording industry takes off. So do copies of recordings.

1952: Recording Industry Association of America (RIAA) is formed to administer a technical standard: the equalization curve in vinyl recordings.

Over the following years the RIAA became the primary representative of both the music industry and "artists" (a new term).

Taping of recordings by individuals starts in the 50s, gets big in the 60s and 70s.

1972: Congress makes sound recordings separately copyrightable: © belongs to the composer, and extends to the writing, distribution, and public performance of each song. (p) (for phonorecord, or sound recording) belongs to the record company (and sometimes partly to the performers).

1979: The CD, a digital disk, is introduced.1984: Sony wins the Betamax case, effectively setting

equipment makers free.1992: Home recording amendment passed, ignored. 14

The Net wasn't just a new medium.It was a whole new world.

It was a new worldwide environment ideal for demonstrating Jefferson's "the combustive power of an idea."

On the net anybody can copy, reproduce, broadcast, perform, sell and much more. Including "steal."

Hollywood — now combining the recording and movie industries — was not blind to the power of the Net. They attacked this new "hole" from the start.

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The commercial Web was born in 1995. So was the DPRSA.

1995: The Digital Performance Right in Sound Recordings Act (DPRSA) provided the first protection of public performance rights in sound recordings: "to perform the copyrighted work publicly by means of a digital audio transmission."

In other words, digital transmission — "playing" — became a form of "performance."

This allowed the record companies —rights-holders for sound recordings — to collect a royalty on digital "performances" of those recordings.

Any claim that the record business was not hip to the Net's threat from the start is put to rest by the DPRSA.

THE NO ELECTRONIC THEFT ACT

The NET, enacted in December 1997, attempted to crack down on computer-based piracy by instituting criminal penalties for copyright infringement by electronic means under 18 U.S.C. § 2319. A trader in illegal MP3s could get up to 6 years in prison (for a second offense -- up to 3 years for a first) and/or a hefty fine for distributing as little as $1000 worth of music. The law also amended the Copyright Act's definition of "financial gain" (17 U.S.C. § 101) stringently to include "receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works." This places under the Act's ambit the MP3 "ratio sites" which require a user to upload a file before they may download one, should the trading be in unauthorized copies.

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In 1997, "electronic theft"— aka "piracy," becomes illegal

The 1997 No Electronic Theft Act puts criminal penalties on "piracy" for copyright infringement by electronic means.

The law also amends the Copyright Act's definition of "financial gain" to include "receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works."

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Third blow: the DMCA

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28 October 1998: The DMCA passes. It—

• Extends the reach of copyright.• Heightens penalties.• Limits liability of on-line services for

user infringements.• Implements two 1996 WIPO treaties• Criminalizes circumvention of DRM

and access control.• Leaves open settlement of royalties

for online radio, aka "webcasting," and "streaming."

The DMCA created a messfor Internet radio / streaming.

In respect to "ephemeral recordings" … "…any copyright owners of sound recordings and any transmitting

organizations ... may negotiate and agree upon royalty rates and license terms and conditions for making phonorecords of sound recordings ... and may designate common agents to negotiate, agree to, pay, or receive such royalty payments.

…initiation of voluntary negotiation proceedings for the purpose of determining reasonable terms and rates of royalty payments.

In the absence of license agreements …. the Librarian of Congress …[will] convene a copyright arbitration royalty panel (CARP) to determine and publish in the Federal Register a schedule of reasonable rates and terms…

that most clearly represent the fees that would have been negotiated in the marketplace between a willing buyer and a willing seller. 19

Here's what the CARP produced in 2002:"The Librarian established

September 1, 2002, as the effective date of the rates…. Webcasters and others using the statutory licenses will have to pay royalties for all of their activities under the licenses since October 28, 1998. However, the September 1 effective date determines when the royalty payments will have to be made."

Lots of gut-splitting followed.

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Next: The Small Webcaster Settlement Act.Pushed through by Jesse Helms, in one of his last acts

as a senator, in 2002.BTW: Helms' first career was broadcasting.Set a fee schedule based on percentage of revenue,

not a per performance rate.Royalty payments for non-commercial webcasters

were suspended through June 2003, and receiving agents for small webcasters were allowed to delay payment obligations through December 2002.

Congress delegated the ability to set an industry-wide rate to the collecting agent (SoundExchange) for copyright holders and recording artists.

Many commercial webcasters went away.

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Next: Copyright Royalty Board (CRB).2004: Congress replaces CARP with 3full-time

Copyright Royalty Judges. NBC's Alec French, at Berkman's IS2K7, tells Doc that

he basically authored the legislation.These decide "reasonable terms and rates of royalty

payments" for compulsory licenses. Literally, "the marketplace rate between a willing buyer and seller."

The CRB's bjectives:• "maximize the availability of creative works to the

public."• Balance fair income for the copyright owner with

a fair return for the copyright user .• Reflect the contributions of the copyright owner

and user in the product available to the public• Minimize disruptions on the industry practices

and structure.

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2007: CRB's ass proves harder than CARPs.

The CRB set the per performance rates per year for commercial webcasters at: 0.08 cents (2006), 0.11 cents (2007), 0.14 cents (2008), 0.18 cents (2009), and 0.19 cents (2010). That's much higher than the old CARP rates.

The CRB rates also applied to all webcasters, including CPB-funded ones who had negotiated their own carve-out deal with the RIAA after the DMCA passed.

The CRB's minimum fee of $500 per channel per year is based on SoundExchange's expected costs for administering the sound recording rights.

The CRB found that ephemeral copies had no value separate from the performance of the sound recording itself.

The CRB denied all requests for a rehearing, holding that the determination was not erroneous, without evidentiary support, or contrary to law.

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2007-2009: It never ends.

2007: Internet Radio Equality Act. (Didn't happen.)2007: The Digital Media Association, representing the largest webcasters, came to a settlement agreement with

SoundExchange to cap the $500 minimum per channel at $50,000 per webcaster. This let Pandora survive.2008: The Webcaster Settlement Act amends the Small Webcasters Settlement Act of 2002, and seeks to adopt a

simplified process for settlements between commercial and noncommercial webcasters with SoundExchange.2008: Amy Duvall: "The current system for calculating royalties is a mess. The CRB decision is likely to put all but

the strongest webcasters out of business unless judicial, legislative, or voluntary measures are successful."2009: SoundExchange and CPB agree a new deal covering 2005-2010. "SoundExchange is to receive a single up-

front royalty payment of $1.85 million together with consolidated usage and playlist reporting from CPB on behalf of the entire public radio system."

This is less Rule of Law than Rule of Deals.

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With SoundExchange, Congresschristened a Rotting Hulk

SoundExchange is essentially an RIAA subsidiary that was spun off in 2003 as an "independent" 501©(6) non-profit

It was chosen by the CRB in 2004 as the monopoly collective for royalties due under DPRSRA (1995)

It was morally, economically and operationally corrupt from the start.Compared to ASCAP and BMI, it does an awful job.

Worse, it's not very accountable.

SoundExchange livesto lobby and pay big stars.

Worse::::Its site has no directory, and— is entirely link-proof— links out to nothing— is nearly all Flash— has broken searchIt pays lip service to diversity.— while, in Joanie Mitchell's

words, "stoking the star-making machinery behind the popular song."

That machinery includes lobbying Congress and cross-promoting with other front organizations for the recording industry.

Struggling artistshate SoundExchange.

How is SoundExchange recruiting the slowwavesleeps of the world?

By strangling the only media left to them, starting with Internet radio.

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Fred Wilhelms is taking the leadin fighting SoundExchange.

In an open letter to SoundExchange, Fred said the organization was…

"Reserving" tens of millions of dollars a year, then absorbing it after "not finding" the intended recipients.

Not making any effort to publicize planned payment forfeitures.Not explaining how and why it relies on sampling to allocate

royalties — and not admitting it.Claiming that spending outside the chartered function is

"proprietary" information.Attacking those who point out the simple fact of its poor

performance.Deducting the cost of violating the law from monies collected to

carry out the law.

More from Fred:"It's as if some SoundExchange employee takes bags of

money out to some National Park and sets them free. It's not SoundExchange's fault if all those bags follow the employee home, is it?"

"On the first forfeiture, they only absorbed 70% of the available funds. They placed 30% in a reserve to cover late claims by artists who would have lost money if they took it all. 31 months later, they still have half that reserve money, which just goes to show how poorly they have served artists."

"They're very proud of setting up that reserve. I told a SoundExchange representative their pride was as justified as the self-satisfaction someone gets if they roll a drunk for his wallet and watch, but promise to give him back his watch if he finds them."

Meanwhile SoundExchange has…

No accountability. By law: 37 CFR, 380.4(g)(1), 380.6 [holding licensees' accountable…], 380.7(g).

No liability.No transparency, thanks to 37 CFR, 380.5.No incentives, except not to pay out, thanks to

37 CFR, 260.7, 261.8. 262.8, 380.4(g)(2).

Compare ASCAP, BMIand SoundExchange payouts:

ASCAP payout ratio: 88% [long term]BMI payout ratio: 87% [5 year avg — 86%+]SoundExchange's calculated payout: 83%• Numerator: Total annual expenses minus

interest earned • Denominator: Total annual royalties received

[hmmm]Our calculated payout: 38% - 58% [avg][Link to Excel file]• Calculating Payout Ratio• Absence of Retention Rate• Missing figures from 2003-2004• Leftovers growing at 70%+ growth rate

Thus SoundExchange is"pulling a Cartman"

- [I do what I want] @ 14:55[Respect my authoritai] @11:59

SoundExchange has splinteredits Internet radio opposition

Before the DMCA there was just radio. Now its fractions include:• Small, medium and large webcasters• Podcasters and on-demand 'casters• CPB-funded and non-CBP funded 'casters• Subscription and non-subscription 'casters• Small, medium and large "pureplay" 'castersAnd this is in addition to:• Terrestrial radio stations• Satellite radio• Cable music 'casters• … all of which they are fighting as wellOh, and radio from the rest of the WW Web.

History teaches a lesson.• Composers had ASCAP and BMI.• Broadcasters had the NAB.• Equipment makers had commercial clout.• Producers had the RIAA and the MPAA.• Actors had SAG.• Music performers had the MPA, which is now

nowhere.• Representing performers now is the RIAA,

which mostly works for record companies.• Winners: composers, big broadcasters,

equipment makers, producers (movie and record companies), big stars.

• Losers: non-large performers, large webcasters, podcasters. (Listeners? Not sure.)

• Lesson: Privileges are won, not just earned.

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Foreign Collectives teach a lesson too.

3 types of SupervisionDiffering Types of CollectivesUS Experience and the CCC

Toward a new dealbetween listeners and performers:

We need connect listeners and performers directly.

The way to do that is through online radio: streamers.

We'll start with public radio stations, Radio Paradise and whoever else

wants to come along. 36

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EmanciPay: Making it easyfor anybody to pay anybody.

EmanciPay is a choosing system. With it you easily can choose to…— pay as much as you want— for whatever you want— whenever you want—

wherever you wanton your terms and not just those of sellers.

Here's where we plan to see it first:

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EmanciPay will use the r-button:

The r-button is 2 magnets: symbols of relating. Not just selling and buying.The left side is the customer.

The right side is the seller.In it the customer gets to express his or her desires and terms…

Including the desire to relate directly to first sources…And to express specific intentions.

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The r-buttoncan represent different states:

For example…Intention to buy (and/or to relate).Intention to sell, but also to relate on your

(the buyer's) terms, as well as your own.

Existing relationship — which can be viewed and unpacked on either side.

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Here's how it might lookon Radio Paradise's Playlist:

Bob Dylan is interested in relating on listeners' terms as well as his own.

The listener already has a relationship with Bat for Lashes.

The listener would like to relate to Bruce Cockburn.

The r-button might also appearin the browser chrome.

We're still working this stuff out.What matters is that we're building not just a new deal for

Internet radio,but a new way of dealing —

One in which the customer takes the initiative,expresses intentions,

and controls his or her end of relationshipsthat are worthy of the noun.

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When we win,

we'll make history.42