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Lovett, Vivendi, Real, MP3.com Testify on Compulsory Licensing
Pages: 1, 2, 3

Rob Glaser, chairman and CEO, Real Networks:

The past six months have dramatically clarified the legal landscape for the online distribution of music. The lawsuits by the music publishing and record industries against MP3.com, Napster and other innovative companies have established that basic copyright law must be applied to the distribution of music over the Internet. The principle that artists must be paid for the digital distribution of their copyrighted works has been reaffirmed. While the court decisions have not yet resolved important questions regarding personal fair use and the responsibility of ISP's to police their services for questionable content, the basic rules of the road are plainly visible.

Once the courts ruled, it became clear to us that we could build on our core platforms for streaming and downloading of music to deliver a great new consumer subscription service. The goal of this new service, which we decided to call MusicNet, is to combine three essential elements -the popular music that consumers want, a software framework that compensates and preserves the rights of artists and music companies, and the ease of use and flexibility that consumers have demonstrated they want.

A key element of the MusicNet service is that it will require consumers to pay a subscription fee - generally a monthly fee, just like cable TV or a magazine subscription. We believe that consumers will pay a reasonable fee for choice, convenience and a combination of interactive features. ...

In order to implement MusicNet, we decided to forge alliances with the major record labels. Our goal was to license a critical mass of great music for digital distribution, which we believed would catalyze the rest of the industry. On April 2nd, we announced just that. Specifically, we're working with AOL-Time Warner, BMG and EMI who are both licensors to and minority investors in MusicNet. ...

In order to get the greatest possible consumer reach, MusicNet will not be a retailer itself. Instead, it will license its "private-label" platform to retailers and distributors who will brand, package, and sell it directly to consumers. Our intent is to distribute the MusicNet service through as many partners as possible. To date, we've announced that both AOL and RealNetworks will be among the initial consumer distributors of the MusicNet platform. Additionally, we expect online retailers such as Tower Records to join us, and potentially even including Napster, provided they satisfy legal, copyright and security concerns.

Mr. Chairman, what MusicNet's launch underscores is that the technology is there, the content is being assembled, and the subscription business model is being proven every day. So what is missing? In our view, music publishing issues stand out as the most significant potential impediment to launching great subscription services.

Unfortunately, music publishing rights are one of the most tangled areas of our copyright system. My legal team advises me that up to eight claimed rights arguably are needed to clear a single song to be placed on a computer server and delivered to a consumer via downloading and streaming. While some of these rights can be efficiently licensed today, others cannot. Simple logic dictates that we set up a licensing system that allows for one-stop shopping and the license of all required rights for digital delivery. To accomplish this, we will need the cooperation of music publishers, who we believe must offer more flexible licenses that reflect the function of these new digital distribution systems.

Songwriters must be compensated when their songs are streamed or digitally downloaded to end users. Yet these licenses should not tax a single delivery of a song multiple times along the chain of delivery across the computer networks that form the Internet. This would be akin to requiring a broadcast royalty toll every time a song is boosted across transmission towers on the way to a consumer's radio. Similarly, these licenses should not tax RAM-buffer copies that exist only for fragments of time in a RealPlayer.

...If we are not able to quickly resolve these licenses around the negotiating table, then I believe it will be necessary for Congress and the Copyright Office to step in and streamline music licensing. For instance, Congress has already established compulsory licenses; it could now clarify that additional licenses for server copies are not required simply for a company to utilize the existing compulsory license. Moreover, the Copyright Office has already studied the legal status of ephemeral and temporary copies; and if necessary, it could now establish clear rules that facilitate digital distribution.

As you and other policy-makers work to help create a stable and robust marketplace for the distribution of digital content, I suggest that the following fundamental principles guide your efforts:

  • First, content creators must be fairly compensated for the distribution of their copyrighted works in new markets;

  • Second, the legal personal-use rights of consumers should not be eroded in the process of ensuring copy protection;

  • Third, there should be maximum transparency for artists and others whose rights are implicated in the reproduction and distribution of digital versions of audiovisual works;

  • Fourth, the new distribution channels must be open to fair competition;

  • Fifth, Congress should eliminate barriers to new methods of digital distribution, such as web radio, that do not exist for traditional media.

Edgar Bronfman, Jr., executive vice chairman, Vivendi Universal:

Why is it taking so long for legitimate online music sites to become a reality? Not for lack of effort - Universal has invested many tens of millions of dollars in developing a environment for the delivery and enjoyment of digitized music. ... But a rational, dependable, long-term business plan has two prerequisites. First, we need a strong legal framework to protect our copyrighted music. Second, we need technology solutions that are ready for a global audience.

The legal framework appears to be in place. The DMCA has done a good job of updating the Copyright Act for the digital age. Importantly, recent court decisions have clearly held that our property rights must be respected. It is true that the industry still needs to work through some of the licensing issues that have arisen - concerns that are legitimate and thorny -- but I believe that the requirements of the marketplace will dictate that they can and will be resolved without additional legislation.

As for the technology, to be honest, to do it right has been harder than we expected. By "right" I mean -

  • consumer-friendly systems that are easy and fun to use
  • a mechanism for identifying which songs are downloaded or streamed so that the songwriters, musicians and other rights holders of each song are properly compensated each time
  • dynamic sites that reliably deliver great songs as well as cover art, lyrics, concert information, the ability to communicate with the band, chat with other fans and discover new favorites; and
  • security for our copyrighted property

Our business strategy is to license the Universal catalog to outside ventures, and to license works from outside the Universal catalog for our own online ventures. I am not revealing any secret formula. We plan to do it because consumers want all their favorite music conveniently available in one place.

Let me take a moment to talk about Duet, an online digital music subscription service that we created with Sony Music Entertainment. Duet's U.S. on-demand service will be available and marketed through a number of distribution alliances -- the first with Yahoo!

The on-demand Duet subscription service will offer consumers the opportunity to access a broad range of quality music online with speed, ease of use, and reliability, while respecting artists' rights. The service will provide music enthusiasts with the ability to compile personalized playlists and to share them with other Duet members. The Duet service is expected to launch with streaming music and plans to add downloads as soon thereafter as is technologically feasible.

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