In Senate hearings on April 3, 2001, the rift between the majors and their artists became quite clear. As reported in Business Week, “Musical artists represented by RAC want to be able to sell their music on the Internet without going through the bureaucracy of record labels. While many artists supported the copyright-infringement lawsuit the RIAA brought against Napster, they now want labels to aggressively award licensing deals to legitimate independent music Web sites in addition to the labels’ own online services. That’s something that isn’t happening as fast as artists hoped….RAC says that if labels don’t voluntarily license their music to independent Web sites, Congress should consider compulsory licenses.” (St. Pierre, 2001) So, a noteworthy occurrence surrounding these new technologies has been that artists and labels have practically switched sides on a key issue (see Section 3.2). In fact, if the artists’ switch to favoring compulsory licensing is any indication of what digital distribution will mean for the industry’s future structure, the balance of power in the industry is destined to shift. It appears that digital downloading on the Internet is threatening to empower both the consumer and the artist at the labels’ expense.
The new technology has already started to pay dividends for artists in terms of their ability to secure a more flexible, and perhaps more profitable, recording contract. According to Brabec and Brabec (2000), “Unlike the traditional record company contract, these new forms can take any number of forms including a sharing of all income from sales 50/50…a sharing of monies from subscription fees based on the number of downloads; an offer to owners of masters a higher percentage for downloads than would be made under a normal record company contract, etc…Many of the arrangements are non-exclusive or are exclusive for only a short period of time [and]…Practically none of these arrangements transfer ownership in the master recording or the song away from the artist or writer.” (pg. 414) The following three developments in this
quotation deserve careful scrutiny: (1) the better overall percentage of monies to the artist; (2) the shorter time period of exclusivity (or lack thereof); and (3) the artist retaining copyright
ownership of the recordings.
As noted above, the RAC is now actively fighting to have the works for-hire clause removed from recording contracts specifically because recording artists want to retain copyright ownership of their master recordings. While it could just be a coincidence that artists are getting organized to fight this issue at the same time the potential for digital downloading is surfacing, one could easily make the argument that this confluence of events is no accident. In fact, when a main cost advantage of downloading is examined, a clearer picture begins to develop.
Aside from providing a clear advantage in terms of productive efficiency, digital
downloading eliminates the costs which are the most severe charge against the artist’s royalties – manufacturing and packaging. Downloading also eliminates the need for the traditional
distribution chain, a possible benefit to the artist for several reasons. First, downloading removes respective markups at the wholesale and retail level, which means that the consumer’s price should be lower. Of course, this lower price suggests that a larger quantity of records will be sold. Next, compared to the traditional distribution method, the digital method practically removes physical limitations on the quantity of music that can be “stocked” in the “store.” This development should make it easier for unknown artists to get their music distributed. Of course, digital downloading benefits consumers because it lowers the price they pay, lowers their transaction costs and increases the flexibility they have when buying music. For example, on MP3.com, consumers can buy all the individual songs they want for one price (only $3.00 per month) and make custom CDs – without ever leaving their homes. While these developments certainly appear to benefit the artists and the consumer, they do not bode well for either the record
store or the record distributor. Should licensing become compulsory for subscription services, a major hindrance to digital distribution will vanish.
Consequently, by meaningfully reducing the label’s control over distribution, the technology would also erode the record companies’ main source of leverage in contract
negotiations with the artists. The following quote from Marc Geiger illustrates the importance of this lower reliance on traditional distribution: “The Internet provides the first radical change in a distribution system since the music business started….Prior to the Internet, all [record
companies], whether majors or independents, had to go through the same steps [to sell their product] – manufacture a record and try to get it into record stores; if [the stores] took it, try to get [them] to prioritize it. This meant using a ‘push’ economy, that is, pushing the record into the market all over the world, marketing it as best you could, and hoping the consumer would find and purchase that record…The Internet is the first medium that has allowed a radical change in that…It’s potentially transitioning into a ‘pull’ mechanism where the consumers can find what they want whether it’s in a big record store or directly from the artist or label…” (Schwartz, 1998, p. 260) Because of the technology’s likely impact on distribution, the artist may finally have a credible threat in the area of distribution. Artists who do not like the terms being offered by a label could, for the first time, credibly threaten to distribute the records on their own.
Given that labels have already started offering larger shares of sales, shorter periods of exclusivity (in some cases none) and retention of the copyright to artists for digital downloads, it appears that this credible threat may already be having an effect. In fact, some are predicting that the relationship between the artist and the label may evolve into more of a partnering arrangement – one where the artist depends on the record company mainly for promotional needs. Krasilovsky & Shemel have made the following observation: “This downloading and uploading technology, coupled with the availability and low cost of high quality recording equipment, seems to minimize the need for record companies…Of course, the artist would still need promotion and marketing. However, with the increased use of the Internet, one wonders how these processes will evolve as well.” (Krasilovsky & Shemel, 2000, p. 462) Still, regardless of how artists’ music is distributed, they are faced with, in essence, an information problem.
For instance, before buying music, a consumer first has to be able to find a song from among hundreds of thousands of other songs. Until artists becomes popular, therefore, getting more consumers to find their music is vital to making sales. While all consumers surely will not like all the music that they hear, it is likely that most consumers will not buy music from artists without first hearing it. So, in the future, marketing should remain a key function for a label and/or an artist. At the very least, using a third party marketing specialist will always provide the artist with more time to create music. Regardless of the nature of the intermediary functions, enforceable copyrights will be essential to the success of both artists and labels. Still, in spite of the clear desire of many artists to retain copyrights in the digital age, some individuals are arguing that the new technologies make copyrights obsolete.
3.4.4 The Technology and Copyright Opponents
An understanding of this position can be taken from the writings of John P. Barlow. Mr. Barlow is a former lyricist for the Grateful Dead, the co-founder and current Vice-Chairman of the Electronic Frontier Foundation, and a Fellow at Harvard Law School's Berkman Center for Internet and Society. His discourse, quoted below, has appeared in The Atlantic Monthly’s website (www.theatlantic.com) over the last few years. Barlow posits that copyrights are no longer necessary because “A new means of distributing creative spirit has arisen that does not require its being embedded into objects.” More pointedly, he says that copyrights “…are
designed almost entirely to perpetuate the moribund publishing and distribution industries, which are desperately seeking to preserve by law what they can no longer sustain by
necessity…Through an amplifying cascade of mouse clicks [ideas] reproduce until they have reached sufficient mind-share to change politics.” Apparently opposed to both the U.S.
Constitution and the body of case law (not to mention laws in other countries) which support the existence of the copyright, Mr. Barlow acts as though the copyright is meant to protect the idea itself, not the expression of the idea.
Indeed, as has been clearly demonstrated in Section 3.3, the copyright itself only depends on the work being “embedded into objects” for its legal definition; the intent of the right is much more expansive. Still, even if one were to accept Mr. Barlow’s conclusions at face value, the notion that the Internet allows ideas to be transferred apart from any physical means is untrue. The computer hardware and the miles of cable (or tons of wireless equipment) needed to transmit information over the Internet are no less physical objects than books. Even though the Internet can greatly enhance the dissemination of ideas, the ideas themselves do not travel between two individuals’ crania without first being expressed through at least one type of physical object. Unless those investing in this equipment are reasonably assured of earning a return on their capital, the equipment will, eventually, cease to exist.
Furthermore, as was demonstrated in Section 3.4, the current publishing and distribution structures may very well be altered because of changes brought on by the technology itself, not by the copyright being ignored. Barlow’s type of argument also ignores the fact that he, just like any other person, is completely free to forgo the copyright and, rather than sell, give away the expression of his ideas. While it is true that artists under contract with record labels do not have this type of freedom, nearly all of these artists freely chose to enter into those agreements. For any artists who did sign their contracts under duress, the legal system offers them a way to remedy that situation. While the Internet offers artists an enhanced means with which to
disseminate their music, the technology itself is neutral toward the copyright; it is equally capable of benefiting artists who want copyright protection as it is artists who wish to forgo it.
A main reason businesses are investing in these technologies is that they allow consumers to find what they are looking for with much lower transaction costs, not that the investment will make them rich at the expense of consumers. Therefore, to argue that large record and publishing companies want to use copyrights in the digital age to “preserve by law what they can no longer sustain by necessity,” is a misstatement. Additionally, Barlow’s argument overlooks that the technology enhances artists’ freedom to choose whether they want copyright protection. In fact, many artists already understand that they will never become a top-selling artist and they create music for enjoyment – irrespective of a copyright. One independent artist on IUMA posted the following message: “…many bands are not main stream, and will never get ‘commercial success’ (and may not even be looking for it!). I post my music on the Internet, not to be the next big ‘band’, but because I like to make music…Most likely out of the 100,000 plus independent artists with music on the net, most of us will never go anywhere with our music. This does not make me unhappy, because most of the music I like best (on the Internet), (or off the net) is the non- commercial stuff.” If Barlow and like-minded individuals do not want to take advantage of copyright protection, they do not have to. But in choosing to forgo this right, they should not also infringe on the rights of other individuals to utilize this protection. While it may be impossible to determine how many artists would still create music in the absence of copyrights, history has proven that many artists, as well as those investing in them, do want this protection.
3.5 The Industry’s Consumers
No discussion of the music industry would be complete without analyzing what sustains the industry – its consumers. As Figure 3-9 shows, since 1993 consumers in the U.S. have spent over $10 billion per year on sound recordings, with CDs being the overwhelmingly favored format since 1992 (since 1999, CDs have accounted for over 80% of all formats sold each year). In fact, since 1991, with the exceptions of a 2.37% decrease from ’96-’97 and a 1.8% decrease from ’00-’01, consumers have spent more on sound recordings each year. While nearly all formats other than the full-length CD have fallen out of favor since 1997, the fall of the CD single has added to the controversy stirred by Napster. The RIAA points to the 38.8% drop in CD singles sold from ’99-’00 as evidence that record sales have been displaced by file sharing on the Internet. However, based on several key trends, this complaint seems to oversimplify the
situation. To begin, from ’99-’00, the number of full length CD units sold actually rose by just under 1%, and the number of full-length cassettes sold fell by nearly the same percentage as CD
singles (about 38%). Additionally, throughout the 90’s, the CD single has never reached the same popularity as the cassette single; more than 80 million cassette singles were sold each year from ’92-’94, while the highest ever annual total for CD singles was 66.7 million in ’97.
Therefore, following the RIAA’s logic of a direct correlation between the drop in CD singles and the proliferation of Internet file sharing seems a bit questionable. These trends could simply show that consumers have never become endeared to the single in the CD format. Regardless of favoring the full-length CD format, evidence seems to suggest that the consumers of the
independents’ music and of the majors’ music possess some very different characteristics. In fact, many consumers of independent music seem to eschew commercial radio and the popular music charts. To demonstrate these differences, the following two quotes have been taken from chat rooms of IUMA:
(1) “Distant Sun has a new experimental industrial/dance track called "Blinding Sun", download at http://distantsun.iuma.com ”
(2) “I've [been] looking for true Lo-fi musicians for a long time. By that I mean recorded on a 4-track, limited equipment and money, etc. I don't want to hear perfect little songs that all sound the same. I want to listen to songs with character, emotion and mistakes. YES, mistakes - we are not perfect so why should our music be. Help me bring back human characteristics in the monotonous world today. http://www.joshwilton.com”
The genre referred to in the first quote, for example, does not even warrant a listing on the popular music charts. Most popular music fans do not also listen to “experimental
industrial/dance” music. In many cases similar to this one, independent music serves only niche markets for which, by definition, smaller numbers of consumers exist than for popular music. As for the second quotation, while many independent fans may enjoy it, sales data clearly show that
most music fans do not want to hear “songs with mistakes.” If most consumers did enjoy music with mistakes, it seems unlikely that the majors would have been able to garner an 83% market share by selling music without mistakes – especially given that consumers typically pay $4 to $9 more for majors’ CDs than independents’. While the majors’ large market share can be partially attributed to their control throughout the distribution chain (see Section 2.3), a key reason for their impressive market share is because they sell music that most people want to hear. Still, while a great deal of independent music has a smaller audience, the market does have a way of “finding” independent artists with mass appeal.
Bands such as “The Dave Matthews Band” and “R.E.M.” are just two examples of artists who started out with independents and ended up signing with majors. Because none of the majors thought they had a wide enough audience, these bands initially had no choice but to play college campus concerts and secure air time on college radio. However, since these artists were able to use these venues to prove their music appealed to many consumers rather than to a very narrow audience, they were eventually able to sign with major labels. While the majors are serving as intermediaries for the artists to reach a wide audience, large investments by labels would not be necessary without such mass appeal. It seems likely that one of the reasons judging this appeal is difficult is that consumers’ tastes change. Even though many of the genres on the IUMA charts are not even listed in the study, the RIAA Consumer Profile, available in its entirety at www.riaa.org, provides data which supports this idea.29
While consumers’ most preferred genre over the last decade has been Rock, its share of total sales has been slipping (see Figure 3-10). In 2000, the Rock genre represented just under 25% of all music sales – considerably lower than its decade high in 1994 of 35%. The second most popular genre in 2000 was Rap/Hip Hop, which captured just under 13% of total sales. Since 1991, the genres Rap/Hip Hop, Pop and Country have each bounced back and forth as the second most popular genre. Country rose from a 9.6% share in 1990 to a high of 18.7% in 1993, and ended the decade with a 10.8% share. Pop, on the other hand, had steadily declined from a high of 13.7% in 1990 to 9.3% in 1996 only to rise successively over the last few years of the decade to claim 10.3% share. Exhibiting even more volatility, the Rap/Hip Hop genre has alternated between increasing and decreasing its market share in almost every year of the ‘90’s. The next tier of the genres includes three groups, Religious, Jazz, and Classical, with a 4.8%, 2.9%, and 2.7% share, respectively. While Religious music’s slightly higher share seems to be a phenomenon of the second half of the decade, the share captured by Jazz and Classical has fluctuated around 3% to 4% for the entire decade. Nonetheless, the trends among consumers’ gender and age do exhibit some stability.
Across genres, there has been a fairly even split between male and female purchasers for, at least, the last five years. As for age groups, younger people have accounted for most of the purchases for all of the last decade. For instance, in 2000 almost half of all purchases (44.9%)