About ten years ago, Jim Griffin was reading a book about the history of risk when he had an idea about how to save the music industry—by making it more like the insurance business.
Griffin, a bespectacled, slightly hyperactive consultant who has advised both music and technology companies, holds the distinction of having put the first major-label song online back in 1994, when he worked as technology director for Geffen Records. It was an Aerosmith track—“Head First,” appropriately enough—that the label offered for free to promote the band’s Get a Grip album. Back then, it took more than twenty minutes to download from the online service CompuServe.
Since leaving Geffen a few years later, Griffin has built a reputation for thinking presciently about how the music business might actually work in a digital world. In 2000, during congressional hearings held as the Napster case unfolded, Griffin testified that “music can and should be made to feel free, even when it is not free”—much like on radio.1 He knew enough about technology to understand even then how hard it would be for entertainment companies to control the way their products were traded online. But he was realistic enough to realize that artists still needed to be compensated for their work.
Instead of selling music by the album or song, Griffin suggested in his testimony, why couldn’t labels sell access to all of their recordings, the way cable companies carry television channels? In exchange for a monthly payment, consumers could listen to everything they wanted—either on a streaming service or as downloads—and then leave it to labels to divide up the money. Consumers would get music, artists would get paid, and no one would get sued.
This idea is not unique to Griffin, as he himself says, although he has become its most visible proponent. It would require a blanket license—also called a collective license—under which an organization designated by the labels would grant rights to distribute recordings to Internet service providers, collect money from them, and distribute the funds to copyright holders. It sounds like a complicated arrangement, but it has been working for decades with musical compositions. (Remember: each piece of music involves two copyrights—one for the recording and another for the composition—that may or may not be owned by the same entity.) In the United States, radio stations, restaurants, and other businesses that play music in public pay the collecting societies ASCAP, BMI, and SESAC, which figure out what songs are most popular and disburse royalties accordingly to songwriters and the music publishers that represent them.
Under a blanket license, composers and the publishers that work with them essentially forfeit their ability to determine where their work is heard in exchange for the knowledge that they will get paid for it. Since the Internet makes it harder to control media of any kind, this idea—“compensation without control,” some call it—is being pushed by a few entertainment and technology executives, as well as some European politicians. And while the plan represents a rational compromise, some technology bloggers have already started maligning it by inaccurately calling it a “music tax.”
So what does all of this have to do with the insurance business?
As Griffin read Against the Gods: The Remarkable Story of Risk by the economist Peter Bernstein, he saw how the need to allocate risk on the voyages of English merchant ships in the eighteenth century led to the advent of “actuarial economics.”2 As opposed to “transactional economics,” which involves the purchase of individual items, actuarial businesses gather pools of money and divide them according to the outcome of subsequent events. Such pools can be used to defray the risk to anything, from an eighteenth-century trade vessel to a teenager’s Toyota. Griffin points out that Ooma, the voice-over-Internet system he uses for long-distance service instead of Skype, works on an actuarial model, since customers buy the machine from the company, which then covers the cost of all their calls out of that price. And he consulted on Nokia’s Comes with Music service—it didn’t catch on—which made music free with the price of a cell phone.
“I increasingly think of copyright as copyrisk,” Griffin says. “I say that you’re undergoing a risk as an author or a creative person and we should address your risk, not your right. To the extent that you think it’s your right to stop someone from making a copy—and it may be a legal right or a moral right—good luck enforcing it.”
Griffin, who in his spare time runs an online mailing list dedicated to the future of music, doesn’t mean to sound insensitive. He’s just acknowledging an obvious truth: it’s difficult to stop people from spreading information using technology designed for that very purpose. “Copyright is what we wish were true, but the technologist in me knows it’s a check we can’t cash,” he says. “I can’t stop someone from making a copy of someone else’s work, and I’ll be increasingly unable to do so in the future.”
Griffin points out that we usually don’t address risk by trying to eliminate it: we do so by insuring against it. “We run a risk when we let someone take a Corvette off an auto dealer’s lot,” he says, “but the way we address risk as a society is more through monetization than through actual rules.” In other words, all the seat belts and speed limits in the world won’t make a sports car perfectly safe, so we’ve come to accept the fact that it can’t be done, at least not beyond a certain point. Instead, we require drivers to buy insurance to compensate themselves and others for potential losses. Griffin is in no way suggesting that illegal downloading is as serious as a car wreck. He just believes that collecting and distributing a pool of money to compensate creators would be more practical than regulating the Internet with laws that can be difficult to enforce.
“Technology is like that Corvette: it runs into your rights,” Griffin says. “Every year it gets more and more powerful, even more so than a car. You and I, we both have multiple music-copying machines in our pockets right now. And they make photocopy machines look trivial!” As Griffin points out, we already treat photocopy machines the way he wants to deal with online music. Starting in 1978, the nonprofit Copyright Clearance Center has licensed some owners of copiers in much the same way ASCAP and BMI license restaurants. In exchange for a flat fee, owners get the right to duplicate certain scholarly journals and reference materials. The center then divides the money according to its assessment of the popularity of different works. No one would argue that this is a perfect system. But it’s certainly more practical than either forbidding researchers to make copies or trying to monitor them as they do.
There are several ways this could be applied to online music, and none of them is simple. Ideally, Griffin wants to license Internet service providers for music downloads. They essentially already use music to attract customers, and this would give them a way to compensate copyright holders that could be easier and cheaper than setting up a system to deal with infringing users, as they now have to do in the U.K. and France. In a less elaborate version, Internet service providers could set up their own music streaming services. They would determine what users listen to, by either counting every song or monitoring a sample and extrapolating, in order to divide royalties appropriately. (Services could store the information without listeners’ names attached, as Google does with search data, so no one knows who’s listening to Air Supply.)
Implemented correctly, a blanket license system could preserve the best aspects of both the recorded music business and the Internet as it exists now. Labels would have an incentive to invest in and market artists in order to make as much money as possible, while technology companies wouldn’t have to worry about barriers to the use of online music. Both Lawrence Lessig and the Electronic Frontier Foundation favor versions of the idea.
So far, though, the concept of blanket licensing doesn’t have much traction in the United States. In 2008, Griffin founded Choruss, a venture backed by Warner Music Group, and offered blanket license deals to a few U.S. universities for about $5 per student per month as an experiment. In exchange, students would have been able to use Choruss’s custom file-sharing system, based on the Audiogalaxy program, to download as much music as they wanted. Choruss would have legalized—and monetized—the way many college students get music anyway. But although Griffin secured cooperation from six colleges, as well as limited support from the other major labels and publishers, disagreements among labels delayed the project, and the fact that Warner owned Choruss presented potential antitrust problems that prevented it from launching. Griffin left Warner in March 2010 but kept running Choruss as an independent company.
“I thought, and think, it’s something that ought to be done,” says Warner Music Group’s chief executive, Edgar Bronfman Jr. “But I think maybe we were early or under-resourced or both, because to make something like Choruss work, you need a whole bunch of foot soldiers, and we couldn’t afford to do that on our own without knowing we had the support of the other majors and the publishers.”
The biggest problem with blanket licensing is that it would be difficult to do without help from the government. Right now, U.S. law provides little incentive for Internet service providers to negotiate deals with content owners; since their subscribers already download content for free, albeit illegally, they have little to gain. Any proposed licensing organization could run into antitrust issues; the U.S. collecting societies ASCAP and BMI both operate under consent decrees from the U.S. Department of Justice.3 And both labels and technology companies would fight a government-imposed solution that didn’t favor their side’s interests.
At the same time, the idea is gaining traction in Europe. The French and British three-strikes laws have put pressure on Internet service providers to negotiate licensing deals. The Internet service providers TDC and Eircom already run all-you-can-eat streaming music services in Denmark and Ireland, respectively. And the French National Assembly has discussed the idea. It would be an appropriate homecoming for an idea that has its origins in nineteenth-century Paris.
A French composer walks into a bar, orders a sugar water, and hears the band playing his song. This sounds like the beginning of a surrealist joke. But the 1847 incident—involving the songwriter Ernest Bourget, the stylish café Les Ambassadeurs, and a fashionable drink of the time—marked the beginning of blanket licensing for musical compositions. When the waiter presented the bill, Bourget declined to pay, on the grounds that the café didn’t pay him to use his music to attract patrons.
Like so many businesses today, Les Ambassadeurs believed that music should be free. But when Bourget sued to settle the matter, the Tribunal de Commerce de la Seine found the café liable for damages. Composers had the right to be compensated for public performances of their music. Two years later, that decision was upheld by the Cour d’Appel de Paris.4
This created a new problem: How could composers possibly license their songs to every bar and café in France? Fortunately, they had an innovative business model to look at: a new kind of organization called a collecting society. So along with two colleagues, both of whom were with him at the café, Bourget formed the organization that became the French collecting society SACEM (Société des Auteurs, Compositeurs, et Éditeurs de Musique).
The idea of a collecting society originated in 1777 with Pierre-Augustin Caron de Beaumarchais, a prominent French intellectual who started his career as a watchmaker, served as a royal adviser, and later became a spy for Louis XV. He is best remembered for writing plays, including The Barber of Seville and The Marriage of Figaro, which were hits at the time. (The operas of the same names are based on his work.) At the time, most theatrical companies pressured authors to sell all rights to their work, but Beaumarchais gathered twenty of his fellow playwrights and founded an agency that allowed them to bargain collectively and collect a fee for each performance. When France formally recognized copyright in 1791, Beaumarchais’s society got a legal foundation.
Playwrights could strike deals with individual theaters, of which there were a limited number. But music presented a greater challenge, since it was played in every restaurant and café that could afford a band—and, later, a phonograph. Composers couldn’t deal with all of these venues, but SACEM could offer a simple contract that allowed them to play all the works it controlled. Essentially, French songwriters gave up control in order to protect their compensation.
The concept came to the United States in 1914, when the operetta composer Victor Herbert founded ASCAP (American Society of Composers, Authors, and Publishers), which quickly attracted Irving Berlin, John Philip Sousa, and others. The organization had its sugar-water moment when Herbert sued Shanley’s Restaurant for playing his music without compensation in a case that went all the way to the Supreme Court. In the decision, Justice Oliver Wendell Holmes stated that venues had to pay composers for public performances of their work, since “the purpose of employing it is profit.”5
Could a system like this work for recordings heard or downloaded online?
Intuitively, the idea makes sense. Internet service providers and file-sharing services benefit from recorded music, just as restaurants do from compositions, and it’s so difficult to exercise any control that labels and artists might be smart to settle for compensation. Until recently, they could have both, since recordings were attached to a physical object. At this point, it would be easier to let the Internet spread them around and then collect money for their use. But this would require a historic shift in thinking on the part of the recorded music business.
Until recently, the music business has always thought about recordings in terms of sales. To labels, radio just served to promote sales. But even if consumers prefer to buy access to streaming music or unlimited downloads over a period of time, labels need to find a way to sell it. And decades’ worth of laws and artist contracts are set up in ways that would make this difficult.
Although it didn’t get much attention at the time, the idea of a blanket license for the online use of recorded music was first proposed by Bennett Lincoff, the former director of legal affairs for new media at ASCAP, who wrote a Billboard op-ed on the subject in 1995.6 He realized that thorny legal problems would arise from the tangle of separate rights needed to use recordings online, so he suggested Congress replace them with a single right for the digital transmission of recorded music. A new collecting society could then be set up to license online services, distribute fees among rights holders, and pursue legal action against sites that offered music without permission. But while this could solve any number of legal problems, it would also require changes to copyright law that would be unlikely to pass Congress anytime soon.
The concept also got attention during the 1997 congressional hearings on the law that became the Digital Millennium Copyright Act. Since ASCAP and BMI already collected money for songwriters from radio and television stations, said Allee Willis, who wrote the theme song for Friends and testified for BMI, why not treat Internet service providers the same way? (This would have compensated songwriters but not recording artists or their labels.) “I think you would have to ask the on-line providers why they find the idea of blanket license so onerous,” said John Bettis, an ASCAP songwriter and board member. “I haven’t got a clue.”7 The testimony was essentially ignored.
Blanket licensing won attention in the technology world in 2004 when the Harvard Law School professor William “Terry” W. Fisher III published Promises to Keep: Technology, Law, and the Future of Entertainment. The book proposed a government-controlled plan to fund music and other art with tax revenue. Culture would be “free” to consumers, with tax revenue distributed to content creators according to the popularity of their work. Fisher pointed out that this could legalize and advance “semiotic democracy,” the phenomenon of amateur artists making mashups, music remixes, and other work from copyrighted content.
Like Griffin, Fisher started a company to put his ideas into practice, but neither creators nor technology companies expressed much interest. Labels were disinclined to allow a government agency to set the value of their recordings. Technology companies benefit from the status quo, which allows them to profit from media first and face legal consequences later, if ever. And in the United States at least, it’s hard to imagine Congress would pass a law to fund culture. (If you think Fox News hosts hate rap music now, wait until it’s supported by tax dollars!) “Americans distrust government,” Fisher says, “and these systems indicate government control over what are perceived as private property rights.”
Fisher’s idea for government funding captured more imaginations in Europe, where he still speaks about it. Lincoff, who has worked on his single-right idea as a hobby for more than a decade, recently found an enthusiastic audience in Sweden and Finland. “In 1998, after I left ASCAP to go out on my own, people weren’t responding to this idea—they were laughing,” he remembers. “Now I’m hearing things like, ‘If we could snap our fingers and have this implemented in a moment without going through the transition, we would do it.’ That’s progress! And as the crisis deepens, the difficulty may seem not as great.”
So far, the idea of blanket licensing seems to appeal more to countries with strong traditions of thinking collectively.
Since April 2008, customers of the Danish telecom company TDC have downloaded more than 200 million tracks for free. The Internet service provider has paid copyright owners for every single one of them. In fact, as TDC’s music manager, Tejs Bautrup, explains in a movie theater café that oozes low-key Scandinavian charm, doing so is key to his company’s business strategy.
Like other Internet service providers, TDC spends an enormous amount of money to build and maintain a network, so it wants to attract as many customers as possible. That usually means spending money on advertising and marketing. But Bautrup, who frankly admits he’s more of a business guy than a music fan, realized that it would be more effective to reduce TDC’s expenses by finding a way to keep the users it already had.
Most European Internet service providers compete only on price: they offer a certain amount of speed, measured in megabytes per second, for a fixed monthly fee. In a competitive market like Denmark, where much of the population can choose among several providers, this can quickly become a bruising battle that drives down profit margins. So TDC, which also sells cable television and mobile packages, started offering additional services to keep customers happy. Right now the one that works best is TDC Play, a music system it includes free with online access that allows users to stream songs to their computers and download songs to their mobile devices for as long as they subscribe. In Denmark—a country ahead of most in the popularity and speed of broadband access—Internet service providers see record labels as partners, not opponents.
“The churn is 10 percent to 20 percent less for customers who use the service,” Bautrup says—which means TDC saves so much on marketing that TDC Play pays for itself. TDC pays a fee for each consumer who uses the service; no one will say how much, but it’s probably about $5 a month, based on the structure of similar deals. Some of that money goes to the Danish collecting society KODA, which represents songwriters, much as ASCAP does in the United States, while the rest is divided by labels according to the popularity of their recordings.
So far, the labels like what they see. In April 2010 they accepted a guaranteed payment of 25 percent less than their first two-year deal, partly because TDC Play seems to be hurting radio ratings more than music sales. “It’s not yet a clear picture, but so far we are happy with the money we get,” says Sony Music Denmark’s managing director, Henrik Daldorph. “We’re trying to understand the demographic that uses it and if this use takes away from other music sales or if it is the opposite—the more they sample, the more they get into music, the more likely they are to make a purchase.”
To everyone involved, TDC Play offers a look at a possible future of the media business—one in which Internet service providers have an incentive to cut piracy. (TDC sends warning notices to customers who share songs downloaded from its music service.) Bautrup says telecom executives from around the world call to ask about the project. And to labels, Denmark is a small enough market in which to experiment. As with Griffin’s plan to set up Choruss at universities, the potential losses are limited.
“We love the business model, and the fact that they went through a term and then renewed because it helped them retain subscribers is good,” says Michael Nash, Warner Music Group’s executive vice president for digital strategy and business development. CD sales in Denmark have continued to decline as record stores close and other retailers cut the space they devote to music. “But iTunes sales have continued to grow, which is the chief barometer we’re concerned about. The perspective in that market is that it has had no cannibalistic impact.”
Some technology executives say the major labels resist innovation for fear of losing their share of the music market: they don’t want to compete with independent companies on a more even playing field. But so far, Bautrup says, their market share isn’t all that different from the physical CD market. He says a few Danish labels have thrived at the majors’ expense, mostly because they have devoted more attention to packaging, or its virtual equivalent. At the same time, however, TDC Play’s popularity among men in their thirties and forties guarantees a steady demand for the kind of classic rock that’s almost entirely on major labels.
The only dissent comes from KODA, the collecting society that represents Danish songwriters, which is literally located right around the corner from Sony in a neighborhood of charming old buildings. Like most European collecting societies, KODA is a legal monopoly that wields far more power than its U.S. counterparts. After KODA’s first two-year contract with TDC ran out in April 2010, the two sides could not agree on a new deal, although they proceeded under a temporary agreement. TDC asked for a ruling from the Danish Copyright Tribunal, which has the power to set license rates if companies cannot come to terms.8
“TDC wanted to renew at a lower rate and we offered a reduction, but they wanted more of a reduction than we offered,” says Jakob Hüttel, KODA’s head of international legal affairs. Both sides agreed to abide by the tribunal’s decision. In stereotypical Scandinavian fashion, both KODA and TDC were refreshingly polite about the dispute, especially compared with their counterparts in other countries. “This is strictly business,” Bautrup says. “I like KODA. We pay them a lot of money, but that’s how it is, and they take care of the administrative costs of paying songwriters.”
KODA’s dispute with TDC points to one of the biggest problems with blanket licensing: labels and publishers don’t always agree on how to split the money. So far, they’ve treated iTunes downloads as sales, although not without some objections. But what about services that offer unlimited downloads or streaming? If labels don’t have to bear the costs of manufacturing and distributing CDs, publishers argue, shouldn’t publishers get a larger share of royalties? In turn, labels point out that they still bear more of an act’s expenses, including production, promotion, and marketing. Sony’s Daldorph and the Danish labels favor TDC’s side in the dispute—yet another example of how the music business isn’t as monolithic as some technology executives imagine.
Hüttel says KODA needs to protect its members, since it runs as a songwriters’ collective. It has a reputation as a hard bargainer, and as of early 2011 it had declined to make deals with YouTube or Spotify. Although KODA says it’s eager to strike deals with online services, start-ups often ask for low rates to get their businesses off the ground, and it doesn’t want to license them music so cheaply that it gives them an advantage over existing businesses. “Why should we help some businesses give music away without earning any money on it when there are successful models with which they’re competing?” Hüttel asks.
Although this sounds harsh, KODA doesn’t want to give online companies an artificial advantage. TDC Play seems to take listening hours away from radio, a major source of KODA’s income. At the same time, companies like Spotify and TDC resent that collecting societies in some countries charge more than those in others. “Payments have come to the level where Spotify cannot launch, where they’re higher than Holland or Sweden,” Daldorph says.
TDC Play continued to operate during the dispute, and the two sides reached an agreement in April 2011. “TDC is clearly an evolution along this path, and actuarial thinking is very common in Scandinavian countries,” says Griffin, who spent most of 2007 in Finland consulting for Nokia on Comes with Music. “It’s the foundation of their society in the sense that they’ve socialized any number of expenses that others would view as private.”
As anyone involved in health care can tell you, what works smoothly in Scandinavia can start fights in the United States. And as Griffin tried to strike a balance between the culture business and the culture of the Internet, he ran straight into the latter. Even before Warner Music’s incarnation of Choruss finalized any deals, bloggers started calling the plan a “music tax.” In a fit of objectivist outrage, an engineer from Akamai, the online company, even suggested that “failure to pay their tax will ultimately result in people with guns coming to your door.”9 At one point, Griffin says, he was e-mailed a death threat, through two anonymous mail servers, that Warner took seriously enough to hire a private detective to investigate.10
The “tax” talking point scored well online, even though it is legally and logically inaccurate. Choruss would be more accurately described as a “levy,” since it would organize an easy way for rights holders to collect money they’re entitled to by law. It’s already illegal to download copyrighted music without paying under most circumstances—that’s why people get sued for it—and Choruss would eliminate those lawsuits and make sure artists got compensated. Like ASCAP and BMI, it would monitor and monetize a right that already exists. Some people objected to the idea that colleges would charge students for music, but many schools already assess activity fees that cover cable television, campus concerts, and other cultural activities. And since a 2008 law gives universities a legal obligation to reduce illicit file sharing, taking a license from Choruss might be easier than policing student use of computer networks.11
Over the course of 2008, Griffin signed up six schools: the University of Colorado, Boulder; the University of Washington; Seton Hall University; California State University, San Bernardino; Murray State University; and the Berklee College of Music. But as Choruss came under fire, Warner Music grew reluctant to talk about it, partly because of antitrust concerns. The air of mystery led some students to expect stringent limitations on service.
“They didn’t understand it, and they hate anything that has the stench of major labels on it,” Griffin says. This is ironic because Griffin has also criticized labels, albeit in fairly measured ways. He even sits on the advisory board of the Electronic Frontier Foundation, which is hardly a friend to the entertainment industry.
Like most Internet idealists, Griffin wants to use technology to distribute creative works as widely as possible; he just wants to make sure their creators get paid. “A civilized society could not long tolerate purely voluntary payments for culture and art,” Griffin says. “If you turn it into a tip jar, society starts to crumble. But the same thing happens if you condition access to those materials on one’s ability to pay—or, worse, the size of their parents’ wallet. A child should be able to hear any age-appropriate song, watch any movie, read any book.” It’s a remarkably utopian vision for a man the TechCrunch blog accused of planning a “protection racket.”12
Warner Music’s involvement didn’t guarantee Griffin smooth sailing within the industry, either. Like TDC Play, Choruss needed to convince publishers they would come out ahead overall by lowering their usual fee for downloads. Some labels were also wary: Universal Music, the major label with the largest market share, approaches some blanket license deals by asking for a guaranteed share of revenue, according to executives familiar with the negotiations. For some rights holders, participating in Choruss means sacrificing a short-term advantage for the good of the overall music business. You could call the lack of industry support for Choruss shortsighted, but an economist would call it a market failure.
In the United States, the government has traditionally stepped in to resolve such situations. In 1909, Congress created a “statutory license” that allows performers to cover any song that has already been released as long as they pay a “mechanical royalty” set by a rate court.13 Other such government arrangements were made for the retransmission of broadcast television on cable systems and for online radio services like Pandora, which don’t allow users to choose which songs they hear.14 (Services like Spotify, which do allow users to choose specific songs, aren’t covered by that arrangement, which is why they need to make deals directly with labels.) So far, U.S. labels and Internet service providers have not expressed interest in such an arrangement—the former because it could further erode music prices and the latter because it would raise their costs. Labels have grown more interested in cutting private deals, but in the United States at least the Internet service providers have little incentive to negotiate with them. Why pay to give users what they’re already taking for free?
Ultimately, there’s no reason why a blanket license couldn’t also apply to other media, although the way the film business uses release windows to maximize revenue makes it impractical for Hollywood. Television carriage fees are already split up by cable companies, albeit in a very different way. So far, though, the only other business looking into blanket licensing is journalism. Like music, it spreads easily online in ways that don’t benefit its creators, and the companies involved are faring so badly that they need to experiment with new business models.
As in music, publications already have the right to receive compensation for many uses of their stories. In most cases, this right wouldn’t apply to one- or two-paragraph excerpts, which would fall under fair use, but it would certainly apply to blogs with advertising that republish articles in their entirety. As with Choruss, collecting money in these cases wouldn’t require any adjustment to copyright law, since those who reprint entire articles already have to pay for them—they’re just not doing so. An organization like ASCAP could collect money and divide up the resulting revenue. And one of the hot news cases being litigated by news organizations could set a precedent like the one in Victor Herbert’s case against Shanley’s Restaurant.
Any blanket licensing plan will almost certainly begin in the music business, which is more comfortable than most with actuarial economics. Music publishers have fared better than labels did during the last decade, and they have a record of being more fair to songwriters than labels are with artists. But any such arrangement would fundamentally change the nature of the recorded music business. Instead of focusing on raw sales volume, labels would need to focus on raising their average revenue per user, or ARPU, a metric used by telecom companies, among others.
Could this work? As of October 2009, about seventy-five million U.S. homes had broadband connections15—just less than 65 percent of all U.S. households.16 For the sake of argument, let’s assume broadband usage climbs to a hundred million households over the next decade. And let’s assume that about two-thirds of those households would want an unlimited music service for $10 a month—a good value compared with cable television. (Perhaps half of the remaining third don’t like music, while the other half of that third simply refuse to pay for it.) Of the $120 that each subscriber brings in annually, perhaps $30 might go to the Internet service provider. That would still leave sixty-six million households paying $90 a year into a pool of money that would be worth $5.9 billion a year.17
To make comparisons easier, let’s assume the money record labels would save on manufacturing and distribution would now go to collecting, managing, and disbursing this pool of money. So we can directly compare this $5.9 billion with the $6.3 billion that labels made in 2009 on music sales and licensing. But publishers would almost certainly demand more of that money than the dollar or so per CD they get now—perhaps another eighth in addition to what they get now, which is about an eighth of wholesale revenue. (These estimates are rough but realistic.) That would leave about $5.2 billion for the labels.
Labels could also charge money for access to music over mobile phones. This could be a more lucrative business, since there are many more mobile phone users than there are households with online connections. But this idea, like many other mobile business models, requires drawing a distinction between broadband and wireless Internet connections that seems increasingly artificial. It might make sense for labels to charge $5 for a broadband connection and another $5 or $10 for a mobile phone, but that’s possible only if there’s a discernible difference between the two.
Artists or labels could also make money selling other products—vinyl records to collectors, CDs to listeners of a certain age—and artists who wanted greater investment from labels could license their rights to concert tickets or merchandise. Right now, one of the most valuable rights artists have is the ability to license songs for use in commercials, films, and television shows, which has grown more important as music sales have fallen. Under the model William Fisher proposes in Promises to Keep, artists who allow others to remix their material would get a higher level of compensation. In principle, this is an elegant idea. In practice, who would decide what constitutes a remix? Using a pop song in a home video might not affect its potential licensing value, but putting it in a commercial online video certainly could. (And since so many YouTube clips run with advertising, aren’t many home movies now commercial in nature anyway?) Songs from artists who rarely license their work command a premium, so those who granted remix permission could lose significant revenue. Putting Fisher’s ideas into practice would require significantly more money in the pool.
Under such a broad-based plan, “I don’t see how you’d get the consumer to agree to pay a sum that would match what we have at present,” says Frances Moore, chief executive of the International Federation of the Phonographic Industry (IFPI), the international equivalent of the RIAA. “What’s great about TDC is that it’s one of many models that the consumer has available. The problem with [a government-run plan] is it takes away all other models.” Labels would receive guaranteed income, but they’d have a hard time entering new businesses.
Under any blanket license plan, labels could immediately face a severe drop in revenue, although it would eventually rise again. Consider a streaming music service that charges $5 per month. Its first customers would be dedicated fans, the consumers who might now spend $100 or so a month on music. Once they buy a subscription, they might spend less. In the long run, this might not matter, because other subscribers—the consumers who now buy one or two CDs a year—will spend much more than they did before. The problem is that they might not buy a subscription for some time.
Any blanket licensing system will also have to be transparent enough to satisfy labels, performers, and songwriters that they’ll get the money owed to them. Some worried that Choruss would not collect enough money for everyone. “This idea appeals to people who haven’t done their homework because they all say, ‘All we have to do is license this and then make money from it,’ ” says the president of the Songwriters Guild of America, Rick Carnes. “They don’t look at the details, and the devil is in the details.” Among them are how labels and publishers will split revenue, what organization will monitor the popularity of various works, and even contractual issues between artists and their record companies. Seemingly minor legalities—like whether blanket licensing deals legally count as sales or licensing—would make a huge difference in the money that goes to labels, artists, and songwriters.
Ironically, the same copyright laws that protect labels also make it difficult to launch a project like Choruss without government support. As Griffin planned it, Choruss would work like existing file-sharing programs, meaning users could trade any music they wished. But if someone uploaded a recording to which Choruss did not have rights, its copyright holder could still sue him. That would eliminate one of Choruss’s main advantages and leave students wondering why the legitimate service they were paying for offered less music than the illegal one they had been using for free. It also means that smaller rights holders can serve as spoilers, essentially forcing organizations to pay them a premium to keep them from litigating. To prevent this, some Nordic countries use an “extended blanket license,” which covers all rights holders once a certain percentage of them agree to terms. The majority rules, then takes everyone else along.
Mostly for this reason, Griffin put Choruss on hold in October 2010 to start working on a better way to track who owns what rights. The leading venture to do this is the Global Repertoire Database Working Group, a European Union venture of eight companies to make music licensing easier across international borders.18 Griffin is working on a similar project for the World Intellectual Property Organization.
“I love Choruss, but I know it’s not a good idea until we have a database,” Griffin says. “Everyone had come to understand that it’s a predicate to progress. We should not be creating pools of money if we cannot allocate them fairly.”
The biggest problem with blanket licenses will be getting technology companies to collect a reasonable fee, or else convincing individuals to pay one. Consumers obviously value professional content: more U.S. households have cable television than broadband Internet connections, even though the former is more expensive. But the widespread availability of pirated content has changed consumers’ attitudes, as have public interest groups aligned with the technology business.
“I like the idea of a voluntary license fee, but it’s got to be for all content,” says Gigi Sohn, president of Public Knowledge, which is partly funded by technology companies. “I think you have maybe one small fee—maybe $5—and it gets split up among various and sundry copyright holders.”
That’s laughably low; it would fund a smaller music business than the United States has now and leave nothing for movies, television, or any form of journalism. Charging more would be unfair, Sohn says, since it would raise Internet access bills. But many consumers are taking this content already—they’re just not paying for it—and this content is what gives Internet access most of its value. Blanket licenses would better align the value of broadband Internet with its price, and eliminate unproductive lawsuits along the way.
Whatever Choruss’s faults, some of its critics keep comparing it with an ideal system, rather than the considerably messier state of affairs we have now. As music sales continue to decline, difficult solutions could become more appealing. Ultimately, Griffin thinks the government might have to step in. “In relation to my experience, I now believe we may need a statutory approach,” he says. “And I do think it’s coming.”
Like Formula 1 racing and Robbie Williams, the idea of a government-mandated blanket license seems appealing to Europeans in a way Americans may never understand. French politicians discussed a “global license” for all media before debating the HADOPI law, and the German Green and Social Democratic parties have proposed a similar idea called the “culture flat rate.” As three-strikes laws become unpopular with young people, the idea of a blanket license becomes more difficult for politicians to dismiss.
“When in politics one is confronted with two options that both don’t work one should look for a third one,” said the German Green Party’s Helga Trüpel. Speaking at a Berlin press conference in April 2009, the day after the French National Assembly approved an early version of the HADOPI law, Trüpel rejected both that approach and the idea that content should be free online and put her support behind a German blanket license for all media. She said an Institute of European Media Law study concluded that an online blanket license could conform to German and European copyright laws.19
Germany’s Green Party added the culture flat rate to its official platform in 2007, partly to compete with the Pirate Party for the votes and attention of left-leaning young people. The idea came to them from Volker Grassmuck, a German sociologist active in the free culture movement, who took it in turn from Fisher’s book Promises to Keep. Grassmuck points out that Germany has solved problems with collective licensing before. In the 1960s, the German collecting society GEMA sued a company that made tape recorders—not cassettes, the old reel-to-reel models—for the right to license users to make copies of compositions. Since Germany’s strict privacy laws would not allow companies to reveal who bought their products, legislators created a “private copying exception” that covered a limited number of duplicates for friends and family. Unlike fair use, which is left up to judicial interpretation, this is defined in law.
“Lawmakers addressed this by controlling what can be controlled and remunerating by a levy what can’t be controlled,” Grassmuck says. Because it couldn’t determine how recorders were used, the German government added to the price of each machine a levy that is divided among rights holders. As technology developed, most Continental European countries eventually applied the same principle to a variety of devices with an alphabet soup of collecting agencies.
Like any European leftist, Grassmuck is skeptical of private solutions to what he sees as a public problem. He calls the Electronic Frontier Foundation’s proposal for a voluntary license an “extreme neoliberal antistatist manifesto,” since it leaves too much up to the market. He doesn’t care for TDC Play either: what the company sees as an extra service, he sees as a way to tie in users. Like many online activists, he believes Internet service providers should compete only on price and steer away from providing additional services. The companies that invested most in the Internet infrastructure would essentially become utilities, while Google and other technology companies would be left almost unregulated.
The Green Party plan has problems as well, however. Left of Germany’s Social Democratic Party, which itself leans left of America’s Democrats, it does not inspire the confidence of executives in the technology or entertainment business. It has already discussed how to provide tax-subsidized media for the poor, even before it has come up with a workable formula to divide funds among the industries in question. “The artists are against it,” admits Oliver Passek, spokesperson for the Green Party Working Group on Media Policy. “But the ‘net citizens’ ”—German online activists—“are more important to the party.”
In the past year, Trüpel has had a change of heart about whether any kind of blanket license will work after all. “According to my interpretation, this culture flat rate must be very expensive for everything that would be distributed—they said it would be more than €100 per month—and the Greens were only talking about €5 or €10,” says Trüpel, who now favors a “digital rights fair trade” policy that would encourage private companies to make deals that don’t involve litigation against consumers. “Consumers will never accept a compulsory flat rate where they will have to pay €100, and I don’t want a state-run culture market in the EU and especially not in Germany.”
A more realistic idea that has gained traction in the Social Democratic Party is the “culture flat rate mit Kontrahierungszwang”—with compulsory licensing. Under this plan, the labels and the Internet service providers would negotiate a license fee for recorded music, with the government stepping in if they can’t come to terms on a price. Like radio stations, Internet service providers would then be free to pursue any kind of business model they wanted, as long as they paid for the music on their networks. Some could offer music free to users, while others could charge for access, or even for specific track downloads.
“What we have here is a market failure, and by German legal logic the state is supposed to intervene,” says Tim Renner, the former head of Universal Music Germany, who supports this idea. Under this plan, since Internet service providers would have to pay for the music on their networks, they would have a strong incentive to limit illegal file sharing. “The market would start working again,” Renner says. “Then they would compete for customers, so you have two advantages for the consumer—good prices and better convenience.” Renner’s license plan would repair the market—not replace it—in a way that would open up opportunities for all kinds of businesses.
It’s hard to negotiate a private blanket license deal until Internet service providers have an incentive to come to the table. For TDC, this came in the form of competition. But the broadband market in Denmark is more advanced than it is in most countries. The most obvious way to motivate companies in other markets is to make them take at least some responsibility for what users are doing on their networks.
“Legislators in Europe are moving in that direction anyway,” says Paul Hitchman, cofounder and chief executive of Media Service Provider, a British company set up to run unlimited music streaming services for Internet service providers. “Three strikes is many things to many people, but it’s absolutely doomed to fail unless it goes hand in hand with the delivery of new services. It’s the alignment of interests that’s important: The threat of imposing graduated response tends to bring the [Internet service providers] to the table and then the government brings the labels to the table.”
Media Service Provider’s first major project involves running the MusicHub service for the Irish Internet service provider Eircom. It’s part of a deal that offers something to both sides. Eircom agreed to enforce antipiracy rules with a graduated response program, while the labels signed a deal that has Eircom pay them in order to offer free music streaming to its customers and sell downloads for less than Apple’s iTunes store—€5.99 (about $8.50) for fifteen tracks a month.20 Labels and artists get paid, and Eircom gets a service for its customers. But the path to this deal ran straight through a courtroom.
In January 2009, the Irish Recorded Music Association (IRMA), an organization that represents the major labels and Irish independents, sought an Irish High Court injunction to hold Eircom responsible for the copyright infringement that took place on its network. After three days, the two sides arrived at an out-of-court settlement that required Eircom to introduce a graduated-response program to notify infringers that it knew about their activities and, eventually, restrict their access in some way. (This could involve a reduction in speed or an interruption of service rather than a disconnection.) The agreement also required IRMA to negotiate with other Internet service providers to pursue the same policy, so Eircom wouldn’t have a disadvantage.
“This was a stand-alone decision in Ireland, since our sales had gone through the floor,” says IRMA’s director general, Dick Doyle. Since widespread broadband access came to Ireland later than other European countries, its falloff in music sales was more sudden: label revenue fell 26 percent in 2009 alone. Doyle says that suing copyright infringers didn’t help the situation.
Once the labels started talking to Eircom, they realized that a penalty for illegal behavior wouldn’t change consumer habits unless it was paired with a reasonable legal alternative. “We said, rather than have a stick and no carrot, let’s think about a deal we could do,” says EMI Ireland’s managing director, Willie Kavanagh. “The nice thing about the way we structured the deal is that the streaming is free to Eircom customers and they pay us, so it becomes part of their bundle for consumers.”
In October 2010, when IRMA filed a case against UPC, one of Eircom’s competitors, Justice Peter Charleton ruled that the company could not be held liable for secondary copyright infringement, since Ireland had not correctly adapted European Union copyright laws. For UPC, this was a technical victory at best: Charleton wrote that piracy “ruins the ability of a generation of creative people in Ireland, and elsewhere, to establish a viable living.”21
Eircom initially worried it would be the only Internet service provider to enforce limits on piracy, but the company’s head of content and services strategy, Mark Taylor, doesn’t think the combination of enforcement with a legal alternative will drive customers away. “You would think that if Eircom implemented graduated response unilaterally, it would be suicide, but most of our customers are families and many of them are aligned with this policy,” he says. “It’s the teens and twentysomethings who have a philosophical objection to restrictions on the Internet. We want to change consumer behavior to using legal alternatives.”
Hitchman hopes to provide services for more of these deals, and he hopes they’ll get easier to set up as time goes on. So far, he’s looking at small markets, in which labels might be willing to experiment, or ones where piracy has already become a devastating problem. But he thinks both labels and Internet service providers will study the Eircom deal to see if it cannibalizes traditional music sales. “Our big opportunity is if the terms of these deals become standard, or if we see a licensed wholesale market, where platforms like ours can just slot into Internet service providers,” Hitchman says. But he also says the Eircom deal would have been difficult to negotiate without the legal case that preceded it.
By removing all responsibility for copyright infringement from Internet service providers, laws like the Digital Millennium Copyright Act allowed the Internet to flourish. But they also gave Internet service providers a perverse incentive to ignore the problems of the entertainment industry. If online companies have nothing to lose, they have no reason to negotiate. Any solution has to start with giving Internet service providers an incentive to reduce piracy without strengthening copyright so much that music labels and movie studios lose their incentive to come to terms. Both sides have to realize they can’t get everything they want: Internet service providers can’t blithely dismiss piracy, while labels have to start selling services as well as products.
“My dad, the union negotiator, told me that if both sides are unhappy, you made a good deal,” Griffin says. “Until you give up your fantasy, you can’t achieve your dreams.”