Last week, the Associated Press issued several DMCA takedown notices on a Web site called Workbench, claiming the site had infringed its copyright when it posted ledes and titles from a handful of AP stories. The Associated Press, which is a cooperative owned by more than 1,000 newspapers, which contribute content to the collective and use content from it. I am intimately familiar with the AP and how it works, and think that the cooperative has evolved into an influential, primary news organization because so many newspapers have abandoned original reporting in so many areas due to real or perceived financial pressures.

(Next time you read your local newspaper, take notice of how many stories are wire service stories from AP, Reuters, Agence France Presse, or a similar agency.)

AP’s tactics, however, raise some interesting issues about copyright’s use and applicability in a networked information environment, where virtually every action invokes one of the six exclusive rights.

I address these issues in no particular order.

1. The DMCA Takedown Process: I’ll address both sides of the same coin. The first side is an opinion many hold: “The DMCA takedown process is flawed and must be amended.” The safe harbor provisions under Section 512 allow a “service provider” to avoid infringement liability so long as the “service provider” removes or disables access to the allegedly infringing content upon being served with the takedown notice. As Wendy Seltzer illustrated last year, the takedown provisions do not provide for any assessment of fair use (or any other copyright exception), and provide weak safeguards against abuse. (For example, retailers like WalMart abuse the process every Thanksgiving holiday by issuing takedown notices for holiday sales information that, by any reasonable measure, is factual — and therefore not subject to copyright protection.)

The flip side is equally compelling, yet not quite as popular: “Service providers should not roll over reflexively and accept such DMCA notices without investigation.” Granted, there are costs associated to training staff to handle these notices properly, but those are fixed costs that come with this particular business. An ISP would have to train its staff to handle any sort of legal notice, including a subpoena, so DMCA notification training should not be an issue.

(See Section 512(k)(1) for a definition of “service provider.”)

Further, I see nothing in the takedown procedures that requires any sort of investigation into the paper’s validity or credence, and a strict reading of the statute may prohibit such an investigation … so long as the “service provider” is satisfied simply to comply with the DMCA and punt on any extralegal responsibility it may have to its customers. My reading of this tortuously long statute indicates that it “service providers” are required to expeditiously remove, or disable access to allegedly infringing material in order to qualify for the “safe harbor.” Absent qualifying for the safe harbor, I see nothing that requires “service providers” to expeditiously remove, or disable access to allegedly infringing material.

What is the worst that could happen if a “service provider” decided to question the takedown process, and in the process disqualify itself for the “safe harbor”? It gets sued for copyright infringement? Surely, no person or entity wants to get sued, but is it too much for ISPs to show a little spine on this issue, especially if the spine showing results in bad press for the copyright owners? (Oddly, bad press for the copyright owners may actually help keep the issue out of the courts. And bad press may be the only effective tactic left in stemming the inexorable march toward narrower interpretations of copyright exceptions that don’t require compensation or permission.)

Besides, an ISP recently showed some spine and objected to some of the DMCA’s provisions: Verizon, for example, litigated the DMCA subpoena provisions … and actually won.

2. The Trial Balloon: Once The New York Times got hold of the story, the Associated Press had retreated from its initial, aggressive actions, calling them “heavy-handed.” The implication is that an overzealous legal department ran amuck without consulting the business side of the building.

This is garbage. The AP knew exactly what it was doing, and the legal department had full sanction from (and was in consultation with) the business side of the building. In fact, I’d go so far as to say that AP did not consider their actions to be “heavy-handed” until the Times inquired about this issue. (It is significant that the Times is a cooperative owner of AP, and also has increased its implementation of blogs in the newsroom and on its Web site.)

This is not an accident at all. The AP wanted to see how aggressive it could get, and for how long, before its actions were (a) noticed by business partners (or at least entities or executives it respects), and (b) questioned or criticized by those partners. AP will use this incident (and the reaction) in the future as a barometer for how aggressive it can be in proscribing uses of its content that are not explicitly licensed. Next, what we’ll likely see is a new AP content license that is promoted specifically for bloggers. Part of the market research for such an initiative, however, is occurring now, with this shot across the bow.

The concept of a content license for bloggers is neither new, nor necessarily negative. But that license will be positioned as an insurance policy: buy the license and we won’t sue; but if you don’t buy the license, then we make no guarantees. It is the proverbial Corleonic proposition.

Implicit in the “no guarantee” part of the equation is AP’s behavior in this situation. When this issue arises in the future, the AP’s rationale will be that while there were no (or fewer) licensing options when AP approached Workbench in June 2008, now (whenever that time in the future is) you have options … in the form of the license. The options won’t be “fair use or some other exception,” “fair use or not fair use,” or even “fair use or license,” but instead “license or risk getting sued.”

I think AP is beta testing future business initiatives (and perhaps stalling for time to get its initiatives together) while using allegations of copyright infringement and the hammer of a lawsuit. This is not the first time a large copyright portfolio has done this: I think the RIAA has done this for years, for example. I think the three academic publishers who sued Georgia State University for alleged infringement via electronic reserves are doing exactly the same thing, under the guise of “protecting authors” and maintaining incentives for future authors to publish.

The problem I see with this tactic is that it narrows attempts to render irrelevant any discussion of the bevy of copyright exceptions that are allowed under the law. Muting discussion of exceptions works consistently with promoting licensing as a solution to avoiding copyright infringement. “Don’t worry about copyright; it’s too complicated. Buy the license and be secure in knowing that you (or your organization) are in compliance,” goes the pitch. What the pitch really is saying though, is “Pay for everything without referring to the copyright exceptions that, under certain circumstances, will allow parties to use, access, reproduce, distribute, or remix portions of protected works without having to ask for permission and without having to pay.” That’s not a solution; that’s a surrender.

Dastardly? Perhaps. Cynical? Maybe. Beyond the realm of possibility in an overheated copyright environment? Absolutely not.

3. Fair Use & the Inverted Pyramid: In the same Times story, writer Saul Hansell reported the following:

Even if The A.P. sets standards, bloggers could choose to use more content than its standards permit, and then The A.P. would have to decide whether to take legal action against them. One important legal test of whether an excerpt exceeds fair use is if it causes financial harm to the copyright owner.

“The principal question is whether the excerpt is a substitute for the story, or some established adaptation of the story,” said Timothy Wu, a professor at the Columbia Law School. Mr. Wu said that the case is not clear-cut, but he believes that The A.P. is likely to lose a court case to assert a claim on that issue.

“It’s hard to see how the Drudge Retort ‘first few lines’ is a substitute for the story,” Mr. Wu said.

Associated Press, obviously, thinks differently. In a June 3 letter to Rogers Cadenhead, Workbench’s editor, the news cooperative’s Intellectual Property Governance Coordinator wrote the following:

… you purport that the Drudge Retort’s users reproduce and display AP headlines and leads under a fair use defense. Please note that contrary to your assertion, AP considers that the Drudge Retort users’ use of AP content does not fall within the parameters of fair use. The use is not fair use simply because the work copied happened to be a news article and that the use is of the headline and the first few sentences only. This is a misunderstanding of the doctrine of “fair use.” AP considers taking the headline and lede of a story without a proper license to be an infringement of its copyrights, and additionally constitutes “hot news” misappropriation.

(By the way, isn’t “Intellectual Property Governance Coordinator” a great title? I would have settled for “IP Majordomo,” but Intellectual Property Governance Coordinator sounds magisterial.)

There is a practical problem with Professor Wu’s statement, and it is connected to Associated Press’s interpretation of fair use: journalists write news stories using a technique called the inverted pyramid. In the inverted pyramid form of writing, a news story’s most substantive, important, and informative information appears near the top of the article, while contextual information falls further down into later paragraphs. Essentially, the inverted pyramid form of writing requires news stories to answer the most important questions — who, what, when, where, how (and set the tone for answering “why”) — within the first three paragraphs. In the tightest news writing, a reader should be able to answer the most important questions in the first 3 to 5 sentences, which include the “lede” (or lead).

The rationale behind the technique is quite sensible: it allows readers with little time a way to be informed quickly, particularly if one is scanning the paper. The technique, which has been around and used for centuries, represents a CNN-style of reporting that existed before Ted Turner even was born.

From a legal perspective, though, one could argue reasonably that the inverted pyramid technique, combined with contemporary blogging practices, has an effect on fair use. If you look at the four-plus factor test in Section 107 and compare it to how news writers construct their stories using the inverted pyramid, the first 3 to 5 lines of a news story essentially constitute factors three (”amount and substantiality of the portion used in relation to the copyrighted work as a whole”) and four (”the effect of the use upon the potential market for or value of the copyrighted work”). Said another way, the inverted paragraph form of writing — which includes “the first few lines of a story” that Wu claims could not be a substitute for a story — is a substitute for the story. That what it always has been designed to be. By extension, if online writers are using the first few lines of a news story, and news stories (almost universally) are written in the inverted pyramid format, then online writers that use those lines are substituting for the news story.

Let me take it a step further. If findings for or against fair use are based upon a theory of commercial substitution, then it seems that every use of a news story’s first few lines is, a commercial substitution that finds against fair use. Fair use should not be winnowed down exclusively to commercial substitution, but given Harper & Row v. Nation Enterprises, 471 U.S. 539, 566 (1985) (”[the fourth factor of Section 107] is undoubtedly the single most important element of fair use”) and the fair use’ otherwise vague and inaccessible nature, most folks will use commercial substitution as the clearest guideline in an otherwise foggy doctrine. (This is especially true of copyright portfolio owners, because they can argue that virtually any invocation of the exclusive rights rights is (or may be) a commercial substitution, and therefore, beyond the scope of fair use.)

To be fair, William Patry has called “erroneous” the Harper & Row court’s assertion that the fourth factor is “undoubtedly the single most important factor,” but I do not know of any comparable holding that explicitly overturns that analysis, or any trend that suggests federal courts are no longer relying on it.

For these reasons, I see Associated Press’ actions last week as having long-lasting commercial, political, and journalistic importance.

Update (June 23, 2008): In a Friday, June 20 posting to The New York Times’ Bits blog, writer Saul Hansell reported that Associated Press and Workbench editor Roger Cadenhead “consider the matter closed” as of Thursday, June 19. Hansell’s post links to Cadenhead’s reportage about the dispute’s end. Cadenhead’s post, in turn, discusses AP’s use of tracking technologies from a company called Attributor, a Redwood City, Calif. company that has had AP as a client since May 2007. (Interestingly, Cadenhead notes, Attributor posted a blog earlier this year that advised its clients to send a link request instead of a DMCA takedown notice.)

Cadenhead also notes that AP already offers fee-based services whereby customers pay for headlines and lede paragraphs. (We presume Cadenhead is referring to AP Exchange or AP Digital.)

Additionally, Cadenhead also mentioned the willingness of parties like the Electronic Frontier Foundation and Public Knowledge to assist his legal fight. Since both organizations seem to choose their issues and legal fights with extreme care, it is fair to say both parties were as interested in the potential for positive publicity as the legal issues.

Finally, Hansell’s report surmises what occurred between AP’s issuance takedown notice of the takedown notices, and the apparent detente late last week. In the end, none of the thorny legal issues got resolved and no one seems to want to discuss the key issues on the record. The veil of silence that surrounds the “settlement” reinforces our conviction that AP was using this issue as a trial balloon, both to gauge public opinion and to use as a test case for future business initiatives.

Copycense™: Incisive IP.™

The news cycle has been abuzz about digital music and iTunes‘ ascendance to a position as the country’s leading music retailer. Likewise, the mainstream press has continued to feed its desire for an iTunes-Amazon.com octagon-style retail death match, and steadily has been promoting Amazon.com’s mp3 download service as a worthy challenger to the iTunes hegemony.

(The music labels, long irritated with Steve Jobs‘ control of the legal download market, silently would approve of such a challenge.)

We don’t see what the big deal is. There are several problems with music downloads, and none of them have anything to do with three-letter acronyms that purport to “protect” the underlying content. The primary problem with downloaded music is that it sucks.

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This week, The New York Times has been hosting a copyright “debate” between Columbia’s Tim Wu and NBC Universal’s general counsel Rick Cotton. (The entire debate is available on The Times‘ site; the instant link is to one portion of the debate.) We use the term “debate” lightly because, as we analyze below, these commentaries are not discussions featuring opposing arguments. Instead, they are framed discussions that express implicit support for the content industries’ view that copyright and control are synonymous.

We’ll use as an example Monday’s question about the use of copy restriction technologies. The first problem with the Times‘ question is that it conflates creators of copyrighted works with owners of copyrighted works. By asking Rick Cotton (who represents a copyright owner) to respond, the Times perpetuates a common misperception that creators and owners are one and the same.

Typically in today’s commercial environment, they are not: the creator often surrenders ownership of his copyright to a corporation hoping the corporation can monetize that creation more effectively than the creator would on his own. The income stream a creator expects from this surrender may or may not occur, and history is filled with creators who never received a dime from corporate owners after surrendering their work.

Why is this conflation important to identify? It’s important to identify because one of the chief arguments corporate copyright owners put forth advocating more restrictive copyright law is that doing so will ensure compensation to the creators. This argument is — and always has been — utter garbage. Hip hop artist Q-Tip spoke for generations of stiffed artists when he rapped in “Check the Rhime”:

Industry rule number 4,080 / Record company people are shady

Technorati Tags: CommuniK., Copycense, K. Matthew Dames, piracy

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William Patry, author of The Patry Copyright Blog, has been en fuego the last few days, writing mostly about proposed U.S. copyright legislation, H.R. 4279 in particular. In addition to suffering the dreaded acronym disease that has plagued legislation since the USA PATRIOT Act in 2001, H.R. 4279 (the Prioritizing Resources and Organization for Intellectual Property Act, or “PRO IP Act”) would increase penalties for copyright infringement, among other things.

(In our most recent edition of Clippings, we focused on the legislation’s proposal to create a Cabinet-level intellectual property czar with a starting budget of $25 million.)

Anyone remotely concerned about balanced copyright should be concerned that Congress is considering this bill, especially with a presidential election and the end of a Congressional term approaching. Candidates on both sides of the aisle recognize they need the support of the entertainment industries that support H.R. 4279, and will be willing to accommodate them. (That is why the Copyright Alliance’s open lobbying campaign of presidential candidates last month was significant.) These industries have prior success in getting bills passed (usually within larger omnibus budget bills) as the Congressional term winds down to zero.

(Lest citizens characterize PRO IP as another Republican plot for world takeover, we note for the record that PRO IP support is bipartisan. Also, let us not forget that the legislation that arguably began this streak of progressively tighter copyright laws, the Digital Millennium Copyright Act, was signed by a Democratic president working with a Democratic Congress.)

But back to Patry, and his points about the legislative process. In the second of two posts, Patry commends the Canadian approach to the legislative process, noting along the way that University of Ottawa law professor Michael Geist was able to gather more than 10,000 Canadians to protest the country’s recent foray into DMCA-like legislation. “How Canada deals with the substantive issues is of importance, obviously, but for those of us in the U.S., how the Canadians have dealt with the process of having their voices heard is instructive indeed,” Patry wrote. “There is much we have to learn from Canada. I cannot think of a better place to start than with H.R. 4279.”

Patry’s summarizes his opinion of the PRO IP bill in the final paragraph of his first post:

So this it: a Zero Tolerance approach to a civil, economic tort, copyright infringement. The dangers in the new Zero Tolerance to copyright go far beyond the individuals swept within its net, although that is bad enough: the Zero Tolerance approach threatens respect for law itself. People do not obey laws they abhor, and there is much to abhor in H.R. 4279. Copyright owners have proved themselves incapable of understanding their customers and the public’s outrage over the direction copyright has taken; perhaps they delude themselves into thinking that the opprobrium comes from those who don’t respect law anyway; but it doesn’t: it also comes from those like Sir Hugh and I who love copyright law and who have devoted our professional careers to it. If section 104 and the civil forfeiture provisions of H.R. 4297 pass, there will be many others.

I, too, love copyright. Perhaps unlike Patry, my involvement in copyright from the legal perspective is relatively recent compared to my involvement with copyright as a creator of words, music, and art. I believe in “promot[ing] the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” (Emphasis mine.)

I create, and I get paid for my creations. I like and expect to be paid for my creations. I expect my creations will be protected by the law. Everything on Copycense is subject to Copyright Act of 1976 — rights and exceptions all — and we will not hesitate to file a DMCA takedown notice against any Web site that dares to scrape and re-post this site’s contents whole or without attribution.

Despite my strident criticisms of the lobbies such as RIAA and MPAA, no one ever has read in these pages that we do not believe in copyright or copyright protection. But, like Patry, I believe U.S. copyright has gone almost irreconcilably askew. There are a variety of reasons for this problem, but I want to focus on one. And I’ll begin with a story.

Technorati Tags: CommuniK., Copycense, William Patry

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When Macrovision, the content control company, buys TV Guide, it is reasonable to ask to what extent will Macrovision implement DRM in a way that could force electronics manufacturers to engage in what writer Saul Hansell calls “electronic vigilantism.” Hansell notes this is no longer a theoretical concerning, pointing to Boing Boing’s post about a new Western Digital computer network hard drive that blocks music and video files because of “unverifiable media license authentication.”

Practically speaking, that’s a technologically complex way to say if I buy Season 4 of The Wire on DVD, and I want to rip it to QuickTime to play on my computer — a common, totally reasonable action that Time Warner likely would claim is de facto illegal — then at some point, I may be unable to because my computer would reject that file as “unauthorized.” And if I try to break the encryption code, I violate the Digital Millennium Copyright Act.

That’s patently unreasonable to the point of being stupid. And this, we posit, is a primary reason why so many people ignore contemporary copyright: it has become so ridiculous that many people choose to ignore it. Let us try to draw a quick parallel.

Legislators make a law where the speed limit is 55 mph. The rationale for 55 mph is that it is a speed at which drivers, passengers can travel efficiently and safely and cause the least amount of actual or potential harm to the surrounding environment.

Car makers build cars using the most modern technology available to them. That technology allows for faster cars that easily can exceed the 55 mph speed limit. If a more technologically advanced car exceeds 55 mph (the speed limit at which law makers determine everyone can be safe), that car is operating illegally because, theoretically, going above 55 mph increases the level of danger to others on the road.

But the technological advances that make it possible for cars to travel faster than 55 mph also allow car makers to introduce seat belts, air bags, better handling, and better brakes. All of those factors improve safety. Concurrently, police (who enforce the speed limit and determine which cars exceed it) decide by social compact that they’re not going to penalize folks who drive their cars at 56 mph. Instead, they choose a speed — say, 65 mph — that the police department decides is a safe speed and make that higher speed the effective speed limit.

The decision to write out a ticket at 65 mph instead of 56 mph can be arbitrary, but often it is informed by a mix of perceived dangers in a given situation and prevailing social custom. If there is less perceived danger, the cop will write at 65 mph. If most of the cars are traveling, say, 62 mph, the cop will write at 65 mph.

Part of the reason this situation occurs is because at some point, citizens and cops alike believe that the 55 mph speed limit is patently unreasonable to the point of being stupid. Then at some point, law makers decide that 65 mph is the new speed at which everyone can travel safely and efficiently. And eventually, the same police who decided by social compact that they wouldn’t penalize folks who drove 56 mph now decide they won’t write under the new 65 mph “speed limit” unless you’re actually traveling 72 mph.

This all seems reasonable, right?

Copyright has gone in exactly the opposite direction. The technology is allowing you to work at 65 mph; fair use and other exceptions should allow you to operate safely at 72 mph without a problem. Law makers have rewritten the Copyright Act of 1976 to have a “speed limit” of 50 mph, and content companies propose further amendments that would require a new speed limit of 45 mph. Faced with this sort of illogic, the average Joe or Jane decides, “The heck with it,” and rolls down the road at 66 mph.

The average Joe or Jane reacts that way not because they want to be rebels. They react that way because they have decided that given all the data points, 45 mph is unreasonable to the point of being stupid. If people think a law is stupid, they won’t abide by it. If they don’t abide by it, what good is the law?

See also:
Bits (The New York Times). Is Macrovision Bringing More Cops to Your Living Room? Dec. 7, 2007.

Copycense™: Incisive IP.™

Technorati Tags: CommuniK., Copycense, K. Matthew Dames

Technology publication ArsTechnica is reporting that Jammie Thomas’ appellate strategy will be to question the damages award first, leaving to a later date the broader (and arguably more important) issue of whether or not “making available” files violates the reproduction and distribution rights in Section 106. Ars reports that if the court decides against granting a new trial, Thomas would have 30 days to appeal the original verdict, and she could use that opportunity to argue against the “making available” doctrine, which the judge conveyed in jury instructions.

William Patry has observed that he would be “stunned if there is any room for overturning the award. There is doubt that any award within the permissible range, even the tippy-top, is subject to review. I think there may well be cases where a damage award may be constitutionally flawed, but this is not one of them.”

Still, since Thomas currently is responsible for more than $200,000 in statutory copyright infringement damages, there is little surprise that she would look to reduce that figure. The strategy, however, smells like an unfortunate case of CYA and seems narrow considering the broader stakes at hand.

Technorati Tags: CommuniK., Copycense, K. Matthew Dames

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Beware any music executive who opines on the record that “the demand for music is as strong as it has ever been.”

There is incontrovertible evidence that compact disc sales cannot fall much further before they fall into the toilet. There also is what music executives would have you believe is incontrovertible evidence that so-called “file sharing” is killing sales. (A masterful, peer-reviewed article (.pdf) in the Journal of Political Economy empirically debunks that myth.)

And if you know anything about the music business, music executives, or the ability to read between the lines of a quarterly earnings statement from the CEO of a major corporation, then you can be confident that when Warner CEO Edward Bronfman talks about “demand,” he really is using that word as an alternative meaning for “sales revenue.”

Finally, one can surmise reasonably that the money the recording labels receive from digital music outlets like iTunes Music Store (iTMS) is not nearly enough to support the corporate and executive infrastructure those labels have grown and maintained for the past three decades. The labels’ desire to maintain this level of corporate infrastructure is one reason several have balked at the uniform pricing scheme Apple has demanded as a condition of selling music through iTMS.

So how does one reconcile trickling unit sales and the scourge of “file sharing” with healthy “demand” (i.e. sales revenue)? I count at least three possible ways that revenue could rise without unit sales of compact discs increasing.

First, look at the increase in the manufacturer’s suggested retail price (MSRP) of new compact discs, which now routinely approaches (and even exceeds) a Jackson. Even if the public can buy a new CD for less than MSRP, a higher MSRP still leads to a higher actual retail price, since any discount that retailers impose is deducted from MSRP. All things being equal, a higher MSRP leads to higher revenue, hence higher “demand.”

Second, look at alternative methods of getting revenue. In the past two weeks’ Clippings, we ran stories about a clash between Bob Marley’s estate and Verizon over the cellular provider’s agreement with Universal to sell Marley ringtones. (Universal owns the copyrights to much of the Marley song catalog.) Traditionally, recording industry contracts have been silent about revenue that occurs outside of unit sales of records and compact discs, or explicitly has reserved such revenue to the recording artist. Not so in today’s music environment: increasingly, recording labels are demanding through contract that artists surrender some of non-music revenue, such as ringtones.

Although a relatively recent innovation, ringtones have become popular, and thus potentially lucrative. Further, since the ringtones are derivative works of an intellectual property asset the record company already owns, it can cut lucrative deals with the highest bidder. The label has to share some of the ringtone earnings with the songwriter and publisher, but since this is a new revenue stream that the labels and songwriter may not have been envisioned, the label has more flexibility in crafting a deal with those parties than it would have under more established revenue streams.

You can be sure the label is going to cut that deal as far to its advantage as possible, even if the artist objects to the very idea of a ringtone deal (which is the case in the Marley-Verizon clash). While there are several variables in this situation, the net effect of ringtones is more revenue to the label, hence higher “demand.”

Third, labels increasingly are demanding that artists surrender or share a portion of concert and tour revenue. This demand is more egregious than the ringtone sharing deals. Ringtones are a new revenue stream that recent technological advances made possible. There was no tradition or business precedent for it, and in a new, free market, parties are free to cut their deals as they please.

In contrast, live performance revenue always — always — has been the artist’s exclusive economic domain. No longer: now labels want a share of ticket revenue, merchandising, and licensed products. (Some even ask for a share of licensed product revenue that has nothing to do with live performances.)

I consider this to be salt in the proverbial wound. It’s not enough that the typical artist will get no revenue from radio play: radio consolidation increasingly demands that only top-selling artists get airplay because radio executives are convinced such a playlist drives advertising revenue. It’s not enough that the typical recording artist will get no revenue from unit sales. It is true that illegal music copying and downloading cheats recording artists out of potential revenue. But one could argue reasonably that restrictive and egregious contract terms cheat recording artists out an equal amount of potential revenue even before that artist records the album.

Now, the artist has to go on tour and pay off the label, too? That artist is better off working the line at UPS; at least Brown pays health insurance and tuition reimbursement. While there are several variables in this situation as well, the net effect of this new, previously unheard of economic stream is more revenue to the label, hence higher “demand.”

None of this rationale considers a current trend in which states are making it difficult to sell used music. A recent trend, however, has state legislatures creating or extending so-called “pawn shop” laws to apply to the sale of used compact discs. These measures effectively create an economic disincentive for retailers to sell used discs.

Billboard magazine reported in May that a new law in Florida requires all stores that buy used goods to apply for a permit; thumb-print compact disc sellers; retrieve and retain the sellers’ government-issued identification; and hold the discs for 30 days before resale is allowed. Consumers no longer can receive cash for their discs; only store credit is allowed. ArsTechnica reported, also in May, that the legislatures in Rhode Island and Wisconsin are considering similar legislation.

Remember that pursuant to the “first sale” doctrine, neither labels nor recording artists receive any revenue from the sale of used compact discs. But of these two groups, recording artists have much more to gain from secondary market resales of their work because at minimum, a sale of a used disc creates or maintains attention for the artist. This attention could lead to future sales of new music, or attendance at a concert. I’ve discovered several artists’ work in this manner; it’s a safe way to test an artists repertoire before committing to full price on a new compact disc (which you cannot return to a retail store once you’ve broken the insanely tight shrinkwrap).

The recording industry’s attempt to restrict or eliminate sales of used music does not help its bottom line; all it does is harm consumers and artists. (For one artist’s opinion on how the music industry treats consumers, see Trent Reznor’s rant on YouTube.)

But let me return to the central premise: above, I’ve articulated three reasons why Bronfman can claim that “demand” (i.e. revenue) for music in 2007 is “as strong as it has ever been.” But what Bronfman is not saying is critically important: he is not saying that consumers are buying more units because the labels are providing better (or at least more popular) products and services. Quite the contrary: “demand” (i.e. revenue) likely has increased because the labels are charging consumers more, taking more from artists’ pockets, restricting consumer choice, and (equally as likely) engaging in creative accounting.

And even with all Bronfman’s rosiness, Warner Music Group’s third-quarter revenue (the three months ending June 30) still dropped 2 percent.

See also:
News.com (via Reuters). Warner Boss Sees Rebound Despite CD Sales Decline. Sept. 18, 2007.

Copycense™: Code + Content. A venture of Seso Group LLC.

Technorati Tags: CommuniK., Copycense, K. Matthew Dames