Über-Middleman: Reshaping the Broken Landscape of Music Copyright

• Author: W. Jonathan Cardi
• Position: Assistant Professor of Law, University of Kentucky. J.D., The University of Iowa College of Law, 1998; B.A., Harvard Uni
• Pages: 836-890

W. Jonathan Cardi: My thanks to Professors Vincent Cardi, Mike Green, Harold Weinberg, Justin Hughes, David Shipley, and Christopher Yoo, and to Steve Englund of Arnold & Porter, and Jule Sigall, Senior Policy Advisor to the Register of Copyrights, for their helpful additions to this Article. I am also grateful for the expert research assistance of Katie Quitter, Jamie Herald, Dave Farley, and especially Chris Nelson.

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I Introduction

In the mid-1980s, it became feasible to digitize music in computer files that one could store, access, and share with others. These early files were so large, however, and computer memory was so relatively meager that few songs fit on the average consumer hard drive and sharing songs was exceedingly time-consuming.¹ From 1988 to 1992, a consortium of international computer scientists perfected a means of compressing digital music into a smaller, more efficient format called MPEG Audio Layer-3, or "MP3."² The MP3 file format paved the way for a revolution in the public's enjoyment of music. No longer would the public be burdened with storage devices such as tapes or compact discs. No longer would it be limited to the selection of music found at the local shopping mall. The "celestial jukebox" seemed to be just around the corner. And when in 1993 two American college students used MP3 technology to create and make publicly available a database of songs of unknown artists,³ the public clamored for the revolution to begin.⁴

The revolution did not begin, however-at least not in any legitimate way. For a decade, music copyright owners did not license their music for electronic distribution. Instead, the celestial jukebox materialized in the form of illegal peer-to-peer services, such as Napster and Morpheus.⁵ The public proved so hungry for online music that over sixty million Americans turned to a life of crime by way of copyright infringement in order to get their digital fix.⁶ Yet in the face of this astounding demand, it was not until 2001 that the music industry took steps to license online content in earnest, and it was not until the release of Apple Computer's iTunes service in 2003 that anything resembling a comprehensive source for music downloading emerged.⁷ Even now, the celestial jukebox has yet to appear; iTunes, the most popular and successful legitimate download service, offers a relatively Page 837 paltry one million songs out of the tens of millions of recorded songs available.

Why has supply failed demand for so long? Why have eager and well- capitalized online services found it so difficult to obtain the necessary music copyright licenses? These are the questions addressed by this Article. Some suggest that the market failure stems from an antiquated Copyright Act, ill- equipped to deal with the unique challenges presented by the digital age.⁸This contention perhaps is evidenced by the fact that since January 1997, Congress has considered some 120 proposed amendments to the Act⁹ and has approved two major digital-rights-related overhauls in the 1995 Digital Performance Rights in Sound Recordings Act ("DPRSRA")¹⁰ and the 1998 Digital Millennium Copyright Act ("DMCA").¹¹ As a general proposition, it is true that novel market considerations require the occasional legislative tinkering. The music industry, however, has proven particularly resistant to innovation. Nearly every major technological advance in music delivery during the twentieth century has led to amendments of the Copyright Act- from player pianos, to jukeboxes, to cable, to satellite transmissions, to the Internet.¹² The consistency of this pattern hints at a deeper, more systemic problem.

The music industry offers a different explanation of the market's failure to sustain digital-music services. The industry points instead to the impossible pricing dilemma created by the combination of rampant Internet music piracy with the public's general (although perhaps now decreasing) expectation that online information ought to be free.¹³ Under such conditions, argue industry players, no price for legitimate digital services can be competitive, let alone profitable.¹⁴ This dilemma is no doubt real. It is less Page 838clear whether music piracy has caused the dearth of legitimate online services or whether the reverse is more accurate.¹⁵ Perhaps had reasonable licenses been available, Napster would have thrived as a legitimate service, rather than as a ready tool for infringement. Certainly Napster's founders claimed that they tried but were unable to obtain the requisite licenses and that any obtainable licenses were costly and unduly restrictive.¹⁶ Other services, such as MP3.com and Morpheus, have made similar claims.¹⁷Regardless of the accuracy of these claims, piracy is at best only a partial explanation for the long delay in the success of legitimate online music services.

A more likely explanation-one perhaps even more inscrutable and more pernicious than piracy or the failings of the Copyright Act-is that the organization of the music industry itself has caused the decade-long delay in the commercialization of online music. Primarily as a result of historical accretion, today's administration of music copyrights is divided among four major types of entities: the music publishers, the Harry Fox Agency, the performing-rights organizations, and the major recording companies. This divided administration creates economic conditions that discourage the licensing of music for innovative use, stifling the success of new music technologies not only in the digital era, but throughout the past century.

This Article illustrates the problems caused by the fractured administration of music copyrights by reference to the current intra-industry battle over music licensing for use in Internet streaming and downloading services. This battle has been a primary cause of the delays the public has experienced in the licensing of music in compressed digital form. The Article then suggests a deceivingly simple and inevitably controversial remedy: a regulatory merger of the licensing functions of the various administrators of music copyright.

The Article proceeds as follows: Part II describes the current splintered state of the music industry's administration of its copyrights. Part III outlines the industry's dispute over revenue generated from the streaming and downloading of MP3s and then discusses several potential narrow resolutions of the problem. Part IV illustrates why the dispute over digital revenues is merely a symptom of the deeper, more systemic costs created by Page 839 the existence of multiple copyright administrators. Part IV also presents an overview of the impediments the industry has placed upon musical innovation throughout the twentieth century and explains the negative economic consequences created by multiple license administrators. Finally, Part V offers a solution to the troubles burdening both the industry and the public and explores a recent Copyright Office proposal to do the same.

II A Primer on Music Copyright: Multiple Works, Multiple Rights, Multiple Intermediaries

A recorded performance of a song embodies two separately copyrighted works, each enjoying a different and complex set of rights and each administered by a total of four separate groups of corporate intermediaries. In this Section, I briefly map this complex landscape of music copyright.

A Musical Compositions

In 1940, Irving Berlin wrote the song "White Christmas" for the Fred Astaire and Bing Crosby musical Holiday Inn.¹⁸ As soon as the notes and lyrics of "White Christmas" hit the page, Berlin had created a copyrightable work known as a "musical work" or "musical composition."¹⁹

Songwriter

(Irving Berlin- White Christmas)

As owner of a copyright in this musical work, Berlin enjoyed the following rights: (1) to reproduce the work, (2) "to prepare derivative works" based upon it, (3) "to distribute copies or phonorecords" of the work, (4) to perform the work publicly, and (5) to display the work publicly.²⁰ Thus, were Bing Crosby to perform "White Christmas" at Radio City Music Hall, he first had to obtain from Berlin a performance license to do so. Similarly, when Crosby's recording company, MCA Records, wished to record Crosby's rendition of the song, it was required to obtain a reproduction license, commonly referred to as a "mechanical license."²¹ A mechanical license was required because MCA's recording would fix the song-albeit in performed rather than sheet-music form-in a "material object" known as a Page 840 "phonorecord."²² Furthermore, because MCA planned to distribute phonorecords of Crosby's performance of "White Christmas" to the public, MCA was also required to obtain a distribution license from Berlin. The picture becomes more complicated when one considers how and from whom Crosby and MCA would have had to obtain the necessary licenses.

As did most songwriters of his time, Berlin wrote "White Christmas" pursuant to an agreement with a music publisher-in this case, Rodgers & Hammerstein.²³ (See diagram on the following page.) For many years, publishers played a major role in commercializing the musical works composed by their principals. Publishers located and engaged artists to perform a songwriter's composition. They secured recording deals with major record labels and sought diverse sources of royalty revenues...