The marketing and distribution avenues for music on the Internet are endless and only beginning to be explored. From the perspective of record companies and artists, the Internet offers unique opportunities to shape and control promotion and distribution to their advantage.
New marketing companies have sprung up and created innovative campaigns that integrate new media technologies with traditional marketing methods. For example, New York-based Electric Artists devised and implemented a two-week Internet-only promotion for Depeche Mode's two-CD set, The Singles `86-`98. Fans who pre-ordered the album through Music Boulevard or Tower Records Online were permitted to purchase up to four Depeche Mode concert tickets to the band's then-upcoming North American tour through Ticketmaster Online before tickets went on sale to the general public. During the ten-day promotion, fans ordered more than 25,000 concert tickets and nearly 11,000 double albums, generating over $1.5 million. Electric Artists also devised a pre-order promotion with Atlantic Records and Tower Records for Tori Amos's 1998 album Songs From the Choir Girl Hotel. The nearly 10,000 fans who pre-ordered this album were allowed to download from the Internet a free bonus track of a never-before-released song from the same recording sessions as the album. Content providers also welcome as an aid to direct marketing the database they collect of consumers ordering on-line, something unavailable when records were purchased anonymously in traditional retail establishments.There is also talk (and some action) about the idea of completely on-line record companies. It is an exciting possibility, although there is still much to be resolved. If there is no tangible disc or tape, what is the applicable sales price? If there are no (or much lower) manufacturing and packaging costs, how is this benefit to be split between the company and the artist?
Yet these opportunities involve a rather delicate interplay with a consuming public who, because they are used to getting music for free through radio or television, often feel that music available on the Internet should also be free. To combat this attitude, Hilary Rosen, president/CEO of the Recording Industry Association of America (RIAA), recently announced that the RIAA is planning a marketing and public relations campaign to educate consumers about "the perceived value of music" in reaction to the continuing trend of tracks being downloaded for free off the Internet.
In fact, the same technology that permits such easy worldwide distribution to content providers (whether record companies, music publishers or artists themselves) can often be the source of the problem. The ease of converting recorded music into formats for fast transmittal to one's web pals (such as the infamous MP3 format) have made it difficult for such content providers to control what happens to their music once it's available on-line. Such concerns drove the formation, by numerous companies and organizations in the industry, of the Secure Digital Music Initiative (SDMI) to investigate how better to control digital music distribution.
In fact, the technology to do so already exists and is constantly being improved upon. License controls can be programmed into the file being distributed to control play time frame (e.g., the file will only play after June 1st, or will only play for two weeks, or until July 31st), copy privileges (the file will become unavailable after the permitted number of copies have been made, or you can copy the file to your hard drive but cannot email it or further copy it to a CD or DAT or another hard drive) and number of plays (the file can only be played 10 or 20 or 100 times and then will no longer be active).
The method of transmission and delivery of music to the consumer is important, as it will determine the licenses that are needed. Can consumers download the selections? Can they create their own personal jukebox list for repeated play? (Both of these might be characterized as "interactive.") Or is the performance simply the transmission of music in a manner similar to traditional radio or television stations (i.e., a "webcast")?
In all licensing of music, both on and off the Web, it is important to remember that two copyrights are at issue: one for the underlying song (usually owned by a music publisher) and one for the sound recording of that song (usually owned by a record company). Although there may be different copyrights for various recordings of a song, the original creator(s) of the underlying music and lyrics owns a separate copyright. U.S. copyright law gives a copyright owner the exclusive right to control reproduction and performance of the work for which they own the copyright.
Although an unsigned and completely self-contained artist might be able to host their own web site without running afoul of the law, once co-writers and third-party record companies and music publishers become part of the equation, the issues become more complex. Keep in mind, however, that even when a record company or music publisher owns the actual copyright, the recording artist or songwriter is entitled to participate in the income from licenses of those copyrights.
In the case of musical compositions that have been previously sold in the U.S., the owner of the musical composition copyright can negotiate the amount it is to be paid for each copy of the song distributed but cannot refuse to license the song at the "statutory rate" (that is, the license fee established by law). Presently, the rate is 7.1" or 1.35" per minute of playing time or fraction thereof, whichever is greater. 1 Pursuant to the Digital Performance Rights in Sound Recordings Act of 1995 (the "1995 Act"), this includes "digital phonorecord deliveries" or downloadable music files.
Owners of the musical composition copyright have long enjoyed a "public performance right," which allows the rendering of (and compensation for) a live performance or broadcasting of a song. Digital transmission of songs via the Internet are also deemed public performances, regardless of whether a copy is made by the consumer.
As with performances on radio and television, a musical composition copyright owner has such rights administered in most instances by one of the three U.S. performing rights societies—ASCAP, BMI or SESAC.
ASCAP offers a blanket license for Internet sites, covering all of the songs it controls. Although the minimum fee payable for such license is $250, the actual license fee will be determined by applying the three different rate schedules available to information concerning the particular site. The default license (Rate Schedule A) is available to all web site owners but was created primarily for music-intensive web sites; it is also the only rate schedule available to sites which do not use special technology to track on-line music performance data. The license fee under Rate Schedule A is a percentage of the total revenues derived from the website (including ad dollars but excluding income from product sold on-line). Those sites which use limited music and can track that usage are eligible to use Rate Schedule B, for which the license fee is based on the total revenues attributable to performances of music. Rate Schedule C is designed for those web sites which not only track their performances of music generally but of ASCAP music in particular; under this scenario the license fee is related the total value attributable to performances of ASCAP music.
BMI also issues blanket licenses which allow the licensee to use any and all of the songs it controls. There are two principal kinds of licenses offered by BMI: the "web site" license," for those who wish to play unlimited amounts of BMI music without the need to report traffic to music pages, and the "web site music area license," for which payment is based on the traffic to the music pages on the site. The minimum license fees for these two types of licenses is $500: In addition, if the web site is promotional, with little or no directly attributable revenue, BMI now also offers a license with a rate based solely on traffic to music pages. If the web site's primary function is to promote the off-line business of a company, BMI has a special "corporate image" license.
SESAC also issues blanket licenses which cover all of the songs it controls. SESAC's licenses have a term of six months and a minimum fee of $50. Its fees are based on the number of "visitors" to the website. If there are 10,000 or fewer monthly "page requests" 2 over the six-month period, and there is no advertising at the site, only the $50 minimum must be paid. For those sites which average more than 10,000 page requests over the six-month period, the fee is determined by multiplying the number of page requests by a fraction, which varies depending upon whether the site has paid advertising or not.
Although, in the U.S., the public performance right was traditionally reserved to owners of the musical composition copyright, the 1995 Act gave the owner of the sound recording an exclusive right in public performance where the performance is "by means of a digital audio transmission." Record companies finally obtained the exclusive right to license such transmissions, after a decades-long fight, because of the perceived risk that the consumer will not buy a copy of the recording if he can, at his convenience, hear a musical selection over the Internet. Although, in the interactive context, most owners of sound recording copyrights are neither compelled to issue licenses or to issue them at a specific rate, most non-interactive transmissions, such as webcasts, are subject to statutory (i.e., compulsory) licensing at rates still to be determined. The Digital Millenium Copyright Act, signed into law late last year, offers further detail on such licenses.
Synchronization ("synch") licenses, which grant the right to use music in "timed synchronization" with visual images, are also derived from a copyright owner's exclusive right of reproduction. (For example, in the case of a motion picture, a license would be required for music which is synchronized with the action on a screen.) There are those in the music industry which take the position that those who stream music over the Internet (i.e., perform it in real time as opposed to offering a compressed file for downloading in minimal time) must obtain a synch license even if the visual the listener sees on her screen is insubstantial (e.g., only the name of the musical selection is displayed). How this will play out remains to be seen.
The policies of the players involved in music on the Internet are likely to continue to change as the technology evolves and new regulations and laws are passed. Stay tuned!!
Monica P. McCabe, Esq., is a partner, and Jennifer Bernheim, Esq., an associate, with the law firm Piper & Marbury LLP in their New York office. Part of the firm's Communications, E-commerce and Intellectual Property Practice Group, McCabe and Bernheim specialize in copyright and trademark litigation. Roberta L. Korus, Esq., is an entertainment and copyright attorney in private practice in New York and counsel to Sukin Law Group.
Endnotes
1. The rate is scheduled to be adjusted effective January 1, 2000. [ continue reading ]
2. SESAC defines "page requests" as the number of Hypertext Markup Language documents ("HTML pages") which are viewed by a browser. [ continue reading ]
- Spring 1999 issue of WIM, Women in Music, Inc.'s quarterly magazine