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The Future Is Now – MusicTank

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The Future Is Now

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Part of the Digital Series, this seminar dovetails with the rock music programme.


The Future Is Now

This proved to be a timely title for this evening’s debate, the concluding session of the Digital Series, coming hot on the heels of the inception of the “Making Available Right”, and amidst the advent of sound recording catalogues becoming available in ways never previously possible coupled with announcements of merger activity between EMI/Time Warner and Sony/BMG, thus further consolidating major label activity.

2003 does indeed appear to be the year in which the music and record industry have embraced the digital environment.

7 years in the making, as of October 31 2003, the Making Available Right became enshrined in UK copyright law. Does it mean that for the first time we have an opportunity to stop usage of creators’, producers’ and performers’ material in way hitherto not previously possible, and therefore give rise to a host of new business models?

1) Making Available Right – what is it and what are its implications?
The Copyright Directive, lauded as the most lobbied piece of legislation in history to-date, came into UK legislation a year late. In some areas of this legislation, effectively there is no change – (the UK copyright laws already had fairly extensive rights) – what it does mean, however, is the harmonisation of rights within the EU. Every country in Europe now has the making available right enshrined within copyright law.

In the UK, it has greatly improved provision for Performers’ Rights, which hitherto had been vague in this regard. This Making Available Right is now an exclusive right in the same way that reproduction and distribution rights have been, and may be traded in a contract, amounting to two parts – a broadcast right and an on-demand right.

2) Does this mean there is now a mechanism to encourage “take-down” in a way not previously possible?
(Take-down – the removal of material and/or an entire website/ISP for which such rights have not been given. Previously, pulling down a website or offending ISP because it contains copyright material for which on-demand rights had not been granted or made available, was impossible due to the lack of legislation in this regard).

This was one of the most hotly debated parts of the new directive – the extent to which an ISP could be held liable for hosting and distributing copyright infringing material. Effectively an ISP may now be put on notice that they indirectly possess infringing material and that it has to be taken down. A parallel in the physical world would be a warehouse distributor who cannot possibly check every one of thousands of CD titles for offending material. However, if their attention is drawn to material in breach of the copyright, they have to remove it. The difficulty is that the internet and therefore the open distribution system it represents may be accessed globally, so initiatives such as the Making Available Right only work in territories which sign up to such agreements. Kazaa resides on a remote island in Australasia…

3) If the future isn’t now, when is it?
(A question posed in light of one panellist adamant the future isn’t now, but at least 7-10 years away).
The recent optimism evident with the unquestionable success of Apple iTunes proving that consumers are prepared for digital music confirms the willingness, desire and ability to pay for digital music, but it would be wrong to assume the future is all about buying tracks ‘a la carte’ as opposed to by subscription. Similarly, just because iTunes has been selling pretty well to a population that is quite different – Mac users until now – it is very much linked to the iPod. The margins are tight on the pay per track model. Steve Jobs at Apple has made no secret of the fact that the money is made from the sale of iPods and not the paid-for track downloads.

In the future it is more likely to be more a mix of subscription and per track models, with the UK and Germany most likely to be the biggest and earliest adopters of US models such as iPod and Rhapsody. The business model in the US owes its success to a far higher level of broadband penetration, coupled with a consumer base far more disposed towards online purchasing.

The recent launch of O2, enabling the delivery of music downloads to mobile ‘phones in the UK, whilst popular with a niche group of early adopters, does rely on the consumer paying a hefty price for a compatible mobile ‘phone plug-in, in order to access what are in reality, questionable standards in audio.

Until we have true convergence providing seamless integration between mobile, TV, car & home stereo, computer, radio and personal hi-fi, many of these business models may falter. The success of iTunes may have raised the expectancy of digital music solutions in the short-term.

4) Formats. Where are we with different compression formats?
AAC, ATRAC and all the others are still in the marketplace. MP3 has remained robust, is flexible and has an acceptable audio quality. Is there a need for another digital format requiring the consumer to buy into or upgrade another technology again? Probably not at present. The benefit of digital music and in particular players such as iPod is that it enables the consumer to better organise their music collections. Unlike the progression from vinyl to cassette to CD, MP3 doesn’t improve on audio quality, but that was never its intention.

Whether DVD audio or super audio CD formats can really take hold remains to be seen. Most people are happy with conventional CD’s/DVD’s; most players at home are not 5.1 enabled and consumers most likely do not to want to subject themselves or their wallets to yet another format upgrade. The singles market is more likely to move away from the CD format altogether, especially in light of the digital download chart expected to be running by the end of 2003. In combination with the main chart, the progress of the singles market towards digital delivery only will most likely accelerate.

5) Should the PPL be taking a similar line to that currently operating at MCPS/PRS alliance whose approach to publishing rights in the digital environment embraces all forms of digital delivery, (streamed, downloaded or webcast)? Either the licence is weighted in favour of PRS if the digital delivery of music is perceived to be public performance (i.e. streaming & webcast), or in favour of MCPS if the music is perceived to be a reproduction of public performance (i.e. a download). Theoretically, PPL could take a similar approach with catalogue owners, to cover all forms of digital delivery, however, currently the only form of digital delivery licensed as yet is simulcast.
PPL licences the same rights for record companies and performers that PRS/MCPS licences for publishers and authors, namely broadcast public performance rights and dubbing rights for broadcast public performance. A broadcaster has both a broadcast licence and a dubbing licence licensed by PPL.

In relation to online, the basic train of thought prior to the uptake of the Internet was that this was going to have a huge impact on the industry. A notion of substitution was brought in; the physical format of CD’s would ultimately be replaced at some point with some other form of digital distribution, whether now known or in the future. Undoubtedly physical sales have been affected. What the record companies wanted to do was to manage, as far as possible, the transition into other income streams. The purchase of an online file is seen very much as sales substitution, with ramifications for flexibility in pricing. A collective arrangement, subject to certain considerations, is effectively a “one size fits all” solution. (Commonly, retailers do not operate collective arrangements). Early PPL deals with mobile Telco’s centred on flexible deals, with attendant flexibility of negotiation, not collective ones.

Currently, simulcasting works well within the structure of collective licensing. PPL administers UK rights only for the whole catalogue of their membership. The IFPI simulcasting agreement to which the PPL is signatory has put together UK usage rights with those of Germany, Spain and so-on, in order to effect a collective licence agreement covering listeners in all those territories. Webcasting will likewise follow suite. (IFPI announced a new agreement early November 2003). PPL has also recently signed their first webcast deal with AOL, who will be launching a range of music services including Internet radio. The licensing model is based on a rate per track, similar to the US CARP rate, (currently 0.075cents per track).

The webcasting treaty is subject to EC approval, just as the simulcast agreement was. Regulatory authorities are putting quite severe restrictions on how the deals may be structured, as ease of use demanded by licensors who require a one-stop-shop to licence music is at odds with the licensing bodies, who, it might be argued, could abuse their monopolistic market position.

The simulcast agreement is deemed an anti-competitive agreement by the competition bodies that don’t like monopolies (e.g. PPL), (much less the notion of copyright enshrined in artists’ intellectual property – the idea that an artist can have an exclusive copyright is, in their view, anathema to competition principles).

Therefore, the simulcasting agreement took much protracted negotiations to pass, as it was seen as an anti-competitive agreement, creating, as it does, one enormous monopoly. The fact it represented a level playing field for all record companies large and small, for all users, takes 2nd place to other considerations.

The irony amidst all this is that there is an enormous pressure to provide pan-European licences for all repertoire, for any user, for any use, yet attempts to meet this are met with stringent anti-competitive regulation.

6) What happened with concepts such as Musicnet and PressPlay – both models that were meant to herald a new age in digital distribution for the major label catalogues?
(Musicnet comprised AOL, Time Warner, EMI & BMG. PressPlay paired Sony & Universal (& later EMI)
The major labels thought that the business model would be for them to control distribution. Now it is accepted that distribution can be far more effectively achieved through 3rd parties. Musicnet was always going to be branded by the distributor by AOL and Real networks. PressPlay has changed, and re-launched as a new Napster-style service, owned by Roxio – ironic given the original concept of Napster and the resulting implications for labels with the overwhelming uptake of Napster in its original form!

Napster will be struggling against the might of iTunes and similar models, in terms of individual sales. It remains to be seen what value a brand alone can bring – is the brand enough to convince the consumer that they should be having a relationship by paying for their digital music, or was it all simply about free music in the beginning?

7) For the uninitiated, what is Shazam?
A UK-based company, Shazam developed a music recognition system for mobile ‘phones. Dial 2580 on your mobile, point the ‘phone to the music source, and within 20 seconds you’ll have a text message naming the music, after which you may opt to download a ringtone, buy the album, buy the first 30 secs of the song as your personal greeting, or send the music as a musical greeting card. It employs a unique recognition system in order to be able offer a range of services to the end-user.

8) …and what licences are required from the owners of the recordings?
There are 2 issues. Those concerning the recognition of music, and those dealing with what is done with the music – e.g. sending music as a greeting. Music recognition requires fingerprint technology, and the music is not used as-is. Music recognition has been around for 20 years. There is no copyright issue in this regard. However, use of the music does have copyright implications. License fees vary according to the type of user experience the music is for, and the types of products developed, and are typically based around a percentage of net profit Shazam expect to make on any particular ringtone.

9) Who are the catalogue owners who develop ringtones and what licences are acquired from the 2 rights holders?
Shazam partners with 3rd party ringtone providers. In the case of ringtones, the licences are freely available from MCPS/PRS, to reproduce compositions. The ringtone company is responsible for the licensing administration, not Shazam. However, the 30-second sample that may be sent as a greeting involves a licence for which Shazam is responsible.

Music ringback tones involve giving the caller some music to listen to whilst the ‘phone is ringing, rather like music heard when a caller is placed ‘on-hold’. However, this is highly flexible, and can involve different music according to time of day, occasion and so-on. There is a huge market for this service, particularly in parts of the Far East. ‘Wider Than’, a Korean-based company cites £60 million dollar market in this respect. Rights for these have to be negotiated with all 5 majors, plus AIM.

Anticipated profits to be made from real tones, (true tones), which are licensed original master recordings, may not be realised in the way they have been for monophonic and polyphonic ringtones. An excerpt from an actual recording to be used as a ringtone will need to be carefully considered – a lyric might not be appropriate, a guitar solo in the middle eight might, for instance.

Re-recordings, in effect sound-a-likes, may well prove a lucrative business, if artists refuse to let their original recordings be used in this way. However, there is a credibility issue associated with third party re-recordings. True tones of exclusive or pre-release music are seen as a more likely scenario, thus retaining a relationship with the rights holders and owners.

10) In theory, finger printing technology makes all future usage of music capable of being identified, tracked and monitored by content creators, producers, publishers, record companies and performers. There are a host of propriety systems in place, (collection societies have ISRC’s & the potential for ISWC’s), but what about worldwide standardisation of identification systems?
There are technical and commercial angles to this. As a stand alone digital rights management issue it’s a case of trying to devise a DRM system that everyone would subscribe to: as yet all attempts to do this have failed, witness SDMI (as discussed in the first seminar, Digital Music: An Industry Update). This is the technical challenge, of which digital fingerprinting is but a small part.

The commercial issue is – what price are people prepared to pay for content in the future? Who would be best placed to deliver this, Microsoft? (!)

The processes are in place, SESAC, the global organisation that represents publisher and author societies, is very much involved in encouraging its member societies to use standards such as ISWC, and to work in tandem with label associations RIAA & IFPI. However, global standardisation, whilst a worthy aim, remains a theoretical one, and is very much a work in progress. The idea that collection societies will become redundant is unrealistic for many years to come.

DRM has 2 basic jobs, to track the usage all the way down the line and back, and to prevent others breaking into the transaction chain. Additional complications involve the burgeoning number of digital players within the typical household, any of which might be used to play a piece of DRM monitored music, and that assumes these devices talk to each other…

Industry formats always result in a compromise. It might be better for one company to develop and be monopolistic in this regard, and have their software everywhere – Microsoft Windows Media Player makes a good comparison.

11) Is the art of DRM about setting rules for usage?
It’s a series of applications, starting with the recording/content that allows people to use this content within a set of rules, and allows for and monitors payment. The second aspect is to stop others getting in to the transaction chain and using the content illegally; legitimate use, allowing the control and flow of information that allows that digital value chain to work, and stopping people getting in and “shoplifting”.

12) Is it not the case that to many, once the music has been purchased, it is theirs to do with what they will, and they see it as their right to give it away/share with others without money changing hands; without a transaction being necessary?
There is an educational need to make the consumer aware that music comes at a price and is not free; that people are buying the music, not the piece of plastic or the digital file.

13) With respect to the Issuing of licences under the new Making Available Right, from a Broadcasters point of view, in making productions available on-demand, how do you get licences? What licences are involved for on-demand sound archives?
Simulcast is licensed through PPL. On-demand services are licensed direct from record companies, which fall under the blanket licence agreements. The stipulation is that the licence covers a period of 7 days, from the day first broadcast.

14) Do 30-second samples of music count as “promotional”, thereby avoiding the need for a licence?
Currently these are licensed directly from the labels, but PPL is to start licensing on their behalf. In the US this was previously regarded as fair-use, i.e. promotional purchases and therefore was free. In the US you can get a licence from ASCAP, BMI, SESAC, and pay no money as long as you use less than 30 secs. of a piece of music and if the music is used to promote something else.

There is a balance to the issues surrounding exploitation of copyright. Closing off opportunities that exist in P2P networks, Kazaa for instance, has created more of a problem inside the industry.

Copyright law has to be balanced with the overall good of a population. Enshrined in copyright law is an implicit belief that the public at large has to be able to share in the knowledge of society – the library system. Things have moved on and become more complex, but the notion that you must pay an amount or you don’t get it has to be weighed against those who can’t afford to pay for it. Added to that, the law says you can’t share it with somebody, even if they cannot afford to buy it themselves.

Experience has shown that you can’t get an ISP to shut down a decentralised file-sharing network; the ultimate recourse is to go back to the person who makes the music available in the first place – i.e. the individual file sharer. What the media hasn’t explained at all well is that those whom the RIAA in the US have taken to court are those who’ve made the tracks available, not those who’ve downloaded them.

The new laws clarify what previous laws have said. There is no real example of a decentralised file-sharing network being declared illegal. To what extent can file sharing networks control the activities of their users, and be used only for legitimate purposes, so that those who want to make their music available, can do so?

15) A licensing model already exists in the US. The RIAA under DMCA grasped the issue with Internet radio broadcasts in the US, in which it encouraged all broadcasters of Internet radio to sign up in advance of a rate being set, with the proviso that once a rate is agreed, it would be applied retrospectively. Couldn’t the same be done with Kazaa and Morpheus?
What content owner would agree to this, not knowing how much they may make?

16) With regard to new business models, there’s a deal to be done with the media groups, (e.g. Clear Channel, Emap etc), the Telcos distributing that product, and the content owners whose work provides the body of the media broadcast. Unless content owners agree to a flat fee, pro rata, none of the deals can be done.
Internet radio clearly works with a flat fee, with the Telco providing usage figures, content details and so forth. There’s an important distinction between mobile and PC delivery however. Music to PC’s doesn’t make money; by and large people still don’t pay. Via a mobile, people pay through the billing system. People will pay for ringtones & true tones and in certain territories, providers are making handsome returns through the purchase of value added content – mobile screen savers, games and other content. This is, in effect, an online retail model, interacting with the music industry; mobile telcos becoming retailers.

17) iTunes as a flat fee works in the US, because publishers licence to the record companies directly for mechanical royalties as opposed to via collection society. The record companies take their share and pass on mechanicals to the publishers. What will happen in the UK? Can a flat fee model work here?
(The current US iTunes flat fee model, based on a 99c download fee is 60-70c going to labels of which publishers take 8%).
In the US, the record companies can license on behalf of publishers – something that doesn’t happen in the UK. MCPS/PRS alliance did originally talk about a fixed rate of 10 pence per download. However it was deemed to be too inflexible as business models continue to evolve, and decided to base it on percentage of revenue. They offer a joint online licence, irrespective as to whether a stream, a download or a webcast, they take a percentage of revenue.

Will there even be a distinction between a stream, download or webcast in the future? It may not matter to the distributor or the collection societies, however it matters most to the artist, who stand to loose the most; a stream is effectively treated as a broadcast, a download is effectively treated as a sale.

Sales go on the artist’s royalty statement, and are offset against the recoupable advance. Streaming/airplay does not go on the artist’s royalty statement and the artist receives 50% as opposed to 15% minus record company deductions.

As a business model, iPod is not a sustainable business model to anyone other than Apple, who make their money through the sale of iPods, not through the sale of music downloads. The iTunes model presents a serious challenge to the industry to come up with a comparable model. The problem is that payment systems aren’t currently in place for delivery to PC’s. Mobile delivery is potentially different, but not without its own hindrances, however. If you want to pay for a service on your mobile for a service delivered to the mobile, there is no problem. If you want to pay on your mobile for a service delivered elsewhere, the banking lobby is opposing such a service via the EU Money Directive, who oppose the notion that telcos can operate as e-money traders.

The Making Available Right will be traded as part of the artist’s contract. Whilst broadcast income via radio or a simulcast on the web, for example, earns a royalty through PPL of 50/50 directly, an online on-demand right will be traded and may well become part of sales that are subject to recoupment. The debate is whether artists should receive such royalties directly, or whether it is part and parcel of the income stream record companies increasingly seek to widen.

In administering the Making Available Right, is PPL to act for the record label, or the performer, or both? Is it to be a 50/50 split or to pay directly (to record labels)?

18) Why do we need PRS?
Without it, how are artists to monitor and track global usage and payments? It’s a monumental task to administer these rights and collect monies due.

19) Will DRM supplant the need for MCPS? With implementation of DRM and hence the ability to issue licences via DRM, (with each sale having a unique licence which the artist initiates and controls via DRM), if an artist has not assigned rights to collection societies, can they not monitor mechanicals themselves, and do away with MCPS altogether?
(A question from the floor)
This assumes that DRM and the copyright owner sets the rules, however, you as the copyright artist don’t. You can’t tell iTunes you want an amount per track, therefore as the copyright holder, that’s what I want in my DRM. The aggregator sets the rates and the rules, not the copyright holder. Therein lies the misnomer of the DRM – the rights holder can not dictate rates and licences, but merely facilitates tracking.

DRM systems have to be acceptable across territories, and you still need manpower to make sure it is controlled in any particular territory.

Aggregators can’t vet individuals, they want to deal with acknowledged and reliable proven spources – ASCAP, PRS, MCPS and so-on.

20) MMS/audio visual – mobiles enabling full video & MMS via 3G.
Music videos as downloads to mobiles will be the natural progression, from music downloads. Music downloads will be accompanied with images, perhaps an album cover or pictures of the artist/band.

It’s most likely that VPL will not negotiate a blanket agreement, but that it will be up to individual rights holders to negotiate.

As ever with these topics, as many questions are raised as answered. Previously unchallenged tenets surrounding intellectual property, copyright and ownership have never before been so widely debated, challenged and reinforced as they are today. Software and hardware technological resolutions call for far wider cross-industry development and standardisation, a notion that simultaneously threatens competitiveness and consumer choice. Bringing about an industry-wide, globally acceptable, workable and enforceable standard in DRM is some way off, and requires existing organisations to radically re-think processes and structures, which, although seeming to counter previous methodology will be for the greater good of the future of music.