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The reasonable man adapts himself to the world; the unreasonable one
persists to adapt the world to himself. Therefore all progress depends on
the unreasonable man. -George Bernard Shaw, writer, Nobel laureate
(1856-1950)

Music Industry Unveils New Piracy-Proof Format: A Black, Plastic Disc With
Grooves On It

http://www.urbanreflex.com/may24_02/record.html

http://www.nytimes.com/2002/05/06/technology/06MUSI.html?todaysheadlines=&pagewa\
nted=print&position=top

May 6, 2002
Access to Free Online Music Is Seen as a Boost to Sales
By MATT RICHTEL
isputing the position held by the major record companies, a report issued
on Friday found that people who use file-sharing networks to obtain music
at no charge over the Internet are more likely to have increased their
spending on music than are average online music fans.

The report, from Jupiter Research, a market and consumer research firm,
also found that people who use high-speed Internet access and CD burners to
make homemade compact discs — a practice that has been criticized by the
record industry as abetting piracy — are as likely to increase their
spending on music as to decrease it.

The report goes to the heart of the debate on the impact of computer and
Internet technology, specifically, the file-sharing networks like Kazaa and
Music City, which millions of people use to obtain music over the Internet.
The record companies, which have sued to shut down several file-sharing
services, including Napster, have asserted that the services cost them
billions of dollars in lost sales.

"File-sharing is a net positive technology" in spurring sales, said Aram
Sinnreich, author of the Jupiter report, explaining that people who
download music online often are, in effect, sampling it. "It gets people
enthusiastic about new and catalog music."

Last month, the International Federation of the Phonographic Industry, an
international record industry trade group, reported that revenue from
global music sales fell 5 percent in 2001, to $33.7 billion. Jay Berman,
the chief executive of the group, asserted that one of the major reasons
for the decline was "the fact that the commercial value of music is being
widely devalued by mass copying and piracy," but the group did not offer a
specific analysis of the phenomenon, or its impact.

The Recording Industry Association of America, the United States arm of the
international federation, argues, however, that its own research backs up
the claim. Geoffrey Garin, president of Hart Research Associates, a firm
that the recording industry association hired to study the issue, said that
in a November 2001 survey 23 percent of people from 12 to 54 said the
reason they did not buy more music was that they got music for free or they
were making copies of music on CD's or cassettes.

"People who love music and buy it and who also use file-sharing services
would be buying more of it were it not for the availability of free music
online," Mr. Garin said.

Mr. Sinnreich of Jupiter said that his research found that 34 percent of
experienced file sharers had decreased their spending on music, and that
that 52 percent of experienced file sharers had increased their music sales.

By comparison, among average Internet users who describe themselves as
music fans, and who may or may not use file-sharing networks, only 19
percent said their spending increased. Roughly 70 percent of this group
found that their spending had stayed constant.

The Jupiter report also found that 47 percent of experienced file sharers
with broadband Internet access and CD burners increased their spending,
while 36 percent decreased their spending.

One question raised by the report is why people would bother to pay for
music if they can get it for free. But Mr. Sinnreich said that while the
music was free, it was not problem-free, requiring users to invest time to
download the music, and put up with technological glitches.

Further, Mr. Sinnreich said, users who want to listen to their music
somewhere other than their computer — on a home stereo, for example, or in
the car — must take the additional step of "burning" it onto their own
compact disc.

"Anyone who has tried to download music from the Internet knows that free
doesn't mean free — it takes time spent, energy spent, hassle,
disappointing results," he said. "That's the kind of currency that
teenagers have but that people with a day job don't have."

Chained melodies
Copyright-holding corporations are pushing new laws and computer-crippling
technologies in their war on piracy. But can anything keep geeks from
copying the music and movies they crave?

- - - - - - - - - - - -
By Damien Cave
http://www.salon.com/tech/feature/2002/03/13/copy_protection/print.html


March 13, 2002  |  A sense of panic, instead of anticipation, coursed
through Brian Cianessi when he bought the "More Fast and Furious" movie
soundtrack just before Christmas. He had heard that the CD was one of the
first to be copy-protected for sale in the U.S. market. He feared his days
of music ripping would soon be over; Universal Studios had allegedly found
a way to keep listeners from making MP3s out of the album's nu-metal gems.

Cianessi, a 24-year-old Los Angeles computer programmer, wasn't interested
in posting the songs to KaZaa, Gnutella or any of the other file-sharing
networks that have sprung up in Napster's wake. He had no desire to be a
pirate. But he did want to play songs from the album on his MP3 player. "I
was just worried that I wouldn't be able to rip the tracks, and
subsequently transfer them to my car stereo, which has no CD player, only
hard drives," he says.

At first, his worries proved justified. When he put the CD in his computer
and fired up AudioGrabber, a software program that converts CD tracks into
MP3s, the CD locked up the program. But after rebooting his computer, he
discovered that the protection was easy to thwart. The copy protection
worked by introducing a false value for the start time of the CD --
Cianessi used a function of AudioGrabber to reset that start time to zero,
and then was able to encode the music without a glitch.

"My original plan was to buy the CD and then cause a fuss at the store and
demand they refund my money when I couldn't play it on my car stereo," he
says. "But it turned out to be such a trivial workaround I didn't even
bother."

Cianessi's trick turns out to be far from the only way to defeat the
various forms of copy protection currently debuting on CDs all over the
world. (Running a digital output cord from a CD player to a computer, for
instance, is also becoming a popular form of circumvention.) But even as
crackers continue to prove how easy it is to set information free, the
backlash against intellectual property violation is continuing to swell.

Hollywood is on the march. Adding copy protection to CDs is just one tactic
in a comprehensive onslaught. Media behemoths like Disney, Sony and AOL
Time Warner are seeking full control of all methods of entertainment
distribution; if their vision is realized, digital television sets, hard
drives, personal video-recorders and wireless devices will all have some
form of copy protection. In the most dire incarnation of the digital
entertainment future, consumers of music and movies won't be able to make
any copies at all without explicit permission; you might not even be able
to move, for example, a recorded version of "The Simpsons" from the digital
VCR in your den to the one in your bedroom.

Many critics are convinced that copy-protection technologies are doomed to
failure. No system is perfectly secure, and anything that works too well is
bound to annoy consumers. Veterans of the consumer industry recall the late
1980s, when many software manufacturers abandoned various copy-protection
schemes as bad for business. That cycle, they argue, is set to repeat itself.

But there are signs that the digital future will not resemble the past. Not
only do the content companies enjoy access to much more sophisticated
technology, but they also have a new tool at their disposal: Congress. The
Digital Millennium Copyright Act of 1998 makes it illegal to distribute or
even discuss anything that circumvents digital copyright control. And last
month, Sen. Ernest "Fritz" Hollings, D-S.C., threatened to launch another
bill -- the Security Systems Standards and Certification Act (SSSCA) --
that will mandate the inclusion of copy-protection technology in all
digital devices.

Computer-savvy geeks will likely find a way around every technological
advance delivered by state-of-the-art copy protection. But what happens
when the law of the land is in direct opposition to mainstream consumer
behavior and desires? As the content companies accelerate the deployment of
every legal, political and technological weapon in their arsenal, that is
precisely the showdown that looms.

Consumers of entertainment have long taken advantage of whatever technology
is at hand to make copies of their favorite obsessions. Likewise, content
creators have long struggled to resist this tendency. Copyright law,
originally intended to balance the needs of both consumers and producers,
existed in a middle ground between the two sides. But the advent of the
Internet, which makes copying anything digital, anywhere, absurdly easy,
vastly increased the stakes of the struggle. In response, the content
companies have used their lobbying clout to aggressively redefine copyright
law in their own interest.

"Over the past 10 years, many have come around to the view that, in a
networked digital world, limitations on copyright owners' control of their
works are no longer desirable," writes Wayne State law professor Jessica
Litman in her book "Digital Copyright." Intellectual property laws, she
adds, have taken on a new meaning. No longer a balance between public and
corporate rights, "Copyright is now seen as a tool for copyright owners to
use to extract all the potential commercial value from works of authorship,
even if that means that uses that have been long deemed legal are now
brought within the copyright owners' control," she writes.

As a result, if the content companies continue to have their way, the
once-freewheeling Net will be reduced to a glorified form of top-down
broadcasting: "a digital multiplex and shopping mall," in Litman's words;
"cable television on speed," as Lawrence Lessig phrased it in "The Future
of Ideas."

Hollings' bill, whether or not it passes, will likely accelerate the pace
of change. Some of the world's biggest technology companies are already
scrambling to come up with forms of protection that keep content safe. The
industry dwarfs Hollywood in size -- domestic spending on technology goods
and services totaled $600 billion in 2000, according to government figures,
while Hollywood receipts equaled $35 billion -- but companies such as Intel
are still wary of letting Congress dictate their hardware designs.

They're developing technology out of "a fear of legislation," says David
Touretzky, a computer science professor at Carnegie Mellon University and
frequent critic of the DMCA. "Better to negotiate something they can live
with than have something imposed on them unilaterally by clueless senators"
in Hollywood's thrall.

Other factors are also in play: Broadband providers and consumer
electronics companies are worried that without copy protection they won't
have access to the kind of entertainment that would drive consumer adoption
of new technologies. Software industry titans such as Microsoft stand to
benefit both from enhanced protection of their own products, and from the
sale of security services.

It appears unquestionable that hard-wired copy protection is on the way.
But will any of it work the way its backers want? Touretzky notes that in
the 1980s, copy protection "really pissed off customers, who found they
couldn't make backups, or recover easily after a disk crash." Will the new
push for protection be any different?

Hollywood will get what it wants, says Talal Shamoon, executive vice
president of InterTrust, one of the first companies to pioneer
copy-protection strategies for digital audio and video. Cable television,
he notes, prevents consumers from accessing content they haven't paid for;
the future of digital entertainment will be equally secure. Get ready for
what is increasingly being called "trusted computing."

Several different approaches are in the works. The "broken media" method
discovered by Cianessi on his "More Fast and Furious" CD is one example.
Watermarking -- incorporating a kind of digital label in a song or TV show
or movie that uniquely identifies the copy -- is another. There's also the
idea of "protection bits," a tool currently used in digital audiotapes,
which only permits users to make a copy of an original, and not of another
copy.

The leading lockdown candidate combines several of these older software
fixes with emerging technologies that focus on hardware. The Copy
Protection Working Group (CPTWG), a Hollywood high-tech body charged with
developing protection for digital television and other forms of video
distribution, wants to make it possible for a broadcaster to physically
stop users from sending a digital stream of, say, "Star Wars" to a VCR.

"There are two technologies that create secure connection devices," says
Shamoon. "One is called 5C," named after the five companies that created it
-- Hitachi, Intel, Matsushita, Sony and Toshiba. "Then there's another
technology from Thomson Multimedia called "SmartRight."

Both work by embedding a chip that has the power to shut down specific
functions in a given entertainment device; such a chip would be able to
instruct the device that sending digital output to another device is
forbidden.

"Digital rights management" software takes over from there. "There will be
something called a broadcast flag, which will be embedded in the digital
symbol," says Fred von Lohmann, an intellectual property attorney with the
Electronic Frontier Foundation who has attended several CPTWG meetings. "It
will identify the content as copy once, copy always, copy never. TV
receivers or set-top boxes will read the flag and comply. So if it says
copy it will turn off our digital outputs."

Media players in a personal computer could also be set to read similar
"flags," both for audio and video. And, says Touretzky, everything will
likely be encrypted. "For example, instead of sending analog signals to
your speakers, you send an encrypted stream of digital data, and the
decryption is done in a sealed module built right into the speaker," he
says. "Video is done the same way: Encryption is done in a sealed module
built right into the monitor, so you can't bypass the encryption by tapping
into the monitor cables. Disk drive encryption is built into the drive
itself, etc., etc."

There are advantages for both consumers and owners with this scheme, says
Shamoon. "It supports the copy/no copy commands but it also lets you buy
the movie you just watched at the end, or send it to 10 friends," he says.

The new techniques, promises Shamoon, will be both secure and painless.
"Having been around the block a few times, we've learned a lot," says
Shamoon, who once worked for the Secure Digital Music Initiative, creators
of a vaunted protection scheme that was defeated in October 2000. "Our new
products are as easy as buying something on Amazon, except you don't have
to wait for UPS to show up."

But just as Shamoon overestimated the strength of SDMI, some experts argue,
Hollywood and the digital rights management industry have failed to realize
that the search for secure content is a Sisyphean exercise.

Today's copy-protection technologies are less frustrating than those of the
past, but they still threaten to enrage and alienate consumers. Take the
case of Microsoft Office XP. The copy-protected software is full of
problems, says Tom Cramer, 21, a server technician for Compaq in Colorado
Springs, Colo.

"I have a licensed copy and I've had to call Microsoft to reactivate it
several times," he says. "When I reformatted my laptop, it didn't pick up
that it was the same machine. I've since changed laptops; and the license
says that I can have it on one laptop and one desktop but when I bought a
new laptop, I had to call again."

"If this is the kind of protection that gets into a digital device, I'm
going to be upset," he adds. "If I have to call a record label to say, hey,
my MP3 player broke, give me another license, I'm not going to buy the
device."

Even the tightest and smoothest forms of protection promise to be not just
annoying, but also beatable, say experts. History is on the hackers' and
crackers' side. Every attempt to handcuff content -- even cable and
satellite TV -- has failed. And the reason is simple: If you can see or
hear the content once, you can find a way to copy it. Episodes of "South
Park" may originally only be legally available to cable television
subscribers, but they're also easily available via the Net. One digitized,
uploaded copy opens Pandora's box.

If users can't decrypt the stream, reset the index of the CD or recode the
television to allow for digital output, they'll simply record another way,
notes Touretzky. "People don't care all that much about the superior
quality of digital content, compared to price and convenience issues," he
says, pointing out that MP3s became popular even though they sound worse
than CDs. "So, if people can't grab the digital data stream, they'll just
set up a microphone next to their speakers and take the one-time analog
quality hit in order to rerecord the data in an unprotected format.
Granted, this is a lot less convenient than ripping CDs is now, but they'll
do whatever it takes."

Ultimately, Touretzky and others argue, copy protection and the Net are
technologically at odds, magnets repelling each other in opposite
directions. "It's the nature of the Net to pass information from anywhere
to anywhere," says Princeton computer science professor Edward Felten, who
was sued by the Recording Industry Association of America for planning to
give a paper on how to reverse-engineer SDMI. "It's the same with PCs: They
can handle and process information in any way that you like. Copyright
protection is the opposite."

Society must either give up on copy protection or the general-purpose PC
and the Net, says Felten. And no matter how hard Hollywood tries, Felten
argues, society will eventually choose the latter because "the sheer value
of the Net and computers is so much greater than any value that copy
protection can provide."

Not even Hollings' Security Systems Standards and Certification Act will
keep Hollywood's content safe, some argue.

"Congress may as well legislate that water has to run uphill," says Dan
Wallach, a computer science professor at Rice University. "All the
legislation in the world can't change the fact that you have this content
and if you listen to it or see it, then you can copy it."

"[New technologies and laws] won't work any better than the Federal
Prohibition Bureau for curbing illegal alcohol use during prohibition,"
says Cianessi. "Society will continue to slowly evolve around legislative
obstacles, just as it always has."

But if the technology that Hollywood favors is defeatable, why are people
like Wallach and Cianessi so worried? Why are geeks fighting so
passionately against the shift toward copy protection?

The technology is not what bothers them -- it's the criminalization of the
act of copying, and even worse, of the act of discussing copying, that
critics find most alarming. Is it really in the public interest to
continually increase the level of corporate ownership of ideas and
expression? Who should Congress serve?

The DMCA -- which has already been used to sue Felten and to prevent Web
magazines from linking to at least one program deemed illegal by Hollywood
-- and the so-called Sonny Bono Act, which extended the length of copyright
protection by 20 years, forcing some Internet publishers to take down
content that was once available in the public domain, are the leading legal
offenders.

Both laws, say legal scholars, show how willing Congress is to comply with
entertainment industry demands.

"In the 1970s and the 1980s, there were a substantial number of members of
Congress who responded with skepticism when the movie or record business
insisted that the threat of widespread unlicensed copying required new
laws, and copyright owners who sought the legislation needed to draft it
narrowly and make a persuasive case it was actually necessary," Litman
says. "That's why, despite [MPAA chairman] Jack Valenti's claim that VCRs
spelled the end of the U.S. movie industry, Congress did not enact any of
the videotape-recorder/copy-protection bills introduced in the 1980s.

"Twenty years later, thanks in large part to the massive increase in
lobbying money spent by the entertainment industries, most members of
Congress would agree that more copyright protection is always better than
less," says Litman.

The SSSCA fits squarely within this trend. The bill has yet to be
introduced, but the draft that leaked to the Net last year would make it
illegal "to manufacture, import, offer to the public, provide or otherwise
traffic in any interactive digital device that does not include and utilize
certified security technologies."

Hollings, who has received $264,534 in campaign contributions from the TV,
music and movie industries since 1997, has attempted to argue that
standardized copy protection is the key to encouraging the continuing
rollout of broadband Net connectivity. According to this theory, customers
won't sign up for DSL or cable Internet access if they can't get top-notch
entertainment via their computers. But Hollywood won't make that content
available unless it is confident it won't be pirated.

"This is what he sees as one of the critical problems -- the piracy of
digital content," says Andy Davis, a Hollings spokesman. "And this is the
method he sees as a solution for that."

But by outlawing any device that doesn't comply, the SSSCA would
potentially make, for example, software that moved your hard drive's
contents to a remote computer illegal. It would also make possession of
devices and software already on sale a punishable offense.

Furthermore, argues Litman, the theory that broadband adoption is dependent
on copy protection just doesn't hold water. The entertainment and
information industries made the same argument in the early '90s as part of
their lobbying for the DMCA, she notes, pointing out that they were wrong
then, and are wrong now.

"In 1993, the White House was interested in developing what it first called
the Information Superhighway and then the National Information
Infrastructure," says Litman. "Entertainment and information industries
argued that unless they were given stronger copyright protection, they'd
refuse to make their content available over the NII, and therefore nobody
would want to use it, so nobody would build the network. The administration
actually endorsed this position in 1994 and 1995 reports, and introduced
legislation designed to respond to it. Meanwhile, of course, the Internet
was growing by leaps and bounds. Despite the absence of Hollywood movies,
Random House books and BMG records, the Internet enjoyed the steepest
adoption trajectory of any comparable technological innovation, becoming
common in the majority of U.S. households within a decade."

Contrary to Hollywood's claims, the battle is not over broadband -- it's
over business models. Though VCRs, DVDs and other new technologies have all
added to Hollywood's bottom line, Hollywood is convinced that the world of
digital downloads and streams will cost more than it brings in to corporate
coffers. And so it has turned once again to Congress.

The legislature's willingness to listen cuts across political lines. The
debate doesn't fit neatly into a liberal/conservative framework, says
Lessig. It's "controlled vs. free," he writes in "The Future of Ideas," or
"old vs. new."

Even Shamoon admits that we're in the midst of an "ugly transition period."
Everyone is dreaming of a time "when content exists in the air and follows
you around," he says. "I want to be able to walk into a hotel room and have
it realize it's me and let me watch my movies from home."

But that ideal seems a long way off, and in the meantime, despite Congress'
eagerness to do Hollywood's bidding, there's no clear sign yet as to who is
going to win the intellectual-property wars.

Brian Cianessi figures that his CD will end up looking like some sort of
omen -- perhaps the thin end of the wedge that marks the end of the golden
age of Net file-trading. But he's not sure what will emerge.

"We currently exist during a turning point that will be considered
historically significant to coming generations," he says. "I can only hope
that when they look back to this time they can see the stand we took on
copyright as the fulcrum for the shift of power back to the people and away
from big corporations."


- - - - - - - - - - - -

About the writer
Damien Cave is a senior writer for Salon

Record companies: Save us from ourselves!
With payola up but profits down, labels are wondering if paying $100
million to middlemen "fixers" is still a swell business idea.

- - - - - - - - - - - -
By Eric Boehlert
http://www.salon.com/ent/feature/2002/03/13/indie_promotion/print.html


March 13, 2002  |  Most listeners don't know it, but virtually every song
they hear on FM commercial radio has been paid for -- indirectly -- by five
major record labels. The companies pay millions of dollars each year to the
independent radio promoters, universally referred to as "indies," who in
turn pass along money to radio stations whenever they add new songs to
their playlists.

But the once-cozy world of pay-for-play is not a happy one these days.
Radio station owners and major record labels are bickering over who's to
blame for the costly and controversial system. At least one major station
group owner claims labels won't let it clean up pay for play in urban
radio, which is especially corrupt. Meanwhile, labels are readying an
offensive of their own, asking the government to draw up strict guidelines
that would wipe out the current pay-for-play system -- one they helped
create to get around charges of payola -- that pours millions of dollars
into station coffers.

And while all this is going on, a major media spotlight is about to be
trained on the strange and shadowy way the music industry does business.

Wendy Day, founder of the Rap Coalition, an artist advocacy organization,
can't wait for the system to die. "It corrupts the art form," she says.
"Because instead of radio playing what people want to hear, they're playing
music that's backed by the deepest pockets."

The system has been entrenched for decades, but now, because of
unprecedented consolidation in the radio industry, a handful of large
broadcast groups and their exclusive indies broker unprecedented power.
That makes the record companies nervous. Indie promotion is costing them in
excess of $100 million each year.

With the music industry mired in a severe slump, the labels are no longer
willing to shell out those kind of dollars. That's why the Recording
Industry Association of America, working at the request of the major record
companies, may soon ask the Federal Communications Commission to come up
with new, tougher payola rules for radio. Label sources admit they're not
sure what a new system would look like, just that they don't want to
continue with the current one.

"Maybe there's a way out of this if the FCC is interested in new rules,"
says one label executive.

"We believe the FCC has the authority to make new rules to more closely
regulate the practice and regulate [independent] promoters' relationship
with radio stations," says Hilary Rosen, president and CEO of the RIAA.
Many industry observers consider the FCC's payola laws to be antiquated and
inefficient.

For years, the music industry has been bedeviled by aggressive government
intervention, ranging from questions about the marketing of explicit music
to minors to allegations of CD price fixing. The fact that it would
consider asking federal regulators to probe its business practices
indicates just how frustrated it is with the state of radio promotion.

Fearing the accusation of collusion and potential antitrust violations,
major labels are reluctant to officially discuss pay-for-play amongst
themselves. They can join ranks, however, if the topic is framed as a
public policy (i.e. FCC) question.

According to Rosen, the RIAA has never before requested the FCC to change
or clarify an existing rule.

The procedure is known as a petition for rulemaking. If and when the RIAA
files one regarding payola, FCC commissioners and their staffs will "decide
if it's an issue that needs clarification or addressed by the commission,"
says FCC spokesman David Fiske. If it is adopted for review, the FCC would
then for several months accept written public comments from all interested
parties -- record companies, broadcasters, indies, artists and even
everyday radio listeners -- as to why the rules should or should not be
changed. Commissioners would then review the comments and render a decision.

This jockeying should be familiar to some industry veterans. During the
mid-1980s, when indies wielded even more power than today, the RIAA
considered launching its own investigation into payola, assuming that if
the investigation documented any illegal activity the labels would have a
reason to cut their ties to the indies, saving millions. In the end,
though, journalist Brian Ross, then with NBC, helped along by label
sources, aired a sensational report connecting heavyweight indies with
organized crime; within days labels announced they were no longer employing
indies. (By the end of the '80s, however, indies were back in business and
continued to gain influence throughout the '90s.)

This time around, the major labels hope to build a broad coalition,
including smaller independent record companies as well as artists, in their
brewing battle over pay-for-play.

"It would be great to work with the RIAA, I'd welcome it," says Jenny
Toomey, executive director of the Future of Music Coalition, a musician
advocacy group that has publicly challenged the RIAA over a range of
issues, including royalties and copyrights.

Toomey, though, doesn't think simply rewriting FCC rules is enough. "Labels
are very optimistic if they think they, as the ones who participated and
created the system, will be allowed to fix it. We need to get out brooms
and flashlights and go through the entire closet. We need evidentiary
hearings to find out who did what, and how much they paid."

The RIAA may have an even harder time recruiting artists. "They [the
labels] created the fucking problem, now you want us to put a target on our
backs? Fuck it," says a manager who represents several platinum-selling
acts. The fear, he says, is that musicians who complain about indie
promotion will be kept off radio. Without commercial airplay it's virtually
impossible to sustain a career.

"You'd have to be nuts to come forward," says the manager.

Also, there is simmering distrust among artist activists, who are already
battling against the RIAA over their own contracts. That feud may make acts
less willing to fight alongside the industry group to eliminate payola.

With or without artists, momentum seems to be growing to change the
pay-for-play system, which for years operated in obscurity.

In recent months, Rep. John Conyers, D-Mich., has stated that he would like
to hold hearings on the pay-for-play system. (Since he's in the minority
party, though, it's unlikely the Republican-controlled House Judiciary
Committee will grant his request.) In January, Rep. Howard Berman,
D-Calif., wrote the FCC and the Department of Justice asking the agencies
to more closely examine the business practices of radio giant Clear Channel
Communications, and specifically the "persistent allegations that record
companies often must pay radio stations to play the music of their artists."

Meanwhile, two national television news operations are busy preparing
prime-time stories about radio's controversial indie promotion system.

Indies today don't exactly control what gets played on commercial radio.
But they do take credit for -- and get paid for -- what gets played.

Here's how the system works: Indies pay for the right to exclusively
represent radio stations. The up-front fee is roughly between $100,000 and
$400,000, depending on the size of the market. Once that deal is signed,
the indie sends out weekly invoices to record companies for every song
added to that station's playlist.

Those invoices add up. Every song added to an FM music playlist comes with
a price attached: roughly $800 per station in medium size markets, $1,000
and more in larger markets, up to $5,000 per song.

It costs approximately $250,000 just to launch a single on rock radio
today. That doesn't guarantee any sort of success, just that the single
will have access to the airwaves. If the song catches on and eventually
crosses over to the mainstream Top 40 format, indie costs balloon to more
than $1 million.

And that's why labels are increasingly uncomfortable with the system they
helped create. Suddenly caught in the middle of severe economic downturn
(music sales are down sharply for the first time in two decades), labels
simply cannot afford to pay out millions of dollars to indie middlemen who
may or may not create hit records.

Label sources suggest they would rather spend their marketing dollars
buying radio commercials to directly promote their artists to consumers.
But most record company budgets cannot support both large indie promotion
and advertising budgets. (Labels can't simply drop indie payments; the
unspoken fear is indies would then try to keep the label's acts off the air.)

At the same time, broadcasters, caught in a similar recession (radio
advertising was down dramatically last year), need to find ways to generate
more revenue, and they're looking increasingly to the record companies and
indies to provide stations with a generous source of easy money.

For instance, Clear Channel Communications, the nation's largest radio
broadcaster with 1,225 stations, recently charged record companies $35,000
each for the right to have acts perform in front of a room full of Clear
Channel programmers at a three-day company conference. Clear Channel
reportedly pocketed nearly $1 million from the arrangement.

Even more appealing for large broadcast companies, most of which are
publicly owned and under intense pressure to post strong quarterly
earnings, are payments from independent promoters.

Take for example, the system Radio One is trying to implement. As the
nation's largest black-owned radio group, Radio One owns 65 stations
operating in the top 22 markets. Approximately 50 of those 65 stations
program new, hit music. (The rest are made of up talk or gospel stations.)
Radio One's new exclusive indie, Ventura Media Group, is charging record
companies approximately $1,500 for every new song added to a Radio One
station playlist. Assuming its active music stations add five new songs
each week, which is the industry norm, that's $7,500 per station,
multiplied by 50 stations: $375,000 every week in indie fees, or at least
$19 million each year paid out by labels for Radio One stations simply
doing their job: selecting and playing new music.

"The money is out there. It would be ridiculous not to take advantage of
it," says Radio One's chief operating officer, Mary Catherine Sneed. She
won't say how much Ventura Media paid for the right to be Radio One's
exclusive indie, but if the company does take in $19 million in the next
year in promotion fees, industry experts estimate Radio One would pocket
roughly $12 million of that.

"My biggest fear is they're doing it just to get bigger piece of the pie,
and not to change the system," says Day at the Rap Coalition.

Sneed, however, told the Los Angeles Times that Radio One is trying to
clean up urban radio but that record companies were balking at its proposal
to use Ventura Media exclusively. She suggested they were hesitant because
radio promotion executives at labels get kickbacks with the current system.

Her allegations mirror the ones first aired in a Salon piece last summer.
It detailed what industry insiders insist is rampant corruption within the
urban and rap radio formats, with illicit payments -- bribes -- flowing
freely into the hands of programmers and indies, as well as record company
executives who allegedly pocket generous kickbacks.

Those kinds of revelations led to more and more head-shaking inside the
music industry. Says the manager, "I try to explain this to people who
don't work in the business and they say, 'Stop it, it can't be true.'
There's no other business that operates like this. It's unbelievable."


- - - - - - - - - - - -

About the writer
Eric Boehlert is a senior writer at Salon.

Lyin' Eyes
The Recording Artists Coalition's bogus crusade to save the little guy.
By Martin Edlund
Posted Monday, February 11, 2002, at 3:12 PM PT
http://slate.msn.com/?id=2061830&device=

Musicians' rights is the sort of thing that sounds difficult to oppose,
like teacher pay raises or safer streets. So it's no surprise that the
Concerts for Artist Rights, which will take place Feb. 26—on the eve of
this year's Grammy Awards—has met with widespread support. It will span
four Los Angeles venues and involve 14 name acts including The Eagles,
Billy Joel, Stevie Nicks, Sheryl Crow, No Doubt, The Offspring, The Dixie
Chicks, Trisha Yearwood, Beck, and Eddie Vedder. Organizers expect to raise
$5 million for the artist trade group the Recording Artists Coalition.


It's a seductive image—Don Henley, Nicks, and the others arm-in-arm,
fighting for the legal rights of the less fortunate in their trade. And
it's one they would have you believe: The posters for the concerts depict a
giant raised fist clenching a guitar with many smaller fists beneath it,
presumably big artists fighting for the little guys. According to
California State Sen. Kevin Murray, "It isn't just artists, it's artists
and pipe fitters and all of the other organized labor folks." The AFL-CIO
has even endorsed their efforts. But this is Goliath in David's clothing:
The superstar artists lending their celebrity to the RAC are the ones who
will benefit from it. In fact, they're the only ones.

The RAC was founded by Henley and Crow two years ago to counter the
lobbying presence of the major record labels—Sony, Warner Bros., Universal,
and others—and their political arm, the Recording Industry Association of
America. Though not all RAC members are as famous as Henley and Crow,
they're the ones driving the agenda. The present escalation of their
efforts is inspired by two issues. One is the "seven-year rule," an arcane
bit of California labor law that limits contracts for personal service to
seven years. Thanks to a 1987 amendment, record labels can sue for damages
on undelivered albums even after the seven-year mark has passed,
effectively eliminating the protection. The RAC wants the exception
stripped and is pushing for a seven-year limit on contracts at the federal
level as well. The other issue is "work for hire," a provision of federal
copyright law that lets record companies retain ownership of their artists'
recordings in perpetuity.


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Hoping for an Olympic Wipeout


Both of these rules certainly can hit hard. Last September, 19-year-old
country star LeAnn Rimes told a California Senate committee that she had
been under contract with her label, Curb Records, since the age of 12 and
would be until she was 35. But the dirty little secret of the seven-year
rule is that it has little bearing on any but the most popular acts. Less
successful major-label artists (those that can't crack the 500,000 sales
mark) are usually written off as bad investments and freed from their
contracts well before seven years; independent labels rarely sign artists
to long-term contracts in the first place as they can recoup their
investments with more modest sales.

The same can be said of work for hire. Though a standard part of the
major-label contract, work-for-hire provisions are rare outside the
big-five labels. They're aimed at artists, like Henley, whose catalogues
have lasting value. On both issues, Congress has become little more than
another front for superstar artists to negotiate with their record labels.

But if the RAC is a thorn in the side of major labels, it's potentially a
spear in the side of other artist groups. Brian Austin Whitney, who runs
Just Plain Folks, an organization of 13,000 mostly independent artists,
says, "I talk to a lot of people who mistakenly think [the RAC] represent
every artist, when they actually only represent a small number of artists
at the very top of the industry." The concerns of independent artists tend
more toward the mundane: disability insurance, maybe retirement. "I don't
think that Don Henley has to worry about health insurance," says Whitney,
"but 98 percent of our members do."

In the end, the RAC may be no better for fans. One outcome of a seven-year
limit on recording contracts would be that major labels would have to
commit more of their resources to keeping highly successful acts, upping
their contracts every few years. There would be less money for signing new
artists, resulting in fewer opportunities for aspiring musicians and
narrowing choices for fans. This doesn't appear to bother Henley terribly.
He told the California legislature, "If [major labels] would sign less
artists, I think everybody would be better off." After all, who needs to
hear new artists when there's another Don Henley album out?

But the RAC may have a limited shelf life: Its popularity, even among rich
artists, seems to be fleeting. Last month the group staged a follow-up
visit to Sacramento, but this time without LeAnn Rimes—who appears to have
put politics behind her since renegotiating her contract with Curb Records.
Rimes' official Web site includes her recent wedding announcement and
pictures of her new teacup Chihuahua, Precious, but it makes no mention of
her former political crusade. The details of her new Curb contract were not
made public, but the smart money says that it will keep her there for more
than seven years. If only the RAC had a similar claim on its artists.

========================================================
BRIAN LIVINGSTON:     "Window Manager"     InfoWorld.com
========================================================

Monday, February 11, 2002

- - - - - - - - - - - - - - - - - - - - - - - - - - - -

MUVEE MAKES MOVIES

EVERY ONCE IN a while, a program comes along that
changes the way we use computers. Muvee AutoProducer
is one such program. It has a deceptively simple
purpose: With the click of a button, it makes a music
video out of files you've copied to your PC from a
camcorder or digital camera.

That doesn't sound like much of a breakthrough unless
you've tried doing it with ordinary video-editing
programs. The rule of thumb among media professionals
is that it takes an hour to produce one minute of
finished video using software called an NLE
(non-linear editor).

In less than a minute, by comparison, AutoProducer
finds key visual highlights in your video segments and
edits them -- in sync with your chosen music track --
into a polished little "muvee" (pronounced MYOO-vee,
as in music video).

In case you think I've lost my mind and joined the MTV
generation, don't worry. This software has loads of
business applications.

Broadcasting. The use of AutoProducer in commercial
ways has already begun. Companies such as Xtreme Sport
TV harness it to create short montages, combining the
latest action on the field with thumping beats.
AutoProducer's output is fully editable by NLEs, so
producers can try different styles and then polish the
result by replacing one shot with another, but only if
necessary.

Education. Instructional videos tend to be deadly dull,
but they don't have to be. Breaking up the talking
heads with a few quick-cut, jazzy bits can make almost
any program more bearable.

Fun. Aside from the 9-to-5 implications, the consumer
uses of AutoProducer are huge. Millions of households
have camcorders, and now many digital cameras can also
record short videos. Editing the output, however, has
been a drag. At last, AutoProducer makes it a treat.

Other software surely exists to do what AutoProducer
does, but not at this price -- free, with Muvee.com
credits inserted into each production. The $59.95
personal-use version and $119 pro version remove this
and other limitations.

Testing AutoProducer, my only problem involved the .mov
files used by some digital cameras. I had to cough up
30 bucks for QuickTime Pro at Apple.com to convert the
files to .avi. I also had to download DirectX 8.x from
Microsoft.com. But those things aren't really Muvee's fault.

I was impressed by AutoProducer's mysterious ability to
pick out focal points in the action and mesh them with
music into something more attention-grabbing. In one
shot of a little girl rocking back and forth,
AutoProducer edited out the middle, segueing the
beginning and end of the movements into a single,
seamless motion.

Start at  http://www.muvee.com/website/?id=freebies to
get 33 free music tracks. Download the software to
experiment. And watch out, Steven Spielberg.

Send tips to brian@.... He regrets that
he cannot answer individual questions. Go to
http://www.iwsubscribe.com/newsletters to get his
Window Manager column and E-Business Secrets e-zine
free via e-mail.

The next big thing? Home media servers
BY MIKE LANGBERG
Mercury News

LAS VEGAS -- A single electronic box called a ``home media server'' could,
in the very near future, control every form of digital entertainment and
information in your home.

This year's Consumer Electronics Show, which ends its four-day run here
Friday, turned into a kind of baby shower for the home media server, with
companies lining up to describe their vision of the networked future.

Sony, the most influential company in consumer electronics, and Microsoft,
the most influential company in computers, each presented variations on the
home media server theme. Even companies that didn't introduce home media
servers trotted out impressive-sounding slogans to show they understand the
importance of linking devices together; Panasonic came up with ``Digital
Networking for Life'' to describe its new televisions, camcorders and DVD
players.

There's no clear definition yet for what a home media server should be, but
a rough outline is emerging.

The home media server will manage television programming, delivered by
cable, satellite or the Internet; and music, delivered by the Net or
transferred from CDs into the server's hard drive. The server also might
handle more computer-like functions, such as electronic mail, instant
messaging and Web browsing, as well as entertainment services such as
online video games.

This digital mother lode will move throughout the house, either through
wires or wirelessly, to TV sets, stereos, personal computers and futuristic
devices such as portable touch pads.

The most fully featured home media center on display at CES is Moxi
(www.moxi.com), from a Palo Alto start-up that operated under the cover
name Rearden Steel until Monday.

The Moxi Media Center, or MC, is a $400 box -- containing a DVD drive and
80-gigabyte hard drive -- functioning as a cable or satellite receiver,
digital video recorder, music jukebox and computer networking hub.

Video, music and data can be sent to other rooms through coaxial cable,
Ethernet wires or wirelessly using a new high-speed format called IEEE 802.11a.

EchoStar Communications, parent of the Dish Network satellite TV service,
will start testing Moxi this summer and could start offering it to its 6
million subscribers late this year or early in 2003. If EchoStar succeeds
in pushing through a deal to acquire rival DirecTV, Moxi would have another
11 million potential customers.

Cable companies also are looking at Moxi, though none has yet made a public
commitment.

It's too soon to say how much consumers would end up paying for Moxi. The
hardware would almost surely be subsidized by satellite or cable operators,
or even offered free, in exchange for monthly fees tied to various services.

Sony is taking a more subtle approach, preparing to turn its PlayStation 2
video game system into a home entertainment gateway. At a CES press
conference, after introducing the slogan ``Ubiquitous Value Network,'' Sony
Electronics President Fujio Nishida said an online gaming service for PS2
due later this year would provide access to America Online, as well as
music and video through the Real Player widely used on PCs.

Sony also has promised to deliver an external hard drive that would plug
into PS2, raising the possibility PS2 could morph into a digital video
recorder and digital music jukebox.

Again, it's too soon to report how much this will cost -- though Sony has
said consumers will need a high-speed Internet connection at home, such as
a cable modem or DSL phone line.

Microsoft Chairman Bill Gates offered the Windows PC -- no surprise -- as a
home media server during his CES keynote speech Monday night.

A new user interface called ``Freestyle'' would present Windows in large,
simple onscreen menus designed for easy reading on a television screen from
a sofa across the room. A PC equipped with a television tuner and a
hand-held remote then could become a digital entertainment center.

Gates also displayed a wireless touch pad tablet dubbed ``Mira'' that would
serve as a kind of detached computer monitor, making it easy to tap the
contents of a Freestyle PC anywhere in the home.

Samsung Electronics showed its support for Microsoft by displaying a
prototype Home Media Center, essentially a Freestyle PC in a shiny silver
case that would blend into the typical living room.

Pioneer Electronics, using the slogan ``Digital Network Entertainment,''
introduced a home media server called the Digital Library. Due late this
year or early in 2003, the Digital Library contains a music CD drive and a
60-gigabyte hard disk, connecting to as many as three TV sets around the
house and a home computer network.

  From the Internet or a home computer, users could load digital music,
video and even photos. Music CDs placed in the Digital Library's CD drive
also could be converted to digital files on the hard disk.

As with Sony, Microsoft and Samsung, Pioneer isn't ready to talk about what
its home media server will cost.

San Jose-based TiVo, one of the first companies to sell digital video
recorders, announced a second-generation product at CES that qualifies as a
home media server.

The TiVo Series2, due in February at $399, includes a 60-gigabyte hard
drive that can store up to 60 hours of video. When connected to a
high-speed Internet line, the Series2 will play Internet radio and store
music downloads. Through a home computer network, users also could load
digital pictures into the Series2 for presenting slide shows on a TV set.

As all these products move into the market during the next year, an
important transition will take place: The future of home media servers will
no longer be in the hands of companies putting on fancy demonstrations at
trade shows, but in the homes of consumers who decide which -- if any -- of
these electronic impresarios can deliver worthwhile services at reasonable
prices.


--------------------------------------------------------------------------------
Contact Mike Langberg at mike@... or (408) 920-5084

http://www.infoworld.com/articles/op/xml/01/12/24/011224opfoster.xml

The Gripe Line
Ed Foster

Parallax paradox

As a special holiday treat, I thought this week I'd let you read the column
of my counterpart in a parallel universe with whom I happen to be in
contact. As near as we can tell, our two universes were identical until --
by some strange quirk or stray quark -- the DMCA (or Digital Millennium
Copyright Act, as it's known in this universe) was enacted there 50 years
earlier than it was here. As you'll see, that seems to have made for a few
other changes.

What will 2002 bring in the way of new technology? According to
representatives of the major computer companies testifying before a
congressional committee last week, the new digital technology products they
have in the works could open up a host of new markets both for them and
other American businesses. All that's required, say PC manufacturers, is
that Congress first provide them with a few additional legal protections
for their intellectual property rights.

PC manufacturers are particularly enthusiastic about the enticing new
products they believe they can soon bring to market if Congress takes the
appropriate measures. "We envision a world where the convergence of
technologies will provide customers with a wide range of information at
their fingertips," said Bill Gates, senior legal counsel for Nintendo. "The
American consumer will be the one that benefits most from these changes to
the law that we're proposing."

Gates, representing a consortium of the leading PC manufacturers including
Sony, Panasonic, and Phillips in addition to Nintendo, asked the committee
to approve a few minor tweaks to the DMCA (Defended Manufacturer Content
Act), a law that's been on the books for more than 50 years. Although the
DMCA has been considered hugely successful in helping the motion picture,
television, and music industries safeguard their intellectual property
rights, PC manufacturers have pushed through a series of amendments in the
last few years to update the law for the digital era.

If accepted, the industry's latest proposal will enable vendors to bring a
host of new innovations to the marketplace, Gates said. All the major PC
manufacturers are known to be developing devices called VCRs (verified
content recorders) that can directly record television programs on magnetic
tape. In response to questions from the committee on this, Gates
acknowledged the fact that the basic technology behind VCRs has existed for
decades. "Quite rightly, the television networks have always blocked the
introduction of these devices for fear they will enable piracy of their
broadcast programming," he said. "What we and others now hope to bring to
the table is digital encryption technology that will address those fears
and allow the networks to maintain total control of their product."

Indeed, the amendments the PC consortium desires are focused on closing
gaps in the DMCA perceived by intellectual property holders. Radical
elements have even proposed such outlandish ideas as "free TV" financed
only by the existing revenues from television commercials, eliminating the
requirement that viewers pay for the television programs they watch.
Another idea of those on the lunatic fringe is that customers should be
able to run programs of their own or ones acquired from third parties on
televisions, PCs, and all manner of devices without authorization from the
manufacturer.

Perhaps not surprisingly, since all consortium members manufacture both
televisions and PCs, Gates scoffed at these "freebooter" notions. "We
firmly endorse, and hold as sacrosanct, the concept that all programming --
what we in the trade call the 'soft wares' -- must be authorized by and
purchased from the manufacturer of the device it will run on," he told the
committee in no uncertain terms. "It's the foundation on which our industry
and many others have been based for decades."

When one committee staffer noted sarcastically that the consortium members
aren't exactly all-American corporations, Gates was quick to cut him off
with the point that his proposal will help a variety of American companies
deal with foreign competition. "It's before my time, but my father often
recalls the days when American movies, American music, American culture
were what people the world over wanted to see and hear," he said. "We feel
our proposal will speed the return of such a day when everything worth
watching or listening to doesn't come from Europe or the Far East."

As an example, Gates pointed to the much-needed extra revenue stream the
few remaining American movie studios could reap from VCR rentals. "We
expect you'll see a whole new industry evolve around VCR rentals of
blockbuster hits," Gates predicted. He also suggested that, with a little
extra legal protection, television networks might finally be persuaded to
allow residences to be wired via cables to receive programming directly.
"We even believe one day we'll have the capability to transmit data over
such cables or over enhanced phone lines, thereby linking the entire
country in one great interconnected network. Imagine the possibilities if
such a network existed," Gates said.

It actually doesn't even take that much imagination, since such networks do
exist in other countries and are extremely popular. Cynics might suggest
that we've heard all this before. Some readers even say that perhaps the
manufacturers should be less focused on their rights and more focused on
delivering innovative products, but let's not go there. I don't want to be
accused of airing anonymous complaints against manufacturers without their
permission. After all, that would be against the law.


It's still legal to gripe about vendors in this universe. Feel free to do
so by writing Ed Foster at gripe@....

June 11, 2001
Another Reason to Hate Lawyers
By  Jonathan Blum

http://www.theneteconomy.com/article/0,3658,s%253D912%2526a%253D8645,00.asp

Having spent the better part of eight months chasing — and finally
crippling — the renegade online music service Napster, the music industry
now is looking to pick another fight. The Recording Industry Association of
America in late May slapped tiny online swapping service Aimster with a new
lawsuit. The action makes the RIAA part of a hot new club: * he litigating
media companies. The Motion Picture Association of America, publisher Harry
Fox Agency and network provider AOL Time Warner are already members.

Though these court actions may present an image of established media
getting serious about protecting digital content, it's really the worst
possible news for both consumers and network service providers.

Although games of legal hardball between businesses are standard for the
media world, lawsuits like those against Napster and Aimster aren't pitting
business against business. They're turning the consumer into the enemy. And
network operators ultimately may be the ones taking the bullets.

Already some content providers are feeling the backlash from their
litigation strategies. "Our message boards are filled with angry notes,"
says Johnny Deep, president of Aimster. Ian Clarke, founder of online
privacy group Freenet, says any victories by the media establishment will
be pyrrhic. "The record labels may have a short-term victory here against
Napster, but at what cost?" he says. "An entire generation now views these
companies with suspicion. For some of the very young, the Napster trial is
the Gulf War or the death of JFK or the Watergate trial. It's the defining
event of their generation."

OK, that may be a little over the top. But if it's even partially true,
it's chilling. The early 2000s may be remembered for digital content
lawsuits, not for something innocuous like bell bottoms or Jerry Springer.

Any marketer worth his clammy handshake knows how serious this is. The
early impressions of consumers define their brand loyalty throughout their
lives. That's how MTV has made a culture and a fortune — by catering to the
moods and feelings of young viewers no matter how outwardly awkward they
might be.

Get these buyers really mad, as the litigating media companies have done,
and the future gets cloudy fast. As new users come to distrust their
sources for digital content, they will happily turn to non-digital sources
to get music and movies. That cuts the network service provider right out
of the profit equation.

Today, there is a complete lack of marketing for new digital content.
Disney relentlessly promotes its assets across all platforms, including
film, home video, games and theme parks. Yet, there has been no effort to
build marketing support for digital material. Even the most basic ad
campaigns, like the familiar spots for DVDs that run before most rented
films, would be an excellent first step to explain and promote new
technologies to consumers.

Media companies should accept their new role as a service provider rather
than act like grubbing, greedy monopolists. With a new attitude, the
premise for offering enhanced digital content over a network would be a lot
simpler. Why not develop material with the network in mind rather than make
the same old dumb stuff and then bolt it on top of the network? If media
providers want to have a future, they may want to think about spending less
on digital content lawyers and more on digital content.

Until that happens, network service providers are at risk for having very
little to fill up all their fat pipes.

Follow the Money: Who's Really Making the Dough?
http://industryclick.com//magazinearticle.asp?magazinearticleid=132835&magazinei\
d=33&mode=print

By Eric Leach and Bill Henslee

Electronic Musician, Nov 1, 2001


Money gets a bad rap. You've heard the clichιs: money is the root of all
evil, money can't buy happiness, and so on. Money itself can't be bad —
it's just a thing, like a rock, a chair, or a blender. It's the pursuit of
money that gets people into trouble. People who enjoy making money are
often labeled as superficial, shallow, and greedy. That's why you never see
“money” on the Playmate of the Month's list of favorite things. That's why
professional athletes embroiled in contract disputes always claim, “It's
not about the money.”

Record companies are often characterized as the ultimate embodiment of
money-grubbing evil. Unfortunately for them, the Napster unpleasantness has
merely exacerbated that characterization. In fact, many people think record
companies are just plain bad. Why is that? Certainly, record companies
exist to make a profit, but so do most companies. Perhaps it's because of
the way record companies make their money: they make it from our heroes,
the musical artists.

All notions of musical parasitism aside, record companies perform the
critical functions that allow artists to reach the masses. That's fine, you
say. The problem with the record companies is that they're too greedy. You
see them selling millions of albums at $15 to $18 a pop. Where do the
truckloads of cash go if not into some big-shot executive's pocket? What
about artist advances and money for marketing and promotional budgets?
Where does all that money come from? Who gets what along the way? In this
column, we will look at how record companies work and how the money finds
its way from the consumers to the artists and everyone else who works to
get the music to the public.

LABELS 101
In their most basic form, record companies are like music venture
capitalists with production, marketing, and distribution arms. They locate,
finance, and develop new talent; oversee music production; market the music
through promotion and advertising and by securing airplay; and distribute
the finished product through retail outlets and online services. That is
expensive stuff, and risky too: only about 5 percent of new artists even
sell enough records for the record company to break even, and as few as 5
to 10 percent of a label's artists pay for all of the music released by the
company.

Before looking at the math behind record deals, a brief disclaimer is in
order: the following numbers are generalizations based on a mainstream
artist at a major record label. Every negotiated record deal contains
different terms and conditions of payment.

IT TAKES MONEY …
When a label signs an artist, the record company advances the recording
budget to the artist at no risk. If the album fails to sell, the artist is
not personally responsible for paying the money back. The record company
recoups its investment in the album only if the public buys it. However,
the artist does not see any money from the album sales until the label
makes back its investment.

A typical recording budget for an artist's first album is between $250,000
and $1 million. The record company will also spend approximately $250,000
to $500,000 to market a new artist to the public. Pressing the album and
shipping it to retail outlets costs from $1 to $2.25 per unit, depending on
the size of the pressing (more units cost less per unit). A new artist
typically receives between 12 and 16 percent of the album's suggested
retail price as a royalty. In addition to those costs, the record company
must pay royalties (called mechanical royalties) to the music-publishing
company for every unit sold. The record company usually caps its mechanical
royalty costs at $0.755 per album (10 songs at $0.0755 per song). To recoup
those expenses, the record company receives a wholesale price for each unit
sold by the distributor from $7.50 to $11.50 per album, depending on the
genre and artist. (For a look at where the money from a single CD sale
goes, see Fig. 1).

With those numbers in mind, we can make some assumptions and show why every
record an artist releases is a risky investment for the record company. If
the artist receives a $250,000 advance and the record company spends
$250,000 on marketing, the record company has spent $500,000 dollars before
one album has been sold. If the record company receives $10 per unit from
the distributor and has to pay $1.25 for pressing and shipping and $0.75
for mechanical royalties, the record company ends up with $8 per album ($10
income minus $2 pressing, distribution, and mechanical royalties) before
deducting the artist's royalties. Assuming a suggested retail price of
$14.99 and an artist royalty rate of 15 percent, the record company owes
the artist approximately $2.25 per unit sold. After deducting the artist's
royalty, the record company's net income from the sale of the record is
approximately $5.75 per unit sold. The record company must then pay for its
overhead and all of the albums that don't sell well enough to pay for
themselves, $5.75 at a time. For that hypothetical album, the record
company must sell 86,957 units to cover its out-of-pocket costs, which do
not include the everyday costs of running an international business.
Although 86,957 units may not sound like many units to sell, only about 16
percent of all record releases reach that sales figure.

TO MAKE MONEY
So what about the artists? They're really raking it in, aren't they? Well,
yes and no. Huge stars make lots of money, but most artists, even if
moderately successful, generally struggle to make a buck. First of all, the
artist won't see any royalty money until the record company recoups its
advance production budget. To further complicate the math, the artist
usually must pay 3 percent of the royalty to the record producer. Deduct
the 3 percent from the royalty rate, and the record company recoups its
$500,000 advance at $1.80 per unit sold. Therefore, the artist won't begin
seeing money from sales until 277,778 units are sold, and only about 3
percent of records ever reach that sales figure.

At least he or she will have fun with the advance money, right? You've
heard about the parties artists throw when their big advances come in.
Actually, that $250,000 represents a relatively small cost-of-living
budget, even if the album sells relatively well. Assuming that no
management, attorney, or other professional fees were paid from the
recording budget, which would never happen, the artist will probably spend
$200,000 of the $250,000 advance on actual recording costs. That leaves
$50,000 to split among the band members. If the band has five members, each
member receives $10,000 to live on until the album recoups its budget, as
calculated above. That time period is generally about a year to 18 months
if the album sells well.

Furthermore, those calculations don't include the money that the band must
pay to its legal team or management for the deal. Lawyers typically charge
an hourly rate (from $175 to $350) or a percentage of the artist's total
gross income (between 3 and 10 percent). Managers typically charge between
15 and 25 percent of their client's gross income. Accordingly, the manager
and the lawyer could easily end up with $75,000 of the $250,000.

OTHER MEANS
Before you run out to loan Metallica some money, keep in mind that other
streams of income are available for reasonably successful artists. For
example, artists can earn money from touring, though most bands tour
primarily to support album sales and airplay. Also, some artists can make
money through endorsements and other marketing strategies. However, the
best opportunity for artists to make serious money is to write their own
songs. I'll never forget seeing the lead singer of a moderately successful
band flying first class while the rest of the band was condemned to coach.
You can guess why: he was the songwriter.

The primary source of income for artists who write their own songs is
mechanical royalties. Typically, a performing songwriter owns his or her
own publishing company. That company enters into a copublishing agreement
with a larger publishing company whereby the two companies co-own the
copyrights to the songs. Of the mechanical royalty income, the songwriter
receives 50 percent, the songwriter's publishing company receives 25
percent, and the larger publishing company receives 25 percent.

Assume that all of the songs on the hypothetical album are administered by
a single publishing company (in a copublishing deal with the songwriter's
publishing company), and that, according to the mechanical royalty
projections laid out previously, $0.755 total mechanical royalty income is
generated per album sold. Of that amount, the songwriter is paid 50
percent($0.3775). Of the remaining publisher's share, the songwriter's
publishing company and the larger publishing company each receive $0.18875
per album sold. In the end, the songwriter receives a total of $0.56625 per
album sold ($0.3775 plus $0.18875), and the publishing company receives
$0.18875 per album sold.

Furthermore, the publishing company and the songwriter make money from any
public performances (for example, airplay and live cover performances) of
the album's songs. Although public-performance income is difficult to
hypothetically quantify, approximately $0.013 to $0.014 is generated per
public performance. That money is divided among the publishing companies
and the songwriters. Public performance income is generally not as
significant as mechanical royalty income, but think about how many times
you hear a popular song on a single radio station in a single day and
multiply that by the number of similar format stations around the world.

Songwriting money can add up fast. For the songwriter, an album that sells
a million copies generates $566,250 in mechanical royalties alone and added
income from airplay, which is above and beyond what the band members in
coach are making.

That's where the money goes. Hopefully, those figures will help you
realistically assess your risks as an artist or songwriter and maybe go a
little easier on the record companies. For better or worse, selling music
is and always will be a business. Caveat emptor!


--------------------------------------------------------------------------------

Eric Leach is an intellectual property and business law attorney at the
firm of Goodman and Leach. He can be contacted at eleach@....

Bill Henslee is a professor at Pepperdine University School of Law, where
he teaches copyright and entertainment law. Contact him at
william.henslee@....

Why the RIAA owes us all an apology
David Coursey,
Executive Editor, AnchorDesk
Thursday, October 18, 2001
http://www.zdnet.com/anchordesk/stories/story/0,10738,2818346,00.html

The Recording Industry Association of America (RIAA) should issue a public
apology for its attempt last week to lump music swappers together with
terrorists--criminals worthy of special efforts and restrictions on civil
liberties in order to bring them to justice.

What the RIAA did was attempt to get language added to the PATRIOT
anti-terrorism law that would have opened the door for a full-frontal
technological attack on music swappers. This despicable action trivializes
the victims of terrorism, as well as the men and women who have placed
themselves in harm's way to fight the terrorist menace.

AT A TIME when our nation must make serious decisions about whether to
compromise civil liberties in the pursuit of evil, the RIAA should've had
the good sense to remain on the sidelines. Napster and its ilk, however
illegal, have fallen off our national agenda. Using this dramatic shift in
priorities as an occasion to insert selfish provisions into the
anti-terrorism law is almost beyond belief.

Wisely, legislators from both parties stopped the record industry lobbyists
in their tracks.

Specifically, the RIAA wanted the ability to attack file-swappers'
computers without suffering any civil liability. The proposed text would
have exempted from lawsuits "any impairment of the ability of data, a
program, system or information, resulting from measures taken by an owner
of a copyright."

WHAT THIS HAS TO DO with our war on terrorism, I don't know. Given that
Congress is prone to stick unrelated issues into popular bills, I
understand that this may have been seen as business as usual by the RIAA.

Now, people who trade copyrighted music may be many things, including
criminals. But they are not terrorists, and the RIAA's attempt to bludgeon
them makes swappers seem more like the freedom fighters they've always
claimed to be.

While I understand the need for copyright holders--a group that includes
me--to protect their work from illegal copying--which I've also done on
occasion--the RIAA has crossed the line.

THE REASON the recording industry wanted protection from lawsuits is,
apparently, a plan to take the battle to the swappers' home turf,
essentially jamming the swapping services themselves. If this sounds an
awful lot like a next-generation denial-of-service attack, it should.

Also, the RIAA would have been free to add viruses to copyrighted music
that could act directly against the users' machine.

In the end, such direct action against violators may be necessary, as the
peer-to-peer services find new and better ways to isolate themselves from
the illegalities they encourage. Just because I am down on the RIAA doesn't
mean it's OK for swappers to violate copyrights with impunity.

BUT THE SWAPPERS have always justified their actions, at least in part, as
civil disobedience and as a means of forcing a reexamination of copyright
issues. They have painted the recording industry as a bunch of greedy <fill
in your term of derision here> who care only about making a buck, customers
and the public be damned.

And in trying to equate copyright violators with Al Qaeda, the RIAA managed
to prove its harshest critics--a group I've never been considered a part
of--absolutely right.