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I’m at the Business Success Using Open Source Software panel at the ABA Annual Meeting in San Francisco. The participants are:

• Katherine Spelman (moderator, Cobalt LLP)
• Pam Samuelson (Boalt Hall)
• David Kappos (IBM)
• Karen Copenhaver (Choate Hall & Stewart; fmr. GC, Black Duck Software)
• David Marr (Sun)

As with all of my liveblogging, these are my impressions of the proceedings and are not for attribution to the participants, and certainly not to me.
David Kappos:

OSS has come a long way in the 20 years it’s been on the scene. It started as a set of programming tools put out by the FSF; we lawyers eventually came to understand and like the GPL, turning copyright law into a tool of inclusion rather than exclusion.

OSS has now grown in an amazing way; there are more than 150,000 OSS projects, dozens of license agreements, Wikipedia, world-class programming tools, Firefox, Linux, and a myriad of business models that make OSS as a development paradigm not only profitable but preferred.

We can’t find a software start-up in the Valley that isn’t using OSS. If you don’t think your clients are using OSS, you have a surprise coming.

And now governments are permitting and even mandating the presence of OSS in their bidding processes.

This brings us to some questions: How does business get profitably conducted around free software? What are the roots of OSS? Can it apply to other fields? Why haven’t other fields adopted open development models? How does the OSS model that works so well for copyrights work for patents? What are the limits of the OSS model, and what’s coming in the future?

A number of business models have emerged around OSS:

• Support and service. This is the Red Hat model. Software is distributed under an OSS license, with services offered for a fee.
• Building block model. This is the TiVo model. Companies are using OSS as a component of their business — embedded Linux, etc.
• Add-on solutions model. This is the IBM model. Using OSS (typically Linux) and offering solutions that build around that and integrate it into larger situations. This is an extremely successful business and scales well.
• Proprietary extension model. This involves developing proprietary software that links to OSS in conformance with the GPL, then donating that proprietary software to the community as its competitive advantage fades. IBm does this with WebSphere.

Most of those business models leverage shared infrastructure. This is all about avoiding spending money on unproductive effort and spending it close to customers’ needs.

Can this work outside of software? Yes. IBM instituted an organization called power.org, where we put a giant amount of architecture information about the power architecture (which is a microprocessor architecture) into the public domain. It’s working: there’s a vibrant community.

What about pharma? An organization called CAMBIA in Australia licenses bio innovations under open principles.

And it works for information, too: Wikipedia and, indeed, the GPL3 process itself. Open development will work wherever there is commonality of problems, opportunity for profit or reputational gain from contributions, and call for open standards for interoperability.

It can work for patents as well as copyrights. IBM donated 500 software patents for free use in OSS. We wanted to make patents less threateing to OSS — and even a tool to promote OSS. Many other companies, including OBM, have announced more pledges since then. Then there was the formation of OIN. Google just joined as a licensee. This is rationalizing the discoursein the OSS/patent area.

Also, Peer-to-Patent is bringing the two areas together. It’s allowing experts from all over the world to submit and comment on prior art. It’s apparent that this is going to be the wave of the future — “the USPTO meets the 21st century.”

So what about efforts to capture the millions of lines of OSS as prior art? We’ve been working on that — there’s lots still to do, but the idea is to categorize the code by patent classes so that they can easily be used by patent authorities.

OSS is on its way to turning patents to a positive force for OSS.

OSS is going to continue to flourish and grow in areas other than software. We had a CodeJam to help solve major world problems, and taking the IP stress out of the system allows people to collaborate better.

OSS is here to stay; it will grow; it will spread to other problems. It is showing that, like copyrights, patents can not only coexist with OSS but fuel its growth. The OSS model with thrive alongside proprietary development, and will create plenty of legal issues along the way.

Pam Samuelson:

I’ll be talking about OSS and competition. I got interested in this when I taught a class with Mitch Kapor. I’ve also written a paper on it.

Two perceptions:

• Proprietary software and OSS are in a deadly war, and one will strangle the other. (This is hyperbole. Eben Moglen writes about “triumph” over proprietary software; Craig Mundie writes similarly harshly about OSS. Pay no attention.)
• FOSS is hostile to IP. (This is also false. Some people who like OSS are also hostile to IP, but nothing inherent in OSS is outside the standard IP narrative.) The specifics of the license don’t matter that much to the developers. It’s a social constitution, a social norm. Not only will you get sued if you violate the license, but you’ll be shunned — and that’s sometimes worse.

I agree with David that FOSS and proprietary software can coexist in the same products, and will increasingly do so. Also, there are some sectors where one or the other will just prevail: avionics software will probably always be mostly proprietary.

But some places, there is head-to-head competition. IE v. Firefox. Linux v. various server OSes. You get more innovation in such situations, and that’s great. Firefox is driving innovation in IE, and vice versa. MySQL has put price pressure on Oracle. And so on.

OSS has significant development advantages: spreading out common work, a supportive community, and it can be (though it is not necessarily) cheaper. It’s certainly easier to modify internally, by its nature.

There are some risks. One is, “who do I call if it breaks?” For this reason, support services can be sold. Forking can lead to incompatability. Patent risks are still real. Linux may now be in a really good place, but not all projects have companies throwing patent licenses at them. And it’s not easy to transition a proprietary product into a successful OSS project. (Netscape had to be rebuilt substantially to make it into an OSS product.)

Overall, OSS can be less risky: less investment than proprietary development, and somewhat less chance for financial reward.

David Marr:

I’ll be talking about the GPL. The area that can be most difficult for us as lawyers — copyleft. Ask them:

• What GPL code is being used?
• What form are the bits in — binary or source?
• What has been done with the bits?

Then you get three hard questions:

• When is the source obligation triggered?
• What must we release?
• How must we release it?

[He has very good slides that explain the answers to these questions, including an amazing slide with a spectrum of situations drawing the line when copyleft attaches. I’ll try to get a copy and post them.]

Karen Copenhaver:

Design that Matters is a company that started a number of years ago. You could graduate from an engineering school without having anything you designed get manufactured. These kids got this idea that people should put their designs up against manufactured products — and that they could put together a portfolio of products that NGOs around the world needed and use them as student design projects. Then the students could put their designs back into the portfolio, if they wished.

The first product was an IV clamp. (They were quite non-intuitive.) The second was a projector for schools. (Turns out school is at night, and there’s no light for books.) The third is a baby incubator. (Existing incubators required consistent electricity and frequent changes to the filters.)

Building a world where it’s easy (but not mandatory) to share — with an open source design model — was the goal. It’s a wonderful story. We’re five years into it, and we’ve never had an IP issue. The sharing rate is very high. The students realize the joy of being permitted to share.

When I think about OSS, I think about making things possible, like Wikipedia, that could not have been imagined before.

The idea I wanted you to get was that world-leading companies are embracing this model as a way to find efficiency — not just as a legal curiosity or a project for hairy geeks. None of us is alone, and OSS is a very sophisticated acknowledgement of our interdependence.

It has restored competition to the software industry, and the compeititon is perfect, due to the ability to fork any project. There’s more and more infrastructure that none of us wants to build alone. It is providing, and is going to provide, a platform for innovation.

[Then some very interesting questions and answers, which went too fast for me to write down.]

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

This is a panel called “Artistic License: A Look at Copyright and Contemporary Art.” the panelists are:

* Maria Pallante, Deputy General Counsel, U.S. Copyright Office
* Adine Varah, Deputy City Attorney, City and County of San Francisco
* Simon J. Frankel, Covington & Burling, LLP
* Christine Steiner, Law Offices of Christine Steiner
* Jared Jussim, Executive Vice President, Legal Affairs, Sony Pictures Entertainment (Santa Monica)

[I’m recovering from a cold and liveblogging panels is exhausting, so these notes will be much more skeletal than usual.]

Maria Pallante:
Rirkrit Tiravanija made this [unbelievably cool] installation sculpture that’s a pirate TV station. This came to me when I was at the Guggenheim. The artist wanted to transmit movies into the airwaves in NYC. They had to use cleared movies PD movies, or clips. He wanted a letter on the wall from her about why the work had been ruined. [I saw this work at the Guggenheim. It included a stack of pirate TV station schematics for people to take home. Loved it.]

Douglas Gordon made an installation in which the “you talkin to me” scene from Taxi Driver is played on parallel screens, and the viewer walks between.

[She defines appropriation art, installation art, etc.]

Christine Steiner:
There was a suit over Barbara Kruger’s “It’s a Small World But Not If You Have To Clean It.” Kruger prevailed, as the photo was in the public domain and the model’s publicity claim failed.

Jeff Koons gets sued pretty frequently. He lost the line of puppies case, but won the niagara (shoe photos) case.

Also, Sherrie Levine, “After Walker Evans” — she makes whole scale takings of iconic Walker Evans photographs.

And the Tom Forsythe “Food Chain Barbie” series, various Christian Marclay pieces, etc.

Simon Frankel:
Fair use is about storytelling — justifying the borrowing or showing why the plaintiff is hurt.

I litigated the Mattel v. Walking Mountain case. Mattel took a mall survey about what the work meant; the court discarded the evidence, since parody is a question of law, not of public opinion. (He tells a funny story about Harry Pregerson at oral argument, of which there are many.) More than half of Forsyth’s sales were, unbeknownst to him, before the suit, to Mattel’s investigators.

Willingness to pay a license fee does not establish market harm.

Adine Varah:
SF has lots of public art. We try to keep it out of court.

It includes the doors to the courthouse, “Facsimile” by Diller + Scofidio on the Moscone Center facade, Precita Eyes murals, the Fillmore Street “Shades of Blue” bridge (problem with bullet holes), etc.

We get a VARA waiver from our artists. (She describes the waivers.)

Jared Jussim:
These are my views, not those of Sony. “The speaker reserves the right to disclaim this speech as the ravings of a madman.”

I’m in enemy territory, but I have been assured safe conduct back to Southern California, and though I am flying the flag of parley, I still wear a metal helmet on my head.”

Nobody wants to be a philistine, so even the thinnest story about art is good for getting a judge to find fair use.

Some facts about the motion picture business. You need around 10 projects to develop before greenlighting one. One picture from 10 that are produced clears from theatrical revenues alone. You can assume around 50% of the box office gets to the studio. 6 out of 10 clear from all sources of revenue. 4 never clear at all. From the revenues, you’ve got to pay for not only the winner, but all the losers too. The big studios survive only because they have big back catalogs that they can exploit again and again. We need that money to keep it going.

The films represent not only our rights, but the rights of hundreds of other people who work on the film. No studio can use a film clip without the consent of the talent depicted as a matter of SAG union contracts. If we violate it, we pay them three times the daily rate to shoot the reproduced segment.

The studios’ ROI is in the single digits.

These artists trying to take advantage of something they haven’t paid for. These elites.

Let’s talk for a moment about Candice Breitz. (He reads from the NYTimes review.) Every actor negotiates about how it’s shot and who the creative community is for that film. You’re taking something that people have agreed on and changing it without their consent. You’re changing the work of the cinematographer and the writer without their consent.

We cleared all the art on the walls in Rocky Balboa. We did research and paid money. Their success rate on locating photos is 90-95%. We locate and we pay. They want to use it for nothing.

We clear all sorts of things. We spend a lot of money on it. We clear the albums people pick up in the record store in the movie.

When the actor gives us consent, they’re giving us consent, not you artists.

In other countries, you have moral rights. These rights are violated by this art.

Do I think you can use film clips for something? Of course. But to take it or manipulate it and abuse it I think is a violation of rights.

Let’s talk for a second about money. I represent crass commercialism.

To just go out and buy a DVD and show it publicly cuts into our ability to reap what we have sown. This is not how we run our film market. This isn’t how America became the predominant producer of motion picture.

[Outrageous!]

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

David Carson and Tyler Ochoa are up to discuss recent copyright litigation.

Corwin v. Walt Disney World. Corwin is a former neighbor and sole heir of Mark Waters, an artist. One of the paintings he inherited was a painting of a proposed theme park from the 1960s. Corwin alleges that EPCOT is copied from the painting. The main issue was access. The theory of access was that Jaffray, a friend of the artist, had showed the painting to Disney and left it with them for a month. The evidence was weak — foggy recollections. [And then I left to go get a glass of water, so we may never know what happened.]

Live Nation Motor Sports v. Davis. Linking to an authorized public performance = violation of public performance right. [Totally wrong.]

Traicoff v. Digital Media. Are exclusive licenses sublicensable without the consent of the original licensor? 9th Circuit says no (Gardner v. Nike); this case says yes. An exclusive license as to one exclusive right is in the nature of a transfer, so you can further transfer it under 201(d)(1).

Phillips v. Pembroke Real Estate. This has to do with a waterfront park in Boston. They hired Phillips to do 27 sculptures for the park. There was a separate contract for him to do the stonework and accompanying metal. then the developer wants to change the park, removing the sculptures. Phillips sues under VARA, section 106A. He says it’s site specific art, so moving it would destroy it, violating the Act. Pembroke’s defense is the public presentation exception to VARA — modification which is a result of the public presentation of the work (like lighting and placement) is not actionable. The First Circuit concluded that VARA does not protect site-specific art at all.

Action Tapes v. Mattson. This is about rental rights. Rental rights apply to phonorecords and computer programs only. Rental businesses were really just subterfuges for piracy in certain areas. Action Tapes makes memory cards with embroidery designs on them. Mattson rented the memory cards to customers. The claim was that it was the rental of a computer program and that the rental right had been violated. The court held that Action Tapes had failed to prove that it had applied to register computer program copyrights before commencing the suit. But just because they failed to register on form TX isn’t a good reason to do this, because section 401(c)(1) says the classification doesn’t actually make any difference in terms of protection. As a practice note, other than for sound recordings, we don’t care which form you use. But in this case, the application claims copyright in 2D illustrations, not a computer program, so they lose.

Brilliance Audio v. Haights Cross Communications. This is also about the rental right. Are audiobooks “phonorecords” under section 109(b)? Well, they’re phonorecords, but 109(b) assumes they embed musical works, so audiobooks aren’t covered. The court turned to legislative history, finding that Congress intended to extend the rental right only to sound recordings of musical works. They also said some [nice] things about the strong policy behind the First Sale Doctrine and the traditional copyright bargain.

Wall Data v. Los Angeles County Sheriff’s Department. LA County bought 3600 licenses. There were 6000 computers, but only needed 3600 users for this software. So they made a master hard disk and imaged all of the 6000 workstations, with a password-based security system restricting the number of people who could simultaneously use the software. Wall Data sued; the County claimed fair use. The district court granted summary judgment for Wall Data; the 9th circuit affirmed. They marched through the factors. Critically, the court found that the effect on the market existed, since the department could have bargained for the right to install but not use the software on more computers, forcing the copyright holder to trust the department. The department also claimed a section 117 defense, and the 9th circuit affirmed. They said that the software was licensed, not sold, and that it wasn’t an essential step.

Bill Graham Archives v. Dorling Kindersley. DK used reduced images of 7 posters and tickets from Bill Graham’s archives. The book was published in collaboration with Grateful Dead Productions. There were incomplete negotiations to license the use. DK asserted fair use. The court said the use was transformative and some of them included commentary. They were used to document events, and were used only to enrich the presentation of facts, not to exploit the artwork by itself. Also, they were small portions of 7 pages of a 480-page book. The market factor looked only at the existing or likely licensing markets, not nonexistent or refused licensing markets.

Blanch v. Koons. Photos of feet and shoes incorporated by Jeff Koons in art.

Laws v. Sony Music Entertainment. It’s a 9th Circuit preemption case. Here’s the opinion. Laws didn’t have a state law publicity claim because the work was being used for its own essence, not because of who the artist is. The Supreme Court just denied cert, but only after keeping it on the conference calendar for six weeks.

Atlantic Recording v. XM. This is about the Pioneer Inno, which is a satellite radio and MP3 player/recorder. You only have them as long as you subscribe to XM. The record companies said it was a digital download delivery service; XM said it was like taping off the radio. XM moved to dismiss on the ground that it was immune under the AHRA. The court found that the Inno was a DARD, but that XM was not a distributor of a DARD, since they were also a broadcaster, “leasing” the music to the consumer. Looking beyond the sale of the device, the court found that XM was offering a service. Would the result have been different if there was no relationship between the seller of the devices and the broadcaster? I think so. [I think so too.]

Google v. Copiepresse. This is a Belgian case. It’s similar to the AFP v. Google case. Is taking the headline infringement? Doubtful. Is taking the first line infringement? Doubtful. There’s more going on here, as well, though. There are intermediate copies of the whole thing, and the Belgian court didn’t like that. This could cause problems in the AAP case. Failure to use robots.txt did not constitute consent (though it worked in the Field v. Google case).

Societe Plon v. Hugo. This involves unauthorized sequels to Les Miserables. It’s in the public domain, so that’s going on? Moral rights! In France, they’re perpetual, imperscriptable (no statute of limitation), and inalienable. They are, however, descendable! So Victor Hugo’s great great grandson brings suit. The French Cour De Cassasion holds that the derivative right is part of the economic rights, and that the economic rights have expired. There was no showing that the integrity right of the original was violated — it’s not as if you’re printing bowdlerized copies of the original.

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

Now, Tanya Sandros on Music Licensing.

We expect House subcommittee hearings this month.

[She talks about the history of section 115 and the DPRSRA amendment.]

But back in 1995, there wasn’t a vision of how digital music now functions. iTunes is the model example of how we get DPDs, but there’s also webcasting, which has brought out a lot of unforeseen questions.

The key issue is the difficulty in licensing activities that implicate both the reproduction and the public performance right — for example, streaming. [Disagree! Streaming is just a performance, not also a reproduction!] There’s no easy way to clear rights for reproducing sound recordings as of now.

There are numerous problems with section 115 as it stands now, from the perspective of the users and the content holders. It’s hard to find copyright owners, the procedural requirements can be difficult to comply with, new technologies don’t always fit in the 115 scheme, and setting new rates (like percentage of revenue) is difficult.

There were numerous meetings with stakeholders. There was general agreement as to the need for a blanket license from a single agent. There’s no agreement on scope, controlled composition clauses, or self-licensing provisions.

The Office proposed a 114-style blanket license for all rights implicated through an “MRO”. [I talked about this here.]

This was not well-received; the parties took a different tack and got S1RA introduced. There’s a good fair use case that ephemeral copies are fair uses, but that doesn’t give the business community enough certainty. [This makes sense, but I’m still worried about licensing for ephemeral performances as evidence that Congress intends them not to be fair use.]

Then came the PERFORM Act. Would have changed all 114 rates to fair market value (including preexisting services), and would have exempted ephemeral copies, but also would have required 114 licensees to put DRM on their streams to prevent recording.

There’s also HR 5055, which has nothing to do with music licensing. It’s a sui generis fashion design protection. It’s like vessel hull protection. [It’s outrageous.] We didn’t endorse this bill. [Good.] We didn’t think the case had been made that there’s a need for the bill.

We’re unlikely to see this again, though the auto industry is pushing for protection.

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

Maria Pallante, Deputy General Counsel, is up to talk about orphan works.

Orphan Works are works for which the copyright holder cannot be located.

[She discusses the history of the process, starting with the January 2005 congressional request for an inquiry and proceeding through NOI, comments, and the Office’s report.]

[She summarizes the Copyright Office’s recommendations and the Orphan Works bill.]

Almost everyone in the content industry liked the proposal, with the major exception of photographers and graphic artists, on whose works identifying information is not frequently present. They also said that this would increase the cost of enforcement.

Lamar Smith sponsored closed negotiations for four or five weeks before introducing the bill.

The 2006 bill was a bit different from the Office recommendation.

Now, in the 110th Congress, a bill will be forthcoming in the Senate in March or April of 2007. Similar but not identical to the House bill.

Continued points of interest:

• Reasonably diligent search — how to make it meaningful?
• How to define best practices
• Effective date
• Small claims study
• Limits on injunctive relief

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

John Ashley is talking about the nuts and bolts of registration. These notes are pretty incomplete.

Fixation must be in a form from which someone might unlawfully copy. [I’ve never heard the requirement stated this way before, and it strikes me as incredibly sensible.]

The Office’s public information office is 202-707-5959, for questions from the public. There are also numbers for sections of the examining division for difficult, specific questions about registrations that can’t be answered by the public information office. Literary works section: 202-707-8250. Performing arts section: 202-707-6040. Visual arts section: 202-707-8202.

Why register? Well, the usual things (prima facie validity, statutory damages, attorney’s fees), but also the Customs Service requires registration before they’ll help you stop infringing importation. Also, 205(c) says there’s constructive notice of the facts contained in recorded documents (not the registration itself, which is covered by 410(c), which says there’s prima facie evidence of the facts in the registration as well as its validity).

Best practices. Avoid section 102(b) terms (categories excluded from copyright, like processes and styles) or anything synonymous. Do use terms from 101, 102(a), and 103. Avoid trademark and patent terms (novel, look and feel, etc.).

Examiners make decisions about close calls for works that might be too short or otherwise containing no authorship according to a “rule of doubt.” If it’s very close, the registration issues, unless it implicates some special public policy from 102(b). “We try to register your work.”

Works for Hire. We accept your assertions regarding corporate authors. But when an individual is named as the author and it seems a commissioned work is involved [which is usually not actually a work made for hire], we ask questions. There end up being a lot of corrections to these, so we try to head them off. Compare CCNV v. Reid with Aymes v. Bonelli, 980 F.2d 857 (2d Cir. 1992). We rely on Restatement 2d of Agency section 228 to decide whether they’re an employee. The best case on this sort of thing is Avtec Systems v. Peiffer, 21 F.3d 568 (4th Cir. 1994).

Alternative names for author or claimant. Don’t give multiple names for a single legal entity without explaining the relationship between those names. Explain using d/b/a, a/k/a, t/a (”trading as”), new name after merger, etc. Avoid designating separate legal entities as alter egos. Don’t list licensees as claimants (unless they’re an exclusive licensee filing the application.)

Derivative Works. Declare preexisting materials. It’s good to do it even if you’re borrowing even a very small amount. Especially if you have permission, you ahve to declare it. The statute says in 409 that you always have to declare and doesn’t say amount (including de minimis). We think it’s a rule of reason. When describing the new matter, be specific rather than general to facilitate examination.

Computer-aided changes to existing works. This is a problem across all subject matter. Inherently suspect terms include enhanced, digitized, scanned, cropped, burned, cleaned up, restored. These are references to craft, not authorship. We need to know what new protectible authorship resulted from these techniques. We think this sort of thing is presumptively sweat-of-the-brow, not creative authorship. You have to explain. Arguably, some photo restoration could be copyrightable (putting in missing bits, for example) — but mere copyists don’t get copyright.

Characters. We don’t register characters. We register works in which characters appear. Courts have to decide when a character is developed enough to be separately protectible.

Architectural Works. We refuse all claims created on paper before 12/1/1990 but not constructed until after 12/31/2002. This is statutory. We refuse interior design claims. The interior architecture is protected but not the interior design, says the legislative history. We don’t register selection and arrangement of rug to table to lamp, even if you claim them as compilation. The resulting “compilation” just doesn’t fit in 102(a). [That is such a cool issue. I never thought of that.]

Websites. The web designer frequently doesn’t own the content, but tries to register the overall site. We frequently send correspondence. Our current rule is that we don’t register screen format, layout, or functional design. (This may change.) If it’s only the spatial arrangement of content on the page, we reject that. This is from ML260 on book design. You have to disclaim preexisting materials. Published or unpublished? Still unresolved — you decide, just apply as if it’s one or the other and make sure you meet the requirements. We’re not challenging that decision. How to register a database or blog depends on the site’s organization. There are circulars (62 and 65) about this sort of thing.

Supplemental Registrations. You can “correct and amplify” on form CA. Always include the original certificate. This can only happen if we’ve already issued the original registration. Explain what’s going on. See whether you need to change the WMFH or transfer fields if you’re correcting the author claimant fields. If there’s an ex-post change to the facts, you have to record a document, not correct the registration.

Cancellations. Only the reasons in 37 CFR 201.7 work. Nothing else. You have to specify which reason. If the court tells the owner to cancel, then the party has to come to us. No third party cancellations, and there’s no interference proceeding.

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

David Carson is talking about Copyright Office reengineering.

The registration system is changing — you’ll be able to e-file and in some circumstances upload digital works as deposits. The fee will go down to $35 for electronic filing.

Preregistration is currently a stripped-down version of what actually will happen with the eCO system. (He demos it.)

There will be an optional “description” field. Our experience with orphan works showed us that there are lots of works without titles — most photos, for example. So this helps fix that. The descriptions will be searchable.

[He walks through a preregistration. It’s pretty slick. You can pay online.]

eCO for online registrations should launch this summer.

Also, you’ll be able to attach unpublished works to the application and upload them online. That will be true with some published works, but not all that many; there’s the Best Edition Requirement, of course.

If you have to send in a deposit, it’ll tell you where to send it and you’ll print out a piece of paper with a bar code and associate the hard copy deposit with the online application.

Section 108 Study Group. (108 is library exemptions.) There’s a study group to evaluate 108 in the context of new technologies — “born digital” works, etc. Content owners will be affected. You should follow this study group — there’s interesting background and papers written. There will be a recommendation for legislative activity at the end of the year.

I’m at the Copyright Office Comes to California program in San Jose. This post represents my impressions of the proceedings, not a direct quote or transcript. My comments are in square brackets. This is a copyright-wonk sort of event, so let me know in the comments if there’s something you’re interested in and don’t understand.

First up, Copyright Office General Counsel Tanya Sandros discussing “Current Copyright Law and Policy Activities of the Copyright Office.”

We’re conducting a study, at Congress’s request, on SHVERA, the satellite compulsory licensing law. There will be a Notice of Inquiry in March; the report is due to Congress on June 30, 2008. There are also rulemakings on a number of issues — how to determine where the “headend” is, retransmission of digital broadcast signals, etc.

We now have a Copyright Royalty Board. This is different from CARPs in that the CRJs do not report to the Register or the Librarian. They just issued webcasting rates. We at the Copyright Office no longer have much to do with this, so complaining to us won’t get you anywhere; we just get to review the decision for legal interpretations. We can’t change the rates. They’re required to refer all novel questions of law to the Register for her interpretation. There were two. First, the RIAA asked whether a “mastertone” (audio file ringtone) was subject to section 115. (She plays a mastertone and a crappy polyphonic ringtone “Get Off Of My Cloud” by the Stones.) Is a “mastertone” a DPD, they asked? Yes. Does 115 apply to portions of works? Is a ringtone a derivative work? If so, does it take it outside the scope of section 115? (She plays the Pussycat Dolls “Don’t Cha wanna pick up” mastertone.) Happily, we didn’t have to grapple with individual fact questions like this. If it’s a derivative work, it’s outside 115, unless it’s in the safe harbor of the arrangement provision, 115(a)(2). The publishers argued that excerpting and using as a ringtone change the character of the work and bring it outside the arrangement provision. But type of use isn’t “character” — it really just goes to the melody. The lyric question is a derivative work question. [This wasn’t really clear to me.] Also, once a publisher licenses to one party for ringtone use, that’s a first publication for 115 purposes, and everybody else gets to license it anyhow. The Publishers challenged the decision in the D.C. Circuit — probably too early, since review is only possible after the CRJs issue a decision. The Copyright Office’s motion to dismiss is before the court.

Another novel question was about section 114 — digital retransmission. This dispute was about what’s a “preexisting service” under section 114. DMX and Sirius are the ones at issue. It’s defined in 114(j)(11) — you have to have been making transmissions to the public for a fee before July 31, 1998. The new guys got “fair market rate,” the preexisting guys got a rate scheme similar to the 1995 law. DMX is under new ownership; Sirius replaced Muzak (a preexisting service) on DiSHNetwork. Is either a preexisting service? It really depends on questions of fact, so it got flipped back to the CRJs.

Now, David Carson on the anticircumvention rulemaking. This was the major task in the general counsel’s office last year. It’s a rulemaking that creates exceptions to 1201(a)(1)(A). There were a number of exceptions — law enforcement, certin reverse engineering, and so on. But also, they ordered this rulemaking for unforeseen legitimate circumstances for circumventing access controls. The prohibition does not apply when you are circumventing works in particular classes in order to engage in noninfringing uses. To grant an exemption, we have to conclude that people are or are 50%+ likely in the next three years to be adversely affected. We consult with the assistant secretary of commerce for comunications and information and get input. There are four statutory factors the Librarian “shall examine.” It includes a catchall. This is the biggest rulemaking we engage in, and the most important in terms of its consequences. A good application has facts (I’m being prevented from doing X) and law (X is not infringing because of Y and Z). The comments and witnesses have gone down considerably in number — who knows why. My hypothesis is that in the first rulemaking proceeding, people were very worried about this law, and that owners would be overbearing with their access controls. The statute wasn’t in effect yet, but we got a lot of sky-is-falling scenarios. The sky has not yet begun to fall, and maybe people are beginning to realize that. Other people may have other theories, but that’s what I take from it. You can’t define a class of works by reference to the user or by reference to the type of use. A class of works is based on the attributes of the work itself. You start with the section 102 classes, then narrow from there. “Motion pictures distributed on DVDs protected by CSS,” for example. The proposer of the exemption bears the burden of proving substantial adverse effect on noninfringing use.

Exempted classes:

• Media studies professors’ use of audiovisual works. This doesn’t fit with the analysis I was just talking about. How could we do that? we found ourselves in a dilemma. They showed us what they do — integrating film clips into their classroom presentations. The MPAA guy brought in a fancy Pioneer player that you can preprogram to go to certain places on DVDs, but that still requires a ridiculous amount of disc swapping. The MPAA guy had, last time, showed how to camcord movies off the screen. But the film professors need to talk about technical aspects of cinematography, and the quality of camcorded clips just didn’t cut it. We were persuaded that these particular people had made the case and granted the exemption, balancing the need against the potential for harm to copyright holders. (”Imagine — if it weren’t for CSS, you might find movies on P2P networks!,” he jokes.) We unnecessarily hemmed ourselves in last time by refusing to refine types of works by users and uses. [So if you start out with a 102 class, you can then use users and uses to tailor the exemption to fit the harm presented.] My guess is that we may have opened up Pandora’s box and we’ll get narrow exemptions that make the decisionmaking process harder in the next rulemaking.
• Computer programs in obsolete formats for the purpose of archival preservation. This is the Internet Archive’s exemption request, similar to one they got last time. More narrow — it’s just for archivists, not for everybody. They may narrow the exemptions to meet the facts presented to the Office.
• Obsolete programs protected by malfunctioning dongles. You should be able to circumvent to use the software you’ve already paid for and have a right to use.
• Decrpyting ebooks in order to use screen readers. Hearing ebooks is a noninfringing use, and nobody could really tell us why ebook publishers disable this. The proponents made a very weak case this year. Hopefully three years from now they’ll get the point. You have to make the case anew each time.
• Cell phone unlocking. [Go Jennifer!] Tracfone had sued people who circumvented and obtained settlements. It’s hard to conceive of how reprogramming your phoen to move to another carrier could be copyright infringement. Representatives of cell phone companies did not come forward. Skepticism was expressed by traditional copyright holders, but that’s all. It was almost like a default judgment situation. They’d made their case, there was not much opposition. We got submissions, late, from the wireless industry — CTIA and Tracfone, answering the questions we had asked of other people and making their case that we shouldn’t grant the exemption. Our ruling was due soon thereafter. They didn’t try to explain their lateness or didn’t tell us anything satisfactory. We didn’t accept their comments and issued the rulemaking. They filed suit; we moved to dismiss; the pleading cycle just ended. Their claims in the litigation are that we violated the APA; we replied that the Librarian’ isn’t covered by the APA. They claimed that this was an unconstitutional delegation because either (1) it’s a legislative function or (2) it’s an executive function. They also claimed we violated their due process rights by not permitting them to show up at the last minute. I’m hopeful that the court will dismiss the suit; if not, we’ll see what happens.
• There was an exemption to get rid of “the notorious Sony Rootkit.” When an access control is threatening to do harm, you can circumvent it if necessary to get rid of the security threat.

HR 1201. Also known as the FAIR USE Act. Section 3 of the bill would codify the exemptions from the current rulemaking and freeze them into statutory law. That’s sort of flattering, isn’t it? Our reaction is that the point of the 1201 rulemaking is to deal with today’s problems — exemptions designed to last only three years, after which we take another look. Freezing these may not be the best way of doing things.

Kahle v. Gonzales. One after another, these Lessig cases have been dismissed. Kahle is the most ambitious, since Lessig wanted the 1976 Act declared unconstitutional. Basically, the overview of the position was this. The legislation, Lessig says, has transformed copyright law from “opt in” to “opt out,” and that’s a change to the “traditional contours.” These are policy arguments “that many of us, I’m sure, would be sympathetic to,” but which aren’t constitutional defects. “Traditional contours” in Eldred are just fair use and idea/expression. The 9th Circuit gave “very short shrift to his arguments” in an opinion that “didn’t say a whole lot.”

There was also Luck’s Music, Martignon (appeal pending), KISS Catalog (reversed on reconsideration), Golan (appeal pending), Darden v. Peters.

Here’s a wrap-up of my posts from the Bandwidth Conference.

First up was The Tuning Fork, in which some very experienced and thoughtful radio programmers talked about the reasons radio isn’t dead, contrary to convenntional wisdom.

Next was an hour of conversation with Terry McBride, founder of Nettwerk. His wisdom and savvy was astonishing, and I think his session outlined the future of the music business better than any other part of the conference.

A la carte downloads? Subscriptions? Mechanical licensing? Ringtone licensing? Fred von Lohmann and his smart panel of lawyers helped to sort it all out on The Licensing Panel.

Chris Anderson then led a great panel on the long tail called Nouveau Niche.

Saturday morning was a panel on the role of the listener — especially in promotion — called High Speed Fan.

Next was a panel on online music pricing, featuring very smart provocations from John Buckman.

Finally, Thomas Dolby and other visionaries gave us their predictions about the future of the music industry in the Crystal Ball panel.

Thanks to Toby and crew for putting together such a great conference, and thanks to all the panelists who shared their insights. I had a great time, and learned a lot about the business end of the music business.

I’m at the Crystal Ball panel at the Bandwidth Conference. The moderator is Kurt Wolff, and the panelists are Thomas Dolby, Jordan Kurland, and Tim Westergren. (I came in late.)

Dolby: I make more money from sync licensing than anything else. If I’m trying to get something into a movie, I don’t want to be tied to an album cycle. On the other hand, I want my work to be a cohesive whole. Digital allows a lot more flexibility. I can put recordings on my website, check the response, and polish it if there’s good response. There’s a shift in the balance of power from musicians dependent on labels to labels as one small part of an overall business, shifting the power away from the labels.

Tim: CDs will become more like baskets — there will be a $15+ item, but it will include behind the scenes DVDs, great art, and other materials that add value.

Kurt: I wonder if it will become more limited. People are unloading their CDs. they’re becoming throwaways.

Jordan: I have trouble getting rid of stuff. And people put up with worse sound quality. Ont he other hand, people listen to the radio, and that’s terrible from a sound quality perspective, with the compression and so on.

Dolby: The problem is the necessary evils that go along with physical manufacturing and distribution. You’re paying for all the mistakes the music business has ever made. Ten years of business has tought me that there’s a limit to how far in front of the revenue curve you should be investing. I look very carefully before I press 10,000 CDs. Digital is great, since there’s almost no risk.

Kurt: Do you feel a loss of sond quality?

Dolby: Oh, yeah. I can’t listen to MP3s. But having “ears” is sort of a curse. Over time, they’ll sell high quality back — uncompressed, then 96 KHz. That’s the oldest trick in the music business.

Jordan: Pro Tools doesn’t sound as good as analog, but if it’s all going on iPods anyway, how does it matter?

Kurt: Mobile devices. How far can we go?

Tim: Muni WiFi will eventually be a reality, and sooner than we think. Then, every MP3 player with a wireless card will be connected to the internet. That might allow virtual collections, or online radio. There are 15 million iPods, 700 million mobile phones, and when those are connected to high speed internet connections, it’ll inevitably go there.

Kurt: Is the home stereo out the window?

Tim: The home stereo offers a great sound experience. We did a deal with SlimDevices that allows Pandora use on the home stereo.

Dolby: Once there are wifi networks, we can have subwoofers on streetcorners to help out tinny ringtones.

Audience Q: Why is music so important to us as human beings?

Tim: One of the things I’ve been doing int he last six months is having townhall meetings with Pandora users. What it has really reminded me is how universal and profound people’s connection is with music. You can get in a room with 200 complete strangers and have two-hour discussions about music. There will be 75 year olds as well as teenagers. It confirms for me that it’s a deeply held belief and passion that everybody has. Music draws people in, and we all get that feeling, when a song reminds us of something or makes us fgeel a particular way.

Jordan: I have no idea.

Dolby: If I could find the words to answer that question, I wouldn’t need to be a musician. The world is so fucked up that it gives you a giant migraine, and music is the aspirin. It beautifies the world.

Audience Q: Gaze deeply into the crystal ball. There’s a lot of hate, with the record company lawsuits. What will it look like in 10 years? Will the majors do intelligent things, or do we need to completely kick them out?

Jordan: I don’t know what the music business will look like in 10 years, but I’d guess major labels will still be partof it. They serve simple, specific functions. It’s people power, financial, and elbow grease. They’re starting to figure out already what to do. It’s great to think that music will come just

Dolby: I don’t think there will be major labels in 10 years. The major labels exist today because 40 years ago it was hard to manufacture a piece of plastic with music on it. When you take out the need for physical manufacturing and distribution, you take away one major function of the majors. You also take away the need for the investment up front. The capital required to make a record is so much less now than it was that the source of income you need can be found in more places. So the moneylending is out and the manufacturing is out. Not much is left. There’s no reason to sign over to a corporation anymore. If they don’t own the recordings, they don’t exist anymore.

Jordan: The reason to sign to a major is to be a superstar — sell 10,000 tickets in a major market. I worked with Death Cab’s move to a major label, and they’re happy. They’re making a lot of money. Will that playing field be level in 10 or 20 years? Maybe. But will book publishers and movie studios go away too? They’ll just serve a different purpose.

Tim: Labels will look more like management companies. Labels are like VCs. They throw a lot of money at acts and hope one hits. There are a number of approaches in Silicon Valley. Some have a lot of moeny and throw it around, and others are incubators — they give support and expertise. That’s how record labels should operate. They’re good at A&R, putting together tours, marketing. They should start iincubating bands. The bands can come to you with a finished CD — they just need a management support group.

Jordan: That exists — Warners is doing that. It’s a little more evil than record label model, though, ’cause you’re signing bands for less money than before. Stardom is a carrot, always. I can’t figure out how a completely new process would work.

Dolby: If you want to be splashed across the media as a whole, there’s going to be a level you’ll have to reach, and that won’t happen through self-promotion, but what happened with Death Cab was like an incubator — no huge debt, and they proved themselves, and then they convinced someone to pull them up and take them to the next level. It’s less of a crap shoot now. They spent hundreds of thousands of dollars marketing my stuff with no idea what would happen or how it was working. Now, artists can prove they have an audience in an economically sane environment.

Tim: And when you sign that deal, it won’t be for a 6.5% royalty rate. You’ll be able to get more.

Dolby: You may see 50% rates back to the artist early on, then much less if the star trigger gets pulled.

Audience Q: What will the next big genre leap be?

Tim: The next big movement in the US will be the pulling in of international music. We’ve done pathetically little of that here. The rest of the world knows that there’s great music made in different places. There’s amazing music coming out around the world. The US audience is likely to welcome it, especially mixed with US artists.

Dolby: The middle eastern influence is coming in to rap records. I’m not the right person to ask. Kids are influenced in music choices by peer pressure, and it’s not terribly susceptible to conventional marketing and advertising. Every time I used to sit down at the piano, I had to think about what the hitmakers would think. Only if A&R and the retailers and the label bosses liked it did the public get it. Now, I’m freed up. the stuff that’s coming across my plate is quite eclectic and doesn’t fit into pigeonholes, and that’s because artists don’t feel that pressure. This is a fantastic time for music fans and musicians. I feel sorry for people in the industry, but there’s a lot positive that’s going on.

Audience Q: I just left a major label. Where are the majors at this conference? That’s crazy to me. I left because there was nobody with vision. There are these old guys — LITERALLY, old guys in khaki pants and polished shoes — trying to keep the CD alive. Everything that Thomas is saying — how can people not see how great it would be to have a spigot of music coming out everywhere. It’s so much fun.

Tim: People bitch and moan about the fact that their favorite radio station went off the air, or that the record store closed. But it’s their fault. We get what we ask for. The music business leads us, but also reacts to what we want. People don’t think about the effects of listening to Clear channel stations or buying at Best Buy.

Jordan: Are any indies doing it right?

Dolby: I’m here trying to meet them. I definitely need someone to navigate me through promotional opportunities, and I want to know what it takes to get on the front page. I want somebody to take care of distracting logistics. But I don’t want an manager and an agent and a label and all of these people, because you don’t need all of these people. You’re feeding a lot of mouths. I don’t want the people problems of a huge team. The same when I started a company — it was great until we had 10 employees, then I was dealing with interpersonal problems all day.

Audience Q: I’m an ex-VC. VCs PRICE risk; labels TAKE risk. In a VC portfolio, there’s a 3/10 hit rate. For labels, it’s about 1/20. As you think about the label model, there are a lot of challenges there. Is it possible to imagine a world with no labels at all?

Dolby: It’s not that we don’t need intermediaries; it’s just that th services they provide need to get consolidated.

Tim: A few years ago, Amazon had this thing called Amazon Advantage. They’d take anybody’s CDs, warehouse, them, make 30-second samples, and sell them. You can imagine a cartoon about what it’s like to be in that warehouse. How do you find your audience in there? That’s what labels try to solve. They’re inefficient about it, but somebody has to play that role. What does that player look like? A label? A management company? Certainly, a more competitive landscape than now. Anybody can be a label now, but it’s hard to do effectively.

Audience Q: VCs and labels are different in that they keep different stakes in the eventual product.

Tim: Most bands get their $200,000 advance and build a studio. They figured that would be the last dollar they’d ever see.

Dolby: There are entrepreneurs who see VC money the same way. It’s going to take a wad of cash to get someone off the ground now, and it used to take a lot of moeny to get a record recorded, but not anymore.

Audience Q: 10 years from now, where will my money come from, percentage-wise? Mobile? iTunes? Selling CDs from my website?

Jordan: I think it’s artist-specific and goal-specific. Artists will make more money per CD sold, but it’s hard to get noticed enough to get people to buy your stuff.

Dolby: If you’re going to sell your soul, there will be other corporations to sell your soul to, other than major labels. Phone carriers, for example.

Tim: Artists will keep a much bigger piece of the pie than they used to.

Dolby: My friends from high school, who quit making music to get a sensible job long ago, are now gigging again, and making a living.

I’m at the Bandwidth Conference at a panel called, “What’s It Worth To You?”. The moderator is David Harrell, and the panelists are John Buckman, Neeta Ragoowansi, Layne Fox, and Yobie Benjamin.

Q: How is Magnatune’s pricing approach working out?

Buckman: Magnatune asks how much the user wants to pay. Everyone knows they don’t have to buy music to get music. If they’re already on the site, they’re willing to pay for it, so we want to reward them by letting them decide how much the artist deserves. They can buy for as low as $5, but the average is $8.50. People feel good about buying someplace that trusts them.

Q: You only do full album downloads, not individual songs, right? Why?
Buckman: Right. On one level, it’s an artistic choice. We’re not selling music that plays on the radio, so people are picking the music because they like it. I don’t like registration systems — it’s an impediment to purchasing. There’s a high credit card merchant fee, so $1 transactions only work with registration.

Q: Terry McBride said digital dcownloads would end up in the 25 to 49 cent range per song. Thoughts on that?

Fox: I own my own label in addition to working at a distributor. From a distributor standpoint, we want whatever will bring people into the space. That requires balancing what’s best fo the consumer and what’s best for the content owners. We have to keep waiting tosee what happens with unusual models like eMusic and other subscription services.

Buckman: That’s the wrong question. We should actually be looking at gross revenue per customer. Individual cost is meaningless — we need to look for the way that makes people shell out as much as possible per month.

Q: How do you see pricing shaking out when the consumer-as-seller takes a cut?

Benjamin: We empower both consumers and large organizations. Music is one of the things in our toolkit. We don’t price under 99 cents — we work with the big digital distributors, and within that construct we can’t price too low.

Buckman: Can the price go up based on the selection? Would people pay more to download from a well-selected blues blog than from the full catalog?

Benjamin: We have an 800-blogger beta. The lazy guys have few to no sales. The guys that actually write about the music sell, and sell for a higher premium. We sell CDs, too, through those guys who put work into it.

Q: The premium you’re talking about is one thing, but 8 of the top 10 top-selling iTunes albums are priced higher than physical CDs on iTunes. They’re doing a lot of premium-level specials, too. There’s flexibility you’d never have with a physical CD.

Benjamin: We’re not a pure-play music site. We have a very wide SKU set. We have four million books. The types of products you can sell is different. We can do cross-merchandising of products. The other thing we do is allow for variable pricing, with a floor.

Q: When connection speeds go higher, will people be re-sold WAVs later?

Benjamin: Sure, that could happen.

Q: Magnatune has WAVs, though, right?

Buckman: Yeah. WAVs, FLACs, anything. The Russian sites sell by the megabyte, incidentally, which is an interesting model.

Q: Let’s talk about SoundExchange. There’s some confusion.

Neeta: SoundExchange is the nonprofit organization designated to collect and distribute royalties for artists and record labels for use by XM, Sirius, cable digital radio, and webcasters. They have to pay for the use of sound recordings. It’s like ASCAP or BMI — they collect for the composer or publisher for the musical work. There’s a relatively new right to publicly perform sound recordings by certain methods, and people collect that money through us. The area of confusion arises because the section 114 statutory license doesn’t cover interactive subscription services, only non-interactive services. There are gray areas.

Buckman: Do you know numbers?

Neeta: when we did our first distribution, we’d collected $3.5 million — not a big deal, when split among 40,000 recording artists. This year, we’re up at about $68 million, and it’s going up. We’re in the middle of an aribtration with the webcasters. We’re asking for 30% higher, they’re asking for 30% lower, we’ll probably meet somewhere in the middle.

Audience Question: What’s “commercially released”?

Neeta: Well, that’s a subject of debate. But probably anything that’s been distributed on the internet is “commercially released”. Some say it must be sold, but that’s a minority view. [She describes the division of the SoundExchange royalty.] Who’s the “featured artist”? Our policy committee deals with those questions.

Buckman: How does a label or musician register?

Neeta: They come to our website and register. Tell everyone to register! There’s money waiting! It takes 15 minutes. We pay out based on reports from licensees.

Buckman: For years, major label artists only saw ASCAP and BMI royalties. As those perhaps fade, does anyone think we’ll see government-like organizations to replace sales?

Neeta: It’s definitely an argument in the webcaster arbitrations when we’re setting rates. When determining value, we look at other pieces of the pie. If there’s more statutory pricing, they’ll look at the overall economic pie.

Buckman: It seems like most things will be interactive streaming. Should we just tax everyone abd pay it out?

Benjamin: There are other mechanisms. GoodStorm does something like this.

Q: Terry Fisher has proposed an alternative compensation system. Everyone’s competing for dollars now — if we were in a pro rata situation, do the rich get richer?

Buckman: ASCAP and BMI have dual accounting for big players versus small players. The expectation is that the big guys will pay off the government to make sure that continues. The same thing could happen in a pro rata situation, and that woudl be bad. But 2/3 of the money made is licensing, not sales to consumers, so I don’t see the industry being in trouble even if P2P takes over, so long as they can stil lmake stars and sell licenses.

Q: How’s the licensing for sync and similar rights on your website going?

Buckman: It’s great! We’re doing a lot of licenses for independent films, and we’re the only place you can do licenses like this online instantly. One of the cool things is how many people in the music and related businesses hate the people they work for, so some of those people enjoy giving money to us, who are not evil. How strange that the record labels get in trouble for payola, but won’t license podcasts. Collecting money from people who have money — like ad agencies — works great; suing welfare moms doesn’t.

Q: When is the single-price model going to change?

Fox: It’ll be a while.

Benjamin: Once one major gets rid of DRM, it’s all coming down. They’ll immediately go to variable pricing, higher than current rates.

Buckman: People are willing to pay 30% more for music without DRM.

Fox: Will that send everyone to subscriptions?

Benjamin: I don’t like subscriptions — I think it’s fundamentally horrible for the artist.

Fox: Some day, music will be like water as Fisher says.

Buckman: Allofmp3.com is the future. I use this all the time. The utility model isn’t as good as the by-the-megabyte model allofmp3 uses.

Fox: Allofmp3 doesn’t pay the artists, and they’ll get closed down soon. Alternate revenue is coming from branding, which allows people to enjoy music for free. Instead of looking to a subscription service, artists should be looking to different new types of licensing.

Benjamin: People are donating their music to be sold for good causes on our site. There will be a lot of experiments. Moving away from DRM is on the horizon. I’m optimistic.

Fox: We’re just starting to see that the majors might consider getting rid of DRM.

Buckman: The majors know that their audience despises them. You’ll die eventually if that’s true. They’ll have to do something eventually.

Audience Q: Why are we charged for sound recording performance when terrestrial radio companies don’t?

Neeta: Around the world, there’s a sound recording performance right. Terrestrial broadcasting in the US is an anomaly. Terrestrial radio should pay. That might even out the playing field between new and old technologies.

Audience Q: As your popularity goes up, your costs just for bandwidth goes up, which isn’t true for terrestrial radio.

Buckman: The internet radio isn’t as strong as the broadcasting lobby. Yet.

I’m at the Bandwidth Conference. The next panel is called High Speed Fan, “a discussion on future trends in the fan experience, and what it will mean to be a music lover a zillion years from now, or maybe even next year.” The moderator is Brian Zisk, and the panelists are Matthew Adell, Matthew Dunn, Naveen Jain, and Srivats Sampath. (I’m just taking notes on the particularly relevant bits.)

Q: How will fandom change?

Adell: All we can do is maintain our business and be well-positioned for what’s to come. Truisms have arisen. One is that those under 24 steal music and are a lost cause. People are willing to pay for relationship and convenience; if you are stoned in your dorm room with six hours to kill, you’re going to use P2P. Bands need to be honest with themselves about who their fans are. Those who won’t transact with you aren’t fans, they’re freeloaders. Make sure you’re targeting the people who actuallhave credit cards.

Dunn: Music will become more fragmented; distribution will be faster. The hit of tomorrow lasts two weeks, not two months.

Q: How will people get their music?

Jain: It will be a combination. Consumers still get attached to an artist.
Sampath: There’s a core group who spent time discovering, and they influence their friends.

Adell: Now that many services have 2 or 10 million tracks analyzed, it’s not the end of hit-based culture, but the waning years of the superstar act. you’d have to have a movie, a record, and a TV show at the same time. You’ll see the fat middle instead of the long tail. [That’s what Anderson is saying, actually, isn’t it?]

Q: The fat middle comment doesn’t make any sense, because the long tail is a logarithmic function — there are long tails within the long tails. There are a whole bunch of fat middles in the long tail. They are smaller than the “big head” but there are these markets inside. We should use a better term than “fat middle”.

Zisk: By aggregating the tiny niches, you can make a larger market.

Q: “Fan club” sounds awfully dorky. How do we fix this? “Fan”?

Sampath: Call them community. Linkin Park calls them “LP Underground”. For Madonna, fans are “icons”. They’re all fans, but you don’t have to call them by dorky names and make them feel inferior. We’ll call them whatever they want to be called. If Clay Aiken fans want to be called “Claymates”, that’s their own problem.

Adell: Cool people are rarely good customers. If you’re concerned with coolness, you’ll be bankrupt next week.

Q (Rob Kaye): How can we make the 18-24 year olds part of your PR team?

Sampath: People do that anyway. The problem with street teams is that the kids will take advantage of you. There’s going to be a group of kids who do a lot of work, but some who just want free shit. People will do whatever they do.

Adell: Some of this will shift with the penetration of3G mobiel phones. Then, the kids will have their parents’ credit cards in their hands all day.

Q: I completely disagree. Kids are gonna spend money on SMS, not $3 tracks.

Adell: It drives me nuts that the kids who will spend $3 on a MIDI ringtone of a 50 cent song will download it for free on P2P.

Sampath: Nobody sees that the kid owns the record.

Adell: That’s a real problem. Looking at a record collection was a social activity. MySpace is replaceing some of that, but the loss of a shelf has hurt all of our business.

Dunn: There’s a lack of opportunities for conspicuous consumption in the digital music market.

Q (Thomas Dolby): There’s been an interesting evolution on the relationship between the industry and fans. It’s not crystal clear yet. Music fans and musicians belong to each other. The role and the obligation of the intermediary is to empower that relationship to happen more easily and more effectively without the wastage that’s sent the industry down the toilet in the last few years. Labels want to push their own brand, but the fans don’t care about that. Kids want to feel they’re beingbrought closer to the music and the musicians that they admire. All you, as intermediaries, should be doing is facilitating that relationship. You’ve got to put the fans and the musicians first. Secondarily, if you’re a SV entrepreneur, you shouldn’t base your assumptions on your 15 year old son in private school in Menlo Park.

Adell: The labels have been really good filters. 99% of everything is crap. Anyone who can help fans discover music is valuable. Nobody wakes up in the morning and wants the new Warner Brothers release, but some people have that relationship with Six Degrees.

Zisk: Could you talk about how you as a musician connected with fans?

Dolby: My position is unusual — I have to be thankful for what the industry did back then. It’s a joy to an artist to be able to know who your fans are, first, and how they find out about you. My first album went gold, my second album didn’t. Nobody knew who the fans were — they were just units sold. Now, I can see reviews on blogs when I get back to the hotel after a show. I can blog. I can get comments immediately. There’s a closeness with the fans that never existed before, on radio playlists or royalty statements. I’m a tech guy as well as an artist, so I can do this all myself, but a lot of artists need help with that, and you need to help them.

Q: What about High School Musical, which was the #2 album, and sold mostly digitally? 10-15 year old girls spent a huge amoutn of money.

Adell: The kids weren’t spending the money, their parents were.

Sampath: It sold to the parents, not the kids.

Q: I respectfully disagree. It was a mastery of a demographic.

Sampath: I’m not saying kids didn’t like it. I’m saying the parents approved and bought it.

I’m at the Nouveau Niche panel at the Bandwidth Conference. The moderator is Chris Andersen, and the panelists are Gray Gannaway, Kevin Arnold, Tim Quirk, Ted Cohen, and Rusty Rueff.

Q: How are things changing?

Tim: 48.5% of sales at an offline retail environment are generated by the top 100 artists. That goes down to 28% on P2P. For Rhapsody, it’s 24%. Everybody becomes a music geek when they can explore.

Q: Do you see this as an early adopter pehnomenon, or as a generational shift?

Ted: People are taking their blinders off and exploring their passions further. With digital, we can make things available that wasn’t getting any attention. The taste has always been there, this just takes away the limitations that masked them.

Tim: There are airplay charts (what people are fed) — then there are sales charts (what people are eating) — and then there are usage charts (what people actually listen to the most). The differences in the charts are striking. It’s not just what you can get 10 million people to buy — it’s what you can get people to listen to again and again.

Ted: I have 6,000 CDs in the living room. I rarely reach for them. I use Rhapsody instead.

Rusty: If you’re the band, you’re the most relevant person, not the niche.

Q: How do you see this, being just the niches?

Gray: It’s more than a third of our sales at CD Baby. being able to say “check us out on iTunes” is a big benefit for artists. Rising above the clutter is hard.

Tim: There are ways not to do this. For example, writing a program to play your tracks over and over.

Q: Sure, listenership is increasing. Is this enough to change the economics of being an individual artist?

Ted: Maybe more bands can work part time, maybe some can quit their day jobs, but it’s not about the chosen few anymore. It comes down to recommendation and discovery tools.

Tim: If I was 23, I’d quit my day job. I’m making more from record sales now, doing it in my spare time, than I did doing it 24/7 on Warner Brothers.

Kevin: Sync licensing is becoming a big market, since it’s so much cheaper and easier through small distributors.

Q: Tim, you play music for free because it works better that way. What are the models that revolve around free music, and making money from something else.

Ted: First, there’s ad-supported. Free music with ad-share isn’t so hot.

Rusty: We at SNOCAP got all dressed up for a P2P party that never happened. P2P is stll happening, but it’s not with strangers anymore. It’s happening in the social networks now. That’s what myspace is.

Ted: Some of the things going on on Myspace could get smacked down if they happened elsewhere.

Kevin: Buying the music at the point of discovery is a great benefit.

Ted: I moderated a panel many years ago on which Duncan Sheik said a track from his album is the trailer for his movie. Giving the trailer away is OK. Their worry was that they’d end up giving the whole movie away.

Q: Now what for SNOCAP?

Rusty: The digital registry we created can be used for other things than P2P. We’re interested in the unsigned artists. There’s a new relevance for that marketplace. How do you take user-generated and make it user-enabled? We’ve never had an opportunity to let the fans help. We have a 24/7 connection — how do we let that surge?

Gray: Going to iTunes is going to a music store. Going to Myspace is like going to a used car lot. [I’d say it’s more like a bazaar.]

Kevin: You can end up with your own ecosystem.

Q: How has marketing the live experience changed?

Ted: There are other ways to take the moment with you. It’s easier to go to a club and see an act and have a great time than going to some huge venue. You’re connecting. As good as Radiohead is, it’s a little far.

Tim: That’s the band’s damn job, and most of them are doing it. If you’re at all savvy, you’re collecting postal addresses and emailing when you’re coming to town.

Ted: PassAlong.com figures it all out from your music collection.

Audience questions.

Q: I love LaLa. Is the CD really dying?

Ted: I got quoted saying they were a bit disengenuous. Just say it’s friends trading with friends.

Chris: There’s precedent for this — used books. Even on Amazon. “Out of print” is an obsolete term. The authors aren’t getting revenue, but they’re getting read. Publishers are mad.

Tim: Amoeba is the best place in the world. But it’s partially a generational thing.

Q: I work for a digital distributor. There’s no money coming in from subscriptions, in comparison to downloads. How long do we have to wait to see real money?

Tim: I have two answers. In the near term, having your music in a subscription service has more promotional than monetary value. This ties into the number of downloads. When streaming is on, downloads go up by 100%.

I’m at the Licensing panel at the Bandwidth Conference. The moderator is Fred von Lohmann, and the panelists are Todd Gascon, Marc Morgenstern, Tuhin Roy, and Colette Vogele.

Q: What trends do you see?

Tuhin: We’re seeing the emergence, in the last 6 months, of mobile-based sales of permanent downloads. In the permanent download world, the rates are pretty steady. Of the $1 the consumer pays, the distributor gets about 70%, then the label gets paid out of that, and is responsible for the mechanical. In the mobile phone downloads, the breakdown is worse, since the carriers have more leverage. They take a bigger bite, but they’re selling downloads for twice as much. There’s a lot of negotiation and jockeying yet to be done in the subscription licensing area.

Q: How does eMusic fit into this?

Tuhin: It doesn’t have a negative impact on sales in other channels, so it’s a lot like a record club. We don’t put everything in, but it generates real revenue, even though the amount we get is smaller.

Q: From the artist’s perspective, are you seeing new trends in licensing to big download stores? Is it cookie-cutter?

Todd: Digital looks pretty good — no worries about not getting checks, less delay, more income from digital sales. The things you heard about in the 90s are starting to come true.

Q: What about interoperability? Will there just be one interoperable solution, or give up on DRM?
Marc: eMusic makes their money on breakage — those who don’t use their fill. This business model apparently works for them. It’s too difficult to make everything work together — PDAs, cell phones, etc. If you create a new rights bundle with a new price point — a higher price point — we’ll give you windows, AAC, and mobile formats. This solves the consumer’s problem. The consumer is speaking very loudly, saying that they don’t like being walled in. So we need to make the walls lower.

We don’t care about DRM. We distribute MP3s when our clients want to. The majors aren’t there yet, though. You’ll see some experimentation with baby bands, but frankly there’s a long way to go.

Q: MP3 blogs and podcasts are taking over. What’s going on?

Colette: Users are generating their own content, and are mixing it with other people’s content. People are using Creative Commons licenses. [Fred explains CC licenses.]

Q: The latest Decemberists pre-release leaked. What would you do?

Tuhin: It’s understandable that fans want to hear it, but I’d say people should respect the artist’s wishes. I wouldn’t get heavy about it, but you can communicate with your fans about your wishes.

Colette: The practical solutions are probably better than the legal solutions — the RIAA lawsuits have shown us that.

Marc: Rather than being punitive, you should create a way to make your fans legitimate sellers. Let the biggest seller meet the band.

Q: Thoughts on the user-generated video revolution?

Tuhin: The film and TV industry learned a lesson watching RIAA. YouTube now is like Napster at its height. But they’re fully engaged in a licensing conversation. The mashups, you can do some licenses, but there are still issues. The 14 year olds should be allowed to do what they’re doing, and YouTube should just share revenue with the copyright holders.

Audience questions.

Q: What about artists’ moral rights? Is that deep-sixed?

[Fred explains moral rights.]

Tuhin: Musical artists have no moral rights under American copyright law.

Q: Music publishers are poorly run. Like, Dickensian. Is anyone going to do something about that?

Colette: I look at these contracts and think, “How did this become the most efficient way for this to happen?”.

Marc: Having been at ASCAP for a few years, part of the situation is getting tougher — there are split copyrights. On a hiphop song, you could have 12 writers with 12 different publishers. It takes forever.

Fred: They’re trying to change the system. You might see some reforms. But it’s slow. It would eb great if there was one-stop shopping, but we’re far away.

Q: Publishers are still using index cards. The S1RA was pretty bad. Is there anybody who’ll go to bat and put together something better?

Marc: The owners of the music distribution services have clout, and are starting to push.

Tuhin: Sticking the onus on the label works pretty well. They already have contact with the publishers.

I’m at the Bandwidth Conference, at a conversation with Terry McBride, founder of Nettwerk. (I’m omitting the questions, since they’re implied in his responses.)

We sued the P2P downloaders, and that felt good for about nine months, but then we realized that those people are our marketing and promotions team. They’re passionate music lovers. We developed street teams. We’ve taken the behavior of these kids and made them into street teams. We’re mobolizing them, sure, but also monetizing them through recommendations.

You should never tell the consumer how to consume — give up control, let them decide how to do it.

We sell more digitally than other labels because of our philosophy of making music available. Sarah McLachlan fans aren’t on Myspace, but The Format fans do. But also, the Barenaked Ladies are selling single instrumental tracks for kids to remix in a pseudo-creative-commons way.

Pricing started being an issue with the CD — with filler songs. What if we take away the control — the DRM? You’ll see the price of music drop to 25 to 49 cents a song. The kid who’s really good at downloading 10-20 songs an hour could make more working at McDonald’s instead. When the price comes down, P2P disintegrates for music — at least music you can find. That, combined with the ability for fans to sell music to other fans, will completely change the marketplace.

I don’t believe in fear. The use of litigation in anything is negative energy. The RIAA is using fear as a tactic to push kids ot use legitimate systems, but fear doesn’t work in the long run. I didn’t like that they were suing a fan for sharing an Avril Lavigne song, so you have to stop using the names of the artists I manage. I want the fans to build the brands of my artists. The lawsuits have hurt the business and have hurt my artists. This is my attempt to stop the litigation. I like copyright, but I think copyright hsouldn’t be controlled the way it is. It’s wrong. It’s manipulative, and it’s not where copyright law came from. We need to stop these lawsuits. I’m hoping it’ll get to the point where the RIAA backs off because losing is too costly in the larger picture. I’m hoping, with the changing attitudes toward DRM, that we can change things. They’ve gone down the DRM / lawsuit rabbit hole, and they don’t know how to get out. We need to help.

In 10 years, there will still be physical CDs. The majority of music consumption will be digital portable — interoparability issues will be gone. Most music will be sold fan to fan. Tou’ll have 2 million web sites selling music. Music will finally be consumed in the market the way it is in the real world — everywhere, all the time. The behavior of the public will be monetized in a fair way. The artists will be back to writing good songs and not releasing the filler. Build the brand and the sound — the album cycle will be gone. You don’t need to do an album before you tour. The connection between the artist and the fan will be more direct, and anything that gets in between is a deterrent to growth.

The big labels have found it difficult to break big bands because radio formats make it difficult to introduce new styles. Zeppelin could never happen today. But when artists pull, there can be huge artists, and they can be artists that wouldn’t be played on any existing radio format.

Artists who sell fewer copies are getting bigger crowds. Howbig a band is should be the total value of what the band brings in, not how many CDs they sell.

Streaming is growing faster than digital downloads. The most effective way to use the P2P marketplace would be to take a huge band, put out an MP3 with an ad on the beginning and the end, get some metric, and the single all of a sudden generates millions of dollars, given away free.

I’m telling my artists to keep their copyrights together, and not split them up into masters, publishing, etc. This allows greater innovation in ways you can allow listeners to get the music. Divided copyrights in a single song is an incredibly economically inefficient way to operate. Labels will be bankers and facilitators, not owners. They’ll be forced to give stock options to artists. The tax code was recently changed to alllow artists to sell copyrighted material for stock options, and then be taxed for the capital gains rather than straight income. [Sounds interesting. I’ll have to look that up.] I look at Korea, where 60% of music sales are digital. Mobile phone companies are buying record companies and signing artists. Radio is going to be programmed by the listener. Those running the labels now are all about control, and that has to change.

Band-to-fan is great, especially when you collapse the copyrights in a single owner. We just own the majors for physical distribution — we can do the rest with street teams and online.

The only thing we’re missing is A&R, but it’s been a bad job for a while — finding the hit single. Business. The creative team of A&R, promotion, production, and artist has been gone for a long time if it ever existed. The artist is still surrounded by people — now including the fans — who will call a shitty song a shitty song.

We’re inviting fans to make the next Barenaked Ladies video. We’re selling 16 multitrack stems for each of the first 5 songs. The best mixes are going to get put on a charity EP and sold on iTunes. We sell music in open source. The fans make their own mixes and give those mixes away. Only 40% of the money they generate on these copyrights will be from their physical CD sales — the rest is from selling the content in other ways, especially selling the multitrack stems. The majors can’t do this, they’re scared, but it’s so much fun. This all comes with the artist owning all of the relevant copyrights. They made $3 million on their little Christmas album. You get your creativity back, you get the same financial reward as playing the selling-millions-of-records game, and it’s a hell of a lot more fun.

I’m at the Bandwidth Conference. The first panel I’m attending is called The Tuning Fork, which promises to be “a look at the future of programming in all its forms.” It