Lovett, Vivendi, Real, MP3.com Testify on Compulsory Licensing

Here are some excerpts from testimony given to the House Subcomittee on Courts, the Internet and Intellectual Property. Ironically, two of the presenters at this May 17 hearing were a top executive at Vivendi Universal and Robin Richards of MP3.com. Ironic, since today, May 21, Vivendi announced it was buying MP3.com for approximately $372 million.

Testimony centered on the issue of music publishing rights, specifically on Napster's proposal for compulsory licensing of rights. Alt country star, songwriter, and ASCAP (American Society of Composers, Authors and Publishers. ) member Lyle Lovett and Vivendi Universal exec Edgar Bronfman spoke against compulsory licensing, while Real CEO Rob Glaser and Robin Richards of MP3.com argued in favor. Glaser also demonstrated MusicNet, the subscription music service that Real is developing in connection with threee of the major labels.

While Lovett's testimony is interesting for his star appeal, he functions here solely as a mouthpiece of ASCAP. Glaser holds out an interesting future of legitimate music-on-demand services, lays out a reasonable plan of action, but speaks fairly weakly about the need for Congress to iron out the licensing knot. Bronfman says very little of interest, except that no additional legislation is needed. Most interesting is Richard's testimony in which he details the whole, complex saga of MP3.com's attempts to get proper licensing for every song for the My.MP3.com service.

To get the full testimony, click on the speaker's name.

Lyle Lovett:

"The songs I create mean many things to me. Foremost among them is my goal, and I think the goal of every artist, to connect with and communicate my thoughts, emotions and beliefs to my audience. My songs therefore are truly my creations -- extensions of who I am and what I believe. But, my songs also are my livelihood. If I can't earn a living from them, I'll have to do something else. And if every songwriter is unable to earn a living from creating music, if every songwriter has to do something else to make ends meet, who will write the songs of America and the world?

I love what I do. But this is a tough business. ... Success would be meaningless without strong copyright laws and a vigorous and vigilant ASCAP. For it is only through the protection of the copyright law, and through ASCAP and similar groups, that our right to earn a living from our creative work is assured.

Please let me be clear: I have no objection to songwriters or performers agreeing that their work be free on the Internet or anywhere else if they want. Some have made that choice. But for me, and for the overwhelming majority of my songwriter and performer colleagues, our choice is that we be compensated for the use of our creative work, which is our property.

1. ASCAP has licensed every Internet user who has requested a license to perform ASCAP music. ASCAP has never turned down an Internet user who requested a license and was willing to pay a reasonable license fee. ASCAP has not sued any Internet user in an attempt to shut the website down rather than license it. And, through the mechanism of the ASCAP license, every licensed Internet user has the right to perform all the many millions of works in the ASCAP repertory. If, there are any difficulties that Internet users have in licensing works piece-by-piece, those difficulties are solved by an ASCAP license.

2. ASCAP is an Internet licensing success story, right now. There has been much discussion about when various licensing systems would be put into place. ASCAP's is already in place, and has been since 1995. I am told that ASCAP currently has about 2200 websites licensed to perform music.

Therefore, there is no need for Internet users to worry about whether they may operate lawfully if they perform ASCAP music, or to wonder when a usable licensing mechanism will come about. It has been here, it is here, and thousands of websites are using it.

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There are a few conclusions from these facts which go to the heart of several issues of interest to the Subcommittee:

There is no justification for a compulsory license for Internet uses of ASCAP music. Those arguing for a compulsory license have ... said that it was justified because, for whatever claimed reason, they couldn't engage in individual negotiations with copyright owners. But ASCAP's license means that the entire repertory of music ... is licensed in one transaction. ... ASCAP has successfully licensed thousands of Internet users since 1996. ... ASCAP will license any user who wants a license, at a reasonable fee, and the user will be licensed simply by virtue of requesting a license.

Compulsory licenses should be repugnant to those who believe in the free market and the sanctity of private property, including intellectual property. The undisputed facts of ASCAP's Internet licensing demonstrate that a compulsory license is not justified.

Rob Glaser, chairman and CEO, Real Networks:

The past six months have dramatically clarified the legal landscape for the online distribution of music. The lawsuits by the music publishing and record industries against MP3.com, Napster and other innovative companies have established that basic copyright law must be applied to the distribution of music over the Internet. The principle that artists must be paid for the digital distribution of their copyrighted works has been reaffirmed. While the court decisions have not yet resolved important questions regarding personal fair use and the responsibility of ISP's to police their services for questionable content, the basic rules of the road are plainly visible.

Once the courts ruled, it became clear to us that we could build on our core platforms for streaming and downloading of music to deliver a great new consumer subscription service. The goal of this new service, which we decided to call MusicNet, is to combine three essential elements -the popular music that consumers want, a software framework that compensates and preserves the rights of artists and music companies, and the ease of use and flexibility that consumers have demonstrated they want.

A key element of the MusicNet service is that it will require consumers to pay a subscription fee - generally a monthly fee, just like cable TV or a magazine subscription. We believe that consumers will pay a reasonable fee for choice, convenience and a combination of interactive features. ...

In order to implement MusicNet, we decided to forge alliances with the major record labels. Our goal was to license a critical mass of great music for digital distribution, which we believed would catalyze the rest of the industry. On April 2nd, we announced just that. Specifically, we're working with AOL-Time Warner, BMG and EMI who are both licensors to and minority investors in MusicNet. ...

In order to get the greatest possible consumer reach, MusicNet will not be a retailer itself. Instead, it will license its "private-label" platform to retailers and distributors who will brand, package, and sell it directly to consumers. Our intent is to distribute the MusicNet service through as many partners as possible. To date, we've announced that both AOL and RealNetworks will be among the initial consumer distributors of the MusicNet platform. Additionally, we expect online retailers such as Tower Records to join us, and potentially even including Napster, provided they satisfy legal, copyright and security concerns.

Mr. Chairman, what MusicNet's launch underscores is that the technology is there, the content is being assembled, and the subscription business model is being proven every day. So what is missing? In our view, music publishing issues stand out as the most significant potential impediment to launching great subscription services.

Unfortunately, music publishing rights are one of the most tangled areas of our copyright system. My legal team advises me that up to eight claimed rights arguably are needed to clear a single song to be placed on a computer server and delivered to a consumer via downloading and streaming. While some of these rights can be efficiently licensed today, others cannot. Simple logic dictates that we set up a licensing system that allows for one-stop shopping and the license of all required rights for digital delivery. To accomplish this, we will need the cooperation of music publishers, who we believe must offer more flexible licenses that reflect the function of these new digital distribution systems.

Songwriters must be compensated when their songs are streamed or digitally downloaded to end users. Yet these licenses should not tax a single delivery of a song multiple times along the chain of delivery across the computer networks that form the Internet. This would be akin to requiring a broadcast royalty toll every time a song is boosted across transmission towers on the way to a consumer's radio. Similarly, these licenses should not tax RAM-buffer copies that exist only for fragments of time in a RealPlayer.

...If we are not able to quickly resolve these licenses around the negotiating table, then I believe it will be necessary for Congress and the Copyright Office to step in and streamline music licensing. For instance, Congress has already established compulsory licenses; it could now clarify that additional licenses for server copies are not required simply for a company to utilize the existing compulsory license. Moreover, the Copyright Office has already studied the legal status of ephemeral and temporary copies; and if necessary, it could now establish clear rules that facilitate digital distribution.

As you and other policy-makers work to help create a stable and robust marketplace for the distribution of digital content, I suggest that the following fundamental principles guide your efforts:

• First, content creators must be fairly compensated for the distribution of their copyrighted works in new markets;

• Second, the legal personal-use rights of consumers should not be eroded in the process of ensuring copy protection;

• Third, there should be maximum transparency for artists and others whose rights are implicated in the reproduction and distribution of digital versions of audiovisual works;

• Fourth, the new distribution channels must be open to fair competition;

• Fifth, Congress should eliminate barriers to new methods of digital distribution, such as web radio, that do not exist for traditional media.

Edgar Bronfman, Jr., executive vice chairman, Vivendi Universal:

Why is it taking so long for legitimate online music sites to become a reality? Not for lack of effort - Universal has invested many tens of millions of dollars in developing a environment for the delivery and enjoyment of digitized music. ... But a rational, dependable, long-term business plan has two prerequisites. First, we need a strong legal framework to protect our copyrighted music. Second, we need technology solutions that are ready for a global audience.

The legal framework appears to be in place. The DMCA has done a good job of updating the Copyright Act for the digital age. Importantly, recent court decisions have clearly held that our property rights must be respected. It is true that the industry still needs to work through some of the licensing issues that have arisen - concerns that are legitimate and thorny -- but I believe that the requirements of the marketplace will dictate that they can and will be resolved without additional legislation.

As for the technology, to be honest, to do it right has been harder than we expected. By "right" I mean -

• · consumer-friendly systems that are easy and fun to use
• · a mechanism for identifying which songs are downloaded or streamed so that the songwriters, musicians and other rights holders of each song are properly compensated each time
• · dynamic sites that reliably deliver great songs as well as cover art, lyrics, concert information, the ability to communicate with the band, chat with other fans and discover new favorites; and
• · security for our copyrighted property

Our business strategy is to license the Universal catalog to outside ventures, and to license works from outside the Universal catalog for our own online ventures. I am not revealing any secret formula. We plan to do it because consumers want all their favorite music conveniently available in one place.

Let me take a moment to talk about Duet, an online digital music subscription service that we created with Sony Music Entertainment. Duet's U.S. on-demand service will be available and marketed through a number of distribution alliances -- the first with Yahoo!

The on-demand Duet subscription service will offer consumers the opportunity to access a broad range of quality music online with speed, ease of use, and reliability, while respecting artists' rights. The service will provide music enthusiasts with the ability to compile personalized playlists and to share them with other Duet members. The Duet service is expected to launch with streaming music and plans to add downloads as soon thereafter as is technologically feasible.

Robin Richards, president, MP3.com:

Last year, MP3.com introduced an innovative music storage and playback service that enables consumers to use the Internet to store and listen to the CDs that they buy from their local record stores or from online retail establishments. Although our service is not a file sharing service like Napster and poses no threat to the sale of recorded music, we were sued for copyright infringement by the major record labels and music publishers. Those lawsuits forced us to shut down our service and to pay over $150 million to copyright owners and their representatives; yet, even after paying out all of that money, we not only are unable to get our service fully up and running, but we also continue to face new lawsuits!

The Harry Fox Agency, which represents over 25,000 music publishers says that they want to work with us to overcome the practical problems in clearing the hundreds of thousands of songs in their inventory and that they won't participate in legal action against MP3.com for using those songs. We don't dispute their sincerity. But the fact is that HFA doesn't represent all of the publishers of all of the songs for which we need clearance and that means that we remain vulnerable to lawsuits, even with respect to songs that HFA claims to have given us a license.

Indeed, just last week Randy Newman, Tom Waits and Ann and Nancy Wilson of the band "Heart" sued MP3.com for 40 million dollars. This suit makes real many of the issues that MP3.com has been discussing over the last several months. The complaint in this lawsuit cites song titles that we haven't been able to clear because the publishers aren't represented by HFA as well as song titles that were previously settled and licensed to MP3.com via HFA-represented publishers.

...Although Section 115 [of the Copyright Act] was amended in 1995 to extend it to certain on-line activities, the Copyright Office has "deferred" establishing the rates and terms for the "incidental" reproduction of songs that occurs as a necessary part of technologies such as ours. Moreover, the procedures that traditionally have been imposed on statutory licensees under Section 115 are cumbersome, time-consuming and expensive. For example, those procedures not only would require MP3.com to manually search the Copyright Office's records for the names and addresses of the copyright owners of each of the hundreds of thousands of song titles on the CDs that our consumers have purchased and stored on-line, but also would require us to submit a separate application to the Copyright Office for each song whose current owners couldn't be located.

... The Copyright Office, at the request of the recording industry and with MP3.com's support, currently is considering whether to conduct a rulemaking to clarify the application of Section 115 to streaming audio services such as MP3.com. In our comments in that proceeding, we have urged the Office to look to the model of the satellite and cable compulsory licenses, which permit copyright users to submit periodic royalty payments into a pool that is then distributed among copyright owner claimants.

... Even more importantly, the Copyright Office can and should immediately act to establish "interim" Section 115 licensing procedures for online services that engage in "incidental" copying. Adoption of such "interim" licensing procedures will create a "safe harbor" against infringement actions. Both RIAA and MP3.com have endorsed the interim licensing procedures concept and we hope that the members of this Committee will join us in urging the Copyright Office to take this clarifying action as a means of dealing with the untenable situation that now exists.

...The way the My.MP3.com service works is as follows: with respect to a CD that a consumer already has purchased, the consumer takes the CD and places it in the CD-ROM tray of his or her computer; our "Beam-It" software then "reads" the CD and, having established that it is a real, legitimate CD release, adds the CD to a secure, personalized "locker" which can be accessed by that consumer - and only by that consumer. With respect to CDs purchased on-line from one of our retail partners, the consumer can use our "Instant Listening" software to add a CD in MP3 format to his or her personal locker at the same time the consumer pays one of our on-line retail partners for the CD, thereby allowing access to the songs on the CD even before the disc is physically delivered. I want to emphasize that My.MP3.com differs from music file-sharing or "swapping" services that allow users to download, save, and trade music that they have not purchased. CDs can be accessed on My.MP3.com only for a real-time listening experience, not for downloading and copying. And before any CD can be accessed on our service that CD will have been purchased twice: once by the listener and, as discussed below, once by us.

Litigation, Shutdown, and Settlement. Not long after launching the My.MP3.com service, we were sued for copyright infringement both by the major record labels and by certain music publishers. ...Because Congress never foresaw the development of a personal purchased music "locker" service like My.MP3.com, the door was left open for record labels and music publishers to argue that My.MP3.com was infringing their copyrights by allowing consumers to access their purchased CDs in MP3 format.

In particular, the copyright owners cited the fact that instead of developing a system that requires consumers to convert their own CDs into the MP3 format, My.MP3.com went out into the marketplace and bought those same CDs and converted them for the consumer. According to the record labels and music publishers, the act of converting these CDs to MP3 format, so that consumers who had separately purchased those same CDs could listen them to in that format, constituted an act of infringement. In addition, the music publishers took note of the fact that when a consumer listens to a song from his or her My.MP3.com locker, that song is delivered to the consumer by means of a "streaming" audio technology that automatically makes a temporary or "buffer" copy of a portion of the song as a necessary and integral part of the transmission process. Although this buffer copy lasts only a few seconds and is eliminated once the playback of the song begins, the music publishers asserted that, in order to use this technology to playback a CD to a consumer who has purchased that CD, My.MP3.com needed a separate license to make and distribute copies of the song.

In response to these lawsuits, we "shut down" the My.MP3.com service and entered into settlement negotiations with various copyright owners and their representatives. ...There is a certain irony in the fact that when our site was shut down, many of our customers were driven to services such as Napster, where they not only could find and play the CDs that they already had bought, but also could (and probably did) obtain access to a vast array of music selections without ever having to purchase them.

We have agreed to pay for converting the CDs that we purchase into MP3 format. We have agreed to pay for performing both the sound recordings and the songs contained on those CDs. And we even have agreed to pay the publishers for the temporary, momentary "buffer" copy that automatically is made (and deleted) each time someone listens to their own music out of their My.MP3.com locker. Yet, today, nearly six months after signing the last of these agreements, we haven't been able to effectively process any of the licenses that the copyright owners insist we must have before we can fully relaunch the My.MP3.com service because of the overly-burdensome process required to locate and get agreement from every rights-holder.

Incidental digital phonorecord deliveries - IDPDs for short - are a type of "mechanical" reproduction and distribution requiring licenses from the owners of the publishing rights in the songs contained on a CD. Our licensing agreement was made with the Harry Fox Agency ("HFA"), an arm of the National Music Publishers Association that, for nearly 75 years, has served as the music publishing industry's principal clearinghouse for the administration of mechanical rights licenses. According to its website, HFA issues licenses, collects and distributes royalty payments, and audits the books and records of licensees on behalf of more than 25,000 music publishers who, in turn, represent the interests of over 150,000 songwriters.

When MP3.com and HFA announced their licensing agreement last October, the joint press release proclaimed that the deal was intended to give us licenses for over a million songs. And, in fact, we immediately provided HFA with a list of over 900,000 song titles, along with information identifying the CD on which each song appeared and the name of the artist performing the song. More than six months later, however, HFA still has not been able to issue licenses to us for over two-thirds of these songs.

We are not suggesting that HFA hasn't tried to clear the rights to more songs. Rather, the problem appears to be that HFA's system for issuing mechanical rights licenses for its publisher members simply cannot handle the demands of the digital marketplace. In order for us to obtain a license for a particular song from HFA, we not only have to provide them with the song title, CD and artist, but we also have to know who owns the publishing rights for the song. This information, which may change several times over the life of a song, is not readily available to the public.

A good illustration is our experience with the new Jennifer Lopez CD, "J-Lo." Shortly after Epic/Sony records released this CD, we attempted to make it available on My.MP3.com. We had obtained the necessary rights from the record labels with respect to the sound recording copyright and we had agreements with the appropriate Performance Rights Organizations (i.e. ASCAP and BMI) giving us the right to "publicly perform" the songs on the CD. However, we couldn't get HFA to give us the required (by them) license for any of the songs. When we asked HFA why the songs on this new CD were not in their database and, thus, licensable, we were told that HFA would be able to issue licenses covering some - but not necessarily all - of the songs, but that it would take 6-8 weeks after receipt of a license request for HFA to locate the publishers associated with each song and get clearance. That's 6 to 8 weeks for just one CD. Consequently, we have been unable to offer consumers who buy the J-Lo CD the ability to add this CD to their locker.

Apart from the problem of obtaining information matching up the songs we want to play with the songs owned by the publishers represented by HFA, the difficulties we face in getting the My.MP3.com service back up and running are exacerbated by the fact that HFA does not represent every publisher and by the fact that the publishing rights in many, if not most song titles are held by multiple owners in varying percentages. For example, if you look at the liner notes of a "rap" CD - one of the most popular genres of music on-line, you will see as many as ten publishers on any given song. Many of these publishers may be impossible to locate or are otherwise unreachable.

In short, there is no marketplace mechanism that will allow us to fully relaunch My.MP3.com - thereby giving consumers access to all of the songs on all of the CDs that they have purchased and stored on their My.MP3.com lockers - without running a significant risk that we will be sued by publishers or songwriters claiming ownership rights in some of those songs. And this is exactly what has recently happened with the new suits from Randy Newman, Tom Waits, and Ann and Nancy Wilson of the band "Heart."

1. Can and should consumers be able to listen to their own purchased CDs on any digital device?

2) Can and should music buyers be allowed to store their music in places where they can most easily access it?

3) Should CD buyers be subject to additional fees when they store and playback their purchased music collections?

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