Access to the means of production and distribution is now not limited to only the major labels and publishers, but rather available to anyone with a computer, some free software, and an Internet connection. Some scholars argue that this is a good thing, as it has empowered independent artists and musicians, enabling them to avoid unfair major label contracts and take control of their own production, promotion, and distribution (Kusek & Leonhard, 2005; Burkart, 2010). However, the RIAA sees the Internet as having a negative effect on artists and labels due to digital “piracy”. The RIAA website states that “for every artist you can name at the top of the Billboard music charts, there is a long line of songwriters, sound engineers, and label employees who help create those hits. They all feel the pain of music theft” (RIAA, 2010). Equating file sharing with theft is one of the first misconceptions of this viewpoint. As stated by Marshall (2005), “copyright infringement is not theft, it is copyright infringement which is different thing, statutorily and practically. Yet the overwhelming rhetoric of piracy is that of theft and stealing, a conscious mislabeling to emphasize the moral dimension of the activity” (p. 85). Efficiency of distribution and the public interest are left out of the rhetoric of the RIAA’s argument, as both have the potential of favoring file sharing over traditional music distribution from a practical standpoint. However, both viewpoints can agree on one thing, that the Internet has become a major hub for music content and consumers are now accessing more of their music online. Almost any song can be found somewhere inside the massive archive of the Web, and thus, “consumers have the broadest range of choices possible. Just as it is for an avid reader in a very large library, the content of music becomes available for individuals to choose rather than available as disc jockeys choose” (Lessig, 2001, p. 132). This has changed the power structure in the economy of music, ushering in future possibilities where fans, users, and artists can take control away from the labels and back for themselves.

No longer does someone have to drive to the mall or to the their local community record shop to check out a new music release. No longer do they have to rely on radio stations, print reviews, and television networks for the discovery of new music and music-related information on popular bands, songs, and artists. No longer is browsing through songs and albums of unsigned and obscure independent music material something that only insiders get access to. And no longer is the means of production and distribution controlled by major record companies. Negus argued that no one involved in the music industry can predict what is going to be successful, and that “all entertainment corporations can do is struggle to monopolize access to recording facilities, promotional outlets, manufacturing arrangements and distribution systems, and be in a position to appropriate the profits” (as cited by Jones, 2002, p. 217). With the emergence of the Web and digital technologies that allow any computer and Internet user to have the means to produce, promote, distribute, and share music for little to no cost at all, we see that that the record labels have lost their monopolies on these systems. Miller (2008) points out what “Marx said so long ago, that ‘‘all that is solid melts into air’’-perhaps he was anticipating the economy of ideas that drives the network systems we live and breathe in” (p. 10). These network systems have shifted power structures, leaving the corporate gatekeepers on the defensive. All the control that remains with the major labels is the ability to manipulate copyright legislation in an attempt to maintain old models of production and distribution while restricting technologies and the users of those technologies.

This copyright manipulation was best seen in 1998, just twenty years after the Copyright Act of 1976 was enacted. In the midst of new digital technologies that enable efficient and easy copying by anyone with a computer, another drastic extension was made to copyright terms with the Sonny Bono Copyright Extension Act. Copyright terms were extended to 95 years for corporate copyrights, or life of author plus 70 years for natural authors (Lessig, 2004). Even more critical was the passing of the Digital Millennium Copyright Act (DMCA), which was signed into law by President Clinton on October 12, 1998. The DMCA was designed to implement the World Intellectual Property Organization’s (WIPO) treaties that had been developed in 1996. Some of the provisions in the DMCA include criminalizing any circumvention of anti-piracy software, requiring webcasters to pay licensing fees, and forcing Internet service providers (ISPs) to remove material from users websites that “appear” to be infringing copyright (DMCA, 1998). This last provision of the Act is extremely detrimental to a user’s fair use rights, as infringement does not have to be proven for the material to be blocked or removed. The DMCA states, “Under the notice and take-down procedure, a copyright owner submits a notification under penalty of perjury, including a list of specified elements, to the service provider’s designated agent” (DMCA, 1998, p. 12). If the copyright owner follows all the correct guidelines for submitting the take-down request, then the ISPs have no option to but to cover themselves and take the material down. As the DMCA goes on to say, “If upon receiving a proper notification, the service provider promptly removes or blocks access to the material identified in the notification, the provider is exempt from monetary liability” (DMCA, 1998, p. 12). This allows powerful record companies and copyright holders to send letters to ISPs demanding materials be taken down, and without question the ISPs are required to do so if they do not want to be held monetarily liable, even if the website is not actually infringing or is protected under fair use. Not surprisingly, both the Copyright Extension Act and the DMCA were heavily lobbied for in Washington by the RIAA.

After spending years focusing on combating “piracy,” the major labels eventually decided it was time to embrace selling music on the Internet, and Apple made this possible with the launch of iTunes in 2003. However, in order for the labels to get on board, they had to be assured by Apple that they were still in control (Lessig, 2008). Thus, digital rights management (DRM), or as the FSF refers to it, digital restrictions management, was seen as the solution. This DRM would restrict the user’s freedom by imposing limits on what can be done with a purchased music file, “designed to handcuff users and make copying impossible” (Stallman, 2009, para. 5). These limitation-imposing technologies are reaching beyond the intended scope of copyright law, in turn restricting end users in the name of artist’s rights. DRM has been included on products from just about every media industry, including the Content Scrambling System on DVDs introduced in 1996, as well as the cable card system and broadcast flags for television. Apple developed a DRM system known as FairPlay, which would be imposed on all media content sold through the iTunes store. This restricted the amount of computers a file could be played on, as well as the amount of times it could be burned to a compact disc. This element of control was enough to get the labels to sign a deal with iTunes. Relating to Kelly’s (2008) generative qualities, iTunes is a perfect example of how convenience and access can indeed add value to a digital file that is already essentially free of cost. The consumer isn’t really paying for the digital file itself, they are paying for the added value that iTunes provides along with that digital file, such as ease of search, prior relationship with Apple, and knowing the file will be of good quality. Without those added values, there is no reason that the consumer would not just go to BitTorrent and download the music for free. However, the FairPlay DRM restrictions and Apple’s proprietary AAC format are not user-friendly, and have thus given plenty incentive for users to download from unauthorized channels. As a result of this realization, all music sold through the iTunes store is now DRM free (iTunes, 2009). There are other authorized digital music stores that have found a lot of success as well, including eMusic and Amazon MP3. In 2006, approximately 500 million digital music files were purchased online. However, an estimated five billion songs were traded on p2p file sharing services. As of 2009, the most popular of those services are BitTorrent, Limewire, and eMule. While digital downloads through label-authorized channels now comprise nearly 20 percent of the overall revenue of the music industry, they have yet to make up for the drastic decline in CD sales.

In 1998 there were six major labels that held over 75% of recorded music sales worldwide. Now there are only four majors, and they hold over 85% of recorded music sales worldwide. Out of these Big Four major labels, “Universal, Sony, Warner, and EMI, none has got to grips with the Internet revolution that has ravaged their complacent and often collusive dominance” (Lebrecht, 2008, Para. 2). The current paradigm shift taking place in the music industry has forced the Big Four to re-analyze their business models in an attempt to maintain profits while struggling to control their copyrighted music. They have seen a large drop in sales over the past decade, with the RIAA estimating that “music sales declined from $13.7 billion in 1998 to $8.5 billion in 2008” (Sinha, Machado, & Sellman, 2010). This drop in sales had a huge effect on music retail stores. From 2006 to 2009, over 500 independent music stores closed, and huge chains like Tower Records and Virgin Megastore were liquidated due to drastic drops in music sales (Christman, 2010). The major labels and RIAA see this as a direct effect of the Internet and “music piracy,” and have thus gone to great lengths to protect their traditional model of selling music, including thousands of lawsuits against Internet users (mostly college students) for illegal file-sharing (Burkart, 2010, p.70). Stallman (2009) explains, “it appears the only way to stop people from sharing is with a harsh War on Sharing. Thus the record companies, through their legal arms such as the RIAA, sue teenagers for hundreds of thousands of dollars for sharing” (Para. 5). This is indeed a bold strategy, using litigation and scare tactics against your own customers in an attempt to curb music sharing on the Web. Lessig (2008) claims that “as of June 2006, the RIAA had sued 17,587 people, including a twelve year old girl and a dead grandmother” (p. 39). In addition, the RIAA sent thousands of warning letters to university students, threatening legal action against those who have shared music files illegally. Cary Sherman, president of the RIAA, claims that the war on sharing is justified, calling it “tough love” by “holding people personally and financially accountable for the theft of creative works” (Sherman, 2007, Para. 3). This is another example of the mindset of the RIAA, equating copyright infringement with theft when in reality they are two different things. Sherman (2007) says that the RIAA’s “anti-piracy” campaign has created a “legal marketplace that is far better because of what we’ve done,” citing statistics claiming that “digital revenues doubled in 2006, from 8 percent in 2005 to more than 16 percent” (Para. 8). However, the logic that this is due to anti-sharing campaigns ignores the fact that authorized digital sales growth can mainly be attributed to Apple’s iTunes software and the growing popularity of iPod music devices, and the fact that Apple held an 88% share of digital music sales that year (Faas, 2006). Sherman (2007) went on to say that what the RIAA really wants to be doing is “helping artists make great music that we can distribute in lots of exciting new ways that music fans want” (Para. 17). In response to this last quote by Sherman, Lee (2007) responded in an article on TechDirt entitled Lawsuits Don’t Create New Markets, stating that “their approach has been the opposite: doing their best to sue new music technologies out of existence and sharply limiting the ways consumers can listen to the music they want” (Para. 1). This is in line with the argument that it is not illegal file-sharing and digital technologies that are to blame for the drops in CD revenue, but rather the major labels inability to adapt to consumer preference shifts and reform their business models to embrace digital distribution, while simply treating the Web as a new distribution channel for the same old model (Kusek & Leonard, 2005; Knopper, 2009; Burkart, 2010). The use of copyright law to criminalize music sharing goes against the very nature of the law itself. This view argues that copyright law has become unbalanced, favoring corporate interests over public interests.

Guindon (2006) claims,
“Only a well-balanced copyright system, one that is flexible and open to human interpretation, can ensure an optimal flow of information. Yes, this means an imperfect system where some people will adopt free-riding attitudes and will occasionally pillage or parody protected content. But the alternative is a sad one: a thick, rigid legal system based on technological gates will defeat the hopes associated with the digital revolution or, at the very least, will greatly limit its potential. (Guindon, 2006, p. 173)

While the RIAA and the major labels continue with their argument that file sharing and music “piracy” are to blame for decreases in revenues, some studies have actually found that file sharing does not have a negative affect on music sales. Harvard professors Olberholzer-Gee & Strumpf (2007) tracked 1.75 million p2p downloads during the last four months of 2002, comparing and contrasting music files that were downloaded on the sharing networks with their corresponding US sales numbers during that period of time. The study’s results concluded that it would take over 5,000 downloads to equal a lost sale of just one physical CD. Some of the files shared actually showed possibilities for a positive effect on sales, which would be known as the sampling effect.

Olberholzer-Gee & Strumpf (2007) came to a conclusion that,
File sharing has no statistically significant effect on purchases of the average album in our sample. At most, file sharing can explain a tiny fraction of this decline (in music sales). Alternative factors (for the decline in music sales) include poor macroeconomic conditions, a reduction in the number of album releases, growing competition from other forms of entertainment such as video games and DVDs, a reduction in music variety stemming from the large consolidation in radio along with the rise of independent promoter fees to gain airplay, and possibly a consumer backlash against record industry tactics. (p. 24)

The RIAA was reluctant to accept the results of the study as factual, quickly citing their own numbers that show negative impacts on CD sales (Borland, 2004). The problem with accepting numbers from the RIAA is that they have something to gain from skewing results in their favor, while the Harvard professors do not. While the effects of music piracy continue to be argued, the fact remains that the Internet has forever shifted the power structure in the recorded music industry.

No longer does an artist or band have to rely on the deep pockets of the majors to be heard by large audiences, in turn giving up a massive amount of artist’s rights and future profitability. A typical record deal with a major label will give the label exclusivity to the artist or band for a certain extended period of time. This allows the label to have the option to continue promoting and releasing material from the artist if they are financially successful, otherwise the label will just drop them after the first album release if unsuccessful. The typical record deal is a points-based system, and in many cases can leave artists with a salary equivalent to that of fast food service. The artist will “receive” an average of 10 points, meaning 10% of the retail price of a CD. This is where it begins to go downhill for the artist. The label uses the artist’s royalty points from music sales to recoup any costs incurred by the artist during the process of recording and releasing an album, including the up-front signing money, recording costs, manufacturing costs, half of video costs, promotion, among other things. Also, managers, producers, and lawyers all get cuts of the money before the artist is paid. Due to the nature of these deals, many major label artists never recoup the costs of their record. The labels use cross-collateralization, which takes royalties from the second album to recoup costs for the first, if they decide to even go on with a second album. All of this leads to a system where labels get rich and artists live on pennies. Even worse is the new breed of record deals throughout the past decade, where it has become commonplace to sign new major label artists to a “360 deal.” Some research has claimed that these deals actually violate unconscionability laws as they take away essential rights of the artist or band involved (Brereton, 2009). A 360 music deal is a contract between a label and an artist or band that gives the label a share of all profits associated with that musical act, including music sales, merchandise sales, and concert tickets (Arrington, 2008). Warner Music Group now requires 360 deals from all new artists that they sign to the label, with CEO Edgar Bronfman arguing that due to declining CD sales the label would not be able to continue promoting artists without taking profits from all aspects of the musical entities they represent (Arrington, 2008). One might ask why anyone would even consider signing one of these deals that essentially strips them of their rights. So if we are going to talk about “piracy” and how it affects artist’s rights and their ability to profit for their work, we should first look at the real “pirates,” the major labels. If a large amount of artists under major label contracts never receive royalties from the sales of their recorded material, while the labels make huge profits and disguise it with clever accounting, then we can begin to understand that the “war on sharing” is really in the interests of maintaining control for the large corporations, not the creative people behind the music (Stallman, 2009).

The reality of file sharing on the Web brings the question of whether or not these activities can be monetized by the recording industry. The EFF (2004) supports a possible future model known as voluntary collective licensing. They explain that voluntary collective licensing, or blanket licensing, would give copyright holders, musicians, fans, and computer users the ability to opt-in to a legal music sharing system. Artists and labels could choose to make their music available, and Internet users can choose to pay a small monthly fee to have legal access to that music. The labels would set up a number of collecting societies, and the money collected would be divided among them according to the popularity of their music. This same system was set up for radio, with collecting societies like ASCAP and BMI serving as the intermediary between radio and music copyright holders (Kretschmer, Klimis, & Wallis, 2009). Initially radio was seen as a negative for the music industry, with broadcasters being likened to “pirates” (EFF, 2004). Then the collecting societies were formed, and broadcasters who wanted to play music could pay a small fee to become legal. What followed was a symbiotic relationship between the radio and music industry that helped both increase profits. The EFF (2004) argues that a similar system could be used to monetize music file sharing on the Internet. For collecting the money, users would have the option of purchasing monthly plans online or with a simple fee added to their Internet service bill. For dividing up the money collected from the monthly fees, the EFF proposes both anonymous monitoring of file sharing networks by companies like Big Champagne, as well as using volunteers “to serve as the digital equivalent of Nielsen families…which is something Last.fm subscribers are already doing” (EFF, 2004, Para. 6). However, there are a number of issues that could make this less of a solution and more of a problem.

Rose (2008) explains that the music industry is already proposing a similar solution, using ISP taxes to compensate copyright holders of music being shared online through unauthorized channels. This solution is being lead by the head digital strategist for the major labels, Jim Griffin. It seems that Griffin has the right intentions, to help music fans who share become “legal,” while giving the labels a way to monetize file sharing. Griffin is the head of Choruss, a service backed by Warner Music, that plans on using universities as the test subjects of a collective licensing model. The problem with collective licensing is that it does not add any value for the user. The record labels will not be providing something new and useful for Internet users with collective licensing, they are simply providing the user with a promise to not sue them. But what about the artists and labels that don’t sign on? Or what about the songwriter who can still sue because his copyright is different than the labels? Collective licensing would cause more confusion than good. Internet users who paid the fee would consider themselves in the clear, when in reality they are still as liable as ever, just not to the major record labels who endorse collective licensing. However, I do see these blanket licenses as a serious possibility for the future path of the majors, attempting to cash in on file sharing. If this did get implemented, what would keep the majors from inflating the license costs? The EFF (2004) claims that the market will determine the price for such a service over time. As was seen with the introduction of VHS, when you charge to much for a format or service, people won’t buy into it. When VHS tapes cost $90, people were copying them and not buying them. When the cost came down to acceptable market prices, people bought into it and were willing to pay (EFF, 2004). This is why a simple $5 to $10 monthly fee would be the most likely scenario for a music licensing fee. But as mentioned before, this does not empower users, but rather serves a payoff for the major labels to turn their heads the other way.

So what can artists do that are tired of waiting for reform and want to allow their fans to share music now? This is where exciting new licensing models for creative content can offer alternatives to traditional copyright law. I will now introduce free culture and Creative Commons, outlining a new cultural economy of music sharing on the Web.

Continue to next section (Free Culture) >>

By Adam Porter, 2010.