The Myth of DRM-Free Music May 31, 2015Posted by Bill Rosenblatt in DRM, Music, United States.
The annual IDPF Digital Book conference took place this week in New York, as part of the BookExpo America trade show for the publishing industry. You can count on two topics being discussed at any book publishing conference: Amazon and DRM. IDPF Digital Book 2015 was no exception. One particular panel featured writers from leading book industry trade magazines, and the moderator was Joe Wikert, a well-respected digital publishing executive who is an outspoken opponent of DRM. The discussion turned to the pros and cons of “walled gardens” such as Amazon’s Kindle ecosystem. Wikert remarked on how quickly the music industry got rid of DRM and suggested (as he often does) that book publishers should follow.
The usual story is that the music industry went DRM-free in 2009 when Apple completed its removal of DRM from its vast iTunes music catalog. But how true is that? Not very, as it turns out. I’d argue not only that DRM never really went away but that it’s making a comeback.
The first thing to recognize is that downloaded files are the only mode of digital music delivery in which the music isn’t encrypted. All on-demand music services (Spotify, Rhapsody, Google Play Music, Beats Music, etc.) encrypt streams as well as music tracks that users download for “offline listening.” And all forms of digital radio — Internet (Pandora), Satellite (SiriusXM), and digital TV (Music Choice) — are encrypted.
These modes of delivery are now more popular than download purchases. Music download sales peaked in 2012 and have moved into sharp decline. Based on publicly available subscribership figures and studies such as Edison Research and Triton Digital’s The Infinite Dial, I estimate the total U.S. active monthly listenership to on-demand music services in the 60-70 million range. That’s counting the use of YouTube as a de facto on-demand music service, which The Infinite Dial estimates as more than four times that of Spotify. (The study says that 73% of YouTube music users don’t even watch the videos but just listen.) Internet radio, led by Pandora and iHeartRadio, has well north of 100 million active listeners, while over 27 million people subscribe to SiriusXM. All of these numbers are growing steadily.
How many people purchased digital downloads? About 40 million in a year (based on 2013 research from NPD), and declining. Of course, once someone has downloaded a file, she can play it any number of times, but the number of download buyers is a reasonable measure of active users of the purchased-download model. So it’s safe to say that the number of people who obtain music using a DRM-free model (legally) is much lower than the number of people who get it through a model in which music is encrypted. To be more precise, the percentage of people who purchase music downloads is only about 18% of the total digital music market. (That’s a lower bound, assuming no overlap, but it doesn’t include satellite or digital TV radio.)
More recent research by GlobalWebIndex reinforces the trend. The firm’s Q1 2015 survey of teenagers around the world shows that while 60% used a streaming service during the last month, only 21% purchased a music download.
Compare this to the numbers in 2008, the end of the supposed “DRM era.” At that time, iTunes represented about three-quarters of the music download market. At least 10 million people in the U.S. purchased music on iTunes on a monthly basis, meaning that over 13 million purchased music downloads from anywhere. Internet radio had perhaps 7 million active users, and on-demand services had less than 2 million subscribers. In other words, download purchasers accounted for a lower bound of 60% of all Internet music users in 2008 — more than triple the percentage today. (These are all rough estimates; email me to find out how I calculated them.)
An even better way of measuring the percentage of digital music delivered with and without encryption is the revenue that record labels get from music through these various modalities. For this, we turn to numbers compiled by the RIAA. Here’s what they tell us:
This chart shows the percentages of total digital recorded music revenues that come from DRM-free vs. encrypted modalities. DRM-Free includes downloaded singles, downloaded albums, kiosk sales, and ringtones (even though some of the latter may be DRM-protected). Encrypted categories include SoundExchange distributions (all forms of digital radio), Paid Subscriptions (paid on-demand services and premium Internet radio such as Pandora One and Rhapsody unRadio), and Ad-Supported On-Demand Streaming (YouTube, Vevo, Spotify Free).
The chart starts in 2009, when iTunes went fully DRM-free. 2008 was a transitional year as two of the major labels (first EMI, then UMG) began to go DRM-free on iTunes, and Amazon launched its completely DRM-free MP3 store. Before then, perhaps 5% of digital music revenue was from DRM-free sources.
The trend began to reverse in 2011, when Spotify launched and the major labels completed deals with YouTube in which they allow most of their material to be shown in exchange for a share of ad revenue, resulting in “hockey stick” growth in listenership to on-demand services that continues to this day.
From this data it’s fair to predict that the lines will cross, that encrypted modalities will represent the majority of recorded digital music revenue by 2016.
As a footnote, the fastest-growing category of recorded music revenue is neither on-demand nor Internet radio; it’s vinyl. Vinyl has come back from near death in 2010; its revenue growth is at 50% per year and accelerating; it now contributes more revenue to record labels than YouTube. Now here’s a rather metaphysical question: should we count vinyl records as DRM-free or not? You decide, but look here first.
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I’ve just published another piece in Forbes in my series on the emerging market for “high-res” audio, reflecting the recent surge in activity in this space as both the major record labels and consumer electronics companies see opportunity in expanding the market for high-quality digital audio beyond the audiophile niche. This piece is about new codec technologies — an area that hasn’t seen much innovation since a decade ago. As always, your feedback is most welcome.
As a postscript to that piece, it continues to amaze me — in a positive way — that vinyl is making such a comeback. Our favorite indie music store in Western Massachusetts recently got rid of all of its CDs and is now selling vinyl exclusively. Even Barnes & Noble is now selling a small, mostly highbrow selection of vinyl LPs. Most amazing of all? They’re flying off the shelves at an eye-opening $22 apiece. And everyone used to complain about the $16 CD — which didn’t scratch, took up less space, was easier to play, etc., etc.
Forbes – Going Hi-Fi To Compete With Spotify (And Google And Apple) December 1, 2014Posted by Bill Rosenblatt in Music, Services.
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My latest piece in Forbes is about the new breed of subscription music services that offer lossless compression, in order to appeal to the audiophile crowd. Two of them recently launched in the U.S. market: Tidal and Deezer Elite. I speculate about whether this development will finally lead to an era where top audio quality has finally caught up to low cost and convenience. As always, I welcome your feedback.
Why Does Apple Want to Halve the Price of On-Demand Music? October 26, 2014Posted by Bill Rosenblatt in Business models, Music, Services, United States.
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Apple is asking record labels to agree to a $5/month subscription price for its Beats Music on-demand service, instead of the going rate of $10/month that it and others (Spotify, Rhapsody, etc.) charge in the US market. This development started as rumor a few weeks ago, then rose to specific evidence of record label conversations confirmed by musician and artists’ rights champion David Lowery at the recent Common Ground intellectual property conference at George Mason University near Washington DC. As of this past Friday, the evidence became strong enough for the Wall Street Journal to treat it as fact.
Re/code also reports that despite the major labels’ apparently cool reception to the new pricing, Spotify is already responding by offering a family plan in which additional family members can add their own subscriptions to a $10/month plan for $5/month. (Beats Music has been offering discounted family plans through AT&T wireless accounts for a while.) As Re/code reports, one reason that Apple has given for the change to $5/month is that it has found that its best iTunes customers spend about $60/year on the service. Given that music download revenue has begun to drop rapidly, Apple apparently believes that it can entice iTunes users to an all-you-can-eat subscription service at the same spending level, instead of losing those users to free music services (or illegal downloads). In other words, $5/month subscriptions are being offered to labels as a way to shore up revenues at $60 ARPU (annual revenue per user) from people who actually still pay for music .
This reasoning is clearly designed to appeal to record labels, which are known to be unhappy about the accelerating decline in purchases. But is it Apple’s real motivation for halving the price of on-demand subscriptions? I don’t think so.
The first thing to understand about on-demand music services is that despite all the talk about monthly subscription fees, the vast majority of users do not pay for them. Research from Edison Research and Triton Digital has determined that the use of YouTube as a de facto on-demand music streaming service draws a US audience of four times all other on-demand services combined — including Spotify (paid and free). Put another way, only about 8% of US users of on-demand music services actually pay for them. Spotify’s percentage of paying US users has stabilized at 25% — which I am proud to say that readers of this blog predicted three years ago — while Google Play, Rhapsody, Rdio, and Beats Music do not offer free tiers for on-demand music.
On-demand music use is growing rapidly, but Apple only has a tiny piece of the market. Beats Music has merely a few hundred thousand users, compared to the estimated 60 million who use YouTube as an on-demand music service and Spotify’s 12 million total US users. Even when one counts only paying users, Beats Music still accounts for well below 10% of the market.
Apple clearly must do something dramatic to become a serious contender. Integrating Beats Music into iTunes (and thereby marketing it heavily to the enormous iTunes audience) by itself isn’t going to expand the market enough to be meaningful to Apple. And even if Apple thinks it can increase the paying user base disproportionately by halving the price, that’s not much of an increase in audience size — especially since the vast majority of the on-demand audience already gets it for free.
No, my view is that Apple’s primary purpose in halving the price is to throw the on-demand market into disarray. Services like Spotify and Rhapsody have been operating their businesses based on the expectation of $10/month revenue for years. Obviously, if Apple comes out with a rebranded Beats Music (iTunes On Demand, iTunes Beats, iTunes Unlimited, iTunes Jukebox, or whatever they end up calling it) at $5/month, all of the other on-demand services will have to offer the same price. Spotify, Rhapsody, and Rdio would find themselves with unsustainable financial structures and/or the necessity of renegotiating their record label deals. The best that any of these “pure play” services could hope for is to become acquisition bait for companies that are big and diverse enough to be able to cross-subsidize them (Yahoo and AOL come to mind). A move to $5/month could even cause Google to rethink its plan to launch a paid subscription music service associated with YouTube.
In short, I predict that if Apple gets record companies to agree to $5/month for on-demand music, we will see a repeat of the shakeout that occurred around 2007-2008, which left only a handful of on-demand services in the market. When the smoke clears, Apple could well find itself with a much larger chunk of the on-demand music market than if it were to try to grow its share organically.
The remaining mystery is whether Apple intends to add a free tier to Beats Music, such as a limited on-demand capability under the iTunes Radio banner. The advent of free, legal on-demand music from Spotify and (effectively) YouTube in 2011 did cause the on-demand model to grow from a niche product for music geeks to a mainstream offering. On-demand is still not quite as popular as Internet radio — I estimate the on-demand audience to be about 60% of the size of the audience for Pandora, iHeartRadio, etc. — but it has surpassed the user base for paid digital downloads.
On-demand is clearly a big part of the music industry’s digital future. Apple is behind in the transition from downloads to access-based models and needs to catch up. Only dramatic, disruptive gestures can make this happen, and halving the price is certainly one of them.
UPDATE 29 March, 2015: It looks like we were wrong. Although the majority of respondents to the poll predicted that Apple would succeed in lowering the price of subscription music to $5/month, the major labels are holding the line at $10/month. That’s the pricing that Apple expects to maintain when it launches its rebranded on-demand streaming service later this year.
That Old Question Again September 28, 2014Posted by Bill Rosenblatt in DRM, Economics, Music, Services, United States.
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I’m looking at the U.S. music revenue numbers that the RIAA just released for the first half of 2014; at the same time, I’m reading Download: How Digital Destroyed the Record Business, a 2013 book by the noted UK music journalist Phil Hardy, who tragically passed away in April of this year. For “numbers guys” like me, the book is a bonanza of information about the major labels’ travails during the transition from CDs to purely digital music. It’s a compendium of zillions of hard facts and opinions delivered with Hardy’s typical dry British wit — though (like his other books) it would have benefited from a copy editor and, occasionally, fact checker.
One of the statements in Hardy’s book that sits somewhere between fact and opinion is his assertion — as recently as last year! — that the elimination of DRM from music downloads boosted sales. Sigh… that old question again.
The question of whether DRM-free music download sales helped or hindered the music industry (no doubt it was good for consumers) served as a sort of Rorschach test back in the late 2000s after Apple and Amazon started selling DRM-free downloads — rather like the Rorschach test of Radiohead’s “pay what you wish” experiment in 2011. If you hated DRM, DRM-free was going to usher in a bright new era of opportunity for everyone; if you liked it, removing DRM was going to spell the end of the music business.
So I thought that with the RIAA revenue statistics database in hand, I could put the old question to rest. Here is what I found:
In this chart, “Downloads” includes singles plus albums; “Streaming” includes both paid and ad-supported on-demand services (Spotify, Rhapsody, YouTube, Vevo)* as well as Internet radio (Pandora, iHeartRadio, Slacker, TuneIn Radio), plus satellite radio and a few other odds and ends. I estimated totals for 2014 by taking the RIAA’s newly released numbers for the first half of this year and applying growth rates from the second half of 2013 to the first half of this year.
The relevant dates are:
- April 2003: Apple opens the iTunes Music Store.
- May 2007: Apple launches iTunes Plus, selling tracks from EMI without DRM for $1.29.
- January 2008: Amazon launches AmazonMP3 with DRM-free MP3s from all labels.
- May 2009: iTunes goes completely DRM-free in the US.
- 2011: Spotify launches its “freemium” model in the US; major labels complete ad revenue share deals with YouTube, so that virtually all major-label music is available on YouTube legally.
Before we get into the analysis, let’s get one thing out of the way: the biggest change in music industry revenues from 2003 onwards was, of course, the dramatic drop in revenues from CDs. Those numbers aren’t shown here; for one thing, they would dwarf the other numbers. This is all part of the move from physical products to digital products and services, which has affected both downloads and streaming.
Now let’s look at what happened after 2007. Growth in download sales began to slow down a bit, while streaming remained fairly flat. Starting in 2008, growth in paid downloads remained virtually unchanged until the ad-supported on-demand year of 2011. 2008 was a transitional year for DRM, as Apple only offered a small amount of music DRM-free (and at higher prices), while Amazon offered all DRM-free music but had only a single-digit share of the market. The real post-DRM era for paid downloads started in May 2009.
So, to see what happened after the major labels agreed to sell digital files without DRM, we need to look at the period from May 2009 to the start of 2011, which is highlighted in the chart. What happened then? Not much of anything. Growth in download sales was essentially unchanged from the preceding two years.
One could argue that if streaming hadn’t ever existed, download revenues might have grown after January 2009, given that streaming revenues from 2009-2011 started to grow faster. But given that streaming growth didn’t accelerate immediately after January 2009, I wouldn’t make that causality.
So there you have the answer to the old question: removing DRM from music files had little or no effect on download sales.
As a postscript, my 2014 projections included an interesting factoid: vinyl album sales, if current growth rates continue, should reach about $340 million this year. That takes the resurgence of vinyl from a mildly curious hipster phenomenon to almost 5% of total music revenue. For comparison purposes, it makes vinyl almost as valuable as ad-supported on-demand streaming (YouTube, Spotify Free, Vevo) and puts it on track to exceed that segment in 2015. Vinyl could even end up equaling CD revenue sometime around 2016-2017 — for the first time since the late 1980s!
*Paid subscription on-demand services include download features, which use DRM to tie files to users’ devices and make them playable as long as the user pays the subscription fees. But the RIAA reports these as part of “subscription services,” lumping them in with streaming on-demand music.
Ghosts in the UltraViolet Machine September 24, 2014Posted by Bill Rosenblatt in Business models, Music, Publishing, Services, Video.
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A few brief items of interest this week. First is a reminder about Copyright and Technology London 2014 next Wednesday – there’s still time to register! We have a great lineup of keynote speakers, including Shira Perlmutter, Maria Martin-Prat, and Dominic Young of the Copyright Hub, as well as panels on hot issues such as ISP responsibility for policing infringement and content protection for “4K” video content. I look forward to seeing some of you in London next week.
Apple and Amazon Add UltraViolet-Style Family Accounts
Amazon and Apple recently announced the addition of “family accounts” for sharing content. These enable up to six users who share a billing address to link accounts and get access to each other’s content, including e-books, apps, music, and video. Apple’s Family Share is a feature of the new version of its mobile operating system, iOS 8, while Amazon’s Family Library feature is expected to launch later this Fall.
The primary difference between the two is that Apple Family Share enables the sharing of all videos downloaded from iTunes while Amazon only allows sharing of video streamed via Amazon Prime Instant Video, as opposed to videos purchased by non-members of Amazon Prime. (In other words, this is yet another gambit to entice more users into Amazon’s US $99/year Prime service.) Some websites have commented that Amazon’s service does not allow sharing of purchased music, while Apple’s does; but this is a bit silly given that music downloaded from both services is DRM-free.
It’s not particularly surprising that Hollywood studios have given both Amazon and Apple the rights to extend purchases to family accounts. That’s because the rights are similar to those that the studios already extend for the same types of content under UltraViolet usage rules. In fact, the availability of family access to video content from two of the biggest digital movie retailers eats into the advantages that UltraViolet offers. (UltraViolet’s principal retail partners are Nook (Barnes & Noble), Target, and Best Buy).
More surprising is that one of these retailers decided it was worth the development effort to add this feature (causing the other to add it as well); perhaps this is a sign that UltraViolet is catching on? Either way, this is yet another example of how the mainstreaming of digital content products and services has exposed deficiencies in the rights that users get to digital content compared to physical products such as DVDs (not to mention print books) and has led to innovation. I would expect a similar announcement from Google Play in time for the holiday shopping season.
Garth Brooks Launches GhostTunes
Finally, a minor hypestorm erupted in the music industry recently over the beta launch of GhostTunes, a new digital music retail site spearheaded by country music superstar — and longtime digital holdout — Garth Brooks. Contrary to initial reports, GhostTunes does not only sell albums; it also sells single tracks — though only at artists’ or labels’ discretion. Purchased music is available in an online locker and can be streamed or downloaded as DRM-free MP3s. Some items are multi-album packages that contain multimedia items, in the vein of Apple’s iTunes LP.
Many musical artists will surely like GhostTunes’ willingness to sell single tracks only if the artist permits it. The recorded music industry has been looking for ways to prop up the sales of albums in the digital age — just as UltraViolet was originally intended to help Hollywood studios prop up sales of movies while all of the growth is in streaming. According to RIAA statistics, single track sales accounted for about 1% of unit volume when the iTunes Music Store opened in 2003 and have grown to over 80% today.
Yet GhostTunes looks like it is shaping up to be the music industry’s Pluto Nash moment: an expensive undertaking whose primary function is to cater to the whims of a big influential star rather than to be successful as a business. Although GhostTunes is billed as an “artist-friendly” retail site, there’s little reason for anyone to go there other than the exclusive availability of Garth Brooks’s music in digital form… legally. The music selection comes from all three major labels but is limited: the press release touts “a million tracks” (compared to more than 20 million on iTunes or Spotify), while the site itself appears even more limited to a few dozen releases in each of several genres. The highlight of the current catalog is a bundle of a dozen albums plus a concert video from Brooks himself for $30.
GhostTunes received a moderate amount of attention two weeks ago, ranging from neutral and factual to critical and skeptical. The press release contains a combination of vague hype (“music fans and artists deserve more”) and either falsehoods or anachronisms (“Just as it seemed fans would be left buying music in an increasingly more restrictive configuration without the ability to take the music they purchase anywhere they please, GhostTunes.com offers a new way.”)
It’s hard to see what GhostTunes can possibly offer that isn’t available on iTunes or Amazon — other than low prices for album bundles — but we’ll see what it does offer when (or if) it goes from beta to full launch.
MP3Tunes and the New DMCA Boundaries March 30, 2014Posted by Bill Rosenblatt in Law, Music, Services, United States.
With last week’s jury verdict of copyright liability against Michael Robertson of MP3Tunes, copyright owners are finally starting to get some clarity around the limits of DMCA 512. The law gives online service operators a “safe harbor” — a way to insulate themselves from copyright liability related to files that users post on their services by responding to takedown notices.
To qualify for the safe harbor, service providers have to have a policy for terminating the accounts of repeat infringers, and — more relevantly — cannot show “willful blindness” to users’ infringing actions. At the same time, the law does not obligate service providers to proactively police their networks for copyright infringement. The problem is that even when online services respond to takedown notices, the copyrighted works tend to be re-uploaded immediately.
The law was enacted in 1998, and copyright owners have brought a series of lawsuits against online services over the years to try to establish liability beyond the need to respond to one takedown notice at a time. Some of these lawsuits tried to revisit the intent of Congress in passing this law, to convince courts that Congress did not intend to require them to spend millions of dollars a year playing Whac-a-Mole games to get their content removed.
In cases such as Viacom v. YouTube and Universal Music Group v. Veoh that date back to 2007, the media industry failed to get courts to revisit the idea that service providers should act as their own copyright police. But over the past year, the industry has made progress along the “willful blindness” (a/k/a “looking the other way”) front.
These cases featured lots of arguments over what constitutes evidence of willful blindness or its close cousin, “red flag knowledge” of users’ infringements. Courts had a hard time navigating the blurry lines between the “willlful blindness” and “no need to self-police” principles in the law, especially when the lines must be redrawn for each online service’s feature set, marketing pitch, and so on.
But within the past couple of years, two appeals courts established some of the contours of willful blindness and related principles to give copyright owners some comfort. The New York-based (and typically media-industry-friendly) Second Circuit, in the YouTube case, found that certain types of evidence, such as company internal communications, could be evidence of willful blindness. And even the California-based (and typically tech-friendly) Ninth Circuit found similar evidence last year in a case against the BitTorrent site IsoHunt.
The Second Circuit’s opinion in YouTube served as the guiding precedent in the EMI v. MP3Tunes case — and in a rather curious way. Back in 2011, the district court judge in MP3Tunes handed down a summary judgment ruling that was favorable to Robertson in some but not all respects. But after the Second Circuit’s YouTube opinion, EMI asked the lower court judge to revisit the case, suggesting that the new YouTube precedent created issues of fact regarding willful blindness that a jury should decide. The judge was persuaded, the trial took place, and the jury decided for EMI. Robertson could now be on the hook for tens of millions of dollars in damages.
(Eleanor Lackman and Simon Pulman of the media-focused law firm Cowan DeBaets have an excellent summary of the legal backdrop of the MP3Tunes trial; they say that it is “very unusual” for a judge to go back on a summary judgment ruling like that.)
The MP3Tunes verdict gives media companies some long-sought leverage against online service operators, which keep claiming that their only responsibility is to respond to each takedown notice, one at a time. This is one — but only one — step of the many needed to clarify the rights of copyright owners and responsibilities of service providers to protect copyrights. And as far as we can tell now, it does not obligate service providers to implement any technologies or take any more proactive steps to reduce infringement. Yet it does now seem clear that if service providers want to look the other way, they at least have to keep quiet about it.
As for Robertson, he continues to think of new startup ideas that seem particularly calculated to goad copyright owners. The latest one, radiosearchengine.com, is an attempt to turn streaming radio into an interactive, on-demand music service a la Spotify. It lets users find and listen to Internet streams of radio stations that are currently playing specific songs (as well as artists, genres of music, etc.).
Radiosearchengine.com starts with a database of thousands of Internet radio stations, similar to TuneIn, iHeartRadio, Reciva, and various others. These streaming radio services (many of which are simulcasts of AM or FM signals) carry program content data, such as the title and artist of the song currently playing. Radiosearchengine.com retrieves this data from all of the stations in its database every few seconds, adds that information to the database, and makes it searchable by users. Robertston has even created an API so that other developers can access his database.
Of course, radiosearchengine.com can’t predict that a station will play a certain song in the future (stations aren’t allowed to report it in advance), so users are likely to click on station links and hear their chosen songs starting in the middle. But with the most popular songs — which are helpfully listed on the site’s left navbar — you can find many stations that are playing them, so you can presumably keep clicking until you find the song near its beginning.
This is something that TuneIn and others could have offered years ago if it didn’t seem so much like lawsuit bait. On the other hand, Robertson isn’t the first one to think of this: there’s been an app for that for at least three years.
Capitol Records Prevails in ReDigi Case April 1, 2013Posted by Bill Rosenblatt in Law, Music, United States.
A federal court in New York City handed down summary judgment against ReDigi over the weekend in its legal fight with Capitol Records. In his ruling , Judge Richard Sullivan found the digital resale service liable for primary and secondary copyright infringement. He rejected ReDigi’s arguments that its service, which enables users to resell music tracks purchased on iTunes, is legal under the doctrines of fair use and first sale.
The decision is a surprising blow to the Boston-based startup, especially given that Judge Sullivan refused Capitol’s request for a preliminary injuction early on in the case.
The central holding in Judge Sullivan’s opinion was that in order to resell a digital file, a user has to make another copy of it — even if the original copy disappears, and even if two copies never coexist simultaneously. He based this holding on a literal interpretation of the phrase “copies are material objects” from Section 101 of the Copyright Act.
Once Judge Sullivan established that the ReDigi system causes another copy to be made as part of the resale process, the rest of his opinion flowed from there:
- The user didn’t have a right to make that new copy, therefore it’s infringement — specifically of Capitol’s reproduction and distribution rights under copyright law.
- ReDigi knowingly aided and abetted, and benefited from, users’ acts of infringement, therefore it’s secondary as well as primary infringement.
- The user resold the new copy, not the original one, therefore it’s not protected under first sale (which says that a consumer can do whatever she wants with a copy of a copyrighted work that she lawfully obtains).
- The “new” copies made in the ReDigi process don’t qualify as fair use: they are identical to the originals and thus aren’t “transformative”; they are made for commercial purposes; they undercut the originals and thus diminish the market for them.
In sum, as Judge Sullivan put it bluntly, “ReDigi, by virtue of its design, is incapable of compliance with the law.” At the same time, he was quick to point out that his was a narrow ruling based on a literal interpretation of the law, saying that “this is a court of law and not a congressional subcommittee or technology blog[.]” He investigated Congress’s intent regarding digital first sale and found that it hadn’t advanced since the U.S. Copyright Office — the copyright advisors to Congress — had counseled against allowing digital resale back in 2001.
I’ve always assumed that any district court decision in this case would be minimally relevant, as it would be appealed. ReDigi has already stated that it will appeal. And the opinion does contain patches of daylight through which an appeal could possibly be launched.
Most important is the opinion’s focus on the making of a “new copy” during the resale process. It’s hard to see how this gibes with the many “new copies” of digital files made during normal content distribution processes, including streaming as well as downloads.
In other words, if ReDigi is making “new copies” without authorization, then so are countless other technologies. Some such copies might be covered under fair use or the DMCA safe harbors. Other “new copies” are considered “incidental” (not requiring permission from the copyright holder); the judge didn’t explain why copies made by the ReDigi system don’t qualify as incidental. ReDigi did make a similar argument; the judge didn’t buy it because it didn’t involve the issues in this case, but a higher court, looking at the broader picture of digital first sale, might see things differently.
Judge Sullivan’s reliance on the Copyright Office’s 2001 report on digital first sale is also somewhat problematic. The Copyright Office believed that a “forward-and-delete” mechanism — not unlike what ReDigi has built — could actually support digital first sale. The Copyright Office simply concluded that such a mechanism would not be practical to implement. This does not comport with Judge Sullivan’s assertion that “forward-and-delete” requires a new copy to be made and thus cannot qualify as first sale in the first place.
Another notable feature of Judge Sullivan’s opinion is his assertion that “a ReDigi user owns the phonorecord that was created when she purchased and downloaded a song from iTunes to her hard disk.” The assertion that a user “owns” a digital download is itself controversial and not based on legal precedent. Judge Sullivan found no legal precedent for digital first sale, but somehow he did find a basis for asserting that digital downloads are “owned.”
Retailers of digital goods believe that they don’t actually sell them in the way that books, CDs, or DVDs are sold; instead they license them to users under terms that may resemble sale. The question of sale vs. licensing of copyrighted digital content is a gray area in the law, and it wasn’t up for examination here: Apple, for example, wasn’t a party to the case and remained silent throughout. But if Apple (or another digital content retailer) ever objects to its content being “resold” through a third-party service, it will have to deal with Judge Sullivan’s language; and once again, it may be harder for a higher court to ignore this aspect of digital resale when determining its legality.
It remains to be seen whether the above issues can be forged into a legal theory that can convince the Second Circuit appeals court to reverse Judge Sullivan’s ruling. Yet even if ReDigi throws in the towel and ceases operations, its very existence has called a lot of attention to the idea of digital resale. The mechanisms are in place today: beyond ReDigi, there’s at least one more startup (the NYC-based ReKiosk); and Amazon was recently granted a patent for resale of digital goods. Indie music labels and a few e-book publishers, at first, will most likely experiment with it.
This court ruling won’t eliminate digital resale; if let stand, it will simply restrict it to content that copyright owners have given permission to resell — permission that will probably include say over pricing, timing, and other factors. This will complicate the lives of resellers, but it will ensure that digital resale doesn’t harm copyright holders. In other words, ReDigi has let the digital resale genie out of the lamp. It’s bound to happen, one way or another.
Copyright Alert System Launches in U.S. February 25, 2013Posted by Bill Rosenblatt in Fingerprinting, Law, Music, Video.
With today’s launch of the Copyright Alert System (CAS) by the Center for Copyright Information, the United States joins the list of countries that have adopted a so-called graduated response system for educating Internet users about online copyright infringement and taking steps to punish repeat offenders. The CAS is finally launching after a few months’ delay, part of which was supposedly due to the effects of Sandy, the mega-storm that hit the northeast U.S. late last year. Other graduated response countries include France, New Zealand, and South Korea; the United Kingdom is currently struggling with its own implementation.
The CAS is a partnership between music and video content owners on the one hand and major ISPs on the other. The content owner representatives include not just the majors (RIAA and MPAA) but also the Independent Film and Television Alliance (IFTA) and American Association of Independent Music (A2IM). On the ISP side, membership includes the five largest providers: AT&T, Verizon, Time Warner Cable, Comcast, and Cablevision. Book and game publishers are not involved at this point.
The CAS is run by Jill Lesser, a tech policy veteran with deep experience on both the content and ISP sides. It has an advisory board whose principal function seems to be to curb abuses: it includes advocates for looser copyright laws (Gigi Sohn of Public Knowledge) and user privacy (Jules Polonetsky of the Future of Privacy Forum).
The CAS works similarly to other graduated response regimes: copyright owners employ infringement monitoring services, which can identify copyrighted works as users send them around the Internet using fingerprinting and other content recognition technologies. The monitoring services send notices to ISPs, which issue warning messages to users. The warnings get stronger with repeat infringements.
ISPs can opt to punish repeat alleged offenders by such means as throttling bandwidth and making users watch videos about copyright. (ISPs already have policies for terminating repeat infringers’ accounts, which they must have in order to maintain their eligibility for the DMCA safe harbor.)
Where the CAS differs from other graduated response systems is that it is not tied to law enforcement. The arrangement between content owners and ISPs is voluntary. ISPs will not terminate or suspend users’ Internet accounts, nor will they pass information about infringements on to copyright owners. Another difference is that the CAS is not being funded through taxes or levies on Internet service (although funding sources are confidential).
In other words, the CAS is a more purely educational approach than France’s HADOPI or other systems. Analysis of the CAS’s results will therefore be more useful in determining how successful education by itself can be in getting people to respect copyright. The hope is that education will do more than draconian statutory damages or blunt-instrument legislation.
Given how little effect those approaches have had, it may not be difficult to declare the Copyright Alert System a relative success in the years to come. As it is now, it seems like quite a reasonable system: it raises awareness about the importance of copyright by using advanced Internet technologies instead of relegating enforcement to outmoded nontechnical legal means; it is permeated with references to legal content sources; and it doesn’t cost users a thing.
Music Subscription Services Go Mainstream September 17, 2012Posted by Bill Rosenblatt in Business models, Music, Services.
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While revisiting some older articles here, I came across a prediction I made almost exactly a year ago, after Facebook’s announcement of integration with several music subscription services at its f8 conference. I claimed that this would have a “tidal wave” effect on such services:
I predict that by this time next year, total paid memberships of subscription music services will reach 10 million and free memberships will cross the 50 million barrier.
So, how did I do? Not bad, as it turns out.
The biggest subscription music services worldwide are Spotify and Deezer. Let’s look at them first.
Spotify hasn’t published subscribership data recently, but music analyst Mark Mulligan measured its monthly membership at 20 million back in May of this year. Judging by the trajectory of Mulligan’s numbers, it ought to be about 24 million now. In fact, Mulligan shows that Spotify’s growth trajectory is about equal to Pandora’s. Furthermore, that’s only for users whose plays are reported to Facebook. A redoubt of users — such as yours truly– refuse to broadcast their plays that way (despite constant pleas from Spotify), so make it at least 25 million.
Deezer, based in France, is Spotify’s number one competitor outside of the US. A month ago, PaidContent.org put Deezer’s numbers at 20 million total but only 1.5 million paid, and added that Spotify’s paid subscribership is at 4 million.
Rhapsody is the number two subscription service in the US market. Unlike Spotify and Deezer, Rhapsody has not embraced the “freemium” trend and has stuck to its paid-only model. Rhapsody passed the 1 million subscriber milestone last December.
The next tier of subscription services includes MOG, Rdio, and MuveMusic (where the monthly fee is bundled in with wireless service) in the US; regional players including WIMP, simfy, and Juke (Europe); Galaxie (Canada); various others in the Asia-Pacific market; and Omnifone’s recently launched multi-geography rara.com. These should all be good for a few hundred thousand subscribers each.
So among all these services, 50 million looks pretty safe for the number of total subscribers.. As for the number of paid subscribers, IFPI put it at 13.4 million for 2011 in its 2012 Digital Music Report, published in January. Given that this represents a 63% increase over 2010, we can be confident in saying that the figure now is more like 17-18 million, but I’d back it off somewhat because IFPI probably counts services that I would not categorize as subscription (such as premium Internet radio). So let’s say 13-15 million paid – way past my prediction of 10 million.
It’s also worth noting that if these figures are correct, the percentage of paid subscribership is in the 26-30% range. That’s in line with the 20-30% that readers predicted here when I ran a poll on this a year ago — the most optimistic of the poll answer choices.
To put this in perspective, 50 million still falls far short of the audiences for paid downloads, Internet radio, and even YouTube, which are all well above 100 million worldwide. But it proves that the public is catching on to the value of subscription services, and they are no longer a niche product for “grazers.”