Digital Transmission Rights: Revisiting with Internet Radio

Last week, digital music hit the headlines again when news came that Internet Radio was now at risk. Increasingly popular online radio services, such as Pandora, have stated that these fees would put them out of business. In short, a company can broadcast music over the radio by compensating the song writer while that same company must pay double fees if it streams the music over the Internet:

Internet radio royalties have become a thorny issue in part because conventional stations do not pay [labels] to use recordings. Both online and regular stations pay royalties to songwriters. But under a 1995 law, companies that transmit music using the Internet … must compensate both. … The $500 minimum for each channel is among the ruling’s more difficult aspects. Many Web radio sites offer thousands of channels, a strategy that would be impossible with this rate structure.

I can not understand why these labels are pushing so hard to destroy their own business in a time where CD sales are seeing record declines. The simple answer is that they don’t understand the Internet as a new medium, but the true answer is that they understand it all too well. They recognize that in an age where content is digitally distributed, the labels will be the first to die.

Bennett Lincoff, recently famous for this article on the Digital Transmission Right, followed up on his original article and addressed this exact issue last month. In it, he argues why Internet Radio could thrive at the benefit of content owners if the entire right to distribute was sold as a package, rather than as a per-play fee. This right would give the recipient nearly unlimited rights to give away, stream, or sell the content over the Internet to anybody who wants it. Legal versions of services such as Kazaa could resurface, so long as they pay for the transmission right. The cost of this right could be offset with ads and subscriber fees, but the benefit to consumers is clear. Lincoff goes on to predict:

Moreover, new businesses may arise to displace record labels as the source of funds to underwrite concert tours … And, as the digital music marketplace matures, the network itself will become the primary channel of “distribution” and licensed transmissions will displace sales … These circumstances suggest that the relative importance of the roles played by the major record labels … may diminish over time.

While the Transmission Right sounds great, it has a very long uphill battle.

One of the main problems in the uptake of this Transmission Right is who it needs to lobby. Because it will potentially sideline any major label, anybody who supports it could be seen as a hostile entity. Thus music producers may be less willing to support it because they would be afraid of upsetting their label. This means most mainstream artists will not join this movement. The labels themselves would do everything in their power to crush the idea of a transmission right that encourages activities like file sharing. Thus higher Internet Radio fees would be pressed faster than ever, in a short-sighted attempt to kill Internet Radio in its infancy, thereby destroying general demand for rights like the one Lincoff suggests.

Right now, the world is probably still not read for this right. Not because it isn’t a good idea, but simply because the politics involved: there are too many people with very deep pockets who want digital distribution to fail. But with CD sales hitting a recent all-time low, the tides are shifting.

For something to change, it will require a smart and savvy entrepreneur to build a company that negotiates these rights individually with the artists. This would probably need to start with the indie bands and slowly expand. In short, a band would need to understand how these rights benefit them. Here are the four closing points that every artist should know about the Digital Transmission Right:

  1. The rights to the music remain in the artist’s control.
  2. Income is only limited by how many deals the artist makes. The transmission right can be resold to any number of distributors for any price the artist can get, which could scale based on the size of a particular medium. For example, this means a different distribution deal with Yahoo Music, iTunes, and Myspace.
  3. The end user gets a DRM-free copy of the music. They may have paid for this song, perhaps through a service like iTunes, but it is 100% DRM free.
  4. Music discovery explodes. A consumer can listen to full tracks with no legal repercussions. They can find new artists they like and share these songs with their friends and family.
  5. No middlemen. The artists make money from selling this right and through proceeds at concerts. They keep the majority – possibly all – of the renevue.

Everybody wins. Well, everybody, but the RIAA.

3 thoughts on “Digital Transmission Rights: Revisiting with Internet Radio”

  1. Michi, I think you are right, this is also my take on it, and I agree with the philosophy.

    Despite the fact that I think Bennett has made a bold proposal I wonder if it is enough to change attitudes. When I proposed a system that would allow small time trading/sharing while still recognizing the rights (and need to reward) authors at the 22nd Chaos Communication Congress[1] a lobbyist at the EU parliament told me it would never get off the ground because of all the vested interests. (DRM will rule)

    I wonder if Bennett thinks change can really happen.

    (p.s. What are your thoughts on Rebol [2])

    [1] 22C3,

  2. Thanks for the nice comments! :) I’ve notified Bennett so maybe he’ll reply soon.

    In the meantime, I’ll address one part of your commentary. I think that the entire point of Bennett’s proposal is to get the media companies to change their mindset (very tough uphill battle) and acknowledge that in today’s age, media such as music is inevitably shared (as it was for thousands of years). The entire point is that it’s near impossible to monetize on this sort of activity. If people trade and share, so be it. But in this new world, no major trading hub will exist without paying the fees necessary to keep it legal. So small time “illegal” trading might happen, but nothing that will compare to today’s rampant un-monetized downloading.

    Thus, his proposal taps the top level of the distribution chain, rather than shutting them down. Sharing on the individual level no longer becomes an issue. This is all about sharing on the global, mass market level — and monetizing that by making it legally sanctioned.

    At least that’s my take on it. :)

  3. Michi,

    Thanks for all your commentary. Although I have only recently found your Blog it all looks well thought out and presented . Thanks also for leading me to Bennett Lincoff’s work and his ‘Digital Transmission Right’ proposal. I found this very interesting and full of possibilities and it also relates directly to some of my thoughts in this area [1]. However, in my mind, it also raises a number of issues and questions. Do you think there is any chance we could get Bennett Lincoff here to discuss them?

    My first point would be wouldn’t the transmission right have to be very well defined if it was not to have the same problems as the reproduction right. The reproduction right is an exclusive right which means that dispensations are required (fair use) when users start making digital backup copies etc. We know all the complications in this area. The transmission right could have a similar problem: the consumer would be free to make copies but when they pass on a copy to a family member or friend down the road that would be a ‘transmission’ from one person to another and we are on the slippery path again.

    Next, in Lincoff’s last paragraph he says, “In this global network, no issue stands alone, nothing can be treated in isolation, and stop-gap measures will not work.” I agree with his views here but it makes me worry that his proposal does not go far enough. The Internet is global and all forms of media can cross it so I tend to think any solution should not be limited to music and the music collecting societies.

    I think you are right about the lobbying problem and the battle for change. Do you know of an entrepreneur who wants to work in this area?


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