Digital killed the radio star

1here's no end to the issue of digital piracy. While we've attacked the bully tactics of
the music and movie industries, the opinions presented by intellectual property and
entertainment lawyer David Moser provide the voice of reason.
By Heinz Bulos
December 2003

ew months ago,
LN1LRPRISL attended a
symposium at the UP College o
Law on the music and piracy issue. One
o the speakers was Daid Moser, an
attorney with oer ten years o experience
in intellectual property and entertainment
law. le has represented clients in the
music, moie, teleision, book publishing,
and Internet industries.

Moser is also a proessor at the Mike Curb
College o Music & Lntertainment
Business at Belmont Uniersity in
Nashille, 1ennessee where he teaches
courses in Intellectual Property Law, Legal
Issues in the Music Industry and Music
Publishing.

Moser is the author o "Music Copyright
or the New Millennium" and has also
written numerous articles pertaining to
intellectual property and entertainment
law which hae appeared in publications
such as Billboard, Lntertainment Law &
linance, Lntertainment and Sports
Lawyer, and the Lntertainment,
Publishing and the Arts landbook. Moser
is a recipient o the lulbright Scholar
Award to isit the Philippines and
conduct research on piracy o music,
moies and computer sotware.

\hile one obiously knows where he
stands, Moser takes on a dierent
approach rom the sky-is-alling
doomsday scenario and jail-all-Internet-
pirates stance taken by the entertainment
industry. LN1LRPRISL has eatured a
special report on digital piracy called
\alk the Plank` in its April and May
issues, with a somewhat populist tone.
1he ollowing is an insightul and certainly
somber interiew with Moser on the
controersial issues rom the perspectie
o the entertainment industry.

1he entertainment industry has a
history of battling new technologies
that threaten it. But in those cases, it
has been proven in court that these
technologies, such as CA1V and the
VCR, while lending itself to possible
copyright infringement, have uses that
are beneficial. Shouldn't this apply to
file-sharing technologies?

\es, I don`t beliee that any technology is
inherently illegal. Instead, a technology
such as ile-sharing can be used legally or
illegally by indiiduals. 1he problem with
ile-sharing is that it is used predominantly
or illegal purposes - speciically to
commit copyright inringement. 1he ast
majority o iles traded using ile-sharing
sotware rom Napster to KaZaa contain
copyrighted music and other content
which is being traded without the
copyright owners` permission.

1here certainly are legal uses o ile-
sharing such as academics sharing
research, etc. loweer, the percentage o
legal ile-sharing is extremely minimal.
Len so, this doesn`t mean that ile-
sharing should be made illegal, but it
should be regulated in some manner in
order to limit its illegal use. One
misconception that seems to exist is that
the record industry lawsuits against ile-
sharing serices such as Napster, Aimster,
etc. sought to stop ile-sharing. 1his is
A
really not true since the rulings in these
cases did not order the ile-sharing
companies to shut down. Instead, they
ordered them to use some type o iltering
sotware to block access to iles identiied
by the record companies as containing
their copyrighted works. Although some
meager attempts were made to do so,
companies such as Napster and Aimster
chose to go out o business instead, in all
likelihood because without the illegal ile-
trading o copyrighted content, they didn`t
see any way they could be proitable.

1he industry is also using technology
to protect its intellectual property, but
often at the expense of consumers,
such as in the case of CDs that can be
played only on certain equipment. Its
online music services have not
resonated with consumers. What is the
entertainment doing wrong?

I think that the entertainment industry has
been experimenting with seeral dierent
approaches to try to igure out what will
be acceptable to consumers while also
proiding some measure o security
against massie inringement o their
copyrights. 1he online music market is
still in an early phase o deelopment. I
think the experimentation will continue
or a while longer until the industry can
get a reasonable idea o how to make
music legitimately aailable online in a way
that is acceptable to consumers while
proiding a reasonable leel o security
and a reasonable proit margin or the
industry.

Some say the combination of lawsuits
and mediocre alternative offerings
from the music industry is turning off
and alienating the very consumers it's
targeting. Do you agree? What should
the music industry have done better?

1o some extent I do think this is accurate
in that the music industry was a bit slow
to start proiding a legitimate online
music market. loweer, I can understand
their caution to an extent as well since
doing business online has not proen to
be anywhere near as easy as many people
were predicting a ew years ago. Also, it is
much harder and time consuming to
deelop a legal online music market than
an illegal one. 1o do it legally, in addition
to other hurdles, there is the impediment
that all o the music to be made aailable
online must be properly licensed. 1his
means obtaining licenses rom thousands
upon thousands o copyright owners or
establishing some type o collectie
licensing system, either o which inoles
signiicant time and inestment. linally, as
ar as the lawsuits, I think they are a
necessary part o what the music and
entertainment industry has to do to
protect its business. I don`t think any
industry would just idly sit by while new
companies sprung up whose business was
essentially based upon making it easy to
steal the main assets o the existing
industry. Most o all, I think the music
industry needs to continue to learn to be
lexible. 1he way it has done business or
about a century ,selling physical
recordings, is going to hae to change and
the industry will hae to eole ,probably
rom a sales-based model to more o a
licensing-based model,.

Certainly, most people believe that
copyright owners ought to be
compensated. But as the piracy
problem shows, they are willing to pay
only at a certain price point. While
there will always be a segment that will
refuse to pay anything, there is a
significant number of consumers (if
the success of Apple i1unes is any
indication) that is willing to pay for
music downloads. In the Philippines,
with the cost of original VCDs down to
JS0 pesos, it appears that consumers
are able to afford such price point,
despite the alternative pirated copies
that sell at a fraction. If intellectual
property products are price elastic,
shouldn't the entertainment industry
adopt a low price-high volume
business model instead?

I think that one thing the entertainment
industry can and should do is to price
their products and serices as reasonably
as possible. lor example, the moie and
music industries in the Philippines hae
done this such as with the P150 VCDs
you mentioned. loweer, there is no way
that legitimate businesses can compete
with the prices pirated goods are sold or
,not to mention the ree mentality o
many ile-sharers,.

1he entertainment industries inest huge
amounts o money in producing and
marketing their products and the prices
they sell them or hae got to enable them
to recoup their costs and turn a proit.
CDs, een at what most consumers seem
to think are too expensie prices, are
subject to ery low proit margins
compared to most other retail products
and the majority don`t sell enough to
recoup their costs let alone earn a proit.
So although I think the music industry
needs to be open to new pricing models,
especially in the online market, I don`t
think that drastic reductions in prices are
ery likely.

1he threat of digital piracy is putting
the power into the hands of
consumers, who dictate how much
they're willing to pay, and when and
how they want to enjoy music and
movies. Of course, the entertainment
industry wants to control its monopoly
on distribution and pricing. Some are
even predicting the end of copyrights
as we know it. What are your thoughts
about this?

1he statement that digital piracy is putting
power into the hands o consumers who
dictate how much they're willing to pay
scares me a bit since it seems to imply that
illegal behaior can be used to orce an
industry to change its business practices.
Consumers are always ree to decide what
price they beliee is too high or a product
or serice and to reuse to pay such a
price. loweer, that certainly doesn`t
justiy stealing the product or serice. As
an analogy, i someone were to inent a
new technology that made it easy to steal
cars and as a result, auto thet increased
dramatically, would that mean that the
auto industry should hae to cut their
prices On the other hand, i digital
technology used legally osters a more
competitie enironment which ultimately
results in lower prices, that`s great.

Since the beginning o the Internet boom
in the late 1990s, some people hae
claimed that inormation wants to be
ree` and that copyright cannot surie.
\hile much inormation is ree, I`m
willing to bet that copyright will surie.
Copyright`s beginnings were a delayed
reaction to a technological innoation
called the printing press and copyright has
adapted to new technologies or seeral
centuries. In act, without copyright, the
Internet wouldn`t be anywhere near as
popular as it is since the ast majority o
online content is copyrighted. I you did
away with copyright, a lot less o this
content would be created and the Internet
as well as art and culture in general would
certainly suer as a result.

1he entertainment industry,
particularly Hollywood, has a strong
influence over the Democrats, who
sponsor such bills as the Consumer
Broadband and Digital 1elevision
Promotion Act and the Anti-
Counterfeiting Amendments of 2002.
1here is this seemingly unholy alliance
between Hollywood and the
Democratic party. Your comments?

\hile I don`t personally agree with it, I
think that`s just part o the American
political system. 1he entertainment
industry lobbies Congress or laws that
aor it just as all major industries do. It is
true that lollywood has had a stronger
connection with Democrats than
Republicans, but some o the most
supportie members o Congress toward
the entertainment industry such as Senator
Orrin latch ,who is also a Christian
songwriter, are Republican.

You're here for a Iulbright Scholar
Award to research on the Philippine
situation. What have you observed so
far? What do you hope to achieve after
your visit?

\es, I`m here doing research on copyright
law and piracy in the Philippines. lirst o
all, I beliee that the current Philippine
copyright statute is quite adequate and in
line with international standards. It is ery
similar to the current US law and in a ew
respects, it is more protectie than US
law. Ater my isit, I will write a law
journal article dealing with piracy in the
Philippines and the pending Optical
Media Act ,a bill designed to regulate the
media copyrighted works are stored on,.
I`ll also do some seminars in the US to
inorm about the research I`e done and
about the Philippine music industry. I
don`t hae any illusions about being able
to sole the piracy problems o the
Philippines. Mainly my goal is to help
inorm people o some o the problems
related to piracy since I beliee that the
only way people may change their
behaior is by making educated decisions.

One o the things that has stood out to
me during my isit to the Philippines has
been the loe o music among lilipinos.
\hereer you go, you can hear people
,rom taxi driers to store clerks, singing
along to music played on the radio. I`e
also had the pleasure o listening to local
musicians and bands, many o which hae
talent rialing the most well-known
recording artists. \ith this degree o
talent and loe o music, one would hope
that there would be a thriing local music
industry, employing many lilipinos,
contributing to the lilipino culture and
economy, and spreading music created by
lilipinos throughout the world.
Unortunately the high leel o piracy
makes this unlikely. I the piracy problem
could be reduced, I think there would be a
much greater chance or the Philippine
music and entertainment industries to
grow and prosper.

What do you think about the new
distribution areas that the Philippines
is adopting, such as videoke machines,
ringtones, cellphone music downloads,
etc.? Also, some suggest that
musicians and record companies
should just make money from ancillary
sources like concerts, merchandise,
etc. since it's close to impossible to
fight digital piracy? In other words,
give away the music and make money
somewhere else. What's your reaction?

As to musicians and record companies
making money rom ancillary sources
rather than trying to sell music, I don`t
think that`s a iable solution since those
ancillary sources o income would not
exist without a record business. \ithout a
hit record, artists wouldn`t be able to
make much money at all rom concerts or
merchandising because there wouldn`t be
enough demand or their perormances or
merchandise. In the US, record companies
do not participate in concert or
merchandising income ,although
musicians do,. Also, only the most
successul o artists make much money
rom touring and merchandise, so this
wouldn`t help the ast majority. linally, as
a lietime music loer, I don`t really like
the idea o saying that recorded music is
not worth anything which is essentially
what this approach would be doing. A lot
o work goes into creating and selling
music and the artists, record companies
and other participants are entitled to
compensation or their work.

I think new distribution media such as
ringtones, etc. are great since the more
ways we can make music aailable, the
better. Ringtones and ideoke supplement
rather than replace existing distribution
models and probably help promote more
sales o music in other ormats. All in all, I
beliee that consumers should hae a
ariety o options as to how they listen to
music as well as price. 1he good news is
that entertainment companies, although
still somewhat cautious, are beginning to
be more willing to make their products
,music, moies, etc., aailable through
new distribution ormats and business
models.

Moser later sent a follow-up e-mail on
his thoughts on the financial viability
of online music services.
Looks like there's going to be a bunch o
new download type serices soon along
the i1unes model. I'm still not coninced
o the inancial iability o these
businesses or any o the parties inoled.
I'e been playing with the numbers to
estimate what eeryone is making:

Lxample: >1.00 download price. 50 cents
to be diided between record label, artist,
producer, songwriters & publishers.

Does label pay artist royalty rate ,12 -
20 o retail, or based on 50,50 licensing
model ,Most majors hae said they will
split 50,50,. I standard royalty rate, artist
makes only 12-20 cents, rom which the
producer`s royalty o about 3 cents must
be deducted, leaing the artist with as little
as 9 cents.

I 50,50, Label pays artist 25 cents ,Artist
responsible or producer royalty,, Lg: 25 -
5 cents ~ 20 cents let or artist assuming
equialent o traditional 3 o SRLP
producer royalty

Compare this to a CD sale where een a
new artist generally earns about a >1.00
royalty - songwriting,publishing royalties
up to 80 cents i the artist writes. 1his is
why some major artists are ery resistant
to allowing downloads. 1hey`ll likely make
a lot less money een i they hae
substantial sales o indiidual downloads.
1his will also likely reduce the amount o
adances record and publishing
companies are willing to pay artists and
songwriters.

Ater deducting the publishing royalty o
6-8 cents, the label retains about 19 cents,
rom which it must try to recoup its costs
,production, marketing, general oerhead,.
Considering the substantial costs o
marketing music, it would take an
enormous number o indiidual download
sales to do so.

1his seems like an exceptionally thin
margin or eeryone inoled which is
one reason I think there will hae to be
other online sales options as well
,subscriptions, etc.,.