LaLa.com and Embracing Sharing

The LA Times reports that “Sharing [Is] Still Divisive,” and this time the tool stirring the fires is LaLa.com, which allows individuals to trade their own CDs with each other.  Someone recently wrote me to say LaLa.com is based on “facilitating piracy.”  It’s sad that any time a novel sharing service comes out, the first instinct is to demonize it rather than find a way to embrace and monetize what music fans so obviously want.

LaLa.com is just like eBay in two senses. First, LaLa.com enables a more efficient market by reducing transaction costs in ways not possible in the offline world.  Second, people already had the ability to sell their CDs via eBay — LaLa just modifies the model.

Don’t get me wrong — some are going to use LaLa.com in illegitimate ways, but many will use it for legitimate purposes. People who bought their CDs — and thus already paid licensors — have
the right to give away their own property in this way.

In today’s world, almost everything facilitates piracy to some extent.  Computers
make copies; the Internet distributes copies. There is P2P, there are
darknets, there are sneakernets, there are campus lans, in 5 years
people may be swapping HD-DVDs worth of music and in the next 15 years maybe
a single keychain memory stick will hold the entire universe of recordings.

Artists will get paid in this world, but they’ll get paid differently and, I would contend, more. 
Lala is certainly part of a larger structure that’s upsetting settled
business models.  That doesn’t mean that it is simply “facilitating
piracy.”  To define it as such is unfair.

Regardless, given the myriad other thoroughly convenient methods people
can unlawfully acquire copyrighted content, excuse me for not worrying
about Lala as a mortal threat.  Downloaders (as opposd to uploaders) on
P2P have little vulnerability.  Swapping CDs filled with mp3s is far easier and costs less than using LaLa.

And for what it’s worth: LaLa is giving 20% of its revenues to artists. 
That’s a better deal than they ever got from used record stores.  What’s more, LaLa is reportedly losing money on every CD trade. 
It’s planning to use CD trading as a loss leader to sell CDs and online downloads — that’s right: LaLa only survives if it helps artists sell more records.

What will it take to embrace sharing and the sales-driver it could be?

SIRA: Disappointing in all the Predictable Ways

Update, June 6, 2006: Along with the many flaws discussed below, this draft bill of SIRA would do serious damage to fair use – take action now to stop this dangerous proposal!

Yesterday, a House subcommittee held a hearing on proposed reforms to Section 115 of the Copyright Act.  It’s a set of music copyright reforms that are disappointing in all sorts of predictable ways.  IMO, it’s also unlikely to pass in its current form.

For those joining the party late, licensing compositions for online and many other novel uses is an absolute nightmare for reasons described here.  In sum, it is unclear when the section 115 mechanical compulsory license (for distributing recorded copies of compositions) is applicable and over time it has grown wholly unworkable.  More importantly, many services are forced to pay two sets of entities for one particular use of one composition, as publishers through Harry Fox Agency (HFA, the mechanical licensor) and the Performing Rights Organizations claim applicable rights.

One particularly right-thinking approach to this problem was the Register of Copyright’s proposal last year.  It would have guided the market to consolidate reproduction, distribution, and performance in particular entities, probably the current PROs who could offer blanket licenses to all the songs in their catalogs.  Rather than simply solving the licensing issues of the services that brought this issue to the fore — primarily on-demand streaming, which HFA claims requires a license for buffer and server copies — the Register’s proposal would have solved problems for tomorrow’s technologies. After all, in 5 years, interactive streaming may be rather irrelevant.

And thus, in 5 years, Section 115 Reform Act (SIRA) may be irrelevant too.  SIRA does replace the out-dated per-song compulsory license with a blanket license.  But it only extends the section 115 license to cover full downloads, limited subscription service downloads that time out, and on-demand streaming.  It doesn’t clarify what implicates performance or mechanical rights.  Podcasters still will be forced to pay HFA and PROs and face hold-out problems, and so will tomorrow’s novel uses.

SIRA would mean that non-interactive webcasters no longer have to pay for their server and buffer copies (even though interactive webcasters would be forced to).  But SIRA states that any service that enables time-shifting — such as Mercora — still has to pay the compulsory license for these copies. Why should webcasters have to pay extra for helping music fans make a use that, using non-affiliated software, they could make for free?  And why should that payment be related to the ephemeral and server-side copies license?

SIRA minimizes the number of licensors that one would have to go through, by designating one licensing entity (the General Designated Agent) that will by default be able to license all works that are not registered with a licensing entity.  All that means is that HFA, which has been repeatedly criticized for its many inefficiencies, has its place in the value chain secured.  Given their market share, they no doubt will be the GDA, so consolidation of licensing (as under the Register’s proposal) is even more of a pipe dream.

SIRA also requires the DAs to create an electronic searchable database, accessible to the public, that, theoretically, should help people track down licensors and reduce transaction costs. Of course, HFA has been promising to create and improve its licensing system for years, dragging its heels all the way. Given that the language here isn’t particularly strong (allowing for “reasonable confidentiality”), excuse me for not being particularly optimistic.

While it doesn’t solve the root problems facing the music industry and its licensing processes, it will clear the way for current subscription and download services. So why won’t this pass?  Jon Potter, representing music service providers, and the National Music Publishers Association’s David Israelite largely support the Act and used the least confrontational language in any of the many hearings they’ve had. However, RIAA strongly opposes it. 
First, SIRA doesn’t apply to physical and online-offline hybrids. Second, record companies are cut out as pass-through licensors for digital music services (i.e.,
collecting the mechanical monies from Apple or Rhapsody and then
distributing it). In other words, they want to protect the dying physical product revenue stream and they want their position in the online value chain entrenched, just like HFA’s. 

Expect these parties to keep squabbling over how to protect their power as intermediaries. Expect very few beneficial policy changes to occur. Expect disappointment with composition licensing reform.