• Fundamentally, both systems would be predicated on the notion that if the price of music were lowered enough, many consumers who currently obtain music illegally would start to pay for it, and artists and labels would end up making more money than they do now. Nevertheless, since both systems would be voluntary for consumers, artists and labels would need to continue their campaign of legal threats against consumers in order to ensure that they have an incentive to pay.
• Since both systems would be voluntary for artists and labels, it’s likely that some music wouldn’t be covered by the monthly fee. Consumers who downloaded such music without paying for it separately would be subject to the same liability for copyright infringement that they are subject to now.
• Both systems have the potential to concentrate market power in the hands of one or a few music outlets, whether they are collection societies or online music stores, to the detriment of artists and consumers. Therefore, in both cases, it’s probably essential that there be robust competition between music outlets.
• Although collective licensing would give consumers maximal control over the formats that their music is available in and the devices that they can play it on, DRM-free iTunes could provide almost as much flexibility. The lack of DRM would ensure that consumers would be able to convert their music into the formats that were most useful to them. Moreover, many of the novel music recommendation and sharing applications that could be built around a collective licensing scheme could also work with hypothetical iTunes if, instead of trading in the music files themselves, they traded in deep links to individual songs on iTunes.
• While the peer-to-peer distribution model that collective licensing relies on is more bandwidth efficient than iTunes’s current centralized distribution model, there is no reason why iTunes couldn’t adopt peer-to-peer distribution as well. One could envision an iTunes client that, whenever possible, transparently used a BitTorrent-like protocol to retrieve songs from other iTunes users instead of from Apple’s servers.

Given these similarities, why has collective licensing attracted so much interest? After all, unlimited, DRM-free iTunes might actually be better than collective licensing at tracking music popularity, ensuring consistent quality, and serving “long-tail” demand. It seems to me that the true appeal of collective licensing is that offers the prospect of a grand bargain between music producers and music consumers: all producers agree to end their legal threats and to free consumers from having to think about copyright, but in exchange, all consumers agree to pay a fixed fee. Such a bargain can only work, however, if participation among producers and consumers is nearly universal. Otherwise, producers wouldn’t be able to relinquish their right to sue and consumers would still be burdened with having to make sure that the music that they download and the people that they share music with are under the collective licensing umbrella.

Perhaps it’s the appeal of nearly universal collective licensing that led Jim Griffin to propose a system that, despite being described as voluntary, seems rather mandatory. The desire to create a licensing scheme that’s almost mandatory seems to be the most plausible explanation for Griffin’s decision to involve, and inevitably share revenue with, ISPs.

There is precious little hard data on this, but people are very quick to ascribe reasons, everything from “Because all information should be free and paying for copyrighted works is morally wrong” to “because some people are criminals and have no morals about stealing”. But I’m curious to what people think about this in 2008, given that Napster 1.0 is 8 years behind us, given that there are now a range of options for digital music acquisition, given that the RIAA has had nothing if not a visible presence with their legal campaign. Dan Levitin, I’m especially curious to hear what you might have come across on this in research your book.

This can be a charged question, and of course there might be many reasons, so lets keep it civil.

Consider the consumer’s plight in a voluntary system. I want to listen to some track. I don’t know (or care) which label it comes from, or whether that label has opted in to the collective license. In short, I don’t know whether I can legally download the track I want. This problem is easily fixed by making the license mandatory for copyright owners.

Now consider the plight of a label that has opted in to a voluntary system. To preserve consumers’ incentive to pay for music, the label wants to enforce its copyright against downloaders who haven’t joined the voluntary license system. But how is the label to tell which downloads are from paying consumers? It’s not so easy to tell, in practice, which consumer is at which computer — nor will consumers be eager to identify themselves to every peer or service they connect to — so the the label will have trouble enforcing its copyright effectively. This problem is easily fixed by making the license mandatory for consumers, especially if a majority of consumers have already bought in.

We already see a step in this direction, in the proposal to have ISPs buy in on behalf of their customers. (In principle, an ISP could let each customer make his or her own decision about whether to join. I’m talking here about proposals that ask ISPs to buy in all customers en masse.) If the ISP market were highly competitive, the market would protect the interests of customers who don’t want to buy in. But in practice there is limited ISP competition — in most places, just the phone company and the cable TV company — so we can’t put too much faith in ISP competition to protect the interests of a minority of customers.

Worse yet, ISPs will become a focal point for political and business pressure to opt in. ISPs often take political heat over their customers’ infringement. Giving an ISP a way to buy out of this political pressure — and pass on the cost to customers — will add to the incentive to opt in to a license. And each ISP who opts in will make this pressure stronger. In the limit, a law might be passed to make ISP participation mandatory. But even short of that, ISPs who want to please Congress and the FCC — the bodies that create the regulatory sea in which ISPs swim — may find it expedient to buy in, even if their customers would rather they didn’t. Centralizing the opt-in decision in the ISP changes the political equation in a way that makes a mandatory system more likely.

To be clear, I’m not advocating a move to a mandatory system. I’m just arguing that there will be pressure to move in that direction, once a voluntary system is adopted or seriously proposed.

What can we do to fight this slippery slope, and make a voluntary system more stable? I don’t know. I’m hoping some of you have good ideas.

The first question to ask is what we mean by online song popularity. Will the metric be the number of times a song is downloaded or the number of times a song is played? Both seem to have precedents in the existing business model– the “download metric” is analogous to individual CD sales while the “plays metric” is similar to performance royalties. The possibility of streaming also adds complexity, as it can legitimately be considered under either category. The overall metric could be a combination of both downloads and plays, but how this should be done will be the subject of intense debate.

Despite no clear metric to work with, we can still consider how collecting societies would actually go about measuring popularity. There seem to be two broad strategies:

• Census. A census requires constant monitoring of a user’s downloading or listening habits and produces a near-perfect measurement of the popularity metric that is chosen. For example, iTunes and other music applications could report every single song played back to the collecting societies. Another option would be to work directly within the ISP to monitor all online traffic to detect which songs are being downloaded over P2P services. (I may be wrong, but presumably this is why ISPs are involved in the first place. The role of ISPs should be the topic of another post.) This near-perfect measurement would allow the societies to divide the revenue fairly to all artists, even those on the far end of the long-tail of music consumption.The problem with this is that users lose all privacy about their musical tastes. The “deep packet inspection” option within ISPs could potentially creep into even nastier security and privacy problems.
• Sampling. One could also sample from various online music services to make an estimate about the relative popularity of songs. It has been suggested that anonymous listening data from services, such as Pandora and last.fm among others, could be mashed together to produce the sample. The difficulty is that there will always be sampling biases and it is difficult to determine whether the drawn sample actually reflects the actual popularity distribution. The big drawback with sampling is that most artists in the long-tail will rarely, if ever, be sampled. No matter how sophisticated the sampling is, there will be these artists who are under-compensated, and some will never be paid at all.

Neither strategy seems ideal. The census privacy problem is an obvious no-go in my book, and I disagree with Fred that sampling should be the answer. While Nielsen can serve as guidance, sampling to set prices to pay a few large media corporations is different than sampling to provide paychecks to thousands of starving artists. Even if the law of large numbers eventually works itself out (i.e. the artist is paid $1000 with 5% probability each month, depending on whether she is sampled), this is no way to live and pay the bills.

So, is there a third way of measuring that is both accurate and privacy-preserving? Perhaps there is a compromise solution, using the market, where users who don’t consider their listening habits to be private can opt-in to the census and pay a cheaper licensing fee. There ought to be other, similar middle-ground strategies out there. Persuading both artists and listeners that a chosen strategy satisfies both requirements will require a high degree of transparency, just as Samantha advocates.

Regardless of measurement strategy, it is intrinsic in the industry’s move, from offline à la carte to an online buffet, that profit will soon come in as one large pie. And when this pie is made out of money, people will cheat to get the biggest slice. With any metric you choose, I can write a program that downloads or plays my favorite artist’s song repeatedly, day and night, 24/7. The best part, of course, is that my favorite artist could be me. You might try to implement technical countermeasures to stop me, but then I will hire a very large botnet to do the same thing and be harder to detect. We’ve seen many arms races like this before and, as it turns out, the security-breakers almost always win (see: all DRM, spam).

When we look at history in terms of major label recording contracts, we see that artists have consistently been taken advantage of. I attribute this to the behavior of both the music industry and its artists. It’s difficult to say which came first: the greedy controlling industry or the lazy, victimized artist.

We are in a new time requiring new ideas that reflect the culture of today’s society. Stereotypes no longer apply. Today’s successful artists are tech savvy and very much in control of their own careers. Whether you like it or not (and I happen to love it), the Internet and technology are front and center in today’s world. As people, we have been given the tools to achieve anything we set our minds to. As artists, there’s nowhere we can’t reach and, for the first time, no one is standing in the way of our fans. The playing field has been leveled and is only limited by our minds. At least, for the moment.

If I were a major record label the Internet would petrify me. It provides everything an artist needs to create and launch their own career single-handedly. Not only that, the artist has control of their own destiny for the first time ever! When you don’t understand something and it’s out of your control, you’re afraid of it. The Major Labels clearly don’t understand the Internet, so it makes complete sense that they would act out of fear.

Very wisely the majors are starting to hire people who do have a clue. One is Jim Griffin, who I respect and with whom I have agreed a lot in the past, recently hired by Warner Bros Records. Another recent notable hire is that of Google’s former CIO Doug Merrill by the flailing EMI Records. My first question is, how much room will these men be given to make changes? Who will be making the final decisions? I think we all know it will not be these men themselves.

Because this symposium is focused on Voluntary Collective Licensing, I will speak directly to the project Warner Bros Records C.E.O. Edgar Bronfman Jr. has hired Jim Griffin to spearhead.

There are three main problems I have with the Warner Bros project:

1. Performing Rights Organizations

Funds will be collected and distributed by ASCAP, BMI, SESAC, SoundExchange et al. Without going too deeply into why this is a problem I will simply state that there is no transparency within these organizations. They cannot be audited. Their methods of sampling, collection and distribution have nothing to do with reality and they must be revised from the ground up before any pool of money will matter.

2. Control/Net Neutrality

Major record labels have always been in control of this industry and by creating a collective license that’s supposedly voluntary, they are taking control of the industry yet again, as well as adding a new level of power by beginning to control the Internet. Universities and ISP’s know that should they choose not to participate, they will be direct targets for lawsuits. Consumers will begin to see that as well. Additionally, I agree with Techcrunch’s Michael Arrington that a blanket license will give major labels the authority to feed the public whatever music they like and to have the upper hand over artists reaching their fans directly.

3. Privacy invasion

There will most certainly be a database of those who opt in or out of the license, providing a very concise list of those who choose not to be controlled by or take part in the project. This list will be very easily narrowed down and, once the few who don’t listen to music have been filtered out, those who remain on the list will be tracked and lawsuits will most likely follow.

In agreement with Fred, I’m of the opinion that any blanket licensing must be on a voluntary basis in terms of artists, consumers and ISP’s. However, I do not believe that the project proposed by Warner Bros Records and Jim Griffin is in any way voluntary. You can call it that, but everyone knows who’s running the show here. Universities and ISP’s will gladly pay a fee to sidestep the wrath of the labels and their lawsuits. This leaves them right back in control of everything:from the top, through the Internet, the PRO’s and all the way down to the artist.

On the other hand, I think it’s important to compensate the industry for more than just lost profits. Record companies will continue to have significant costs to produce and promote their artists’ work. In figuring out a price, I’d start by multiplying the labels’ annual revenues from physical and digital sales by the percentage of the population that has broadband. I’d reduce that number by 20 to 25 percent, reflecting the demand for music that’s not likely to be available on file-sharing networks. Then I’d reduce that number by a third or more, to factor in the portion of the broadband-using public that would continue to buy CDs (based on the current ratio of about 2 digital units sold for every physical one). That would tell you how much revenue to shoot for. How much that translates to per month depends on whether you take Jim Griffin’s approach of applying the charge to all of an ISP’s customers, or Fred’s approach of leaving it up to individual users to decide. If it’s the latter, the charge would have to be about 50% higher to account for free riders and folks who simply aren’t interested in music.

Voluntary for Music Fans. People who do not share music shouldn’t have to pay for a license they don’t need. After all, we don’t have a “music tax on restaurants.” Restaurants are free to experiment with no music, public domain music, or CC music, as they see fit. Internet users should have the same freedom. But this means that there will still be some enforcement against those who don’t pay but keep downloading. That seems fair, and enforcement to get people to become paying subscribers will look very different from today’s “mount a few heads on spikes to scare the rest” approach being used by the RIAA and MPAA.

Voluntary for Artists. Artists shouldn’t be forced to participate if they don’t want to. That said, the vast majority of creators and rightsholders will likely opt in, rather than opt to sue individual Internet users. After all, 99% of all songwriters are members of one of the three performing rights organizations (PROs) we have today. It sure beats having to find and sue every radio station every time it plays your song.

Not a Collecting Society, but Collecting Societies. Freedom of choice for artists only means something if they have options to choose among. Competition is critical to keeping collecting societies honest and transparent. If you compare the three PROs that service songwriters in the US to the unitary, government-backed collecting societies in the rest of the world, our system wins hands down on these fronts.

Voluntary for ISPs. There is no need to force ISPs to offer blanket sharing licenses to music fans. Some ISPs will voluntarily bundle the license with their offerings (”buy the all-you-can-eat music package for $5 more”), some ISPs may choose not to. Universities might choose to buy campus-wide licenses in bulk in order to stop the RIAA’s college litigation campaign. Software companies like LimeWire might choose to bundle the license fee into their software, paid either by subscription fees or advertising. At the end of the day, it’s the individual fan who needs the license, and she should have lots of ways to buy it.

All the Music, From Anywhere. Music fans have made it clear that they are going to use whatever software they like, to download anything that can be found in any “Shared” folder on the planet, including the unauthorized concert recordings, the rarities, the old b-sides, and the alternate takes. It’s time to figure out who should be paid for them, rather than wishing for a world where you can somehow make them disappear.

Technology Agnostic. Linux, Mac, Windows, iPod, cell phone. Downloads, streaming, buffered streams. Music fans want their music in whichever format, on whichever device, works best for them. Once you’ve paid, it’s nobody’s business where your music comes from or where it ends up. It should go without saying that DRM is has no place in this future.

Protects Privacy. Paying for music sharing shouldn’t entail giving up your privacy. While the collecting societies will need to have some metrics of popularity in order to divide up the revenue pie, we should take our cue from television, where we divide up huge advertising revenues by relying on sophisticated sampling systems like Nielsen’s. Sampling and surveys are good — a perfect census of what every person listens to is not.

Our interest in this topic began with a blog post last week on Freedom to Tinker, Music Industry Under Fire for Exploring EFF Suggestion. Just to get you oriented, here’s an extended quote from the post (if you’ve already read the post, feel free to skip ahead.

Jim Griffin, a music industry consultant who is in the unusual position of being recognized as smart and reasonable by participants across a broad swath of positions in the copyright debate, revealed last week that he’s working to start a new music industry organization that will urge ISPs to bundle a music licensing fee into their monthly service costs, in exchange for which the major labels will agree not to sue (and, presumably, not to threaten suit against) the ISP’s customers for copyright infringement of the music whose rights they own. The goal, Griffin says, is to “monetize the anarchy of the Internet.”

This idea has a long history and has at various times been propounded by some on the “copyleft.” The Electronic Frontier Foundation, for example, issued in April 2004 a report entitled “A Better Way Forward: Voluntary Collective Licensing of Music File Sharing“. This report even suggested the $5 per user per month ($60 per user per year) that Griffin apparently has in mind.

According to the OECD, there were roughly 60 million broadband subscriptions in the United States as of the end of 2006. If each of these were to pay $60 a year, the total would be $3.6 billion a year. I know that broadband uptake is increasing, but I remain unsure how Griffin figures that the proposed system “could create a pool as large as $20 billion a year.” Perhaps this imagines global, rather than national, uptake of the plan? If so, it seems to embody some optimistic assumptions about how widely any such agreement could plausibly be extended.

Some prominent blogs have reacted with ire—Michael Arrington at TechCrunch, for example, characterizes the move as an “extortion scheme.” Arrington argues that a licensing system will hinder innovation because the revenues from it will be constant irrespective of the amount or quality of music published by the labels, and will flow to an infrastructure that, once it begins to be subsidized, will have little structural incentive to innovate. He also argues in a later post that since the core of the system is a covenant not to sue, it represents a “protection racket.”

I think this kind of skepticism is poorly justified at this point. If the labels can turn their statutory right to sue for damages after copyright infringement into a voluntary system where they get paid and nobody gets sued, it strikes me as a case of the system working. And the numbers matter: The idea of a $20 billion payoff that would triple the industry’s current $10 billion in annual revenue does not seem reasonable, but unless I am missing something it also does not seem probable.

After the blog post, we decided to make this idea the topic for our weekly policy lunch. The major take away from lunch was that there are a huge range of interesting questions. Here, to get the conversation started, is a partial list:

• How can we decide the “right” price to charge?
• What would this project do to existing services like iTunes, Amazon mp3 downloads, and Rhapsody?
• Won’t most users copy both covered and non-covered songs? Do users have to discern which songs and filesharing “peers” are also under the umbrella?
• How will downloads be measured? Will indie artists in the “long tail” of infrequent downloads be too small to register at all on the relevant metrics?

These are just a few of the possible angles of entry into the issue. I look forward to the discussion!