Press Release

Testimony of Mike Stoller On Behalf of National Music Publishers' Association Before the Subcommittee on Courts, the Internet and Intellectual Property Of the House Committee on the Judiciary.

Mr. Chairman, and members of the subcommittee, thank you for the opportunity to present the testimony of the National Music Publishers' Association ("NMPA") on "Music On The Internet."

Summary:NMPA believes that the rapid technological changes occasioned by the Internet are creating exciting opportunities to expand and enhance the ability to deliver to music to the widest audience possible. Significant hard work is being done — and some tension has arisen — in developing and implementing the appropriate business models to accommodate this new technology. NMPA's licensing subsidiary (The Harry Fox Agency) is actively modernizing its equipment and procedures to ensure the fastest possible licensing of these new modes of distributing music and to date has licensed over 30 music internet services.

Congress amended the copyright law in 1995 and again in 1998 to ensure that its music—specific provisions are flexible enough to accommodate digital technology and the Internet. These amendments —— which in essence direct affected copyright owners and users to negotiate appropriate licenses, and provide for arbitration of the rates and terms that cannot be negotiated — created the appropriate legal framework in which new business models could be developed. There is no need to change the law today; there is no legal or factual basis for doing so (despite the assertions of some); and indeed a change in the law (or even its serious consideration) might delay the launching of new Internet music services rather than promote progress.

Founded in 1917, NMPA is the principal trade association of music publishers in the United States. NMPA's members — over 800 today — own or control the overwhelming majority of musical compositions available for licensing in the United States. NMPA's wholly owned subsidiary, The Harry Fox Agency, Inc. ("HFA") is an industry service organization that represents over 27,000 publisher—principals, which collectively own more than 2.5 million copyrighted musical works. Established in 1927, HFA serves as agent on behalf of its publisher—principals in licensing copyrighted musical compositions for reproduction and distribution as physical phonorecords (CDs, cassette tapes and phonograph records) and over the Internet as digital phonorecord deliveries ("DPDs"). HFA is also responsible for royalty collection and distribution and auditing licensee compliance.

Current Law Is Working And Should Not Be Changed.

In enacting the Digital Performance Rights in Sound Recordings Act in 1995, Congress extended the existing "mechanical" compulsory license in section 115, which covers the making and distribution of phonorecords of protected musical compositions, to certain Internet uses.

In enacting these important changes into law, Congress did not attempt to anticipate every possible business model for making music available to Internet users. Nor, as we discussed in our recent response to a Notice of Inquiry from the Copyright Office, did Congress assign that burden to the Copyright Office. Rather, it provided general definitions establishing the principle that songwriters and music copyright owners — like record companies — should be compensated fairly and in a manner that reflects the economic significance of those business models for current as well as new sources of publisher and writer income.

Section 115 already contains a mechanism for dealing with the new services (website downloads and Internet streaming) discussed in the recent Copyright Office petition by the RIAA —— or any others that might arise in the future. Congress established its clear preference that the licensing of new music services be dealt with in private, voluntary negotiations and, if those negotiations are ultimately unsuccessful, by arbitration before a Copyright Arbitration Royalty Panel. This decision by Congress was the appropriate one in 1995, was reaffirmed in 1998 amendments to a parallel regime in section 114, and remains so today. To have chosen otherwise — or to choose otherwise now — would invite every new entrant into the online music market to bring what should remain private business matters to Congress or to the Copyright Office. Others might simply be tempted to use Congressional or regulatory pressure on rights owners and creators in an attempt to exact a more favorable deal. This is hardly a prescription for rapid introduction of legitimate services for the distribution of music or any other form of creative content.

We believe the model Congress has adopted can work for the benefit of songwriters, music publishers, record companies and companies seeking to offer innovative music services — and should be permitted to do so. Music publishers, through HFA, have already issued licenses to more than 30 music service providers covering downloads as well as interactive streaming services, and we are prepared to license others.

Music Publishers License Internet Music Services At Reasonable Rates

Music publishers and songwriters have every incentive to license their works in the digital environment — and indeed are required to do so under the terms of the compulsory license contained in section 115. Some digital music services imply that music copyright owners are deliberately impeding the issuance of licenses for online music services. This suggestion is both inaccurate and illogical. Music publishers only get paid when their work is used; if it is not used, no revenue is generated. NMPA members are eager (and economically motivated) to license their works in the new digital environment.

As noted above, music publishers (through HFA) have already issued licenses to more than 30 Internet music service providers. The charge that HFA is technologically incapable of licensing the large volume of works that the Internet requires is simply factually inaccurate, as we explain below in the discussion of our relationship with MP3.com.

The implication that songwriters and music publishers enjoy dual income streams that inordinately enrich them is preposterous. Owners of copyright in the underlying musical work in a sound recording receive — at most — 7.55 cents per song sold. (The retail cost of a CD is up to $18.95.) Congress has determined that digital transmissions which effectively substitute for the sale of phonorecords should be subject to the same copyright royalties as the physical sale of such records. Failure to adhere to this concept could decimate the vibrant, diverse songwriter and music publisher community. The concept was codified for songwriters and music publishers in the "digital phonorecord delivery" definition and related amendments to section 115 of the Copyright Act.

Some webcasters claim that their transmissions are identical to over—the-air radio broadcasts, are performances only, and should be subject only to the public performance royalties collected by the performing rights societies (including ASCAP and BMI). The radio/Internet analogy is fallacious on its face and should be rejected. Traditional radio broadcasts experience sound degradation and do not require any copies on the listener's equipment in order to facilitate the performance. In contrast, "streaming" Internet transmissions require the creation of perfect digital copies of the sound recording on the transmitter's computer, and perfect digital copies on the recipient's computer.

Moreover, users can now preserve and access the receiving computer's copy through use of the Total Recorder software — a generally available, easy to use product. (We are not talking about "hacking." Total Recorder is a generally available software product that takes no special knowledge or computer "tinkering" to use and is available over the Internet for as little as $11.95.) In other words, with today's technology, a "listener" can select a particular song or request a particular sub-genre of music from a webcaster, "listen" to the songs, and then instruct the Total Recorder software to copy the songs the listener wants to keep onto a permanent, separate file in MP3 format. The "listener" now has a perfect, permanent digital copy of a song, displacing any need for its subsequent purchase and effectively turning a streaming service into a source of countless free downloads. In this case, the sale of a phonorecord has either occurred or been displaced and a "mechanical" royalty is appropriately due to the music copyright owner. For parties such as webcasters to assert that they should never pay a "mechanical" royalty for their streaming activities is disingenuous —— pure and simple.

MP3.com And The Harry Fox Agency

HFA represents 27,000 music publisher principles in licensing (and other) transactions with major and independent record companies and over 30 Internet distributors. HFA is not only capable of licensing large volumes of titles in the Internet era — it is well-positioned to do so. This issue arises most often in the context of our settlement agreement with MP3.com, and the facts of the HFA—MP3 relationship prove our point.

Presently, HFA and MP3 are working under the terms of an interim license under which the MyMP3 service may operate while permanent licenses are issued. This is a critical fact that many do not hear: HFA has given MP3.com an interim license as to all of the titles it wishes to use commercially while individual permanent licenses are obtained.

HFA can and is processing permanent license requests from MP3.com. HFA and MP3.com technical staff to date have resolved 236,676 licensing requests (172,194 titles were licensed, another 64,482 requests were determined to be duplicates of other MP3.com license requests).

HFA has reviewed the entire file of 914,914 titles for which MP3.com has requested licenses, has provided a detailed report on these requests to MP3.com, and has determined that a substantial number of the outstanding requests cannot currently be processed due to incomplete information submitted by MP3.com. MP3.com's incomplete database likely arises because it improperly disassembled lawfully purchased CDs (which contain the necessary licensing information) and neglected to retain crucial data in the process. Other requests could not be processed because MP3.com adopted "default" entries and submitted erroneous entries where it lacked the requested information. To help MP3.com bring its MyMP3.service to subscribers, HFA has (1) arranged daily communication with MP3.com personnel to correct and clarify license requests and expedite the issuance of licenses; (2) provided MP3.com with written assurance that it will not support litigation against the company while licensing requests are processed; and (3) provided substantial technical assistance to MP3.com (including providing it with HFA's songfile database) in order that it may enhance its own database and submit its license requests in a format that will ensure prompt licensing.

In other words, the outstanding licensing requests are largely due to MP3's incomplete database. HFA is helping MP3.com improve this database, but the responsibility for the problem lies with MP3.

In recent testimony before the Senate Judiciary Committee, MP3.com asserted that HFA licenses are not reliable when more than one party owns the copyright in the music and HFA fails to represent each party. This is a plain misreading of the copyright law. HFA can issue a license if it merely represents one owner of a jointly held copyright, because of section 201(a) of the Copyright Act and the case law interpreting it. The law — and the leading copyright treatise —— are clear on this point: one joint copyright owner may license a work without the consent of the other joint owners, and a licensed party is immune from infringement actions by other owners of a copyright when any one owner of the work grants a license to a user. NIMMER ON COPYRIGHT, § 6.10.

In recent years, HFA has routinely issued licenses for approximately 250,000 titles annually. Everyone at HFA is aware, however, that the digital economy is changing the licensing paradigm from individual licenses to "bulk" licenses, and HFA is adapting to this new reality promptly: it has invested millions of dollars in improving its technology, and the resolution of over 236,000 license requests from to MP3.com alone to date is a good example of recent improvements. HFA's infrastructure transformation has not been without its challenges, but HFA has made rapid progress, is dealing with users that have their own database problems, and is performing as well as or better than any comparable digital music licensing entity.

"Blanket" Licensing Proposals Should Be Rejected

NMPA would like to register its opposition to the suggestion of some that a new "blanket" statutory license be created for digital music distribution. These proposals are neither necessary nor appropriate.

Music website operators (including MP3.com in its Senate testimony) often propose that digital music distribution be governed by a "blanket license" scheme without further elaborating on the complexities of current blanket licensing. NMPA believes that blanket licensing is inappropriate for the licensing of digital phonorecord deliveries, for the following reasons.

Blanket licensing is a process that the performing rights societies (e.g. ASCAP, BMI and SESAC) use to license and collect performance royalties from radio and television stations for performances of songs on radio and television. Created during the World War I era to address the practicalities of keeping track of the public performance of musical works on radio and in live performances, the blanket license is premised on the impracticality of reviewing every radio or television station's play log or programming for every minute the station is on the air or every location where the music is played. Instead, statistical sampling of a smaller number of radio and television stations is employed to estimate how many times a particular work is performed.

Sections 111 and 119 of the Copyright Act establish limited compulsory licenses for the retransmission of certain broadcast signals under modified blanket licensing. Royalties deposited pursuant to the terms of these compulsory licenses are subject to a complex, two-phase distribution proceeding. In phase one, groups of eligible rights holders demonstrate how much of the overall royalty pool should be allocated to each group. In phase two, disputes regarding the allocation of royalties among claimants within each group are resolved. Such a system may be appropriate in the context of the transmission of copyrighted material employing technologies that, at least for now, do not provide a ready means for identifying individual rights holders. It is not appropriate, however, to impose by law a licensing regime developed for the specific facts of the cable or satellite industries where (as in the case of certain Internet music services) the transmitter is the originator of the transmission and has control over the material being made available to subscribers, and where technology is available to facilitate accurate licensing on behalf of the affected rights owners.

It is inaccurate for music website operators to state that blanket licensing resolves technical licensing problems in the digital era. First, the compulsory license of section 115 is available to any entity wishing to distribute music over the Internet. Second, website operators routinely collect information on millions of visits to their websites which they use in marketing their products and attracting advertising revenue. It is disingenuous for the same website operators to claim that it is impractical for them to account for each use of the works that they are licensing (as a justification for blanket licensing) when they already have that detailed information in digital form in their databases. In other words, website operators are ideally equipped — both technologically and structurally —— for this kind of accounting task.

The principal reason for advocacy of a blanket license by web-based music services is that it transfers all of the burden of obtaining licenses and accounting for royalty payments to copyright owners in a manner that costs the creators of the work significantly more than per-use accounting. Digital and computer technologies are particularly well suited, however, to performing the accounting tasks associated with licensing uses of works in a networked environment and ensuring accurate payments to the appropriate rights owners and creators. Congress recognized this fact when it enacted section 1202 of the Copyright Act to protect copyright management information from intentional interference. There is no factual, legal or policy basis for creating a new "blanket" statutory license.

Conclusion

In summary, an appropriate statutory regime is in place to let the market place develop the various business models and licensing agreements required in order to deliver music through the Internet. There is no need for Congress to change the copyright law on this point.

Thank you for this opportunity to present our views.