Press Release

Testimony of Edward P. Murphy, President/CEO National Music Publishers' Association —"Online Entertainment and Copyright Law: Coming Soon to a Digital Device Near You" United States Senate – Committee on the Judiciary.
NEW YORK—(ENTERTAINMENT WIRE)—April 3, 2001— "Good morning, Mr. Chairman, Senator Leahy and members of the Committee. I am Edward P. Murphy, President and Chief Executive Officer of the National Music Publishers' Association ("NMPA"). On behalf of the more than 700 members of NMPA that own or control the majority of the musical compositions licensed for manufacture and distribution as phonorecords in the United States, I want to thank you for inviting me to testify today about music publishers' successful efforts to license their music on the Internet and to guarantee a level playing field for all of our licensees. Songwriters and music publishers have long been enthusiastic about the Internet's potential, and are working hard to get their music to the millions who log on to the Internet every day.

"Nearly a century ago, a new technology emerged that changed the music industry forever. The new technology was the piano roll — essentially long perforated sheets that operated a player piano's keys. One piano roll company attempted to acquire exclusive rights to virtually every musical composition. To make sure that musical compositions were widely available for reproduction as piano rolls and in other media and technologies, Congress enacted a compulsory license. A compulsory license means that once a sound recording of a copyrighted musical work is made and distributed with permission, anyone else can obtain a statutory license from the copyright owner.

"The Harry Fox Agency, Inc. ("HFA") was founded in 1927 and today operates as an industry service subsidiary of NMPA. HFA acts as agent for more than 27,000 music publishers in licensing their musical compositions for reproduction as CDs, cassette tapes, LPs and digital phonorecord deliveries, as well for use in motion pictures and other audiovisual productions. Over the years, Congress has repeatedly recognized and affirmed HFA's role in negotiating on behalf of its music publisher-principals. HFA is the place everyone knows they can go to get a license to make phonorecords. With HFA, songwriters and music publishers are poised to license music for use on the Internet.

"Thanks to Congress, the rules of the road for the use of music on the Internet also have never been clearer. With passage of the Digital Performance Right in Sound Recordings Act of 1995, Congress confirmed the exclusive right of song owners to transmit (or authorize others to transmit) phonorecords of their works over the Internet — known as digital phonorecord deliveries, or "DPDs." Congress expressly made DPDs subject to compulsory licensing in the same manner as CDs, cassettes and LPs. If a record label or Internet music company follows the rules of the road, the toll that must be paid is a fair and reasonable one: now just seven-and-a-half cents per download.

"In that connection, Mr. Chairman, you have asked whether online entertainment will be "coming soon to a digital device near you." For music, the question is not whether it is coming — the music is here. Indeed, our members have licensed more than thirty enterprises, most of them fledgling businesses less than five years old, to distribute recordings of music over the Internet. Among them are Emusic and MP3.com and Musicbank. These companies have chosen to respect the rules laid down by Congress by obtaining licenses and paying compensation to the copyright owners. These licenses demonstrate that music publishers are fully prepared and poised to license any Internet music service if it observes the rules Congress has set.

"Unfortunately, many Internet music services, most notably Napster and its imitators, have flouted the law that Congress enacted and are making a mockery of these rules. Two federal courts have now concluded that Napster is facilitating copyright infringement on a scale that is without precedent. And while Napster has acted disreputably, those who seek to imitate Napster in the wake of those decisions truly have no excuse. By refusing to obtain licenses and pay copyright owners as required by Congress, Napster and its imitators are placing music publishers' law-abiding licensees at a substantial competitive disadvantage. Many of our licensees are feeling the squeeze and are under intense financial pressure from Napster. Mr. Chairman, the situation is, frankly, outrageous. Why will anyone want to get a license, if that will only put the licensee at a potentially fatal competitive disadvantage? Businesses that respect the rules should not be penalized because a few irresponsible parties willfully ignore the speed limit.

"The music publishers' lawsuit against Napster is about restoring a level playing field. We do not object to peer-to-peer technology as such; however, our members do object to Napster's parasitic business practices. Napster does not pay for content, bandwidth or storage for its music service. Napster claims that it has the right to make its shareholders Internet billionaires, but its service was built on the premise that music creators should provide the content that draws consumers to Napster's service for free. Now Napster wants music creators and copyright owners to bear the expense of monitoring the Napster service. While many are quick to jump on the Napster bandwagon, if copyright owners are no longer to be compensated for their creative efforts and must bear such burdens, in the long-run, far fewer songs will be written. Consumers will be the ultimate losers. "Remarkably, in the wake of the Ninth Circuit's affirmance of the District Court's issuance of a preliminary injunction, Napster now sees compulsory licenses -- whether established by Congress or the courts — as the solution. Songwriters and music publishers find this to be disingenuous because Napster chose to flout the rules prescribed by Congress for obtaining a compulsory license in the first place.

"There are precedents, of course, where companies have ceased their infringement and moved to respect the rules established by Congress. The most notable, recent example is MP3.com. MP3.com copied tens of thousands of CDs and placed copies of the sound recording tracks on its computer servers to offer the MyMP3 interactive music service in January 2000 without first obtaining licenses. After litigation, the music publishers and MP3.com entered into a landmark settlement pursuant to the compulsory license provisions of the Copyright Act. The settlement provides for payment of compensation for past acts of copyright infringement and a forward-looking license for the MyMP3 service.

"In this regard, MP3.com raises two issues relating to licensing musical compositions in connection with its MyMP3 service: "First, MP3.com has expressed its concern regarding the availability of a compulsory license for subscription music services because there is no current rate in effect. The compulsory license provisions specifically contemplate that owners of musical works will negotiate and reach private agreements as new business models arise. Pursuant to those provisions, MP3.com has obtained a license with specified rates. Representatives of the recording industry, the digital media companies and NMPA are currently exploring a range of options for licensing these types of services. If a resolution cannot be reached as to appropriate rates, Congress provided that such matters will be addressed by arbitration before a Copyright Arbitration Royalty Panel. If lower rates are agreed upon in a broader consensus or are determined by a Copyright Royalty Arbitration Panel and are adopted by regulation, MP3 will receive the benefit of those terms under the ''most favored nation" provision in its settlement agreement with the music publishers, thus preserving a level playing field.

"Second, MP3.com has expressed its concern over the difficulty it has encountered in preparing proper license requests. Accurate licensing information is necessary to make sure the proper copyright owner is paid for the use of its musical work and the legislative proposals suggested by MP3.com would not eliminate the need for accurate information. To help MP3.com identify the music MP3.com had already put on its service, HFA has provided MP3.com with an electronic copy of its licensing database, something HFA had never before provided to any record company or any other licensee. And NMPA and HFA have provided MP3 written assurance they will not support any litigation against the company while both work in good faith to address these problems.

"Finally, we agree with MP3.com that HFA could better serve MP3.com and other music service providers if the lag time between the release of a new recording and the submission by the record company of its own license requests were substantially shortened. We will continue to work with MP3.com and with the record companies to make improvements in this area. "In sum, we believe that the compulsory license provisions already in existence for musical compositions are sufficiently flexible to address the new business models that crop up every day on the Internet. A level playing field, however, is essential so that Internet music services have every incentive to obtain licenses and compensate songwriters, and so companies that do so are not penalized for following the rules of the road.

"I thank the Committee for this opportunity to testify."