My main business is to secure clearances for music, TV and movie footage, and other forms of intellectual property for use in documentaries, CD and DVD compilations, movies, and Internet based projects. My principal clients are TV producers, record companies and digital content providers. For instance, I am presently clearing numerous songs, masters, videos, performers and celebrities in a History of Hip Hop documentary to air next fall on VH1. Another project is an Imax movie which will feature music and fashion. On that project I am helping the producer secure new performances by major music recording artists as well as licenses to use pre-recorded music.

For an in depth discussion of tips on clearances you can read my article on the topic in my website, or just click on "Tips for Clearing Music for Television and Motion Pictures." I would strongly suggest that prior to finalizing your budget for any entertainment project, if you intend to use any third party music or footage, that you consult with a professional on clearance strategies. If you want to save money and you have the time, you can always try to secure the clearances yourself. But an expert can inform you what the industry standards are so you can fashion your requests for permission to use copyrighted material for the lowest possible fees. For instance, there are different industry standards to use music (i) in different media such as cable or network TV, (ii) territories such as U.S. or foreign, and (iii) terms such as one year or five years. The consultant can help you figure out how much it will cost to clear what you want to use, whether you can afford it, how to cut the cost of clearances by using different or less material, and what media you want to clear. With regard to the last point, many TV as well as movie projects have an additional life on DVD now. You should plan for this opportunity. A consultant will be able to tell you what the cost of DVD licenses will be. There are also techniques of getting the costs down. For instance, by using options for future uses and media you can avoid up front payments. This can save you a lot of money.

A recent decision in the Ninth Circuit upheld a lower court decision that Grokster and Streamcast are legitimate services with “significant noninfringing uses,” a key benchmark set in the Sony v. Universal Supreme Court decision. The Sony decision is itself based on precedents from patent law in the early 1900s that deal with tying arrangements that have no relation to copyright.

The Circuit Court upheld the District Court, which found that the distributed software programs had significant noninfringing uses similar enough to home video recorders of Sony. Contributory liability did not result because Grokster and Streamcast had no actual knowledge of infringement at the time of occurrence. Moreover, although they were financial beneficiaries of file-sharing, the two providers lacked the requisite monitoring ability needed to prove vicarious liability.

From a legal perspective, the outcome raises some eyebrows. The Court’s decision apparently differs from the previous Napster decision, where the same courts ruled that contributory infringers knew, or HAD REASON TO KNOW, of direct infringement. The second point (i.e., HAD REASON TO KNOW) was made in an amicus brief filed by nine treatise distinguished writers on copyright law. The Ninth Circuit’s decision may then provide an incentive for software developers to figure out ways in which they can look blind, innocent, or simply incapable of taking deterrent action, whatever the apparent harms of doing so.

Indeed, the Seventh Circuit reached a different outcome regarding willful blindness exercised by the Aimster file-sharing system; “willful blindness is knowledge, in copyright law, where is indeed may be enough that the defendant should have known of the direct infringement.” We now may have the pleasure of a Circuit split -- always a problem -- which is now exacerbated by the importance of digital technology.

From an economic cost-benefit perspective, the technological outcome of the conflicting decisions in the Ninth Circuit is clearly inefficient. From an economic perspective, Napster, Grokster, and Morpheus lead to the same basic result; i.e., 90 percent of their takings infringe on copyrighted works. If only one technology is to be allowed, Napster would be the
apparent choice; it is more efficient than the remaining two, which take considerably longer to operate due to lack of a central directory. Moreover, if there is an economic reason to restrict Napster (due to offsetting costs), there is even more economic reason to restrict the less efficient services.

For all the legal explanations largely built on precedent (all dating eventually back to patent law in the early 1900s), one then wonders why a legal process should be heralded that leads to the clear economic inefficiencies that have been so established.

A recent article in Billboard titled "EMI publishing, Sony BMG Ink Digital Pact" describes a deal that could be an important step in building a stronger foundation for developing successful business models for digital music.

For years the labels, which represent artists, have complained that the music publishers, which represent songwriters and composers, have thrown a monkey wrench at the labels' attempts to create viable digital music business models. For instance, when the labels began launching interactive streaming services, such as Farmclub (initiated by Universal Music), the publishers demanded that they receive "mechanical" royalties in addition to performance royalties -- even though you cannot download or make copies of interactive music streams. The publishers argued that interactive streaming could cut into album sales and thus "displace" mechanical royalty payments otherwise payable to the publishers. Despite a successful court challenge launched by the publishers (The Rodgers and Hammerstein Organization v. UMG Recordings Inc., 60 U.S.P.Q. 2d 1354 (2001)), the labels and the publishers have yet to work out a royalty for interactive streaming.

So the news of a "pact" between the leading music publisher in the world -- EMI, and the second largest label in the world -- Sony BMG Music, is a hopeful development. The umbrella agreement sets working guidelines for clearing rights to new digital music delivery opportunities on phones, PCs, digital cable systems and emerging physical configurations and promises to drive the clearance of thousands of copyrighted works for new distribution formats.

According to Billboard, the deal covers North American rights for master ringtones and ringbacks; DualDisc (the new two-sided music format that combines CD and DVD functionality). The deal sets defined rates for master ringtones, ringbacks and DualDisc. Rates for other emerging technologies, most notably video, have been left open for determination at a later time. Specific financial terms of the agreement were not disclosed. Brian Garrity, the author of the Billboard article wrote that "the agreement recognizes the sense of urgency labels and publishers are feeling to create working business models and efficient licensing systems that allow them to profit from quick-moving digital distribution opportunities." Sony BMG is still in talks with Sony ATV and BMG Music Publishing about digital rights for mobile and other new formats. Sony BMG CEO Andrew Lack told Billboard that he anticipates that both publishing companies will move quickly toward similar agreements with Sony BMG in the wake of the EMI pact.

If anyone out there knows more specifics, please let us know!

The Supreme Court recently set a date for opening arguments in its review of MGM v. Grokster. Here is some additional background information on this case.

The Ninth Circuit’s Decision

In August 2004 a Federal Appeals Court upheld the controversial court decision that said file-sharing software programs such as Grokster or Morpheus are legal. Following the lead of a the federal district court, the 9th Circuit decided that peer-to-peer software developers were not liable for any copyright infringement committed by people using their products, as long as they had no direct ability to stop the acts.

The ruling means that companies that write and distribute peer-to-peer software can't be shut down because of the actions of their customers. It did not say file-trading itself is legal, and lower courts in the United States have said individual computer users are breaking the law when they trade copyrighted files without permission. But the ruling did lift the cloud of potential liability from defendants Grokster and StreamCast Networks, as well as from many of their rivals.


U.S. Supreme Court Review of the Ninth’s Circuit’s Decision

In early December 2004, The Supreme Court announced that it would review the Ninth Circuit’s decision. According to Billboard Magazine, the Supreme Court’s decision “will finally clarify the industry’s ability to control peer-to-peer technology through existing law.” Billboard also noted that “entertainment industry lawyers say” that the Court’s decision “will influence the industry at every level, including its ability to invest ion artists and songwriters…” (Billboard Magazine, December 25, 2004). Now, a firm date has been set for opening arguments.

Certain experts, however, argue that even if the Court were to reverse the Ninth Circuit, that the decision would not have a major impact. These experts argue that, in terms of P2P trading of songs, the train has already left the station. They point to off-shore P2P services that operate beyond the legal jurisdiction of U.S. law including certain countries, such as Canada, in which P2P is legal. They also contend that there are certain P2P systems that operate without any central control or owner. In other words, when it comes to these systems, there is no operator who could be sued. The only effective way of dealing with them, these experts argue, would be to force the ISPs to weed them out. But the content owners are not seeking that relief. It would violate the ISPs status as neutral carriers, and force them to censor content. Certain cynics also point out that the ISPs are too powerful for the content owner to challenge their legal immunity.

In his testimony before the House Judiciary Committee dated March 8, 2005, the President of the NMPA, David M. Israelite, testified that the lack of a compulsory license for use of songs in subscription music digital services has "placed songwriters and music publishers at an inherent disadvantage in negotiating mechanical rates for subscription services." He also stated "songwriters and music publishers have yet to earn royalties from subscription services, and the subscription services in turn have been unable to close their books due to uncertainty as to royalties they owe for musical work rights." He closed his testimony with this appeal: "We look forward to working with Congress to find a way to correct this problem."

This testimony is a refreshing step towards progress in setting up clear parameters for use of songs in subscription music services. For years, as Israelite points out, there has been uncertainty, and still is, as to a fair royalty rate for payment to the songwriters and publishers from subscription digital music services.

Downloads of songs, on the other hand, trigger a 8.5 cent payment to the songwriters pursuant to a compulsory license rate set up by the Copyright Law. According to Israelite "the compulsory license has made it possible over the past century for virtually any performing artist to record our members' musical compositions, while guaranteeing compensation to songwriters for their creative efforts. Consumers have been the winners."

As Israelite points out, the compulsory rate for mechanicals has worked well to compensate songwriters, and at the same time give a reasonable rate for users of music. Extending a compulsory license for the use of songs in subscription services will also have a beneficial affect for the songwriters, the subscription services and the public.

The record companies should take notice. A compulsory license could also help the labels assure their continued existence. If they would finally allow the legalization music file sharing in return for a compulsory rate that all users must pay which is reasonable the labels might salvage their future.

Oral arguments were presented to the Supreme Court on Tuesday in MGM v. Grokster, the landmark copyright infringement case pitting the music and motion picture industries against makers of peer-to-peer file-sharing software.

You have already read reports that the entertainment industry argued that popular online services such as Grokster should be held responsible for the unlawful acts of their users. On the other hand, defenders of file-sharing argue -- and this concern was expressed by several of the justices yesterday -- that making these P2P file sharing services illegal could chill the incentive of inventors to develop new technologies, for fear they would face lawsuits if their products or services were used for illegal purposes. The Associated Press reported that justices "wondered aloud whether such lawsuits might have discouraged past inventions like copy machines, videocassette recorders and iPod portable music players." On the other hand, C|Net reported that while the justices "were critical of the entertainment industry's proposal, which would hold companies 'predominantly' supported by piracy liable for copyright infringement," they also "showed little sympathy for the file-swapping companies' business model."

Lower federal courts including the Ninth Circuit, have dismissed claims against Grokster and Streamcast Networks, citing the Supreme Court ruling in the Sony Betamax case. In that 1984 landmark case, the Court ruled 5 to 4 that providers of devices or services cannot be held responsible for the acts of users if the product or service is "merely capable" of substantial legal use. Three current justices participated in that case: Justice John Paul Stevens wrote the majority opinion, joined by Sandra Day O'Connor. Chief Justice William H. Rehnquist dissented.

If I were to offer a prediction, I would hesitate to be hopeful if I were the RIAA or MPAA. If the Court ruled Grokster illegal, that decision would substantially diverge from the reasoning in the Sony Betamax case. The Court also has to consider the reality that file sharing of copyrighted files would continue anyway. Just because you close down Grokster, its file sharing software as well as that of KaZaa and eDonkey and others are already being used. The only way to get rid of it is to shut down the Internet itself. As Joe Fleischer of Big Champagne said on a radio show this morning “The Internet is in itself is a file sharing protocol."

Moreover companies such as Yahoo and Google, through their new, enhanced email services are allowing consumers to share files including copyrighted works. Seems to me that P2P is here to stay. If the Supreme Court decided against Grokster, therefore, it would only confirm its own irrelevance. As I have argued before, to me the only sensible solution that would benefit technology, copyright and the music loving public, is for the copyright holders to go back to Congress and ask that those who are truly profiting from illicit file sharing – the ISPs and the electronics industries – pay a tax on the high speed Internet connections and machines including computers and MP3 players which facilitate sharing of music and other copyrighted files, to compensate the copyright owners and end the war against consumers who are already paying good money for Internet access and computers before downloading "free" music.

This blog addresses the use of music in video games. It is a re-print a portion of my forthcoming book on the Future of the Music Business now available on amazon.com

The Increasing Importance of Music to Video Games and the Increasing Importance of Video Games to the Music Business

The sale of video games is a huge business. The income from sales of a successful game can rival the financial success of a major motion picture. An article in the New York Times dated November 14, 2004 titled “Hollywood Would Kill for Those Numbers” by Michael Marriott, reported that Microsoft estimated that first day sales of Halo 2, its best-selling video game that plays on Microsoft’s Xbox console, were $125 million dollars. According to Mr. Marriott, Microsoft “executives gleefully note[d],” that this amount “topped the opening weekend of the animated-film-of-the-moment, ‘The Incredibles,’ by some $55 million.” Last year, the sales of video games exceeded $20 billion worldwide.

Paralleling the growing popularity of video games has been another pattern: many of the hottest video games are using more music, both previously released tracks (including those by superstars as well as underground hits), and music specifically composed, produced and recorded for particular games. In the midst of dwindling opportunities to break new music on commercial radio or MTV, and the slump in CD sales, both indie artists and major record companies see opportunities. Video games are becoming both an important resource in breaking new talent, and an important new source of revenue for big la