Online music distribution is here to stay. And although it presents a challenge to old business models, artists and copyright holders can make a living with these new technologies. Online distribution lowers costs and increases exposure; all that is needed are new ways for music lovers to support and pay the artists they love.
Below are short descriptions of several potential payment methods, with links to detailed analyses and examples. To simplify these descriptions, we use an economic metaphor: imagine all the dollars spent on music as a large pie. Until recently, each artist or copyright holder's slice of the pie was defined by the number of copies of physical recordings sold primarily through retail outlets. With the advent of high-quality, low-bandwidth digital recordings, slicing the pie becomes much more interesting - and potentially more rewarding for artists, copyright holders, and consumers alike.
The key is finding a new system for music lovers to compensate artists and copyright holders.
Voluntary Collective Licensing
It sounds obvious: major labels could get together and offer fair, non-discriminatory license terms for their music. This is called "voluntary collective licensing," and it has been keeping radio legal and getting songwriters paid for 70 years. It protects stations from lawsuits while collecting payment for the songs they play.
The record companies could solve the payment problem tomorrow, without changing any laws. Napster asked them to do it in 2001. Kazaa has also tried to get licenses in the past. Both requests were rejected by the major labels at the time, but it's not too late to start the dialogue.
Individual Compulsory Licenses
If artists, songwriters, and copyright holders were required to permit online copying in return for government-specified fees, companies could compete to painlessly collect these fees, do the accounting, and remit them to the artists. The payment to each artist need not directly reflect what each consumer pays, as long as the total across all artists and all consumers balances.
Anyone could start such an intermediary company. Some companies might charge a flat rate per month, some might charge per song or per bandwidth, some might offer a single lifetime payment. Consumers would have the option to sign up with whichever of these services was most convenient or least intrusive for them. Consumers who don't download music, or don't mind the risk of a lawsuit, would not be required to buy a license.
Ad Revenue Sharing
Sites like the Internet Underground Music Archive, EMusic.com, and Artistdirect.com provide an online space for fans to listen to music streams, download files, and interact with artists. In the meantime, these fans are viewing advertisements on the site, and the revenues are split between the site and the copyright holders.
Like radio, the money that funds the pie comes from advertisers, not consumers. But unlike radio, artists are rewarded directly. And since these sites often host a page for member artists, other payment methods are possible at the same time. IUMA, for example, compensates artists for both ad views and song downloads.
P2P software vendors could start charging for their service. Music lovers could pay a flat fee for the software or pay per downloaded song. The funds could be distributed to artists and copyright holders through licensing agreements with studios and labels or through a compulsory license. In 2001, Napster and Bertelsmann AG were considering such a subscription service. Although Napster's legal battles with the recording industry removed it from the playing field, recent attempts at a subscription service (such as Apple's iTunes Music Store) show that consumers are willing to pay for downloaded music.
Digital Patronage and Online Tipping
Direct contribution from music lovers is a very old form of artist compensation, ranging from a simple passing of the hat to the famed patronage of Florence's Medici family. As content has moved to digital form, so has the form of payment. With an online tip jar such as the Amazon Honor System, artists can ask for donations directly from their websites, in amounts as small as one dollar. Patronage sites such as MusicLink have also emerged, which allow consumers to seek out the musicians and songwriters they'd like to support. Either way, consumers are given an easy, secure method to give directly to the artists they admire.
As a twist on online tip jars, Brad Templeton introduced the interesting idea of making "opt-out" the default for paying for copyrighted works. The system, called "microrefunds," would collect small fees for each copyrighted work accessed and total them into a monthly bill. Upon reviewing the bill, charges that seemed too high or were for songs the consumer did not enjoy could be revoked.
Instead of making a purchasing decision every time they want to hear a song, consumers could review their charges periodically. The billing could fit into a P2P subscription system, or as part of a music service such as the iTunes Music Store.
Several people have nominated ISPs as collection points for P2P. Every Internet user gets web access from an ISP, and most have a regular financial relationship with one as well. In exchange for protection from lawsuits, ISPs could sell "licensed" accounts (at an extra charge) to P2P users. Alternatively, they could charge everyone a smaller fee and give their customers blanket protection. The latter model would, however, charge people whether or not they download music.
Another place to generate revenue is on the media that people use to store music, also known as a "media tariff." Canada and Germany tax all recordable CDs and then distribute the funds to artists. In the U.S., we have royalty-paid recordable CDs and data CDs. It's difficult to pay artists accurately with this system alone, but other data (statistics from P2P nets, for instance) could be used to make the disbursement of funds more fair.
Tried and true, concerts are a huge source of revenue for musicians. Some, like the Grateful Dead and Phish, have built careers around touring while encouraging fans to tape and trade their music. P2P dovetails into this model nicely, providing a distribution and promotion system for bands who choose to make money on the road.
There are many options available to make sure that artists receive fair compensation for their creativity. Today, convoluted and outdated copyright law is being used to claim that 60 million Americans are criminals. It's time to look seriously at the alternatives and start a dialogue with Congress to bring copyright law in tune with the digital age. Click here to read more about making P2P legal.
- Join EFF
- Ask Congress for public hearings on P2P
- Stealing and Sharing by Jessica Litman
- Recording Industry Withdraws Music Sharing Lawsuit (Sept. 24, 2003)
- File sharing must be made legal (Sept. 12, 2003)
- 'Amnesty' for Music File Sharing Is a Sham (Sept. 10, 2003)
- Why the RIAA's "Amnesty" Offer is a Sham (Sept. 9, 2003)
- Recording Industry Announces Lawsuits Against Music Sharers (Sept. 8, 2003)
- Recording Industry Plans "Amnesty" for Music Sharers (Sept. 5, 2003)