Two Snaps Up and a Rewind

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Bob Cringely's PBS column proposes a "legal" way to create "Snapster" or the "Son of Napster." The idea is to have a publicly traded company buy one copy each of thousands upon thousands of CDs, and then allow each shareholder—in her capacity as part-owner of each CD—to download a backup or personal copy of each album under fair use laws.

This is actually sort of interesting, not because it stands a vegan's chance in Austria of ever happening—whatever the precedents he cites, there's just no way any court is going to interpret the law in a way that effectively guts copyright—but because it does draw attention to the ways that what we thought were "bright lines" in law become eroded in a realm where, as Lawrence Lessig points out, any use you make of the data you own involves, technically speaking, making a copy.

So, for instance, say I copy some tracks from my hard drive to a portable MP3 player to take with me on the bus. Pretty clearly within the bounds of fair use. What if my roommate borrows the player instead, so he can listen to it on the bus while I'm listening to the same tracks at home? Hard to believe that whether or not I'm infringing depends on which of us picks up the player… especially if we split the cost of the original CD, maybe own it jointly. Normally, this would be a strictly speculative sort of question, but as the RIAA goes after ever smaller file-traders, courts may end up having to decide odd questions like this.

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  1. It would be a lovely idea even if it failed, just to see the RIAA have to change it’s tune from “we just want the law enforced” to “we just want our buggy whip factories subsidized”.

  2. That’s beautiful. When can I buy stock?

  3. Fair use says that you can Buy a CD and make/give copies to your family and friends and immediate associates. You may not give copies to strangers. That is very generous. But it precludes giving copies to millions of people who you do not know.

  4. Here is another potential legal scheme: Judge Posner says in the aimster decision (page 16) that it might be a fair use to download music that you already own. I will assume that it is. In addition, I have the right to play all the physical copies of music that I own at the same time, but this right is apparently useless to me. A more useful exercise of that right would be to lend my copies of discs to different people so that they can all be played at the same time, with the expectation that they do the same with their collection. Now doing this with physical objects is quite cumbersome and time consuming. But if the fair use copy were transferred (Move, not copy) and the physical copy kept away from a means to play it, that should be legal also (Maybe the physical copy would need to be defiled/destroyed). If the owner of the fair use copy were to encrypt it, they could send a copy of the encrypted (and therefore useless) file to whoever wanted it, without causing any copyright concerns. When a recipient of the encrypted copy wished to listen to it, a piece of client software would request the encryption key from the owner of the physical copy. Software on the owner’s computer would check to make sure that it hadn’t already given out the key for that file to someone else and if true, transfer the encryption key to the software on the client computer which would then decrypt the file, creating the fair use copy. The client software would then forget the key, launch the music playing program, and then wait for the playing program to finish accessing the fair use copy. When the fair use copy was no longer being read, the client software would delete the fair use copy and then notify the copy owners computer that the file was no longer in use, freeing the key for use by someone else. Since people only listen to one song at a time, and they only listen for a fraction of the day, and many many people own way more music than they could play in one day, the network effects would make it so that just about any song would be available anytime without violating copyright laws. The exception would be popular new music, where few people have yet purchased it, but many wish to listen at the same time.

  5. “You may not give copies to strangers”

    What counts as a stranger? Friendster tells me I’m connected by a few degrees of separation to some 11,000 people through their network. What level of direct contact do I have to have with any one of them to be counted as an “associate”?

  6. You may not give copies to strangers.
    You’re missing the point. Under this scheme they’re not strangers, they’re co-owners. And since multiple people can legally be part owners of the property, all the owners are covered by fair use.

  7. Right Julian, and you’re not giving it to anyone. You already bought it when you purchased a portion of the company.

  8. Does anyone care that under this scheme musicians wouldn’t be paid for making music?

  9. The artists could still be paid. Under this “scheme” the album still needs to be produced at some point and the company needs to buy it. So he’s got at least one sale there … plus there will always be a need for record stores because not everyone will want to use this program. I, for one, love album cover art to the album name scribbled in Sharpie on a Prime Periphreal.

    Plus there are always concerts.

  10. Musicians aren’t paid much for CD sales, anyway. The record companies make the giant bulk of CD profits. Musicians make their bucks touring.

    (Of course, you could say “well, then record companies won’t produce and distribute CDs anymore, and musicians can’t effectively tour to promote a record that was never made. But with recording technology getting cheaper and better, soon it will be much more cost-efficient and practical to record on your own.)

    At any rate, I think the anger that the RIAA has provoked with its litigiousness has taken alot of the honest discussion out of copyright and piracy issues. Now, it seems to be a little game: work within these goofy copyright laws and figure out a way to legally do what is currently illegal.

  11. “…under this scheme musicians wouldn’t be paid for making music?”

    Matt,

    I dont think that statement is accurate. In fact, I have yet to see a persuasive argument that the typical musicians will be paid less than he or she receives under the current IP model. There may be a counter-intuitive reality here – in which the class of musicians will benefit as a whole (and the average professional musician’s profits increase) despite the fact that that each byte of his or her intellectual property will be less expensive to obtain. Sure, some record companies stand to lose a great deal, but, to a certain extent, that loss is the musicians’ gain. In addition, some musician-celebrity-superstars (i.e. those “musicians” whose fan base is garnered not (primarily) via music quality but manufactured via expensive marketing pressure & promotional campaigns) might face significant risk too.

  12. This scheme is based on ignorance of basic corporate and property law. The first judge to hear a case against this company will probably injure himself laughing, and the RIAA will injure itself hauling home bags of cash.

    If a corporation buys a CD, that CD belongs to the corporation, not to the stockholders. The stockholders own stock, not an infinitesimal slice of every pencil and coffee mug that is in the corporate offices.

    For example, if you own stock in Ford Motor Company, that doesn’t mean you can just mosey on down to the local dealership and drive off in whatever takes your fancy. You have to pay for it, just like anyone who doesn’t own Ford Motor Company stock.

    The only way to get something like this to work is to set it up as a general partnership. Partners each have rights to a pro rata share of all the property of the partnership itself. Of course, they are also each personally liable for all the debts of the partnership as well. Even then, I am not sure that the partner’s rights would allow them to do what is proposed here.

  13. Tommy — I hear you on the counter-intuitive leap of faith, but I am under the distinct impression that many file-swapping advocates are unnervingly blase about the right of a musician to get paid for his work. Yeah, there’s always touring, T-shirts, licensing … great! But you are potentially removing the *incentive* for record companies to pay for records to be made. Recording music is expensive, and CD sales are the biggest way to recoup those expenses. If the dominant model is some company that buys *one* CD, then shares it around, I can’t see how that wouldn’t drastically reduce the rewards for investing in music.

    I realize I’m making a stale argument here (and I’ve argued the exact opposite before), and I have no love for the RIAA, but I have a strong interest that musicians have access to funding, and incentive to make records for the records’ sake, not just to generate great margins on swag.

  14. Matt, doesn’t over 90% of the CD cost derive from marketing expenses obviated by file sharing? Also, considering the abundance of software-based production and remixing tools, is label sponsorship so necessary any more to cutting a high quality demo?

  15. Matt,

    Couldn’t the record companies or individual musicians simply adjust their rates in response to this. Most magazines have different subscription rates for libraries or other institutions than they do for individuals. Charge these groups more and see what they are willing to pay. Getting more people to reduce each individuals cost will then become popular. Eventually you could get a system where as each musician or group could be traded publically like stock, not for profit of the stockholders, but for enjoyment. You suck, your cost goes down, you’re good, cost goes up. People could sell away their share in the listening group if they tire of you and the cost would be set by your sellability. The record producers could adjust their price to the size of the group and add a clause that says more should be paid should a group go above a certain size.

    Obviously, problems can be found with the system I just described off the top of my head, but it can be refined, both intellectually and by the market. The main point is, options exist, the resourceful will find an exploit them, and those that seek to maintian the staus quo through legislation and litigation are likely doomed to fail. In the end, musicians will be paid, how many or how much depends on their quality, marketing, and demand. The record companies may or may not continue to exist, but that’s how things go. Not too many people make a living with milk or ice deliveries these days, but that’s no reason to outlaw grocery stores or freezers. These aren’t analogous situations, but they are indicative of how innovation changes the job market. I won’t cry if 30 years from now there’s no one making money as a record industry executive.

  16. These types of workarounds, even to the extent they may be successful in the short term, don’t address the underlying economic issues involved in music distribution, and certainly don’t help artists, let alone record companies, in my view.

    The files that are downloaded the most are the ones that record companies spent millions of dollars to record, market, and promote. People like downloading them because they heard them on the radio, saw them on MTV, or in a movie, read about them in the press, and because they’re recorded by the best professionals in the field, all of which costs a lot of money.

    When you take away the incentives for investing that much capital (i.e., reducing the expected to return to the minimal sales required to populate the Snapster catalog), people will either exit that business or go out of business.

    While it’s true that recordings can be made relatively inexpensively, in the scenario I’ve described, lacking economic incentives the professionals capable of making the best-sounding music will have moved on to more lucrative pursuits, leaving the field to hobbyists. And even if some hobbyist efforts’ rise to professional levels, without someone willing to foot the bill for marketing and promotion, they’re limited to online promotion and word of mouth, which is an improvement, albeit arguably not a significant one, over the status quo.

    So what we’re left with, possibly, will be a musical universe that consists of a small universe of superstars, who are able to leverage their stardom into the lucrative worlds of audio/visual media and touring, without the need for a record company, and a larger number of disaffected musicians all competing for a smaller pie of recorded music revenues and income available from live music venues, a scarce resource shrinking ever smaller.

    A completely disspiriting prospect, but that’s how I see it.

  17. Instead of everybody owning a piece of the company, an alternative arrangement would be that everyone only owns a part of the CD. Presumably that would bypass T. Hartin’s legal problems

  18. “…doesn’t over 90% of the CD cost derive from marketing expenses obviated by file sharing?”

    I’m not sure that’s right. It’s difficult to establish what percentage of marketing expenses is “obviated” by file sharing. For example: if, due to new tech, the industry requires fewer brick+motor retail outlets, we can assume the each company can reduce outlays for, oh i dont know, giant cardboard cutouts of pop stars (fewer stores = fewer cutouts needed). But will fewer stores + cutouts diminish brand recognition & necessitate increased advertising (possibly even an increase) to maintain sales? (i.e. the expense is not “obviated”).

    File sharing is a threat to the music industry establishment. But it might be a tremendous benefit to musicians.

  19. There is a terrific, illuminating discussion on this topic over at the website of Dr. Frank, the singer/songwriter of the Mr. T Experience. Enjoy:
    http://www.doktorfrank.com/archives/002616.html

  20. The more I think about it, the it just seems silly and as though people are afraid of change. I realize that this is somewhat the result of people making money doing one thing and not wanting to have to learn new skills/start over in a new market.

    Consider this, at one point, to make a living as a musician, you had to play/perform every single time you got paid. Live music was the only music. Then, technology was developed that made music recordable. Musicians could now perform once and get paid many many times over (although soon it was the record companies that fronted the cost and then got paid many many times over, for a single recording). Was anyone up in arms because they had to pay for something that wasn’t live? Not many or else the things wouldn’t have caught on. It was a nice addition to the still profitable live music market. Even on this front, things have changed, do people try and legislate the number of people a performer can play for? No, 50 or 50,000 paying customers get to see a musician play once. Now technology is moving to the point where one can no longer rely on the recording of music to be a profitable addition to playing music live. It is coming around full circle. Should we fight this? I don’t think so, but obviously those who have been making money this way do. Should we legislate this change away? We can try we will likely only delay the change. Should we mourn this change? I won’t. The experience of seeing music live is irreplacable. Should recording of music become significantly less profitable, I think the number of venues and concerts available will increase considerably.

  21. Cheez — So, will becoming a “Pet Sounds” vs. Phish argument? I know which way I’d vote….

    Look, I’m all in favor of changing pricing, availability, philosophy, whatever, and I generally detest most record companies. But I don’t want my favorite bands to be faced with a system where only touring & merchandise will make money, and the incentives for producing good music will be slashed. As much as I like live music, 98% of my consumption comes from listening in the privacy of my home or car, to music that was crafted in a studio, with overdubs, production, and other stuff that costs money & time.

  22. One argument I find bogus is that record companies’ profit margins must be protected/maintained because good music is inherently EXPENSIVE to produce. Even ignoring anecdotal evidence of good music recorded cheaply, there no proof that the cost of producing good music is fixed & will remain high. As we type, technology + innovation are reducing this cost. But, more importantly, production costs are inflated by the current model. In a world w/ no giant labels to pay top dollar for eons of primo studio time, millionaire rick-rubin-style producers, unnecessary (read: optional) technical wizardry, pricey back up players, the Royal Philharmonic, the USC marching band, or whatever, production costs would decrease dramatically. Simp: The reason studio time + production are so expensive is because record companies make lots of money selling music. Reducing their profits might have many deleterious effects, but it would have the benefit of reducing production costs.

    This is not an argument pro or contra file swapping – just a rebuttal of the idea that profits must be protected BECAUSE production is so very expensive.

  23. Tommy — You’re straw-manning a bit. I’m not saying record company profits need to be “maintained,” nor would I ever suggest that production costs were or should be “fixed.” I’m delighted, for personal reasons, that DIY costs are greatly reduced, and the Big Five are having to re-think their arm-twisting contract norms.

    But they are not remotely eliminated. Read that Dr. Frank post, and his site in general (he’s keeping a compelling diary of making his latest record, on a low five-figure budget). It’s damned hard to make a rock record worth two damns without spending at least a week in a studio. Unless you own that studio (which costs real money to build), you have to rent one out, and even the low-end rates are real, not imagined. Ditto for mixing and mastering — two skills that few musicians are much good at. You can eventually learn how to mike a drum kit, and run a production board, but these, too, are difficult skills, and it’s hard to find them for cheap.

    And sure, there are some great records done this way. But there are also many, many, many great records, that you love dearly, that cost six or even seven figures to make, and I have a hard time seeing how they would get made if Cringely’s proposal became the norm. (Not that it will, of course.)

  24. “But [production costs] are not remotely eliminated.”

    And I’m arguing against strawmen? Where did I say “elimanated?” I said:

    “But, more importantly, production costs are inflated by the current model.”

    Change the system, and the Awesome high-production value records I love dearly (which require six-figure budgets to produce under the current regime) could be produced for far less.

    PS: 7 figures? Only if you include slam. Thanks for the link to Dr. Frank.

  25. “Instead of everybody owning a piece of the company, an alternative arrangement would be that everyone only owns a part of the CD. Presumably that would bypass T. Hartin’s legal problems.”

    Maybe, yeah. First you have to come up with a legal mechanism for this to happen, which isn’t as easy as it sounds – Cringely tried and failed.

    Even if you do, you will run up against a very strong argument that your joint ownership arrangement is a sham that is intended only to facilitate the violation of the copyright. Frankly, I think this is a winning argument.

    I don’t think cute legal tricks are going to solve the problem of how to get people to pay for the music they want to hear. This isn’t a legal problem so much as it is a business problem.

  26. Clearly the answer is to compress the middlemen layer to the obvious endpoint: The Snapster corporation (or partnership) has to take on the production cost of the music.

    Oops, I just made an innovative, modern business stratgegy into a music label. Ha ha, not gonna happen.

  27. Keith: Great suggestion and conversation stopper.

    Tommy and Matt: Production costs, to a large degree, are driven by the humans who record the music. Those who produce the best results can command the best fees.

    Consider the situation of baseball players. The best players command the highest salaries because they bring people into ballparks. If baseball fans found a way to enjoy the games without actually paying for attendance, teams wouldn’t be able to pay the players what they used to and they would soon enough find other ways of making a living.

    So it is with artists and record producers. Rick Rubin gets those big fees because he gets results.

    One of the biggest myth memes I see floating around this subject is the fiction that now anyone can produce music on the level of Rick Rubin…and that anyone who’s successful in the music business is so through luck and/or corruption.

  28. http://cscs.umich.edu/~crshalizi/weblog/archives/000086.html


    Whether it would be technically, organizationally and, most of all, legally feasible to pull this off for music, I have no idea. What I love about this idea, though, is the way it takes the thoroughly capitalist organizational form of the mutual fund and twists it around to produce what is, in effect, socialized property. This could be a very important way of undermining the increasingly insupportable demands of intellectual-property owners, without having to perform a frontal attack on intellectual property law itself. Thus, comrades, does the new system incubate within the old…

  29. I think that the basic premise confuses the copyright law issues. There can be joint ownership of a *copyright*, but when you buy a CD you don’t buy the copyrights to the songs. You just buy a physical copy of the CD, and I think the RIAA would argue that you buy the right to personally listen to and enjoy the songs on that CD. That’s it.

    If you and 10 of your buddies bought the new N*Sync record, I don’t think it is legally correct to say that it is fair use for each of you to make a copy of the CD for your own enjoyment. Fair use is statutorily created, but it is judicially shaped. That is to say, a judge decides what is and is not fair use, and he is not guided by rigid rules.

    I think just about any judge would draw a line somewhere before 1 million “joint owners” of a CD. I think he or she would draw it before even 10 of them.

    But it is a clever, clever idea.

  30. Snapster sounds like the best idea ever! If it fails, as Julian suggests it obviously would, the court decisions regarding what constitutes “ownership” and “copying”, “fair use”, etc., would be an opportunity to make newer, more practical caselaw for the digital age.
    It would force the industry to adapt and offer an alternative (even if they could successfully kill Snapster in the courts) since their current “sue 60 Million people”plan isn’t feasible…
    The sheer giddy thrill of doing this venture would be worth the capital loss write-off….

  31. The mutual fund idea has the same flaw as the corporate idea. In both cases, the individual investor owns a share of the corporation/mutual fund, and does not directly own the corporation/mutual fund’s property. The lines can get fuzzy around the margins, but, for example, investing in a mutual fund does not give you any of the rights over the individual stocks in that fund that you would have if you owned them directly, You cannot vote the mutual fund’s shares, you cannot sell or transfer them, etc.

    These attempts to be clever will all run aground in court because they are obvious shams, form over substance. No responsible judge will permit the gutting of copyright law in this fashion. People who propose these schemes really just don’t want copyright law to apply to recorded music anymore, and should make their case directly rather than trying these legal subterfuges.

  32. Um, isn’t there supposed to be a restriction of mingling of assets of owners and company? Isn’t that part of the whole incorporation thing, and the part of the thing about shielding stockholders? Wouldn’t that concept of ownership suggest the kind of ownership that makes you liable for damages?

    If ownership worked like that, then I’d expect shareholders of Union Carbide would have been personally liable for Bhopal.

  33. Dan Chopter writes: “Musicians aren’t paid much for CD sales, anyway.”

    That Depends.

    It’s becoming increasingly feasible for artists to release their own CDs. Aimee Mann does it, and makes far more money than she did working for labels, with much less hassle and more freedom.

    If the CD is from an artist’s own label, then they’re going to make a good amount of money, even after taking out their actual expenditures on marketing, etc.

    I’d guess that artists from decent indie labels probably get a better deal than artists at big-name labels.

    The point being, you can’t really generalize; it’s a bad assumption that a given performer isn’t getting much from a CD sale.

    It’d kinda suck to be a musician, and finally have the ability to break away from the labels and stop being shafted by them, and find yourself being shafted by the listeners.

  34. Limp writes: “I think just about any judge would draw a line somewhere before 1 million “joint owners” of a CD. I think he or she would draw it before even 10 of them. ”

    I think 10 friends doing it probably wouldn’t attract attention. A business doing it certainly would; it’d have to, otherwise nobody’d know about it and the business would fail.

    For a business, probably the only defensible scenario would involve a shareholder getting fractional songs, depending on how much of the company is owned. The only person who’d get full songs would be a person who owned 100% of the shares.

    But that wouldn’t be very useful for music sharing.

  35. junyo writes “It would be a lovely idea even if it failed, just to see the RIAA have to change it’s tune from “we just want the law enforced” to “we just want our buggy whip factories subsidized”.”

    You’d have a point if nobody wanted the RIAA’s product.

  36. Lysander Spooner,

    “If baseball fans found a way to enjoy the games without actually paying for attendance, teams wouldn’t be able to pay the players what they used to and they would soon enough find other ways of making a living.”

    Last time I checked, fans watching the games on TV hadn’t really put a dent in player salaries.

    These people are theives, plain and simple of course. I heard about one group that would assemble together at one members house, changing the location weekly (probably to avoid detection). They would all simultaneously enjoy the game, without paying a cent (although they did initially have to invest in a TV and an antenna). With another device, they would record the game and show it to others who couldn’t be there intially, or if the game was particularly good, they could watch it over and over. As if that wasn’t bad enough, they would often get up and leave the room, specifically timing this so they wouldn’t miss the game, but only the commercials.

    While this type of activity hasn’t hurt us so far, it will sure bankrupt us should it continue.

  37. http://j-bradford-delong.net/Econ_Articles/Summers_New_Economy_2001.html


    New institutions and new kinds of institutions–perhaps even some that have been tried before, like the French government’s purchase and placing in the public domain of the first photographic patents in the early nineteenth century (see Kremer (1998))–may well be necessary to achieve the fourfold objectives of (a) price equal to marginal cost, (b) entrepreneurial energy, (c) accelerating the cumulative process of research, and (d) providing appropriate financial incentives for research and development. The work of Harvard economist Michael Kremer (1998, 2000), both with respect to the possibility of public purchase of patents at auction and of shifting some public research and development funding from effort-oriented to result-oriented processes (that is, holding contests for private companies to develop vaccines instead of funding research directly), is especially intriguing in its attempts to develop institutions that have all the advantages of market competition, natural monopoly, and public provision.

  38. “You’d have a point if nobody wanted the RIAA’s product.”

    And you’d have a point if the RIAA actually did produce anything anyone wanted. However, what most consumers want, i.e. the music regardless of medium, is produced by artists, not the RIAA. The RIAA are middlemen. They produce, market and distribute media. In other words, RIAA members are in the business of overpriced pieces of plastic. I simply don’t need or want the CD or the accompanying markup above and beyond what the artist is making, nor do most potential downloaders. However, the RIAA attempts to leverage it’s status as a middleman to insert themselves into the transaction and force me and millions of other consumers to buy antiquated media we don’t want to get something we do. Therefore the analogy holds.

  39. Just reading an interesting article on http://www.theregister.co.uk which discusses the legality of downloading and in what situations it’s legal.

    It looks like (and don’t quote me on this) that if you download the song for review purposes then that is acceptable. So set up a music review website and make sure you review every song you download. Arguably you could hang on to those songs for comparison purposes (such as how x compared to their 1987 album).

    I don’t know if downloading the file to review it for your own purposes, especially if you’ve already heard it on MTV, is acceptable though. And of course making it available for upload could still land you in hot water. Maybe P2P networks are communities of like minded ‘friends’ engaged in communal music review?

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