The Music Industry Copyright Battle: When is Owning More Like Renting?

A rash of recent news articles (like here and here) have noted that in a little over a year, an obscure provision of U.S. copyright law takes effect – one which allows songwriters and musicians to exercise their “termination rights” and take back from the record labels many thousands of songs they licensed 35 years ago.

So, for example, Boston will be able to take back Don’t Look Back. Gloria Gaynor can repo Love Tracks, and Elvis Costello can reclaim This Year’s Model. Less auspiciously, Kiss guitarist Ace Frehley can reclaim his entire solo album. (The music industry may not mind losing this one.) And every Jan. 1, a whole new crop of artists looking to lay claim to their termination rights will appear.

The music industry, already reeling from online piracy and digital downloads, is fighting back against what they see as the looming loss of their property—and the huge profits that still come from some of these records. Why would Congress create a system where, 35 years after making a record that no one knew for sure would be a hit, musicians could take back control—and profits—over the best-selling songs?

Photo: Andrea SartoratiBruce Springsteen is hoping to reclaim ownership of his 1978 album “Darkness at the Edge of Town.”

In general, if you decide to sell or perpetually license a piece of property, you can’t later take it back, no matter how much you might want to. So If I sell my house and two years later the city decides to build a lovely public park in my neighborhood, the value of my former house may rise substantially. But no one contends that I can take the house back, or that I’m due a bonus payment from the lucky buyer.  A deal is a deal.

So why the exception for copyright owners?  It is sometimes said that the ultimate market value of creative works is among the hardest to predict, and so fairness requires a bonus for authors when a deal proves particularly rich. But that explanation cannot suffice standing alone, because it is equally an argument for giving a bonus to buyers when deals prove (as they often do) valueless. And yet only the musicians can terminate rights – not the record labels.

A more important justification observes that musicians often face much more competition than record companies. There are, or at least have been traditionally, many more songwriters and performers than there are record labels. So labels enjoy a degree of leverage in negotiations with musicians. This is a better justification than the first, but it’s still weak.

Think for a moment about the economic effect of the termination provision on the behavior of parties to copyright transactions. Because buyers can expect, on average, to make lower profits when the law contains the termination provision, they will offer less in the initial transaction. Thus, sellers will be more willing to accept less, because they know that if a work later proves valuable, they can terminate and demand some additional payment. So the most likely effect of the termination provision is to force deal prices down across the board. Interesting.

Is this good? Depends. If we consider the situation of musicians, not really. The termination provision forces initial prices down for all artists. It then enriches a few fortunate enough to have produced works of enduring value (or profit). A termination provision, in other words, is like a lottery ticket—and like lottery tickets, the vast majority of ticket holders get nothing. The most successful musicians are the last ones in need of aid, but the net effect of the termination provision is to transfer wealth from unsuccessful (the lottery losers) to successful artists (the lottery winners).

Put differently, the termination provision is a regressive tax.  And in that light, the “fairness” justification for the termination provision is less than overwhelming.

Now, the music industry is making none of these arguments in the current sparring over termination rights. Instead, record companies have hired legions of lawyers to argue in court that songs are “works made for hire” – i.e., that the musicians were employees, and therefore the songs belong permanently to the record companies, not the musicians.

That argument will play out over the next few years, but even now it looks dubious. Musicians are not “employees” of the record companies the way fry cooks are employees of McDonald’s.  They are independent contractors who create their art and then license it.

However weak the music industry’s legal claims may be, the termination system remains a poor idea—one that, in the interest of fairness, actually transferred money from those who needed it most to those who need it least.

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  1. @casualbon says:

    Silly me, thinking copyright’s aim was “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” as described in the US Constitution http://en.wikipedia.org/wiki/Copyright_Clause

    In reality, these works belong to everyone and this whining about long term copyrights from Artists and Labels is a sideshow framed in the notion that intellectual property is the same as real property.

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    • Joshua Northey says:

      Well said. The only reason to consider respecting intellectual property in the digital age is to weigh the potential reduction in creation of socially valuable intellectual property in the absence of such respect. Granting short-term exclusive licenses seems a good system and one that has been more or less functioning. Why anyone should have the rights to something as abstract as a piece of music after 35 years is beyond me. 10 years seems like a plausible upper limit.

      For music I doubt you even need copyright at all as there are more than enough people who love making music that any economic incentive is just superfluous. Remove copyright from music and there will be no decrease in the supply of quality music.

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      • Brawling says:

        You must be quite young. The motivation to deny yourself a normal life for the pursuit of art is not done solely for the love of the music. Some people are dancers, but you don’t call for free ballet, some are brutes who play football, you don’t begrudge them their pay, quantity may be free but quality always comes with a price.

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      • bob says:

        Economics website posters should include concepts like scarcity in their posts. If a dancer or football player does their work, what copyright do they have? How do they own their works forever?

        The equivalent to a ballet or a football game is a concert. Which a musician can put on as long as he is able. Much longer than dancers or football players by the way.

        Copyright is an artificial right designed to spur creation. No one is denying a musician pay for work. But a recording of a musician working (just like a recording of a ballet or a football game) should be free. Technology has rendered the marginal cost of generating a copy is now $0. The price for such a copy should also be $0. Legacy industries are often upset by technology.

        Do you really imagine a dancer should expect payment for a dance she performed in 1952? Or a football player demanding revenue every time sportscenter plays his hit on a top 10 list?

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      • Seth Gordon says:

        What a bunch of nonsense.

        First, @Casualbon, creative works don’t belong to everybody. They belong to the person who created them, just as patents and trademarks belong to their creators. If they choose to license them, they temporarily belong to the licensee.

        —–

        Second, in response to @Joshua Northey’s ludicrous statement that “The only reason to consider respecting intellectual property in the digital age is to weigh the potential reduction in creation of socially valuable intellectual property in the absence of such respect.” – social value has nothing to do with anything.

        Whether it’s “Gravity’s Rainbow” or “Oops I Did It Again” or “Big Butts In Bondage Volume 8″, it all has value to SOMEONE, even if that someone is just the author. It may not have value to YOU, or to society at large, but neither your nor society’s value judgement mean squat, to be frank. The person who creates something has the right to assign monetary value to the product of their creativity.

        The idea that “there will be no decrease in the supply of quality music.” is hogwash. True, people will always create, be it music or paintings or whatever, because it’s human nature for some us to do it. The word “quality” is where the statement goes wrong. If art is all free, it can only be a hobby, never a profession. And at some point one needs to concentrate on things that pay the rent, put food on the table, etc. If Jerry Leiber & Mike Stoller were never paid for writing “Hound Dog” they would have eventually had to use their time and energy to sell vacuum cleaners or clean toilets or whatever it was they had to do to pay the bills, and wouldn’t have gotten around to writing “Love Potion #9″ or “Jailhouse Rock” or “Stand By Me” – if Jimi Hendrix hadn’t made enough to pay the bills off of “Are You Experienced?” you can be pretty sure that a few years later, instead of recording “Electric Ladyland” he’d be doing something that DID make money instead. I’m sure he’d have wanted to be playing guitar and recording and touring, but too bad.

        Sure, in the era of the internet people WILL record music and distribute it, but it’s the equivalent of vanity presses to the book industry. There’s no curation, no review or refinement process. Available quantity may actually increase, overall, but without reward for quality, quality will go down.

        —–

        Third, @Brawling – Sheesh, I know. Kids these days.

        —–

        Finally, @bob:

        The whole idea that because music doesn’t take physical form anymore, because it’s now just zeroes and ones on a hard drive, because the distribution cost is so close to zero, that that makes the content valueless… well, that’s is the most moronic, dunderheaded pseudo-intellectual concept to take root since Intelligent Design. Unfortunately, much like ID, I hear it all the time.

        To be clear: the cost of making copies and distribution has next to nothing to do with the cost of music. Or really, of anything. The costs of the metal and plastic that go into building a Rolls Royce and the costs of shipping it to a dealer aren’t exponentially higher than those that go into building & shipping a Buick LeSabre, after all. Perhaps the potatoes they use in the mashed potatoes at Joel Robuchon in Las Vegas cost a little more than the ones used at Denny’s, but at the retail end there’s a staggering difference. The costs of things come down to a number of factors, it’s reductivist to boil it all down to the physical object itself.

        If music is to be free to everyone, then I suppose we shouldn’t have to pay for movies, or books, or any other intellectual/creative work anymore, yes? I suppose there’s no reason why, when the Freakonomics boys put out their next book, that I shouldn’t copy it and post it on a blog for everyone to read for free. I mean, the cost of printing and distributing a book is not much more than than for a CD – it’s zero if you’re talking Kindle or other electronic versions.

        Heck, if we take the physical form argument further… should we pay accountants? There’s no physical form to what they do. They’re just thinking about numbers and abstract mathematical concepts – much in the same way a songwriter thinks about abstractions like melodic development, harmonic structure, etc. Suppose there’s no value in what they do, either.

        You can say, I suppose, some intellectual-sounding thing about how the song and the recording are two different things – but they’re not, not really. Simply put, the recording would not exist without the song. The song would not be accessible to most without the recording – it’s not like Ye Olden Tymes when songs were distributed via sheet music because every house had a piano and someone who could play it.

        It comes down to the simple concept: I did some work, I created something. If you want it, whether it’s a song or a chair or a Buick LeSabre, you have to pay what I feel it’s worth. I mean, I don’t know what you do for a living – but give it to me free, m’kay? Because I don’t think it’s worth anything.

        To suggest that “No one is denying a musician pay for work.” – but then go on to say that “a recording of a musician working should be free” – suggests you have no idea how the music industry works. Musicians (except studio musicians, those in orchestras, etc) aren’t paid for recording. In fact, they PAY for the recording. They make money off royalties. No sales = no money.

        You talk about it as if it’s just “a musician working” – but that’s not what a recording is, any more than a painting is just a document of a painter working. We’re talking about CREATORS here. Stevie Van Zandt and the estate of Clarence Clemons aren’t going to be reclaiming the rights to “Darkness On The Edge Of Town” – Bruce Springsteen is. There’s a huge difference.

        —–

        There are some fundamental flaws in the comparison to dancers, athletes, etc.

        First of all, a dancer is an employee, not a creator. It’s like a bricklayer vs an architect. The proper comparison would be to a choreographer. And yes, if one recreates the choreography to a ballet and performs it again, the choreographer (or their estate) gets paid. If you restage “West Side Story” commercially (exceptions made for high school productions, etc) you have to pay royalties to the writers, composers, and – if you use the original choreography and don’t create your own original dances – the choreographer.

        As to athletes – they’re again, employees. It’s a bit different, though, as – though we might use phrases like “Michael Jordan is an artist on the court” – sports and art are two completely different and unrelated things. I wouldn’t even compare them to apples and oranges – it’s more like comparing apples and copper tubing. A game is a competition, it is not something with an “author” – aside from whoever invented the game itself, perhaps. However, the BROADCAST of a game may very well be considered creative content – and you can be damn sure that when Sportcenter plays a hit, they’re paying a fee to MLB or Fox Sports or whoever owns that clip.

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  2. Clancy says:

    Intellectual property is not property, it is a mechanism for providing incentives for creative people to create. The question we should be asking is: does the termination rights provision enhance or detract from the incentive to create? It seems from Kal and Chris’s argument that it does detract from it, but I have to imagine that the difference is extremely small. Was the record company really thinking about giving up their rights in 35 years when they decided how much to pay Ace Frehley?
    Anyway, all those decisions happened in the past. If we change the law now, it will only affect record deals going forward. As large record companies become increasingly irrelevant to new artists the effect is even smaller. When a big company signs a musician today, are they considering their rights expiring in 35 years? Or are they considering that they could be out of business in 10 years?

    Of all the zany issues around copyright in this country this one seems less important.

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    • Enter your name says:

      “If we change the law now, it will only affect record deals going forward.”

      We already made this change, back in 1976 (thirty-five years ago).

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  3. A Nother says:

    The discussion of the effects of the termination provision is interesting. The injection of morality, however, is specious. Since when, in a meritocracy, do we lament greater returns enjoyed by more successful producers or producers of more valuable goods? Comparing the effects of the copyright law to regressive taxation overlooks the fact that the less successful artists are being punished partly by the downward pressure on the value of the initial sale of their works and partly by the consumers’ determination, as expressed over time through sales, that their works are not particularly valuable. In contrast, a regressive tax is [popularly viewed as] a punishment in itself.

    More interestingly, the more successful record companies—i.e., those which pick talent most efficiently, whether by skill or luck—are most negatively affected by the law. Ordinarily, they are able to subsidize their purchase of rights to ultimately unpopular or non-valuable music by offsetting their losses with profits attributable to their more successful holdings, spreading the risks associated with the crapshoot of artistic popularity. Under the law, however, their profits from owning rights to economically valuable music are cut off after 35 years. This completely changes the relative bargaining power of musicians whose work appears, say, 20 years after release, to have indefinite staying power. These musicians could possibly leverage their termination rights to extract higher royalties in exchange for voluntarily waiving termination. Without the law, artists’ ability to maximize their revenues is delayed until the 35-year period expires.

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    • Melissa says:

      Thank you for making the point that I also thought of while reading the blog post – it’s a very cynical view of the world of popular music to even make the statement , “a few fortunate enough to have produced works of enduring value” and then to comparing it to winning a lottery, as if only luck and not at all talent was involved.

      In fact, if you believe in the concept of a free market at all, mass choice of who the “winners” are in popular music is about as free as you can get, in that it’s not a product that anyone needs to survive, and everyone is free to buy or not buy what they like (minus some social peer pressure and the nudge effects that radio playlist time has, of course). Contrast this with the battle going on in another arena of copyright law, over academic use of scholarly materials, where in the world of “non-fiction” every work, especially seminal research studies with findings of major importance to a particular field, carry price-unregulated coercive monopoly power imposed on the purchasers, primarily academic libraries.

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  4. Brian says:

    At this point, anything that deals a blow to the tired, aging, backwards, inflexible, and ultimately doomed major labels is an inherent victory for musicians and lovers of music anywhere; for that reason alone this should be celebrated.

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  5. Mike B says:

    I wonder if it will simply become standard for record companies and artists to find a way to deal with the termination problem up front. Does the law say that artists can’t waive, assign or sell their future termination rights? If the freedom to contract exists then I would not be surprised if the record labels learn from their mistakes and then avoid them in the future.

    BTW, the I suspect seed motivation for the termination clause is that the 1976 Copyright Law was based on the European Berne Convention that made a big deal about moral obligations to artists and their art. One of these is art being used or exploited in ways that the artist finds objectionable. The termination clause might have been intended to allow artists who felt that their work was being abused to reclaim it, not for profit, but for some vague notion of artistic integrity.

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  6. The Voice of Reason says:

    It seems to me that the act of selling your work to a record label, and letting them reap the profits of your work from then ad infinitum would be like hedging your bets. Contrast this to retaining an option that will allow them to recall their work if it successful enough (like a call provision in a stock) while taking less money seems like putting all your money on double zero on the roulette wheel and hoping for the best. If you already have 50 million in the bank, another 20 million is going to be nothing to you, but if you’re a starving musician, desperate to get signed and pay your bills, a $500,000 signing bonus is going to be a night/day difference to a $200,000 signing bonus. Plus, the record company adds value that artists could never get on their own, in terms of promotion, quality control, and production value.

    Plus, don’t artists get most of their money off of tours anyway? When the company owns the rights to the songs, the artists can still perform them on tour. Heck, artists even do covers of other bands songs without any real penalty or recourse. Who buys albums anymore anyway?

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    • Melissa says:

      “Covers” aren’t free – try Googling “compulsory license music” to learn about this special case in US law.

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    • Ryan R. says:

      Artists make a lot of their money off of tours because Recording Companies make it almost impossible for them to recoup money from record sales. The model is as follows.

      You and I start a hip-hop duo called Sho Nuff. In the old days a record company guy would see us performing at some third-rate venue opening for a second rate talent and decide that we deserved a deal. So in the deal we get an advance (a loan against future earnings) and they also loan us the money for the studio use, the musicians, the producers, pressing the CDs and the music video.

      Now that we’ve made our record it goes on sale and this is where the recording industry magic happens. For naive young artists like us, royalties are rarely straightforward percentages of sales. There are hundreds of ways that your record company will chip away at those numbers (promotional copies, foreign sales, “free” copies, wholesale rates, retail rates). Then they won’t start actually paying you until the royalties they’ve collected pass a threshold that they consider reasonable for writing a check. It’s kind of like movies, something might make a billion dollars around the world but not have made a dime on paper.

      So our platinum record doesn’t really bring us any money because after the record company tallies up its bill (and just you try and audit that), there’s often little left.

      Is it fair? Commercial flops rarely get a bill for all the money that got sunk into making a record, but that cost is really turned around to the next artist.

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      • I H8 RAP says:

        Hidden due to low comment rating. Click here to see.

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  7. Sam B. says:

    “The most successful musicians are the last ones in need of aid…”

    Boston and Gloria Gaynor are among the super wealthy? I know that with regards to Springsteen and, during the next decade, Madonna and other 80s standards, the termination provision will be giving more money to the wealthy.

    But a lot of these acts could stand to benefit more from the slight uptick in sales that digital music services have no doubt provided. It’s a bit unfair to anecdotally assume that all musicians who would benefit from this are among the super-rich. Many mid-level or one-hit-wonder acts from decades past can probably really use the money.

    And trying to drum up sympathy for the industry is a losing battle. They have reaped a fortune for decades, and it is only their complete lack of vision that has damaged their profits of late. Live by the sword of corporate contracts, die by it.

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  8. Kentucky Packrat says:

    You forget the history of the “retaking” clause. Until 1978, copyright on sound recordings and sheet music was a huge collection of messes (*), so Congress decided to consolidate it into a single mess. Since songs would enter the public domain in 35 years previously, the impact to artists was mitigated by allowing the artists to “take back” their songs in 35 years. Since the record companies controlled distribution, that didn’t bother them much.

    Now, the cash cow is dying, and the record companies want it back. Boo hoo.

    (*) Generally, sound recordings were mostly under state laws and common law protections until 1978. The earliest a sound recording can enter the public domain for certain (barring deliberate placement) is 2049, and most recordings before 1978 may not enter it until 2067.

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    • jobu babin says:

      True, but go back further…actually, the true nature of this mess comes from an era where there were no recordings, and the copyright was meant to apply to the right to reproduce and sell sheet music…the “property” was that of the composer and publisher. The advent of recording closely followed by the prominence of the “recording artist” (before The Beatles, there were almost no performing composers) changed the nature of the market and the relationship between the agents. The copyright laws at that time did not evolve accordingly, leading us to 1978.

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