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.


@casualbon

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.

Joshua Northey

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.

Brawling

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.

Clancy

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

"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).

A Nother

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

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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Brian

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.

Mike B

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.

The Voice of Reason

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

"Covers" aren't free - try Googling "compulsory license music" to learn about this special case in US law.

Sam B.

"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.

Kentucky Packrat

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.

Caleb b

I don't see how this affects the current or future generations at all, considering that they stopped writing any new music sometime in the 90's.

Brawling

That's the stupidest article I've ever read.
"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."
How do you feel about patent law? Should large pharma firms be able to stop the manufacture of generics? The record business of that last twenty five years has been the most wasteful, arrogant and inept industry on the planet. At least if the artist reclaim their recordings (not Songs as you stated, different issue) there is a chance they will continue to be available somewhere besides a bankruptcy court. And "work for hire" is a very specific designation that is specific to very specific circumstances. If the artists are employees they should be protected by minimum wage, health insurance and severance. Employees have rights! Not a big deal for Bruce, but Ace would walk away with a boat load of back pay :)

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Tg3

There are a lot of big words, technical jargon and ethics-of-art issues at play here. I cannot pretend to understand. I just wanna get my Glee on.

Chuck

If I understand Raustiala and Sprigman's argument, then I assume they're also opposed to the expiration of patents in the pharmaceutical industry. Personally, I think the implications of a "generic" copy of Don't Look Back are incredibly intriguing from both a market and artist perspective.

But hey... considering the money that Pfizer is about to lose from Lipitor's patent expiration, it's a good thing somebody is sticking up for poor little Sony.

Terry Pep Carter

Someone should get this article and the specifics of this law to George Clinton so that he can get all of his proper royalties for all of the songs he created and never got paid for!!

RJ

This argument is much less than persuasive. The present value of unknown revenues (if any) 35 years out is negligible. For the last 35 years, I doubt a record company has factored this loss of future revenue into what they pay musicians.

Also, any recordings with enough projected revenue that there might be value after 35 years (and thus reduce the amount offered) are those by the most successful musicians so I don't see how the transfer argument having any merit either.

The termination system IS a poor idea, but primarily because the rights are for 35 years. I suspect the recording industry projects revenue for more like 5 years -- that's a much more appropriate length of time. I'd be interested to know what recordings provide a significant revenue stream after 5 years that didn't provide a handsome return during the first 5 years.

Marcus

Maybe we should short-circuit this whole debate and put copyright back to a reasonable term? Crazy, I know.