In 2002, Verizon Offered to Pay the Music Industry $1-a-Month for Every Internet Subscriber

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It’s a question that haunts the music industry to this day: what if instead of destroying Napster, they had licensed it?  Well, it turns out the music industry had another missed opportunity with Napster’s bigger, more complicated replacement: Kazaa.

According to details now long-forgotten, Kazaa had actually joined forces with Verizon in mid-2002 to offer a $1-per-month payment for every subscriber.  As disclosed by USA Today journalist Jefferson Graham at the time, other ISPs were also being approached to join the plan, not to mention blank CD and hardware manufacturers.

“We’re proposing the idea of a copyright compulsory license for the Internet, so peer-to-peer distribution would be legitimate and the copyright community would get compensation.” Verizon vice president Sarah Deutsch, 2002.

Verizon’s involvement signaled something groundbreaking, with potential buy-in from other major access companies.  “Historically, there’s been a clash between the content community and new technology, back to the player piano,” then-Verizon vice president Sarah Deutsch told Graham, who first detailed the plan on May 13th, 2002.  “We’re proposing the idea of a copyright compulsory license for the Internet, so peer-to-peer distribution would be legitimate and the copyright community would get compensation.

“It’s hard to get the genie back in the bottle.”

If pursued, the plan itself would have amounted to about $2 billion annually in the US alone if other ISPs joined at the time.  “Kazaa lobbyist Phil Corwin says a $1-a-month fee per user on Internet providers alone (it’s unclear whether costs would be passed along to subscribers) would generate $2 billion yearly,” the report continued.

That would be on top of existing CD sales, which were still in the healthy multi-billions.  “We’re talking about a modest fee on all the parties who benefit from the availability of this content,” Corwin described.

“It’s the most disingenuous thing I’ve ever heard.  It’s ridiculous.” RIAA president Hilary Rosen.

Unfortunately the plan never had a chance.  At the time, Recording Industry Association of America (RIAA) president Hilary Rosen summarily dismissed the idea.  “It’s the most disingenuous thing I’ve ever heard,” Rosen flatly responded.  “It’s ridiculous.”

But the plan could have offered a the music industry a multi-billion dollar baseline, year-after-year.  In 2015, there are nearly 280 million internet subscribers in the US, according to Internet Live Stats.  That would translate into a $3 billion guaranteed annual pot, which doesn’t count any amounts contributed by hardware manufacturers.  It also only applies to the United States, which accounts for less than 10 percent of the global internet-connected population.

That worldwide number is now surpassing 3.2 billion active lines, also according to Internet Live Stats, which could theoretically produce billions in monthly revenues at the $1-per-subscriber rate.

23 Responses

  1. Tom

    As we see time and time again (when eyes are opened and minds not disillusioned with propaganda), the gate keepers of the music “industry” are the least supportive of the music “community.” Nothing has changed. Hopefully artists wake up one day and take up the cause themselves.

    Reply
    • dcguzman

      And another one believe this website propaganda. In that time cable and telcom companies wants to seize and own the internet. Make a oligopoly to every startup the internet made. They know the internet will be big but because of net neutrality they cant buy every startup companies, but theyre still trying it even to this day.

      That deal isnt about the music industry its about the control of the internet. The music industry isnt as it was at that time. Verizon dont care for the copyright and royalties, they just care for the tech.

      Reply
      • RickyLopez

        You are right. The internet (INFRASTRUCTURE) will be up for grabs. Like the telephone was 100 years ago… like the trains 80 years ago…like the cars about the same time*** Like the oil …..old school and new fracking – At all costs, the big companies will stamp on everyone and offer short term incentives to get music TV and Movies then disappear and count their dividends.
        (**ie – expensive tax funded bail outs for 3 generations )

        Reply
        • dcguzman

          The sad part about this is this website indirectly promoting SOPA and PIPA. This website promoting corporate censorship of the internet “for the sake of artists and song writers”. And at the same time blaming the fans for promoting piracy and free music. Also the members that commenting here are zealots and even beg the music companies to monopolized the internet.

          They literally want Apple, Spotify, Netflix and Google to be the next Comcast, AT&T, Verizon, Time Warner and Charter. Its a good thing is this website isnt that popular because Im living in the Philippines and oligopoly on internet, communication, cable, and media is bad.

          Reply
  2. David M. Ross

    Nice job uncovering this USA Today article. Had this copyright fee idea gone forward in 2002, the environment for creators would look vastly different today. But admittedly it was hard to envision the downward sales revenue spiral that would ambush creators and artists in the transition from physical to downloads to streaming. Some would argue that Free has turned music into a public good. Is it too late to adopt a plan where the ISPs collect a mandatory music fee which is distributed to creators according to streaming usage of their works? The Digital Solution (on Amazon) proposes such a plan and details how it could work to fairly compensate creators.

    Reply
    • A LOAD OF BS

      And how would the money be distributed? Ok – lets say you can track consumption so that you can distribute the revenue fairly – well – then you have two outcomes.

      One, you get Spotify but with a $3.2b cap… oh joy, that’s only HALF the revenue of the current industry numbers domestically.

      Two, you charge by consumption as it should be and grow the business into tens of billions of dollars as artists are finally compensated fairly for the consumption of their work online.

      Big numbers sound impressive until they are put into context. $3.2b annually is HALF the size of revenue the industry is generating now – and if everyone is paying $1 a month for a free pass… unlikely anyone would ever pay more than that…

      Reply
  3. Danwriter

    Hilary Rosen, aka the pit bull in a dress, was to music industry policy what George W Bush was to American foreign policy. She was the originator of the disasterous “sue ’em all” strategy that saw the RIAA divert massive resources into litigating grandmothers and teenagers while Rome burned. Eventually, even Rosen had to admit that the strategy was wrong. Unfortunately, little has changed at the RIAA.

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      I think this applies to the larger group of C-level execs at the major labels, because Hilary, in the end, was more or less taking orders from what I’ve gleaned. Now, there’s sometimes always room for people in Hilary’s position to influence, guide, and strategize, though I think at that early stage, the recording industry was in a slash-n-burn mentality. In context, CDs were at their absolute sales peak, and only just starting to come down; they wanted that to last forever.

      Reply
      • Danwriter

        Rosen got her mandate from the executive suite at the major labels but the tone and intensity were her own. She was extremely combatative and strident, hence the pitbull comment. That attitude may have reassured her executive constituency, but it also alienated potential allies in addressing music piracy and reinforced the us-against-them mentality that limited the strategic thinking at RIAA.

        Reply
        • Paul Resnikoff
          Paul Resnikoff

          In the history book they’re still reading 100 years from now, this could stand out as a pivotal moment. Here you have a classic, almost textbook disruption dilemma (or, Innovator’s Dilemma). Physical, bundled albums are peaking in the billions, while the newer technology is undermining and directly cannibalizing that cash cow. It’s a scene Clayton Christensen had already described in the 90s.

          Reply
          • Danwriter

            We don’t have to wait that long. The music industry is regularly cited in business journalism as the ultimate canary in the coal mine when it comes to failure in dealing with disruption. And as you know, usually, the canary dies.

  4. Faza (TCM)

    Does anyone have a feeling we’ve already heard this before? Isn’t that the whole streaming schtick that’s working out so well?

    Reply
    • Yup

      Seriously. And how are the record labels and publishers supposed to go into good faith negotiations with a gun to their heads? Kazaa is stealing all of your content and then striking what I’m sure were potentially lucrative (for them) business deals with the ISPs, and the RIAA should just go along with whatever cockamamie idea they come up with to compensate the rightsholders? Not to mention the logistics of the whole thing. Who collects the money? What’s the split between the sound recording and the underlying composition? What types of uses are considered compulsory? So instead of enjoying billions of dollars in revenue generated by the sales of MP3s at, in some cases, as much as $1.29 per track which means one dollar per song song being kicked back by the retailer to be split between the copyright owners, the industry just settles for $2 billion a year? This music like water bullshit needs to be put to bed already. Peter Jenner was the one who pushed the idea in the first place and even he doesn’t really know how it would play out in real life. Furthermore, now that the DOJ is shutting down sites like ShareBeast, isn’t it just remotely conceivable that, with a little cooperation from the feds, we can clamp down on piracy, transition into legitimate business models that fairly compensate creators, and re-write our copyright laws to get rid of all of the ridiculous compulsory licenses so that copyright-holders can strike the best possible deals and make their music available when, where and how they think is most advantageous for themselves? Consumers need to realize that convenient consumption of music at a price point that is as close to zero as it can get is not one of their God-given rights. It is up to market forces to give them what they want in a sustainable way. Thank you Hillary Rosen for not taking a horrible deal ten years ago that would have completely destroyed what was left of the music business.

      Reply
      • lroosemusic

        Yes, thank god the RIAA and Majors shoved their heads into the sand, basically denied the existence of mp3s, and fostered entire generation of pirates. But on the plus side they did sue the pants off of some kids and grandmas.

        How did that work out for them?

        Myself and the vast majority of those in my generation are bigger music consumers than any before us and scarcely a one of us has paid for recorded music. The labels saw disruption coming and foolishly fought it – even if this $1 per month per using thing wasn’t The Solution, it’s a great example of an embedded industry unable to unlatch itself from the teat of the old business model.

        Ever hear of the pirate bay? How many times has that site been taken down? You can browse there right now and get nearly any copyrighted work you want almost immediately, at no charge. This same site has been the most popular destination for pirated content for nearly 12 years running.

        But please, tell me more about ShareBeast.

        Reply
  5. Yup, You're Dumb Alright...

    Yup – And how are the record labels and publishers supposed to go into good faith negotiations with a gun to their heads? Kazaa is stealing all of your content and then striking what I’m sure were potentially lucrative (for them) business deals with the ISPs, and the RIAA should just go along with whatever cockamamie idea they come up with to compensate the rightsholders?

    Um…. They said “No.” to the offer – Without ever even countering, with something like, oh, say, $1.50 per user. they just said “No.” and so, it never happened.

    How is being able to 100% reject an offer having “a gun to your head,” you moron?

    Yup – Not to mention the logistics of the whole thing. Who collects the money? What’s the split between the sound recording and the underlying composition? What types of uses are considered compulsory?

    Um, I think it’s pretty clear that the ISP collect the money, and distribute it to rights holders according to some metric like market share. Are you REALLY that dumb, that you a) don’t know how this would work and b) think administrative minutia is insurmountable? Idiot.

    Yup – Furthermore, now that the DOJ is shutting down sites like ShareBeast, isn’t it just remotely conceivable that, with a little cooperation from the feds, we can clamp down on piracy, transition into legitimate business models that fairly compensate creators, and re-write our copyright laws to get rid of all of the ridiculous compulsory licenses so that copyright-holders can strike the best possible deals and make their music available when, where and how they think is most advantageous for themselves?

    Nope.

    Good luck, uh, “clamping down on piracy.” Good luck with re-writing the copyright laws too, especially getting those compulsories and Consent Decrees knocked out, when all the music collectives EVER do is trip over themselves – right into the freakin’ lobby of the DoJ – with anti-competitive behavior.

    Yup – Consumers need to realize that convenient consumption of music at a price point that is as close to zero as it can get is not one of their God-given rights.

    Actually, it’s up to record labels, music publishers and artists to realize that consumers ultimately set the price. The seller doesn’t get to say what’s a “fair price.” You can ask for whatever you want, of course, but if the public only wants to pay $1 for it. Then $1 will be the actual selling price.

    And we’ll still have more music (good, bad or otherwise in any one person’s subjective evaluation) than anyone wants to hear, at THAT price.

    Reply
    • Yup again

      What I don’t understand is why any conversation in the comment section of a website has to be conducted in such an uncivil manner. That’s what I don’t understand.

      The rest of what I said stands. The record labels were working on their own digital strategies at that time. They may have failed, but that’s because they were competing with free. And asking music distributors, which is what record labels are, to hand over their entire business model to the same crooks who are stealing their content is not only putting a gun to their head but asking them to pull the trigger.

      Who collects and distributes the money from the ISP is what I was saying. Is it the RIAA? Can they be trusted? Is it one of the many PROs? Harry Fox? SoundExchange? The industry builds a mechanism from scratch and vests it with the power to license on behalf of all copyright owners and then trusts it to equitably split up the money and monitor the ISPs to make sure they’re abiding by the terms of the agreement? Sorry my friend, but I don’t think you grasp how complex the issues are behind licensing music.

      I thank you for wishing us good luck as we begin to work on a revamp of U.S. copyright laws. It is long overdue. I also hope that you will lobby your representatives to take into account the needs of songwriters and artists who are struggling to find ways to sustain themselves. If the government is willing to shut down one infringing website, there are plenty more where that came from, and they are easy to identify. All it takes is the legislative imperative to do it. The anti-competitive charges against the collectives are trumped up nonsense brought at the behest of the broadcast industry in order to keep the PROs as toothless as possible.

      I said it was up to market forces i.e. supply and demand to give consumers the products that they desire at a sustainable price point, and you echoed that sentiment so kudos to you. You obviously recognize that wholesale theft does not equal a marketplace.

      I hope the above clarifies some of my earlier statements. Happy trolling!

      Reply
    • Yup, You STILL Don't Get It

      Yup again

      What I don’t understand is why any conversation in the comment section of a website has to be conducted in such an uncivil manner. That’s what I don’t understand.

      Well, it comes from the fact that you say outrageous things, that have absolutely no basis in fact, indicating that you don’t understand much of this. Yet you say them with such self-assuredness, that some of us are both amazed and justifiably offended. If you want to avoid such rigorous push-back, you might consider spending some time actually learning about these issues (instead of just parroting what you read in some biased, HFA pamphlet) and toning down the rhetoric.

      Which brings us to…

      Yup again

      The record labels were working on their own digital strategies at that time. They may have failed, but that’s because they were competing with free.

      No. You’re wrong (again).

      Here’s why: Apple iTunes competed with free, as well. They STILL do. And they made hundreds of millions of dollars a year doing it. They succeeded where the record companies failed, in the exact same environment, facing the exact same challenges. Apple succeeded because they KNOW WHAT THEY ARE DOING. Because they KNOW THEIR MARKET, and because DON’T ASSUME THEY CAN SELL GARBAGE AT A PREMIUM PRICE.

      Bottom Line; The record labels are HORRIBLE at “the internet” (i.e.marketing to people on the internet).

      Yup again

      And asking music distributors, which is what record labels are, to hand over their entire business model to the same crooks who are stealing their content is not only putting a gun to their head but asking them to pull the trigger.

      1) Verizon is not, was not, was never and should never be considered “the same crooks who are stealing their content.”

      2) Partnering with someone you see as as stealing your content may often be the only way to put that entitey in check and monetize it.

      3) The labels partnered with folks they saw/see as “the same crooks who are stealing their content” many, many times. You do know that one of the largest digital metadata companies initially employed by all the majors started out as a 100% pirate site that was sued by all of them, (example of point 2, above) right? You do know that BMG bought Napster, right? You do know that the major labels hold a collective 18% or-so interest in Spotify, right?

      On the other hand, maybe you actually DON’T know these things.

      Yup again

      Who collects and distributes the money from the ISP is what I was saying. Is it the RIAA? Can they be trusted? Is it one of the many PROs? Harry Fox? SoundExchange?

      Ugh….

      THIS is why you get the “uncivil” response. You just simply do NOT know what you are talking about (but are still quick to offer up your um,… “wisdom,” anyway).

      In the first place, as I ALREADY SAID, it would be incredibly easy to have the ISPs distribute the proceeds directly to the labels, based on a metric like market share. This is NOT NEW. Nor is it at all difficult. It is how the proceeds from joint litigations are ALREADY distributed. It is how contributions to joint settlements are funded.

      Second, RIAA wouldn’t do it (unless the labels wanted them to) and Yup? The PRO’s and HFA DON’T have ANYTHING to do with collecting or distributing record company revenues.

      Yup again

      The industry builds a mechanism from scratch and vests it with the power to license on behalf of all copyright owners and then trusts it to equitably split up the money and monitor the ISPs to make sure they’re abiding by the terms of the agreement? Sorry my friend, but I don’t think you grasp how complex the issues are behind licensing music.

      Again, it is routine and simple to distribute the proceeds based on a metric like market share. The fact that a) you don’t know that industries, including the recording industry, have routine methods to distribute funds like this and b) you think it is some unsolvable enigma shows that you really just should NOT even be offering your opinion on issues like this. You should instead just be asking questions and trying to learn something. Seriously.

      Yup again

      I also hope that you will lobby your representatives to take into account the needs of songwriters and artists who are struggling to find ways to sustain themselves.

      I already am lobbying Congress to pursue BALANCED and FAIR copyright reform, that respects the true function of copyright, which is NOT to “protect songwriters,” but to ensure the dissemination of works to the public, by incentivizing creators with a limited-time right.

      Yup again

      If the government is willing to shut down one infringing website, there are plenty more where that came from, and they are easy to identify. All it takes is the legislative imperative to do it.

      Please see: SOPA and PIPA, for your further education on the matter

      Yup again

      The anti-competitive charges against the collectives are trumped up nonsense brought at the behest of the broadcast industry in order to keep the PROs as toothless as possible.

      Well, the DoJ, Judge Cote and a good deal of the members of Congress would differ with you on that – to the point that anti-competitive controls on these collectives are simply NOT going away, any time soon.

      But by this point, your lack of insight and myopia on these issues is fully expected.

      I hope the above clarifies some of why your statements cause those of us who actually know about these issues heartburn.

      Reply
      • Troglite

        A difference of opinion does not warrant disrespect. These types of discussions between parties with disparate beliefs can be quite productive. Change seldom occurs without that type of open dialogue.

        But that’s much less likely when anyone who disagrees or even makes an honest mistake in their analysis is degraded in this manner. The truth is, there’s much more “opinion” in this thread than hard facts.

        Yup’s opinions are likely the result of experiences that are different than your (and probably mine, too). But, no one in this community will get to understand what those experiences might be b/c you choose to behave like a child.

        Reply
      • Opinions +/+ Facts

        There’s a difference between opinions and facts.

        And there’s a difference between being informed and uninformed, correct and incorrect.

        Yup’s posts contain few uneducated opinions, based largely on incorrect “facts.”

        Few things are more childish than trying to obfuscate one’s ignorance of true facts by labeling it as mere “opinion.”

        Reply
  6. Ariel

    But Spotify!

    Seriously its incredible that Verizon and Kazaa were so forward-thinking and rational. The music industry entirely brought this whole thing on themselves. Please stop blaming tech companies or evil consumers/fans.

    Reply
  7. Paul Lanning

    The labels paid the price for ignoring the elephant-in-the-room, but were not going to atone by making a deal with thieves.

    Reply

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