My main business is to secure clearances for music, TV and movie footage, and other forms of intellectual property for use in documentaries, CD and DVD compilations, movies, and Internet based projects. My principal clients are TV producers, record companies and digital content providers. For instance, I am presently clearing numerous songs, masters, videos, performers and celebrities in a History of Hip Hop documentary to air next fall on VH1. Another project is an Imax movie which will feature music and fashion. On that project I am helping the producer secure new performances by major music recording artists as well as licenses to use pre-recorded music.

For an in depth discussion of tips on clearances you can read my article on the topic in my website, or just click on "Tips for Clearing Music for Television and Motion Pictures." I would strongly suggest that prior to finalizing your budget for any entertainment project, if you intend to use any third party music or footage, that you consult with a professional on clearance strategies. If you want to save money and you have the time, you can always try to secure the clearances yourself. But an expert can inform you what the industry standards are so you can fashion your requests for permission to use copyrighted material for the lowest possible fees. For instance, there are different industry standards to use music (i) in different media such as cable or network TV, (ii) territories such as U.S. or foreign, and (iii) terms such as one year or five years. The consultant can help you figure out how much it will cost to clear what you want to use, whether you can afford it, how to cut the cost of clearances by using different or less material, and what media you want to clear. With regard to the last point, many TV as well as movie projects have an additional life on DVD now. You should plan for this opportunity. A consultant will be able to tell you what the cost of DVD licenses will be. There are also techniques of getting the costs down. For instance, by using options for future uses and media you can avoid up front payments. This can save you a lot of money.

A recent decision in the Ninth Circuit upheld a lower court decision that Grokster and Streamcast are legitimate services with “significant noninfringing uses,” a key benchmark set in the Sony v. Universal Supreme Court decision. The Sony decision is itself based on precedents from patent law in the early 1900s that deal with tying arrangements that have no relation to copyright.

The Circuit Court upheld the District Court, which found that the distributed software programs had significant noninfringing uses similar enough to home video recorders of Sony. Contributory liability did not result because Grokster and Streamcast had no actual knowledge of infringement at the time of occurrence. Moreover, although they were financial beneficiaries of file-sharing, the two providers lacked the requisite monitoring ability needed to prove vicarious liability.

From a legal perspective, the outcome raises some eyebrows. The Court’s decision apparently differs from the previous Napster decision, where the same courts ruled that contributory infringers knew, or HAD REASON TO KNOW, of direct infringement. The second point (i.e., HAD REASON TO KNOW) was made in an amicus brief filed by nine treatise distinguished writers on copyright law. The Ninth Circuit’s decision may then provide an incentive for software developers to figure out ways in which they can look blind, innocent, or simply incapable of taking deterrent action, whatever the apparent harms of doing so.

Indeed, the Seventh Circuit reached a different outcome regarding willful blindness exercised by the Aimster file-sharing system; “willful blindness is knowledge, in copyright law, where is indeed may be enough that the defendant should have known of the direct infringement.” We now may have the pleasure of a Circuit split -- always a problem -- which is now exacerbated by the importance of digital technology.

From an economic cost-benefit perspective, the technological outcome of the conflicting decisions in the Ninth Circuit is clearly inefficient. From an economic perspective, Napster, Grokster, and Morpheus lead to the same basic result; i.e., 90 percent of their takings infringe on copyrighted works. If only one technology is to be allowed, Napster would be the
apparent choice; it is more efficient than the remaining two, which take considerably longer to operate due to lack of a central directory. Moreover, if there is an economic reason to restrict Napster (due to offsetting costs), there is even more economic reason to restrict the less efficient services.

For all the legal explanations largely built on precedent (all dating eventually back to patent law in the early 1900s), one then wonders why a legal process should be heralded that leads to the clear economic inefficiencies that have been so established.

A recent article in Billboard titled "EMI publishing, Sony BMG Ink Digital Pact" describes a deal that could be an important step in building a stronger foundation for developing successful business models for digital music.

For years the labels, which represent artists, have complained that the music publishers, which represent songwriters and composers, have thrown a monkey wrench at the labels' attempts to create viable digital music business models. For instance, when the labels began launching interactive streaming services, such as Farmclub (initiated by Universal Music), the publishers demanded that they receive "mechanical" royalties in addition to performance royalties -- even though you cannot download or make copies of interactive music streams. The publishers argued that interactive streaming could cut into album sales and thus "displace" mechanical royalty payments otherwise payable to the publishers. Despite a successful court challenge launched by the publishers (The Rodgers and Hammerstein Organization v. UMG Recordings Inc., 60 U.S.P.Q. 2d 1354 (2001)), the labels and the publishers have yet to work out a royalty for interactive streaming.

So the news of a "pact" between the leading music publisher in the world -- EMI, and the second largest label in the world -- Sony BMG Music, is a hopeful development. The umbrella agreement sets working guidelines for clearing rights to new digital music delivery opportunities on phones, PCs, digital cable systems and emerging physical configurations and promises to drive the clearance of thousands of copyrighted works for new distribution formats.

According to Billboard, the deal covers North American rights for master ringtones and ringbacks; DualDisc (the new two-sided music format that combines CD and DVD functionality). The deal sets defined rates for master ringtones, ringbacks and DualDisc. Rates for other emerging technologies, most notably video, have been left open for determination at a later time. Specific financial terms of the agreement were not disclosed. Brian Garrity, the author of the Billboard article wrote that "the agreement recognizes the sense of urgency labels and publishers are feeling to create working business models and efficient licensing systems that allow them to profit from quick-moving digital distribution opportunities." Sony BMG is still in talks with Sony ATV and BMG Music Publishing about digital rights for mobile and other new formats. Sony BMG CEO Andrew Lack told Billboard that he anticipates that both publishing companies will move quickly toward similar agreements with Sony BMG in the wake of the EMI pact.

If anyone out there knows more specifics, please let us know!

The Supreme Court recently set a date for opening arguments in its review of MGM v. Grokster. Here is some additional background information on this case.

The Ninth Circuit’s Decision

In August 2004 a Federal Appeals Court upheld the controversial court decision that said file-sharing software programs such as Grokster or Morpheus are legal. Following the lead of a the federal district court, the 9th Circuit decided that peer-to-peer software developers were not liable for any copyright infringement committed by people using their products, as long as they had no direct ability to stop the acts.

The ruling means that companies that write and distribute peer-to-peer software can't be shut down because of the actions of their customers. It did not say file-trading itself is legal, and lower courts in the United States have said individual computer users are breaking the law when they trade copyrighted files without permission. But the ruling did lift the cloud of potential liability from defendants Grokster and StreamCast Networks, as well as from many of their rivals.


U.S. Supreme Court Review of the Ninth’s Circuit’s Decision

In early December 2004, The Supreme Court announced that it would review the Ninth Circuit’s decision. According to Billboard Magazine, the Supreme Court’s decision “will finally clarify the industry’s ability to control peer-to-peer technology through existing law.” Billboard also noted that “entertainment industry lawyers say” that the Court’s decision “will influence the industry at every level, including its ability to invest ion artists and songwriters…” (Billboard Magazine, December 25, 2004). Now, a firm date has been set for opening arguments.

Certain experts, however, argue that even if the Court were to reverse the Ninth Circuit, that the decision would not have a major impact. These experts argue that, in terms of P2P trading of songs, the train has already left the station. They point to off-shore P2P services that operate beyond the legal jurisdiction of U.S. law including certain countries, such as Canada, in which P2P is legal. They also contend that there are certain P2P systems that operate without any central control or owner. In other words, when it comes to these systems, there is no operator who could be sued. The only effective way of dealing with them, these experts argue, would be to force the ISPs to weed them out. But the content owners are not seeking that relief. It would violate the ISPs status as neutral carriers, and force them to censor content. Certain cynics also point out that the ISPs are too powerful for the content owner to challenge their legal immunity.

In his testimony before the House Judiciary Committee dated March 8, 2005, the President of the NMPA, David M. Israelite, testified that the lack of a compulsory license for use of songs in subscription music digital services has "placed songwriters and music publishers at an inherent disadvantage in negotiating mechanical rates for subscription services." He also stated "songwriters and music publishers have yet to earn royalties from subscription services, and the subscription services in turn have been unable to close their books due to uncertainty as to royalties they owe for musical work rights." He closed his testimony with this appeal: "We look forward to working with Congress to find a way to correct this problem."

This testimony is a refreshing step towards progress in setting up clear parameters for use of songs in subscription music services. For years, as Israelite points out, there has been uncertainty, and still is, as to a fair royalty rate for payment to the songwriters and publishers from subscription digital music services.

Downloads of songs, on the other hand, trigger a 8.5 cent payment to the songwriters pursuant to a compulsory license rate set up by the Copyright Law. According to Israelite "the compulsory license has made it possible over the past century for virtually any performing artist to record our members' musical compositions, while guaranteeing compensation to songwriters for their creative efforts. Consumers have been the winners."

As Israelite points out, the compulsory rate for mechanicals has worked well to compensate songwriters, and at the same time give a reasonable rate for users of music. Extending a compulsory license for the use of songs in subscription services will also have a beneficial affect for the songwriters, the subscription services and the public.

The record companies should take notice. A compulsory license could also help the labels assure their continued existence. If they would finally allow the legalization music file sharing in return for a compulsory rate that all users must pay which is reasonable the labels might salvage their future.

Oral arguments were presented to the Supreme Court on Tuesday in MGM v. Grokster, the landmark copyright infringement case pitting the music and motion picture industries against makers of peer-to-peer file-sharing software.

You have already read reports that the entertainment industry argued that popular online services such as Grokster should be held responsible for the unlawful acts of their users. On the other hand, defenders of file-sharing argue -- and this concern was expressed by several of the justices yesterday -- that making these P2P file sharing services illegal could chill the incentive of inventors to develop new technologies, for fear they would face lawsuits if their products or services were used for illegal purposes. The Associated Press reported that justices "wondered aloud whether such lawsuits might have discouraged past inventions like copy machines, videocassette recorders and iPod portable music players." On the other hand, C|Net reported that while the justices "were critical of the entertainment industry's proposal, which would hold companies 'predominantly' supported by piracy liable for copyright infringement," they also "showed little sympathy for the file-swapping companies' business model."

Lower federal courts including the Ninth Circuit, have dismissed claims against Grokster and Streamcast Networks, citing the Supreme Court ruling in the Sony Betamax case. In that 1984 landmark case, the Court ruled 5 to 4 that providers of devices or services cannot be held responsible for the acts of users if the product or service is "merely capable" of substantial legal use. Three current justices participated in that case: Justice John Paul Stevens wrote the majority opinion, joined by Sandra Day O'Connor. Chief Justice William H. Rehnquist dissented.

If I were to offer a prediction, I would hesitate to be hopeful if I were the RIAA or MPAA. If the Court ruled Grokster illegal, that decision would substantially diverge from the reasoning in the Sony Betamax case. The Court also has to consider the reality that file sharing of copyrighted files would continue anyway. Just because you close down Grokster, its file sharing software as well as that of KaZaa and eDonkey and others are already being used. The only way to get rid of it is to shut down the Internet itself. As Joe Fleischer of Big Champagne said on a radio show this morning “The Internet is in itself is a file sharing protocol."

Moreover companies such as Yahoo and Google, through their new, enhanced email services are allowing consumers to share files including copyrighted works. Seems to me that P2P is here to stay. If the Supreme Court decided against Grokster, therefore, it would only confirm its own irrelevance. As I have argued before, to me the only sensible solution that would benefit technology, copyright and the music loving public, is for the copyright holders to go back to Congress and ask that those who are truly profiting from illicit file sharing – the ISPs and the electronics industries – pay a tax on the high speed Internet connections and machines including computers and MP3 players which facilitate sharing of music and other copyrighted files, to compensate the copyright owners and end the war against consumers who are already paying good money for Internet access and computers before downloading "free" music.

This blog addresses the use of music in video games. It is a re-print a portion of my forthcoming book on the Future of the Music Business now available on amazon.com

The Increasing Importance of Music to Video Games and the Increasing Importance of Video Games to the Music Business

The sale of video games is a huge business. The income from sales of a successful game can rival the financial success of a major motion picture. An article in the New York Times dated November 14, 2004 titled “Hollywood Would Kill for Those Numbers” by Michael Marriott, reported that Microsoft estimated that first day sales of Halo 2, its best-selling video game that plays on Microsoft’s Xbox console, were $125 million dollars. According to Mr. Marriott, Microsoft “executives gleefully note[d],” that this amount “topped the opening weekend of the animated-film-of-the-moment, ‘The Incredibles,’ by some $55 million.” Last year, the sales of video games exceeded $20 billion worldwide.

Paralleling the growing popularity of video games has been another pattern: many of the hottest video games are using more music, both previously released tracks (including those by superstars as well as underground hits), and music specifically composed, produced and recorded for particular games. In the midst of dwindling opportunities to break new music on commercial radio or MTV, and the slump in CD sales, both indie artists and major record companies see opportunities. Video games are becoming both an important resource in breaking new talent, and an important new source of revenue for big labels and established artists.

The first page of the Business Section of the New York Times on November 15, 2004, carried an article titled “Hey, Cool Music. And There’s a Video Game Too?” by Noah Robischon. The first paragraph reported:

"When the rapper Snoop Dog’s version of the 1971 song ‘Riders on the Storm’ makes its debut tomorrow, it will not premiere on MTV or on the radio. Instead, the song, which was recorded with the surviving members of the Doors, and includes outtakes of Jim Morrison’s vocals, will be heard on Need For Speed Underground 2, a video game from Electronics Arts."

The article's main point was that video games have become an important avenue for the marketing and distribution of music. Robischon explains that the Doors were looking for a “way of reinventing their catalogue for a new generation,” and Snoop had long wanted to cover and release “Riders.” Certain record company executives now believe that many listeners are no longer discovering music via radio or even MTV. Instead they are learning about and listening to new artists through new media such as the Internet, satellite radio and now, video games.

Due to the steep decline in sales of CDs in the last several years, video games have also emerged as an important source of revenue for record companies and recording artists. For instance, Robischon reports that when Electronic Arts was creating the 21 song lineup for Madden NFL 2005, one of their most popular games, the labels sent 2,500 songs for consideration. In addition, songwriters and those who compose original music for video games are also benefiting from the coalescence of video games and music.

Now that we know that music is a vital element in many video games, and that video games are a more and more important player in promoting new music and in offsetting the decline of traditional revenues, what are the parameters of the deals?

Licensing Parameters
Music in games is used in various ways. Often, for instance, music plays in the background of many scenes in a game. Another example is that music is used as a control. For example, every time you hear a guitar playing a certain theme, the player is prompted to do something else in the game. This kind of use is of music is generally commissioned on a work for hire basis. That means that the musicians/composers who create this music generally transfer all their rights in the music and the recordings to the producer. The price of this kind of job is often paid based on the amount of music composed and delivered. Generally the price can be $1,500 per minute and up. Respected composers/musicians with a track record for composing for games can make quite a bit more. Note that these work for hire agreements generally apply to both the master and the underlying musical composition.

Some video games employ music in an entirely different way. For instance, the Madden 2005 game will feature prerecorded masters some of which have already had considerable success. This is similar to a movie that uses certain highly recognizable music to conjure up a style or an era. Use of highly successful songs in major motion pictures can fetch six figure fees and up for each the song and the master. Licensing of famous songs and masters in video games may never reach these levels because video games do not have as many “windows” as a movie. For instance a movie can be theatrically released, placed on pay cable, network and home video. However, as games gain in popularity, and in production budgets (some are rumored to cost almost as much to produce as major movies), the price of these licenses may eventually rival the prices for use of popular music in block buster movies. Also similar to licensing prerecorded songs for movies, and unlike composers who are commissioned on a work for hire basis, the rights conveyed under these licenses will generally be limited, and the copyright in the master will generally be reserved by the artist or his record company, and the copyright in the underlying music will remain with the composer and/or his music publisher.

Another way that music is used in video games is that certain video game producers are engaging highly successful artists to create new recordings specifically for their games. A good example is the Need For Speed game discussed above which will contain a new Snoop Dog version of the Door’s “Riders on the Storm.” This song will be a featured part of the video and you can bet it cost more than $1,500 per minute to acquire the rights! You can also safely assume that Electronic Arts did not secure the copyright in the master. The underlying composition is already controlled by the Doors’ publishing company, and no doubt they retained the copyright in the song.

Note that the compulsory license rate of 8.5 cents per song per copy does not apply to the use of musical compositions in a video game because, as with movies, these are audiovisual uses and the compulsory license applies solely to audio-only uses.


Soundtracks

There have been instances where game producers have spun off soundtracks based on music contained in their games. So far these soundtracks have not met with great success. Robischon reported in his article:

“Stand-alone video game soundtracks have not proved particularly successful. The critically acclaimed orchestral soundtrack for Halo by Microsoft sold only 40,000 copies, although the accompaniment to Halo 2 is expected to sell better. And the seven-CD box set for Rockstar Games’ Grand Auto Theft Auto: Vice City, which featured a slew of 1980’s radio hits, sold fewer then 30,000 units.”

On the other hand, video game soundtracks are winning awards. In 2004 the MTV Video Music Awards started giving out an award for the best soundtrack from a video game. Perhaps the award was to acknowledge the taste of many in the MTV audience who love these video games, as much it was to recognize the success of the soundtracks.

The compulsory license and the rate established by Copyright Act would apply to the inclusion and distribution of songs in these audio soundtracks. But the record companies generally demand a higher rate than 8.5 cents for the masters, plus a hefty advance.

One of the exclusive rights enjoyed by copyright owners, including producers of musical recordings, is the right to make “derivative works.” This means that generally no one may use a recording of a song to create a new record without consent of the owner of the copyright in the recording. On the other hand, copyright infringement only exists where the copied recording and the allegedly infringing record are “substantially similar,” and generally a record will not be considered substantially similar where the portion copied ("sampled") is too small and insignificant. This is referred to as the "de minimis" rule, and it has allowed for a great deal of creativity in the development of new music, especially hip-hop, where sampling small excerpts of other records is very common.
Sampling is also one of the most important ways to reduce the cost of entering into audio production. In fact, with sampling a competent producer and a talented rapper can make a commercially acceptable record with only digital audio recording equipment and software, plus a CD collection. Of course, there is no question that where a recognizable piece of preexisting copyrighted music is used as a key part of the new work, permission of the copyright owner is required. But last September, in a very controversial decision, Bridgeport Music, Inc. vs. Dimension Films, the U.S. Court of Appeals for the Sixth Circuit, which sits in Nashville, ruled that any sampling of prerecorded sounds is an infringement of the sound recording copyright in the original master no matter little was used or whether the material used is even recognizable. After a firestorm of criticism erupted in response to the court's decision, amongst both scholars and the music production community, the court agreed to reconsider its ruling. The modified opinion was handed down earlier this month.

The new opinion gives hope that sampling of portions of previously recorded songs will still be allowed where there the sampling of the original is so minute that there is little threat of commercial harm to the original copyright owner.

Two Second Sample
This case arose out of the use of only 2 seconds of a guitar solo in the record "Get Off Your Ass and Jam" by George Clinton, Jr. and the Funkadelics, in a new rap song "100 Miles and Runnin" which was included in a soundtrack of a movie. Not only was the amount of the sampled record limited to a couple of seconds, but in addition the pitch was lowered, and the copied piece was looped and extended to 16 beats. As a result, the original recording was practically unrecognizable, and the federal district court ruled in favor of the defendants, finding that the use of the original material was de minimis, that is, that the sampling did not "rise to the level of a legally cognizable appropriation."

New Rule Shocks Copyright Scholars and Creative Community
But in a decision that both startled and dismayed many in the recording industry as well as copyright scholars, the Sixth Circuit reversed the district court's decision. The Sixth Circuit declared: "[I]f you cannot pirate the whole sound recording, can you 'lift' or 'sample' something less than the whole? Our answer to that question is in the negative." Writing for the court, Judge Ralph B. Guy exclaimed: "Get a license or do not sample. We do not see this as stifling creativity in any significant way." The court justified its decision with two arguments: the language of the Copyright Act and notions of "judicial economy."

In regard to the statute, the court relied on a provision of the Copyright Act that states that owners of sound recordings can only sue for copyright infringement if the new work actually took elements of the recording itself rather than re-creating the sound embodied in the original recording. The court reasoned that this implies that taking any part of the recording was copyright infringement. Many copyright scholars disagree with this analysis. They point out that the language relied on by the court is actually a limitation on the right of sound recording owners to claim copyright infringement. It was not intended to confer greater rights on owners of sound recordings than owners of other copyrighted works! In fact, the Sixth Circuit conceeded that the owner of the underlying song would not win a case in which only a brief excerpt was taken from the song and used a way that the music was unidentifiable. Yet the court found that owners of master have more rights than owners of songs based on its questionable reading of the statute.

Judicial Economy or Judicial Laziness?
The second argument, that is, judicial economy, some believe was the real motive for the court's decision. The court pointed out that the plaintiff had brought hundreds of other sampling cases involving George Clinton's music. Their opinion stated that:
"district judge did an excellent job of navigating these troubled waters (presumably listening to both recordings), but not without dint of great effort. When one considers that he has 800 other cases all involving different samples from different songs, the value of a bright-line rules becomes apparent."

Thus according to the court, the new rule that any sampling of a copyrighted recording is prohibited would streamline the judicial process. Many in the hip hop and creative community, as well as scholars were outraged by this argument. Since when did the workload of the courts excuse a crack down on creatively protected by the notions of free speech and artistic expression?

The Sixth Circuit Reconsiders
In the wake of all the criticism, the Sixth Circuit agreed to reconsider its decision. Although its revised opinion started by regurgitating its initial analysis and even confirmed its "new bright-line" rule that all sampling of music recordings can never be de minimis, the revised opinion ultimately took an extra step that has the effect of completely modifying its earlier decision. The court added at the very end of it's reconsidered opinion:

"Since the district judge found no infringement, there was no necessity to consider the affirmative defense of 'fair use.' On remand, the trial judge is free to consider the defense and we express no opinion on its applicability."

This means that the court sent the case back to the lower federal court to apply a fair use analysis. In other words, the defendants will have another opportunity to justify its use of the sample! More importantly, since the district court found that the sampling did not "rise to the level of a legally cognizable appropriation" it seems likely they will find that the sampling in this case was a fair use. In evaluating whether the use made of a work in any particular case is a fair use, one of the most important factors to be considered is “the amount and substantiality of the portion used in relation to the copyrighted work as a whole.” (Section 107 of the Copyright Act.) Other factors are the purpose and character of the use, the nature of the copyrighted work, and the effect of the use upon the potential market for or value of the copyrighted work. The last factor also weighs heavily in the direction of the defendant in this case because their use of two seconds of the original recording in a way that the original is thoroughly unrecognizable will obviously have no effect on the potential market for the original song.

It’s interesting to note that by remanding the case for a fair use analysis, the Sixth Circuit completely undercut one of the principal justifications for its original decision: Save judicial work and time. But by sending the case back for a fair use analysis they completely destroy any judicial economy that would otherwise be achieved by getting rid of the de minimum rule! A fair use analysis takes even more work and time than a de minimis analysis -- under a de minimis analysis -- you basically just have to listen to both songs -- fair use requires you to do this plus apply a variety of thorny legal concepts.