This document provides a summary of the history of the music industry in relation to various technologies and laws over several decades. It discusses the emergence of key organizations like ASCAP and BMI to collect royalties for composers and publishers. It also covers the development of the recording industry with technologies like phonographs and how laws evolved to address copying and performances of music. The document outlines the challenges that internet radio and streaming faced with royalty rates and regulations into the 2000s. It is critical of the organization SoundExchange and its role in collecting royalties.

1. 1
Chilling Effects
vs.
Internet Radio
Doc Searls & Allan Gregory, Fellows Hour, 2009/08/04

2. A couple of quotes:
Wendy Seltzer: Chilling effects
are "the shadow of the
law…"
Adam Gopnik: "Law is the
practice of rules in a
context of deals, and
Lincoln believed in both."
So does the music industry.
So does Congress.
We (VRM folks) would like to
thaw this thing.
But first some history.
2

3. The music industry
deals with four things:
1. Compositions
2. Mechanisms
3. Recordings
4. Performances
These are the threads.
Their history is not pretty.
They make an ugly braid.
The Net ties that braid in knots.
3

4. Composers felt screwed from the start.
1790: The first copyright law only
covered maps, charts and books.
1831: Congress makes music eligible for
copyright. Composers' rights covered
just sheet music. Not performance.
1864: Stephen Foster, hugely popular,
dies, martyred, with 37¢ in his
pocket.
4

5. The music business in the U.S.
began as the composing business.
1885: The Music Publishers Association of the
United States formed.
1886: The Treolar Copyright Bill inaugurated
some now-familiar ambitions:
• Create a register of copyrights
• Expand protections for public performance
of copyrighted works, including music.
• Extend the copyright term by 22 years—
• from 24 years and a 14 year extension (38 years) to
40 years and a 20 year extension (60 years).
• Extend the manufacturing clause of the 1891
International Copyright Act to include most
items excluded in 1891, including music.
• Treolar was shot down, but set directions
the industry still follows.
5

6. The recording business began
with Edisons wax cylinders.
1877: Thomas Edison invents the
phonograph, and patents it.
It's mechanical. No electricity required.
Yet "mechanical rights" wasn't Edison's
issue. In fact, wax cylinders lost out
to flat disks in the marketplace.
He still made plenty off the invention.
6

7. The player piano's popularity
caused copyright law changes.
1720s: Bartolomeo Cristofori invents the
pianoforte, later called the piano.
By the end of the 1800s, pianos were
enormously popular instruments.
By 1902, there were seventy-five
thousand player pianos in the U.S.
and over a million piano rolls sold.
1897: Adam Geibel sold White-Smith the
copyright to two songs for sheet
music reproduction. Apollo Co. made
piano rolls of the song, without
permission. White-Smith sues.
1908: The Supreme Court finds for
Apollo, pissing off everybody else,
especially composers, and then
Congress.
1909: New copyright act passes. 7

8. The recording business took off
with Emile Berliner's platters.
1887: Issued Grammophone patent
1888: Invents recording on discs
1895: Founds Berliner Gramaphone Co. +
1897: Gramophone Company, London
1898: Deutche Grammophon, Hanover +
1899: Berliner Gram-o-phone Co. of
Canada, Montreal
1899-1903: Frank Seaman of "Zon-O-
Phone" and Columbia sue Berliner
and Eldridge R. Johnson's
Consolidated Talking Machine
Company, who counter-sue, win,
merge and name their new company
Victor Talking Machines Co., taking
the assets of the loser, and use
"Zonophone" as their cheap label
until dumping it in 1910.
8

9. In 1914, Herbert, Berlin, Sousa,
found ASCAP, which still rocks on.
1897: Congress grants composers the
exclusive right to perform their songs
— but only "public" and "for profit."
1909: Victor Herbert's testimony to
Congress helped pass the 1909
Copyright Act, which inaugurated the
"compulsory license," giving
composers 2¢ per recording.
1914: Joined by Irving Berlin, John Phillips
Sousa and others, Herbert founds the
American Society of Composers,
Authors and Publishers — ASCAP
1917: Herbert v Shanley goes to the
Supreme Court. Herbert wins.
Composers advance.
9

10. Herbert v Shanley
got ASCAP's snowball rolling.
1916: Herbert walks past Shanley's, hears his
"Sweethearts" inside. He makes no money
from that. So, to test the 1909 law and
ASCAP, he brings suit.
Shanley's says the performance was not "for
profit," since the music was provided for
free.
1917: After losing the first round, Herbert
wins in the Supreme Court.
Oliver Wendell Holmes: "The defendants'
performances are not eleemosynary…If
music did not pay it would be given up."
ASCAP begins to collect fees from cabarets,
theaters — everything they can.
Next target: Radio.
10

11. ASCAP pwnd radio at its birth.
1917: 1XE (later WGI) fires up at Tufts. A handful
of "first" radio stations follow.
1921: Dept. of Commerce makes "broadcast
service" a category of license. The first K and
W stations come on the air.
ASCAP gives free licenses to early stations to
seed growth for harvesting later.
1922: Feds rule that amateur radio stations can
no longer air music or sports.
1922: ASCAP hits up WEAF in New York for
$1k/yr, accepts $500. WJZ offers $0 and
stops playing ASCAP music. Bambergers'
WOR plays but doesn't pay.
1923: ASCAP wins Witmark v Bambergers. After
that, some stations paid, other banned
recordings, playing live bands instead.
1923: The National Association of Broadcasters
(NAB) was formed, mostly as a way to fight
ASCAP. 11

12. ASCAP begets BMI — and the
royalty system in force since.
1931: ASCAP forces stations to start logging ASCAP songs, and
to take out "blanket" licenses. Non-ASCAP composers
excluded.
1932: ASCAP negotiates fees based on a percentage of ad sales.
Soon most radio programming is music.
1935: Dept. of Justice begins investigating ASCAP, radio.
1936: ASCAP's fee re-set at slightly more than 2% of ad sales.
1939: ASCAP fees reach $4.3 million. Broadcasters form BMI.
Composers take sides . Mainstream stays with ASCAP. BMI
signs country, blues, jazz artists ignored by ASCAP.
1940: Network contracts with ASCAP expire.
1941: 660 of 796 stations now with BMI. They boycott ASCAP,
play BMI or public domain music. "Jeannie with the light
brown hair," a Stephen Foster song in the public domain, is
a big #1.
1941: ASCAP signs a consent decree for lower rates, non-
exclusive licenses, other limitations.
This established the music royalty regime for radio which has
persisted ever since.
12

13. Performers' power
peaked during WWII.
1920s – WWII: Musicians displaced by
recordings on radio and juke boxes in
bars and restaurants — and come to
oppose "canned" music.
1942: Led by James Petrillo, American
Federation of Musicians (AFM), founded
in 1896, votes to stop making recorded
music.
1944: Labels cave to demands for an AFM
welfare fund.
Compared to composers, record companies,
radio stations and equipment makers,
performers had power as a group just this
once, but failed to leverage a piece of the
recording action.
13

14. The recording industry takes off.
So do copies of recordings.
1952: Recording Industry Association of America
(RIAA) is formed to administer a technical
standard: the equalization curve in vinyl
recordings.
Over the following years the RIAA became the
primary representative of both the music
industry and "artists" (a new term).
Taping of recordings by individuals starts in the 50s,
gets big in the 60s and 70s.
1972: Congress makes sound recordings separately
copyrightable: © belongs to the composer, and
extends to the writing, distribution, and public
performance of each song. (p) (for phonorecord,
or sound recording) belongs to the record
company (and sometimes partly to the
performers).
1979: The CD, a digital disk, is introduced.
1984: Sony wins the Betamax case, effectively
setting equipment makers free.
1992: Home recording amendment passed, ignored. 14

15. The Net wasn't just a new medium.
It was a whole new world.
It was a new worldwide environment
ideal for demonstrating Jefferson's
"the combustive power of an idea."
On the net anybody can copy,
reproduce, broadcast, perform, sell
and much more. Including "steal."
Hollywood — now combining the
recording and movie industries —
was not blind to the power of the
Net. They attacked this new "hole"
from the start.
15

16. The commercial Web was born
in 1995. So was the DPRSA.
1995: The Digital Performance Right in Sound
Recordings Act (DPRSA) provided the first
protection of public performance rights in
sound recordings: "to perform the
copyrighted work publicly by means of a
digital audio transmission."
In other words, digital transmission —
"playing" — became a form of
"performance."
This allowed the record companies —rights-
holders for sound recordings — to collect a
royalty on digital "performances" of those
recordings.
Any claim that the record business was not hip
to the Net's threat from the start is put to
rest by the DPRSA. 16

17. In 1997, "electronic theft"
— aka "piracy," becomes illegal
The 1997 No Electronic Theft Act puts
criminal penalties on "piracy" for
copyright infringement by
electronic means.
The law also amends the Copyright
Act's definition of "financial gain"
to include "receipt, or expectation
of receipt, of anything of value,
including the receipt of other
copyrighted works."
17

18. Third blow: the DMCA
18
28 October 1998: The DMCA passes. It—
• Extends the reach of copyright.
• Heightens penalties.
• Limits liability of on-line services for
user infringements.
• Implements two 1996 WIPO treaties
• Criminalizes circumvention of DRM
and access control.
• Leaves open settlement of royalties
for online radio, aka "webcasting,"
and "streaming."

19. The DMCA created a mess
for Internet radio / streaming.
In respect to "ephemeral recordings" …
"…any copyright owners of sound recordings and any transmitting
organizations ... may negotiate and agree upon royalty rates and license
terms and conditions for making phonorecords of sound recordings ... and
may designate common agents to negotiate, agree to, pay, or receive such
royalty payments.
…initiation of voluntary negotiation proceedings for the purpose of determining
reasonable terms and rates of royalty payments.
In the absence of license agreements …. the Librarian of Congress …[will]
convene a copyright arbitration royalty panel (CARP) to determine and
publish in the Federal Register a schedule of reasonable rates and terms…
that most clearly represent the fees that would have been negotiated in the
marketplace between a willing buyer and a willing seller. 19

20. Here's what the CARP produced in 2002:
"The Librarian established
September 1, 2002, as
the effective date of the
rates…. Webcasters and
others using the
statutory licenses will
have to pay royalties for
all of their activities
under the licenses since
October 28, 1998.
However, the
September 1 effective
date determines when
the royalty payments
will have to be made."
Lots of gut-splitting
followed.
20

21. Next: The Small Webcaster Settlement Act.
Pushed through by Jesse Helms, in one of his
last acts as a senator, in 2002.
BTW: Helms' first career was broadcasting.
Set a fee schedule based on percentage of
revenue, not a per performance rate.
Royalty payments for non-commercial
webcasters were suspended through
June 2003, and receiving agents for small
webcasters were allowed to delay
payment obligations through December
2002.
Congress delegated the ability to set an
industry-wide rate to the collecting agent
(SoundExchange) for copyright holders
and recording artists.
Many commercial webcasters went away.
21

22. Next: Copyright Royalty Board (CRB).
2004: Congress replaces CARP with 3full-time
Copyright Royalty Judges.
NBC's Alec French, at Berkman's IS2K7, tells Doc
that he basically authored the legislation.
These decide "reasonable terms and rates of
royalty payments" for compulsory licenses.
Literally, "the marketplace rate between a
willing buyer and seller."
The CRB's bjectives:
• "maximize the availability of creative works to
the public."
• Balance fair income for the copyright owner
with a fair return for the copyright user .
• Reflect the contributions of the copyright
owner and user in the product available to the
public
• Minimize disruptions on the industry practices
and structure. 22

23. 2007: CRB's ass proves harder than CARPs.
The CRB set the per performance rates per year for commercial webcasters at:
0.08 cents (2006), 0.11 cents (2007), 0.14 cents (2008), 0.18 cents (2009), and
0.19 cents (2010). That's much higher than the old CARP rates.
The CRB rates also applied to all webcasters, including CPB-funded ones who had
negotiated their own carve-out deal with the RIAA after the DMCA passed.
The CRB's minimum fee of $500 per channel per year is based on
SoundExchange's expected costs for administering the sound recording rights.
The CRB found that ephemeral copies had no value separate from the
performance of the sound recording itself.
The CRB denied all requests for a rehearing, holding that the determination was
not erroneous, without evidentiary support, or contrary to law.
23

24. 2007-2009: It never ends.
2007: Internet Radio Equality Act. (Didn't happen.)
2007: The Digital Media Association, representing the largest webcasters, came to
a settlement agreement with SoundExchange to cap the $500 minimum per
channel at $50,000 per webcaster. This let Pandora survive.
2008: The Webcaster Settlement Act amends the Small Webcasters Settlement
Act of 2002, and seeks to adopt a simplified process for settlements between
commercial and noncommercial webcasters with SoundExchange.
2008: Amy Duvall: "The current system for calculating royalties is a mess. The CRB
decision is likely to put all but the strongest webcasters out of business unless
judicial, legislative, or voluntary measures are successful."
2009: SoundExchange and CPB agree a new deal covering 2005-2010.
"SoundExchange is to receive a single up-front royalty payment of $1.85
million together with consolidated usage and playlist reporting from CPB on
behalf of the entire public radio system."
This is less Rule of Law than Rule of Deals. 24

25. With SoundExchange, Congress
christened a Rotting Hulk
SoundExchange is essentially an RIAA subsidiary that was spun off in
2003 as an "independent" 501©(6) non-profit
It was chosen by the CRB in 2004 as the monopoly collective for
royalties due under DPRSRA (1995)
It was morally, economically and operationally corrupt from the start.
Compared to ASCAP and BMI, it does an awful job.
Worse, it's not very accountable.

26. SoundExchange lives
to lobby and pay big stars.
Worse::::
Its site has no directory, and
— is entirely link-proof
— links out to nothing
— is nearly all Flash
— has broken search
It pays lip service to diversity.
— while, in Joanie Mitchell's
words, "stoking the star-
making machinery behind the
popular song."
That machinery includes lobbying
Congress and cross-promoting
with other front organizations
for the recording industry.

27. Struggling artists
hate SoundExchange.
How is SoundExchange
recruiting the
slowwavesleeps of the
world?
By strangling the only media
left to them, starting with
Internet radio.
27

28. Fred Wilhelms is taking the lead
in fighting SoundExchange.
In an open letter to SoundExchange, Fred said the organization
was…
"Reserving" tens of millions of dollars a year, then absorbing it
after "not finding" the intended recipients.
Not making any effort to publicize planned payment forfeitures.
Not explaining how and why it relies on sampling to allocate
royalties — and not admitting it.
Claiming that spending outside the chartered function is
"proprietary" information.
Attacking those who point out the simple fact of its poor
performance.
Deducting the cost of violating the law from monies collected to
carry out the law.

29. More from Fred:
"It's as if some SoundExchange employee takes bags
of money out to some National Park and sets
them free. It's not SoundExchange's fault if all
those bags follow the employee home, is it?"
"On the first forfeiture, they only absorbed 70% of
the available funds. They placed 30% in a reserve
to cover late claims by artists who would have lost
money if they took it all. 31 months later, they
still have half that reserve money, which just goes
to show how poorly they have served artists."
"They're very proud of setting up that reserve. I told
a SoundExchange representative their pride was
as justified as the self-satisfaction someone gets if
they roll a drunk for his wallet and watch, but
promise to give him back his watch if he finds
them."

30. Meanwhile SoundExchange has…
No accountability. By law: 37 CFR,
380.4(g)(1), 380.6 [holding licensees'
accountable…], 380.7(g).
No liability.
No transparency, thanks to 37 CFR,
380.5.
No incentives, except not to pay out,
thanks to 37 CFR, 260.7, 261.8. 262.8,
380.4(g)(2).

31. Compare ASCAP, BMI
and SoundExchange payouts:
ASCAP payout ratio: 88% [long term]
BMI payout ratio: 87% [5 year avg — 86%+]
SoundExchange's calculated payout: 83%
• Numerator: Total annual expenses minus
interest earned
• Denominator: Total annual royalties received
[hmmm]
Our calculated payout: 38% - 58% [avg]
[Link to Excel file]
• Calculating Payout Ratio
• Absence of Retention Rate
• Missing figures from 2003-2004
• Leftovers growing at 70%+ growth rate

32. Thus SoundExchange is
"pulling a Cartman"
- [I do what I want] @ 14:55
[Respect my authoritai] @11:59

33. SoundExchange has splintered
its Internet radio opposition
Before the DMCA there was just radio.
Now its fractions include:
• Small, medium and large webcasters
• Podcasters and on-demand 'casters
• CPB-funded and non-CBP funded 'casters
• Subscription and non-subscription 'casters
• Small, medium and large "pureplay" 'casters
And this is in addition to:
• Terrestrial radio stations
• Satellite radio
• Cable music 'casters
• … all of which they are fighting as well
Oh, and radio from the rest of the WW Web.

34. History teaches a lesson.
• Composers had ASCAP and BMI.
• Broadcasters had the NAB.
• Equipment makers had commercial clout.
• Producers had the RIAA and the MPAA.
• Actors had SAG.
• Music performers had the MPA, which is now
nowhere.
• Representing performers now is the RIAA,
which mostly works for record companies.
• Winners: composers, big broadcasters,
equipment makers, producers (movie and
record companies), big stars.
• Losers: non-large performers, large
webcasters, podcasters. (Listeners? Not sure.)
• Lesson: Privileges are won, not just earned.
34

35. Foreign Collectives
teach a lesson too.
3 types of Supervision
Differing Types of Collectives
US Experience and the CCC

36. Toward a new deal
between listeners and performers:
We need connect listeners and
performers directly.
The way to do that is through online
radio: streamers.
We'll start with public radio stations,
Radio Paradise and whoever else
wants to come along.
36

37. 37
EmanciPay: Making it easy
for anybody to pay anybody.
EmanciPay is a choosing system. With it you easily can choose
to…
— pay as much as you want
— for whatever you want
— whenever you want—
wherever you want
on your terms and not just those of sellers.
Here's where we plan to see it first:

38. 38
EmanciPay will use the r-button:
The r-button is 2 magnets: symbols of relating. Not just selling and
buying.
The left side is the customer.
The right side is the seller.
In it the customer gets to express his or her desires and terms…
Including the desire to relate directly to first sources…
And to express specific intentions.

39. 39
The r-button
can represent different states:
For example…
Intention to buy (and/or to relate).
Intention to sell, but also to relate on
your (the buyer's) terms, as well as
your own.
Existing relationship — which can be
viewed and unpacked on either
side.

40. 40
Here's how it might look
on Radio Paradise's Playlist:
Bob Dylan is interested
in relating on
listeners' terms as
well as his own.
The listener already has a
relationship with
Bat for Lashes.
The listener would like to
relate to Bruce
Cockburn.

41. The r-button might also appear
in the browser chrome.
We're still working this stuff out.
What matters is that we're building not just a new deal for
Internet radio,
but a new way of dealing —
One in which the customer takes the initiative,
expresses intentions,
and controls his or her end of relationships
that are worthy of the noun.
41

42. When we win,
we'll make history. 42