Labels Up for Talks with ISPs on Licensing—But Want Some Control, Griffin Says

The discussion started minutes after conference organizers learned of the French court decision Wednesday striking down part of the country’s so-called three strikes law. It said the law unconstitutionally presumed guilt of subscribers, and the court declared Internet access a “fundamental freedom” that can’t be taken away without judicial approval. (See separate report in this issue.) “This isn’t over yet in France by a long shot,” said Shira Perlmutter, executive vice president of global legal policy for the International Federation of the Phonographic Industry, on the panel. “Long negotiations” between ISPs and rightsholders produced the original law, and the French government has already promised a new bill that gives power over infringement allegations to a special court, she said.

“It’s clear that ISPs use music to draw a crowd,” with signup pages that include “musical notes floating up from the background” and explicit pitches for how many CDs a subscriber can download under a given speed tier, Griffin said. Labels are interested in “terms that make sense” with ISPs but they can’t allow competition from unlicensed services, which is why the French law is so important, Perlmutter said. But ISPs already have “psychological” permission from subscribers to sell music, given their close relationship, said Paul Sanders, co-founder of U.K.’s PlayLouder MSP, a service for ISPs to offer unlimited music under special label licenses. The most difficult step is getting rights holders to set a price, he said: The service founded in 2003 is still “pre-revenue.”

“What you just described is a violation of the antitrust laws in most countries,” Griffin told Sanders. Beyond that, “whenever we circle our wagons in the music business, we shoot in,” he said to laughter. Companies should admit to ISPs that “in many ways we have failed. We clung too long to the vine of product,” declining to offer a service. Traditionally at odds, labels can learn a lot from publishers, who give radio DJs and nightclubs the power to play whatever they want under a compulsory license, Griffin said. “We must learn to trade control for compensation.” That’s a “false dichotomy,” said Perlmutter: Labels just want to “use that control wisely” to secure reasonable rates.

Choruss is scheduled to roll out at “more than half a dozen schools, substantially more,” Griffin said. Student governments and organizations, not just administrators, told the company they'll pay for the service: “We've had students tell us they think it’s worth $20 a month or more” as long as there are no restrictions. The service will track what’s being played and pay rightsholders, though labels aren’t going to “Hoover” up student data, which will be handled by academics at each school. “Our goal is to have a different price” for each school because the industry historically hasn’t done much testing for the “optimized” price point. Then Choruss can approach ISPs and other networks with “testing and metrics in hand,” he said.

Asked how many labels and publishers have signed up, Griffin said “no one’s said no,” including independent groups Merlin and A2IM -- but there are legal hurdles. Choruss will even pay publishers both performance and mechanical royalties, he said. “We won’t go live without a deal with every one of them.” PlayLouder’s Sanders said it’s seen a “radical shift” in the last 18 months from rightsholders, who used to demand a wholesale price of 55 pence per track -- a sky-high demand. But they seem to understand the ISP business better now, he said.

ISPs are practically begging for legislation mandating they enforce copyrights on their networks, because “they don’t want to be at a competitive disadvantage if they're the only ones doing it,” Perlmutter said. “The goal is not to punish anyone,” but legislation or the government’s threat of it has been the only thing to move ISPs so far, she said. Distributed Computing Industry Association CEO Marty Lafferty said there was already too much emphasis on “sticks.” He estimated 90 percent of P2P services were licensed, but 90 percent of P2P traffic was unlicensed. “It’s got to be much more of a carrot,” Lafferty said, a “very modified, very sophisticated compulsory license,” similar to the pending P2P licensing experiment in the Isle of Man and a proposal from Canadian songwriters to license ISPs for file-swapping. Such a system, though, must include an opt-out for subscribers who don’t want music, he said.

ISPs’ safe-harbor claims against infringement liability are “no longer true, so let’s toss it out,” Griffin said. Offers of prioritized delivery for certain packets and denunciations of net neutrality mean that ISPs aren’t really common carriers: “How dare you … claim to not know what’s in” packets. An ISP employee in the audience asked speakers to propose a rate for ISPs and promise they wouldn’t try to control what’s on the network. “That needs to be an ongoing market-based negotiation with you,” without government intervention, Griffin said, alluding to safe-harbor claims. A rate could be similar to what Internet users already pay hosting and download services like Rapidshare for faster downloads, he said. Griffin has “one proviso,” that ISPs remove “criminal” content such as pre-release music from the network. Labels will probably let slide “yellow” content such as bootlegs. There’s one thing rightsholders won’t agree to, Perlmutter said: “'Anything goes.'”