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Internet Security Threat Report 2014

The Internet will influence the dynamics of these royalty negotiations. Recently, and for the first time, unsigned artists who produce their own recordings have been able to obtain widespread early recognition of their work - though little, if any, direct financial benefit - through P2P file-sharing and the use of viral marketing. These efforts at self promotion may result in drawing more fans to concerts. In the mean time, however, CDs sales will certainly have been lost. I doubt that many of these early adopters expect to build their careers through the use of P2P file-sharing in its current debased form.

Of course, if P2P were lawful, as I suggest it should be, it would be able to operate openly, attract investment capital without exposing investors to copyright infringement liability, and offer users the most sophisticated functionalities. Moreover, there being no reason remaining for music industry rights holders to undermine them, licensed P2P services would be free of many of the security and related concerns that plague users of their black market counterparts. Under these circumstances, P2P would not only be a more appealing promotional vehicle for artists but one through which they could earn revenue.

Let business flourish

More likely, the hope of these early adopters is that this exposure will bring them to the attention of a major record label and result in a recording contract. This strategy correctly recognizes the continuing market dominance by the majors in the context of the sales-based revenue model through their control of traditional distribution channels.

However, the exigencies of a hit-driven market have already made the notion that record labels nurture artists' careers an anachronism. Moreover, new businesses may arise to displace record labels as the source of funds to underwrite concert tours but without acquiring ownership of the artists' creative output in exchange. And, as the digital music marketplace matures, the network itself will become the primary channel of "distribution" and licensed transmissions will displace sales as the principal source of music industry revenues. These circumstances suggest that the relative importance of the roles played by the major record labels - and music publishers for that matter - may diminish over time. One would expect that any such change would be reflected in the division of royalties among the rights holders involved.

In any event, there will be circumstances in which rights holders will not be able to reach voluntary agreement on the division of royalties; and others in which negotiations themselves may not be possible (e.g., with older works where rights holders have lost contact with each other, or in the case of cover recordings where, because of the compulsory mechanical license, the recording artist and record label involved will not necessarily ever have had direct contact with those who own rights in the underlying musical work that was recorded).

Therefore, as both a starting point for negotiations generally, and as a default when voluntary agreement is not possible, I suggest that the interests of songwriters, music publishers, recording artists and record labels should each be allocated a 25 per cent share of the total royalty earned from licensed digital transmissions of their recordings. In this way, singer-songwriters would receive 50% of all royalties earned from licensed transmissions of those recordings to which they will have made the overwhelmingly greatest contribution.

The digital transmission right would be enforceable only against those directly involved in providing digital transmissions of recorded music. Accordingly, consumers would not incur any liability merely for surfing the web, accessing streaming media, or downloading music files. Neither would copying for personal use require authorization. Similarly, software developers, technology firms, consumer electronics makers, and telecommunications and Internet access providers, as such, would have no liability under the digital transmission right. On the other hand, service providers would need licenses if they operate web sites, social networking services, P2P file-sharing networks or the like that provide digital transmissions of recorded music.

Consumers would only need licenses if they act as service providers in their own right; that is, whenever they are responsible for the digital transmissions at issue. By way of example, consumers would need authorization if they operate music-enabled personal or hobby web sites; or if they upload music files to a web site or service that does not have its own license under the digital transmission right authorizing this activity by users of its service (known as a &"through-to-the-user license&"); or, if they offer recordings to others through participation in a P2P file-sharing network, or similar service, that does not have such a through-to-the-user license.

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