Price-Fixing Settlement Rains CDs On Mass. Libraries



Breaking News

Price-Fixing Settlement Rains CDs On Massachusetts Libraries

By Samantha Chang

Tom Reilly
NEW YORK--Massachusetts libraries will benefit from the fallout of a national price-fixing lawsuit against music companies.

The state's 488 libraries will get 124,000 music discs this spring under a $143 million settlement over CD prices.

Major record labels and retail giants were accused of conspiring to set minimum prices on music CDs under the suit, which had named as defendants Sony Music, EMI Music Distribution, Warner-Elektra-Atlantic Corp., Universal Music Group and Bertelsmann Music Group, as well as retailers Tower Records, Musicland Stores and Transworld Entertainment.

About 68,000 individuals who submitted refund claims will receive checks for $14 this week, while schools nationwide will get $76 million in CDs, says Massachusetts attorney general Tom Reilly

All of the defendants denied any wrongdoing under the settlement, which involved 41 U.S. states.
Washington Report

California Music/Tech Convocation Set For Feb. 25

By Bill Holland

WASHINGTON, D.C.-- Some of the top names in the music and technology businesses will convene Feb. 25 at the second annual Music Law Summit West at Hastings Law School in San Francisco.

Panelists and participants will debate peer-to-peer file sharing and discuss the explosive growth of online music stores, the impact of activist musicians on political discourse, and the changing nature of artists' contracts in the digital age.

Keynote speakers will include California State Senator Kevin Murray and Stanford law professor Lawrence Lessig.

In 2003, Senator Murray introduced SB 1034, a bill that makes it a fiduciary duty for record companies to accurately account for royalties from recording contracts.

Lessig is an outspoken critic of Internet regulation and copyright laws. He represented the plaintiff in Eldred v. Ashcroft, an unsuccessful effort on Web site operator Eric Eldred's part to overturn the Copyright Term Extension Act. The case was appealed to the U.S. Supreme Court, which upheld the 20-year copyright extension.

The summit is sponsored by the Hastings' Association of Communications, Sports and Entertainment Law, the D.C.-based Future of Music Coalition, and Noise Pop.

Congress Targeting Piracy, Obscenity Issues

By Bill Holland

WASHINGTON--Expect a House subcommittee markup within the month of an industry bill that will put the screws to hard-goods pirates and counterfeiters who use state-of-the-art holograms and authentication components to make the bogus product look legitimate.

Genuine identification marks, called Certificates of Authenticity (COAs), are in high demand among counterfeiters because they significantly increase the marketability and selling price of counterfeit software.

Federal law does not expressly prohibit such activity, so genuine COAs and other physical authentication components are widely sold to crooks with impunity, frustrating efforts to combat an increasingly important link in the counterfeit supply chain.

The Anti-Counterfeiting Amendment, H.R. 3632, closes this loophole. The legislation was introduced last month by Rep. Lamar Smith, chairman of the House Subcommittee on Courts, the Internet and Intellectual Property.

Brad Buckles, the new exec. VP of anti-piracy for the Recording Industry Assn. of America, testified at a Feb.12 hearing that the industry supports the legislation, but that more needs to be done to snag pirate swag on the Internet.

"We strongly urge the subcommittee, however, to turn to the issue of digital authentication components [used by pirates] in the near future," Buckles said.

Smith said at the hearing that he would give high priority to action on the bill.

Indecency legislation to increase FCC fines tenfold for indecent broadcasts is also on the front burner in the House. The bill, H.R. 3717, introduced by Rep. Fred Upton, R-Mich. last month, would spike fines to $250,000 per incident. It has already been cleared at subcommittee level. Upton plans another hearing on the issue Feb. 26 with a panel of network execs and local affiliates.

Incoming Commerce Committee chairman, Rep. Joe Barton, R-Tex., says he will take up the measure quickly. Sources say the bill would then go to the House floor for a vote as soon as late March. There is a companion bill in the Senate, S. 2056, introduced by Sen. Sam Brownback, R-Kan.

In reaction to such legislation, the National Assn. of Broadcasters has announced it plans to hold an all-industry summit to address what it calls "responsible programming" on radio and TV. It plans to hold the summit this spring, and will bring together local broadcasters, network representatives and other stakeholders.

"The time has come for frank dialogue," says NAB president Edward O. Fritts.
International Section

EU Set To Confirm New Piracy Rules

ByLeo Cendrowicz

BRUSSELS--The European Parliament is expected to confirm in Brussels new rules punishing counterfeiters and pirates on Feb. 25.

MEPs are to agree the last amendments to the so-called "Enforcement Directive" that clamps down on Internet pirates and tightens laws on counterfeit music and movies, paving the way for EU governments to adopt the package as law next month.

The Parliament's report has been rushed through by its author, French MEP Janelly Fourtou, who wanted it adopted before the European Parliament dissolved for its June elections.

She was allowed to skip the usual "second reading" phase of EU laws, and after five conciliation sessions with EU government representatives, the compromise package is almost ready.

"It's not bad," she tells ELW. "It's not as strong as the European Parliament wanted, but the important thing is that the law will exist. It creates a level playing field."

The law will have to be implemented by EU governments within two years. The compromise says that pirates and counterfeiters could be fined and have their bank accounts frozen.

ADJUSTING DAMAGES
The measure also enables authorities to take legal measures against Internet file-sharing networks. It should make it easier to seize and destroy counterfeit goods.

But it scraps the provisions--originally proposed by the European Commission last year--for jailing those caught, accepting that the current EU treaties do not allow for such measures.

Fourtou, the wife of Vivendi Universal president and CEO Jean-Rene Fourtou, says she had to compromise on the issue of damages: She had sought right to ask for damages worth double the value of the product copied, but the EU governments forced her to back down.

The draft now says that government legal authorities "shall order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the right holder damages appropriate to the actual prejudice suffered by him as a result of the infringement."

And Fourtou was not able to keep provisions for all digital media produced in Europe to be inscribed with an industry Source Identification Codes or "SID" codes--the serial numbers that identify the plant where discs were mastered and manufactured.

The draft law includes movies, music and software, as well as patents, copyrights, trademarks and registered designs. It would boost the cooperation between rights holders and legal authorities.

Fourtou faced fierce opposition from Europe's largest telecommunications companies, the cable industry and several well known American Internet firms: the European NetAlliance, which includes companies such as BT Group, Deutsche Telekom, Vodafone, MCI, Verizon Communications, and Yahoo! wrote to MEPs on the Legal Affairs Committee, warning them of the risks of broadening the directive's scope, as the committee appears set to do.

And European consumer lobby, BEUC, indicated that the text was draconian, allowing consumers to be prosecuted, judged and condemned as harshly as a person making and selling millions of copies of CDs.
Dream Makers & Deal Breakers

Clear Channel Commun Names Levin Legal Chief

By Samantha Chang

NEW YORK--Clear Channel Communications has named Andrew W. Levin chief legal officer and executive VP for law and government affairs.

Levin, who will be based in San Antonio, Texas, previously was CCC's senior VP for government affairs in Washington, D.C.

The move is part of a reorganization of the company's legal and government affairs departments, says president/COO Mark Mays.

"It is increasingly important to address corporate and public policy issues hand in hand," says Mays.

Before joining Clear Channel, Levin was Democratic counsel to the U.S. House Energy and Commerce Committee, where he specialized in telecommunications and mass media issues.

Reporting to Levin will be Ken Wyker, senior VP and general counsel; Dale Head, general counsel of the company's live entertainment business; and Mickey Gayler, associate general counsel for labor and employment matters and the senior VP for government affairs.

King Purtich Names Plinio Law Partner

By Chris Morris

LOS ANGELES--Steven J. Plinio has been promoted to partner at King Purtich Holmes Paterno & Berliner in Los Angeles.

Plinio, a 1988 graduate of Northwestern University Law School, previously was an associate practicing entertainment and new media law.

He represents recording artists, labels, producers and composers.
Commentary

The NEW AFTRA Code Broken Down in Plain English

By Dina LaPolt

Dina LaPoltThe battle between record companies and its artists is a tired cliche.

But with the advent of new income streams for copyright holders and artists such as Web casting royalties, mobile music, and music contained in games-record companies must be willing to deal with the artist as more of a "partner" in the future as opposed to a mere royalty participant.

As such, the music industry is in the process of redefining itself and below are just some of the changes that have already occurred, some issues that still need to be addressed, and some examples of where the music industry seems to be going.

NEW AGREEMENT
AFTRA stands for the "American Federation of Television and Radio Artists." It represents the rights of recording vocalists and radio and television performers.

AFTRA is one of two (2) unions that represent the rights of recording artists in America. The other union is the American Federation of Musicians (AFM), which represents the rights of instrumentalists or "session players."

Both unions undergo intense and sophisticated negotiations with record labels to reach agreements that are both fair and beneficial to those they represent.

The agreements between the unions and the record labels are sometimes referred to in recording agreements as "collective bargaining agreements."

Moreover, the AFTRA union not only covers royalty singers and back up vocalists but it also covers television and radio announcers, actors, comedians, narrators, and sound effects artists.

After 18 months of negotiations with the record labels, the new AFTRA National Code of Fair Practice for Sound Recordings (the "Code") was finally completed and includes numerous beneficial provisions for royalty artists and non-royalty artists alike.

One of the biggest benefits of the new Code is the requirement that the label make a contribution to provide every artist signed to any AFTRA signatory record company with at least individual health benefits from the AFTRA Health Fund.

These benefits currently include medical, hospital, prescription drug coverage, dental, and life insurance. The Code covers sound recordings on vinyl albums, cassettes and compact discs and includes all formats as well as books on tape, cast albums, and any other sound recording utilizing vocal performances.

WHO BENEFITS?
The Code applies to artists who render services for record labels who are signatories to the AFTRA Code and it applies to both royalty and non-royalty artists.

In essence, whether an artist has a record deal or does not have a record deal, if an artist performs on albums for a label that is a signatory to the AFTRA Code, then the artist will receive all the benefits of the AFTRA Code and may be able to participate in the AFTRA insurance and pension benefits.

All the major labels and most of their sub-affiliates are signatories to the AFTRA Code as well as many independent labels.

Currently, there are five (soon to be four) major labels which are as follows: Universal Music Group which includes Interscope, Geffen, A&M, Island/Def Jam, Motown, and DreamWorks; Warner Brothers which includes Atlantic, Lava, Elektra, and Maverick, EMI which includes Capitol and Virgin, Sony, which includes Columbia and Epic, and BMG, which includes RCA, J Records and Windham Hill.

At the time this article was written it was widely anticipated that Sony and BMG were going to merge, creating the Sony-BMG Music Group.

The independent labels that have signed the AFTRA Code include ArtistDirect, Hidden Beach, Curb Records, Artemis, Audium, Anti (owned by Epitaph), Hollywood, Lyric Street, Milan, and Concord, just to name a few. All labels under Koch International are expected to be signatories to the AFTRA Code in 2004.

HEALTH INSURANCE
If an artist signs a record deal with a signatory label, then the artist will automatically be eligible for health benefits. No matter what.

Prior to Jan. 1, 2004, royalty artists were eligible for only one year of health insurance upon signing their recording contract and then had to meet a certain earnings thresholds before they could be eligible for continued health benefits.

Now, if the artist is signed to a record label and the artist does not meet the "earnings threshold," the record label still has to make the AFTRA H&R contribution, which would entitle the artist to "basic coverage" or the "Individual Plan" under the Code.

Under the new provisions of the Code, if an artist is signed to a signatory label-then that artist will be eligible for health insurance.

Will an artist get health insurance if he or she is not currently signed? Yes-if the artist performs on other artists' albums and the artist meets the "earnings thresholds" OR if the artist was previously signed and the artist is still meeting the "earnings threshold."

EARNINGS THRESHOLDS BROKEN DOWN

If within a 12-month period, an artist earns a collective amount of $10,000 then that artist is eligible for health benefits under the Code.

Even if the artist is a vocalist or rapper who performs on other artists' albums-the artist must make sure that he or she gets a fee for his or her performances as every cent made will apply. Fees paid to those performing on television such as Saturday Night Live, Jay Leno, the American Music Awards, etc., are also applied to the earnings threshold under the new Code.

Moreover, since the mid-1990s, earnings credit includes unrecouped royalties, so it includes those earnings that are not actually "paid" to artists.

If an artist does meet the $10,000 12-month earning threshold, then the artist will have a premium of $250 per quarter that has to be paid to participate in the plan-which comes out to be roughly $83 per month.

Under this "Individual Plan" an artist's spouse or children are not covered but a "buy up rate" can be purchased for additional coverage.

Dina LaPolt is an attorney at LaPolt Law in Los Angeles and is on the Attorney-Manager Advisory Board for AFTRA.
Case Analyses

Record Companies Must Embrace Changing Digital Landscape

By Samantha Chang

Charles Darwin would be proud. Today's harsh music climate is certainly putting his survival-of-the-fittest theory to the test.

In this do-or-die atmosphere, artists are increasingly being forced to pursue new avenues of income that go beyond recording deals, as the traditional business model for artist/label deals evolves.

Observers predict that this will result in music companies signing fewer recording and publishing deals, lowering sales expectations and reducing staff as part of across-the-board cost-cutting.

At the same time, artists will see more cross-marketing with other entertainment or consumer goods companies, an increased focus on TV and a greater dependence on live-performance income.

Clearly, the Internet has become the catalyst for major changes ahead.

"The creation of new income streams, such as the Webcasting royalty, can increase an artist's chances of success, even though he or she may not be signed to a major record label," says Dina LaPolt of LaPolt Law in Los Angeles, whose clients the Outlawz, the BellRays and Tribe 8.

Performers must continue to fight for artists' rights, given the decreasing role of the major record companies in artist development, says LaPolt, who is a member of the attorney-manager advisory board of the American Federation of Television and Radio Artists.
Indeed, some observers believe that the Internet is sounding the death knell for the traditional artist/label model.

On the Web, music can be recorded and distributed far more cheaply, so the intermediary role once played by record companies may eventually no longer be necessary.

Record companies are "irrefutably dying. The economics of their industry are unsustainable," says Eben Moglen, a law professor at Columbia University in New York.

Other critics, however, are not so quick to predict the demise of the record industry. They note that the current uncertainty largely results from the attempts of major music companies to control start-up business models for digital music distribution, at the expense of artists and consumers. Those attempts have resulted in a disparate and daunting mix of digital music business models.

But if record companies and artists work toward a more collaborative business model, the music industry's demise may turn out to be no more than a greatly exaggerated rumor.

CROSS-MARKETING BOOM
If necessity is the mother of invention, then the Internet has quickly become a mother of music marketing.

For example, artists increasingly are promoting their music on film and TV soundtracks as a means to develop their careers, says Richard Rappaport of Adorno & Yoss in Miami.

Another hot trend is the use of music copyrights as mobile-phone ring tones, says Michael Elkin, a partner with Thelen Reid & Priest in New York.

"Each time a digital delivery occurs, say, for a Rolling Stones song, there's income to be split between the label and its artist," says Elkin, who has successfully litigated actions on behalf of artists against mp3.com, Napster and musicmaker.com.

The Internet can also spawn revenue from pay-per-view concert cybercasts, which artists and labels then divvy up.

"This will generate digital performance money to be paid to copyright owners, and artists will lobby heavily for a greater share of this income," Elkin says.

Another consequence of the changing business model and the rise of the Internet is that A&R may become a devalued part of the major-label system, says Christian L. Castle, a senior counsel with Akin Gump Strauss Hauer & Feld in Los Angeles.

"Signings will be more about artists with proven track records on indie labels than picking talent in a producer-driven world of artists who may actually be on their third or fourth album by the time they release an album on a major," Castle says. Christian L. Castle

"Hence, the artists don't need anyone other than maybe a producer to help them," says Castle, a former senior VP of business affairs at Sony who advises Bob Dylan, DreamWorks Records and DreamWorks Music Publishing.

Interestingly, despite millions of dollars that major music companies invested in controlling digital music distribution in its earliest days, the first successful digital distribution models came from such entities outside the industry as Liquid Audio (1996), the Rio mp3 player (1998), and, more recently, Apple's iTunes and iPod projects (2003).

The lesson from the Apple model is that digital distribution demands that major labels embrace radical and fundamental change by integrating digital technology and distribution into recording, marketing and promotion-- virtually every aspect of their business, observers say.

Unlike many other industries that successfully have embraced the Internet, the music industry was dealt a particularly bad hand on the regulatory front. But Congress can fix this, should it decide to step in.

"Our government's utter failure to vigorously enforce the nation's copyright laws has allowed an unprecedented level of piracy, which, in turn, has created a near-pathological fear in the industry of any digital business model," Castle says.

The result, observers say, has been commercial paralysis and denial at the strategy-making levels.

"Imagine if the U.S. Customs Service told General Motors that they were free to sue illegal importers but that the government wouldn't help," Castle says.

The good news for the industry is that within its ranks are many creative people. Corporate policy and long-standing business practices have restrained their creativity in dealing with the digital music challenge. But that creative power must be unleashed and quickly, by allowing innovative business models, observers say.

The imperative is apparently starting to sink in at the senior levels. Castle recalls, "One major-label executive told me recently after Steve Jobs' presentation at the iTunes Windows launch: 'Anyone who gets in the way of this should be fired.' "

Indeed, by one estimate, if only the recapture of a modest 10% of the illegal file-sharing market were converted to legal paid downloads, the result would be substantial growth in music company revenue.

The technology and systems exist to accomplish this goal, which may be enough to reverse the fortunes of the industry.

But executives say that growth will only happen if copyright laws are enforced, if the entrepreneurial passion of employees is allowed to flourish, if artists are truly treated as business partners and if music buyers are respected and included in the process.

In short, the future of the music business will be strong if change is not only embraced, but demanded.