Behind the Deal: The State of the Music Industry - An Interview with Michael Sukin

As 2004 came to a close, Billboard sat down with a dozen lawyers to discuss the state of the music industry. Their work in connection with the industry varies. For example, Attorney General Joh

As 2004 came to a close, Billboard sat down with a dozen lawyers to discuss the state of the music industry.

Their work in connection with the industry varies. For example, Attorney General John Ashcroft and Deputy Chief of Staff David Israelite enforce laws against those who steal copyrighted works.

Two federal appellate court judges, Alex Kozinski (Ninth Circuit) and Richard Posner (Seventh Circuit), occasionally review cases involving copyright issues, technology or music.

Other lawyers litigate, advise clients, broker and negotiate deals and watch the trends around the world.

Michael Sukin's firm is the Sukin Law Group, with offices in New York and Nashville.

What types of deals do you handle?

Record deals, publishing deals, copyrights, trademarks, deals with theater - internationally. Also financing, working for lending institutions, and handling a lot of lobbying.

What have you seen occurring over the last year?

The record industry is still cleaning itself out. There's uncertainty in the Sony/BMG camp, certainly in terms of staffing, in terms of their employees and therefore artists and managers. You make a deal with somebody who's really hot for your act or your product, who is president of a division, and he's not there six months later. It's really a problem.

Sales-wise, the [lawsuits against individual P2P users], which I didn't particularly like personally, are having an effect. People are way more aware. So the industry is seeing a little bit of an upturn, which is good.

American companies are also seeing their foreign income, generally speaking, go up because the dollar is so weak. This is good if you are in America and earn income overseas. If you earned a dollar last year, you might be earning $1.60 this year, so even if your sales are down, your income might be up.

Music publishing is better than stable; it's expanding. While the record industry over the last three years had serious contractions, the publishing business has done its usual steady increase year-to-year like the tortoise. The record companies are the hare -- they generate vastly more income. But the publishing business is just more regular and stable and depends on a broader array of income sources, not just records.

It's film, television, performances, print, online, etc. While the record business may be suffering, synchronization uses are up dramatically, performances are up on a worldwide basis. If you're a domestic music publisher, probably 30%-60% of your earnings are outside the U.S., and those earnings are up.

What about catalog acquisitions?

Publishing acquisition activity for all practical purposes has slowed down dramatically from what it was three to four years ago. What's interesting is that last year is the first time an e-commerce company has actually bought something in the music industry: DreamWorks Publishing. Is it the beginning of a trend?

The multiples that people paid for publishing companies softened up dramatically last year. Apart from DreamWorks, there have been no major sales of publishing companies since the multiples softened up.

It's a bit like the real estate market where prices have fallen but nobody's selling. Everybody's waiting until maybe the business comes back. People who had high prices for companies for sale two years ago haven't sold; they're just waiting.

How about financing the industry?

Financing in general is becoming more interesting because the Warner Music Group was a financed acquisition by outside money sources. This means that Wall St. now has much more information about record and publishing companies than it had 24 months ago.

The absence of deals has always been the problem with regard to financing, sales acquisitions, expansions in the music business. Wall St. didn't understand how the business works. If they don't understand it, they're reluctant to invest in it.

In the past Wall St. had money in the distribution end of the business, which is the wrong end of the business for those people to be in, I think. The Warner Music deal is giving them a window into how the content end of the business works.

What changes are you seeing in copyright?

Copyright is curiously positive and negative. The courts are pretty pro copyright. The legislatures are not such happy places for copyright, and they can have a much more long-lasting impact on the rules.

The development of the Creative Commons is a real, real major threat to copyright here and abroad, which cannot be underestimated because it's spreading throughout the world like a virus.

Fifteen years ago if you went to a gathering of copyright practitioners and academics, it would be taken as a given that copyright was a valid, socially desirable institution/law/theory. Now that is not the cases.

There is a substantial amount of the academic community, which is developed with the whole [Lawrence] Lessig [Creative Commons] phenomena that sees copyright as an over-protective monopoly, a threat to freedom of speech and creativity.

That has spread into an international debate in the same area, which has been co-opted by the anti-copyright legislative forces as a socially legitimizing argument for their own position. That's not good for us; it's really bad.

[The anti-copyright forces] have way more money than [the music industry]. Now for the first time in the 20th and 21st centuries, they have a legitimate cultural, constitutional, legal theory/argument that's been developed by Lessig and his followers .

First, that's not good because it's been accepted into the mainstream and it's giving the opposition forces to copyright a lot of ammunition to go with and to legitimize their argument.

Second, remembering that U.S. companies earn a lot of money in Europe, in the European common market, copyright is controlled through the European Commission. One of the commission's jobs is to enhance the free-flow of goods, and there are some who see copyright as an impediment to that.

Europe traditionally viewed copyright as an inalienable cultural value that was to be protected at all costs. That has been substantially eroded by the more economic perspective of the common market. If the income for copyright holdings outside the U.S. is reduced and we're the original copyright holders, then income goes down.

Now there's a real push by the U.S. government to extend copyright protection from 50 to 70 years, but they're not reviving works that go into the public domain, which means that bundle of American copyright from 1920s, 30s, 40s or whatever, which have produced a great deal of income for American companies and the American economy, are threatened.

What is the most important issue for 2005?

Legislation. Americans must focus more on lobbying efforts, both domestically and internationally.