Are New Streaming Royalty Rates A Way To Backdoor DRM Into Copyright Law?

from the dangerous dept

Thu, Apr 19th 2012 1:34pm — Mike Masnick

We recently wrote about how different parts of the music industry -- the RIAA, NMPA and DMA -- had come to an agreement on new royalty rates, as well as designating royalties for "new classifications" of services. While the groups celebrated this solution for being "flexible" for new providers, the details suggest a different story. We already expressed concerns about what are apparently licensing requirements for services that shouldn't need any license (i.e., personal music lockers). However, that was just based on the press release. When you look at the full details (pdf and embedded below), it gets even more troubling -- to the point that the whole agreement should probably be rejected.

Here's the big concern. This is a settlement among a few parties, who certainly don't represent the entire industry. Yet, if the Copyright Royalty Board and their (typically out of touch) judges accept the settlement, the details of the settlement become law. And that's problematic, because this thing is pretty crazy with restrictions -- some of which are nearly impossible to understand. If you think the tax code is confusing, you haven't tried to figure out what you have to pay to license certain services. Let's just say you want to set up a locker service that allows users to buy music which automatically goes into the locker. Well, among a ton of other rules, try this sucker on for size:

In the case of a purchased content locker service, the percentage of subpart C service revenue applicable in step 1 of &sec;385.22(b)(l)(i) is 12%. For the avoidance of doubt, paragraph (l)(i) of the definition of subpart C service revenue shall not apply. The minimum for use in step 1 of &sec;385.22(b)(l)(ii) is the appropriate subminimum as described in paragraph (b) of this section for the accounting period, where the all-in percentage applicable to &sec;385.23(b)(l) is 18%), and the sound recording-only percentage applicable to &sec;385.23(b)(2) is 22%, except that for purposes of paragraph (b) of this section the applicable consideration expensed by the service for the relevant rights shall consist only of applicable consideration expensed by the service, if any, that is incremental to the applicable consideration expensed for the rights to make the relevant permanent digital downloads and ringtones.

That's on page 40 of 44 pages. And is just one paragraph. Good luck figuring out the rest of the rules without a cadre of lawyers (oh wait... perhaps that's the idea).

But the bigger issue is that this agreement is a way to actually sneak DRM into copyright law. While existing copyright law has anti-circumvention rules, it makes no statement on how DRM actually impacts royalties or requirements (beyond anti-circumvention). Yet, this "agreement" has multiple sections that define types of DRM and with different rules for those specific cases. That is, the agreement defines the idea of a "limited download."

Limited download means a digital transmission of a sound recording of a musical work to an end user, other than a stream, that results in a specifically identifiable reproduction of that sound recording that is only accessible for listening for—
(1) An amount of time not to exceed 1 month from the time of the transmission (unless the service provider, in lieu of retransmitting the same sound recording as another limited download, separately and upon specific request of the end user made through a live network connection, reauthorizes use for another time period not to exceed 1 month), or in the case of a subscription transmission, a period of time following the end of the applicable subscription no longer than a subscription renewal period or 3 months, whichever is shorter; or

(2) A specified number of times not to exceed 12 (unless the service provider, in lieu of retransmitting the same sound recording as another limited download, separately and upon specific request of the end user made through a live network connection, reauthorizes use of another series of 12 or fewer plays), or in the case of a subscription transmission, 12 times after the end of the applicable subscription.

(3) A limited download is a general digital phonorecord delivery under 17 U.S.C. 115(c)(3)(C) and (D).

Is this really what we want in the law? A specific legal definition of DRM that applies to others despite not being a part of the negotiations? The main issue is that this is a standard contract between private parties. That's fine if it only applied to those parties who were subject to the negotiation. But thanks to the CRB process, the end result may be to stuff this private contract between private parties directly into the law, and that will expand copyright in highly questionable ways.

There are lots of other concerns about the document as well. It has lots of "this or that" calculations -- all of which default to the "greater of" option -- meaning that the rates are going to keep going up. Also, the agreement repeatedly defines "minimums" but we'll be waiting a looooooong time for you to come back with where the "maximums" are. The whole thing is crazy confusing, and while it may be perfectly fine if it were just a contract among a few players, the second it becomes part of copyright law, we should be concerned.

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Filed Under: copyright royalty board, drm, royalties, streaming
Companies: dma, nmpa, riaa

41 Comments

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:Lobo Santo (profile), 19 Apr 2012 @ 1:41pm

*big smile*
Ah yes, more laws for the masses to generally ignore.

Why do they bother? Don't they know we (the people) don't care about their laws/fees/rates and will just keep on sharing because it's natural and feels oh-so-right?
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- Nail Biter, 20 Apr 2012 @ 8:55am
  
  Re: *big smile*
  Yes, and not only that, do these parties who make the laws and agree to bind even the smallest guy make music? Do they direct or make movies? Are they the artists or are they living off the artists? That should be the real question here. If these royalties were actually going to the artists, that would make all the difference in the world.
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Anonymous Coward, 19 Apr 2012 @ 2:02pm

So, if I'm reading this correctly, when I purchase content legally, they only want me to be able to use it 12 times and then I have to repurchase it? Ok, explain to me how this piracy thing works, I've never done it before, maybe it's time.
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- hothmonster, 19 Apr 2012 @ 2:03pm
  
  Re:
  For real. This is the most ridiculous thing I have seen all day which is amazing considering I spent most of the say on http://www.scp-wiki.net/
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Anonymous Coward, 19 Apr 2012 @ 2:05pm

"In the case of a purchased content locker service, the percentage of subpart C service revenue applicable in step 1 of &sec;385.22(b)(l)(i) is 12%. For the avoidance of doubt, paragraph (l)(i) of the definition of subpart C service revenue shall not apply. The minimum for use in step 1 of &sec;385.22(b)(l)(ii) is the appropriate subminimum as described in paragraph (b) of this section for the accounting period, where the all-in percentage applicable to &sec;385.23(b)(l) is 18%), and the sound recording-only percentage applicable to &sec;385.23(b)(2) is 22%, except that for purposes of paragraph (b) of this section the applicable consideration expensed by the service for the relevant rights shall consist only of applicable consideration expensed by the service, if any, that is incremental to the applicable consideration expensed for the rights to make the relevant permanent digital downloads and ringtones."

Looks like a patent application. I think some lawyer is moonlighting
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- Anonymous Coward, 19 Apr 2012 @ 2:13pm
  
  Re:
  Ringtones? Didn't they already kill those off with their greed?
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- Mr. Oizo, 20 Apr 2012 @ 10:15am
  
  Re:
  I'm a nerd and sometimes I wonder whether they have programs that generate these documents. After all it wouldn't be too difficult. Create a simulation that results in the most profit for yourself and then let another program translate the internal rules of the simulation to 'readable' text. The result would be more or less what you see here.
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Rikuo (profile), 19 Apr 2012 @ 2:14pm

So...what? Will this mean that I am only allowed download my Steam games only 12 times? Despite the fact that upon purchase, Steam promised me an unlimited number of downloads? Is the government allowed insert itself into private contracts just like that?
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- :Lobo Santo (profile), 19 Apr 2012 @ 2:22pm
  
  Re: (stupid lawyering class)
  ...yes, they are.
  
  If you've contracted for something which is illegal then the gov can/will step in and enforce its will upon your contract.
  
  Well, more precisely, you can agree to anything in a contract but terms which are illegal cannot be enforced.
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  - Anonymous Coward, 19 Apr 2012 @ 2:31pm
    
    Re: Re: (stupid lawyering class)
    There is the grandfather clause.
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    - :Lobo Santo (profile), 19 Apr 2012 @ 2:44pm
      
      Re: Re: Re: (stupid lawyering class)
      Yes, and there's dozens of holes a good lawyer could argue around to get your contract considered new/invalid so far as grandfathering it under older laws goes.
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  - Anonymous Coward, 20 Apr 2012 @ 9:13am
    
    Re: Re: (stupid lawyering class)
    Yes, but if they were legal at the time you entered into a meeting of the minds agreeing to the legal terms of the contract any intrusion after the fact ipso facto would be an intrusion, unconscienable and against the public welfare.
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- Anonymous Coward, 19 Apr 2012 @ 2:36pm
  
  Re:
  I read it as you can only listen to a song 12 times before checking in with the DRM server again. You can listen to it (or download a game) as many times as you want as long as your subscription is in good standing, the DRM server is avaialable, and you can connect via the internet.
  
  Doesn't seem that much different than existing DRM. I'm not saying this is good, just that we may be overreacting.
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  - TtfnJohn (profile), 19 Apr 2012 @ 2:54pm
    
    Re: Re:
    The reaction isn't towards the number of times I can listen to the song i bought or that it's how DRM works now it's that they want it to become, however tangentially, part of US copyright law.
    
    Which, of course, the US will want to export as part of ACTA (revised) and TPP as part of the American attempt to have everyone adopt the exact same "IP" rules as the US has. (See Sec. 1, Subsec 3b, Para, 18, Line 7a except on days where there is a full moon in which case Para 18m Line 32fm.)
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  - The eejit (profile), 19 Apr 2012 @ 4:09pm
    
    Re: Re:
    Well, I'm just pissed off that I couldn't shakedown thew US Givernment for my new patent application:
    
    "A method of tracing purchased digital content in order to correctly assign royalty payments."
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  - PaulT (profile), 20 Apr 2012 @ 1:02am
    
    Re: Re:
    "as many times as you want as long as your subscription is in good standing, the DRM server is avaialable, and you can connect via the internet"
    
    I notice a couple of big flaws there that would leave customers cut off through no fault of their own...
    
    "Doesn't seem that much different than existing DRM."
    
    Perhaps, but the current DRM isn't codified into law. That's the difference.
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    - Anonymous Coward, 20 Apr 2012 @ 7:34am
      
      Re: Re: Re:
      iTunes currently has no DRM on music. It's different.
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  - DanZee (profile), 20 Apr 2012 @ 8:17am
    
    Re: Re:
    Hmm. So if a company goes out of business, all of your music will disappear in a month? You better hope iTunes never goes out of business!
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Ophelia Millais (profile), 19 Apr 2012 @ 2:37pm

The agreement defines/reiterates categories of music offerings for the purpose of saying what the rates are for each one. For example, if an online music store wants the 'limited download' rate for the files it lets people download, they can only get it if the files have certain DRM and related restrictions. This doesn't mean that stores only need to offer only restricted downloadables. It just means that those offerings are beyond the scope of this agreement; the rates for them have to be negotiated separately. So, I don't see what the problem is. If you make downloads available and you want to pay the 'limited download' rate, then you'd better have a 'limited' download. How could it possibly work if everyone gets to come up with their own definition of 'limited'? Am I not seeing the forest for the trees, or what? What's the alternative?
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- John Fenderson (profile), 19 Apr 2012 @ 3:09pm
  
  Re:
  How about this for an alternative: don't write this into law where it clearly doesn't belong, but into a license agreement where it does.
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  - Ophelia Millais (profile), 22 Apr 2012 @ 1:45am
    
    Re: Re:
    I still don't get it. Are you under the impression that if the CRB uses this private license agreement as the basis for statutory licensing, then everyone would be forced to agree to those rates and terms, with no opt-out? IANAL, but that scenario would only just expand the options, and it'd be opt-in.
    
    For example, this exact kind of option is already there in the law for streaming audio recordings; webcasters meeting certain, feasible but not entirely reasonable criteria, can elect to just report to and pay standard fees to SoundExchange, and they get an automatic, blanket license which keeps them from having to negotiate with each label separately for a license to use each recording. It's compulsory for the copyright owners, meaning they can't opt-out. If the webcasters choose not to use this system for whatever reason, there's no penalty, they just have to get their own licenses, which was the default situation anyway.
    
    Likewise, right now, you can run a music store that offers any kind of music downloads (DRMed or not), as long as you have license agreements worked out with each and every copyright owner (publishers and labels both), for every song and for every territory you sell to. That's option A and it's always there. What would change, if the CRB adopts the aforementioned agreement as the standard, would be you'd have an Option B: If you so desire, and provided all the well-defined criteria are met, you could offer DRM-laden downloads of any copyrighted music (no matter who the copyright owners are)...you'd only just have to pay the standard "limited download" rates. But if you don't like those rates or can't meet the criteria, e.g. because you're not stupid and you know nobody wants DRM, you still have option A.
    
    So again I have to wonder what the freak-out is about. If there is to be a compulsory option that applies to all copyright owners, it seems to me (again, IANAL) that it must be in the law, and it must have very well-defined terms and rates.
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Anonymous Coward, 19 Apr 2012 @ 2:37pm

if there are any ways for the entertainment industries to screw the public, they will find them and use them. if there are any ways for the entertainment industries to screw the public AND the artists they will find them and use them!
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Anonymous Coward, 19 Apr 2012 @ 3:00pm

Ultimately the internet is designed to share information and route around obstructions. Censorship is only one type of obstruction. We will route around it.
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Auditrix (profile), 19 Apr 2012 @ 4:55pm

Don't have time to reply to all of your comments, but just saw David Israelite speak today and he made some really cogent points about the intent of the rates. I don't want to put words in his mouth, but one takeaway for me was that record labels can license their content at market rates but publishers are limited to maximum mechanical rates set by the CRB (and since PROs are subject to consent decrees, the result is that they are not collecting much or anything from many music services). What this means is that record labels are able to collect 8 or 9 times as much as publishers, in many cases (even though in a free market it would likely be closer to 50%/50%). One good thing about the flexible rates for new services is to provide that if the record companies do well and negotiate higher rates, the publishers get more as well, and either way, the publisher's share is a bit better than for physical products and permanent downloads (i.e., for the new services the record companies may collect only 4-6 times as much as publishers instead of 8 or 9 times as much as publishers).

I think you might be a little overly conspiratorialist regarding whether the NMPA is operating in the best interest of publishers collectively and especially with respect to the definitions of the various types of services, but I haven't had time to finalize my own analysis of the deal, so I will keep an open mind.

Wish I had more time to comment on your other points, but I have to get back to auditing royalties!
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Anonymous Coward, 19 Apr 2012 @ 5:25pm

http://www.harryfox.com/public/DigitalDefinitions.jsp

This is a pretty good explanation of the different types of licenses. Limited downloads are already a thing that exists, apparently. I also skimmed the agreement above; it contains text relating to permanent downloads as well.
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Anonymous Coward, 19 Apr 2012 @ 5:28pm

Same anon with that glossary link here, by the way: did some research and some (not many) online music stores let you temporarily download a song as a taste test or rental for a lower rate.
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Zem (profile), 19 Apr 2012 @ 8:30pm

Building Walls
No need at all to worry about this. Its just another wall that will be too high for legitimate streaming services to climb over.

The end result is that the illegal ones will flourish, we all get it for free, and they get no money what so ever.

You have to hand it to the lawyer who drafted this. What a way to keep themselves in litigation work for life. The only party who stands to profit from this.
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Justin, 19 Apr 2012 @ 8:47pm

Judging from you're article, it seems as though you are straining to find something in this to be indignant at, but you really just don't understand anything in the document or the context in which this document was written...just a stray observation.
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- Niall (profile), 20 Apr 2012 @ 3:34am
  
  Re:
  That's actually part of the point. None of it makes any sense, which is utterly pointless for anything other than profiting lawyers, and since small/new outfits are unlikely to afford decent lawyers, Big Content by extension, especially as they arethe ones writing this with no public consultation.
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AC Cobra, 19 Apr 2012 @ 10:17pm

Entertainmentspeak
Seems like a good example of entertainment industry linguistics to go along with entertainment industry math.
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AC Cobra, 19 Apr 2012 @ 10:22pm

A better idea...
I've got a better proposal: whatever a song is sold for, the artist gets 75%, the retailer gets 25%, and the RIAA, NMPA, labels, lawyers, etc. get a big fat ZERO!
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- Niall (profile), 20 Apr 2012 @ 3:40am
  
  Re: A better idea...
  How about making them get a % of what the artist gets? Then it's in their interest to maximise that!
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Anonymous Coward, 20 Apr 2012 @ 12:07am

If you can't make a good movie, get a room
Well, a few things about these attempts to pass laws like this are quite entertaining, and where else to find entertainment than in the entertainment lawyer industry. Yes, they seem to be getting creative again.

Actually, I spoke with an attorney, by phone, about a proposed patent office in Denver recently, and well, he's at a very esteemed law firm. He said "Go to West Hollywood to see what's going on". And I did, but only for a little bit-- I went to West Hollywood and frankly, it's a very homosexual neighborhood where anything goes.

It seems that if that's where all the entertainment legislation is being written, all the nation's attorneys of this type, convene to play a game of "hide the legislation"

I'm not making this up. Someone needs to go there and get a second opinion because I am pretty sure to live in that part of town, you have to want to have sexual relations with anything that moves. Just do a quick search on Craigslist in the personals section for the area called "WeHo".
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- Niall (profile), 20 Apr 2012 @ 3:44am
  
  Re: If you can't make a good movie, get a room
  I'm sort of curious, what does a 'homosexual neighbourhood' have to do with the topic at hand, other than injecting some utterly gratuitous homophobia? Even if you really meant 'permissive' - what does that have to do with anything?
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  - Fin, 20 Apr 2012 @ 12:15pm
    
    Re: Re: If you can't make a good movie, get a room
    A homosexual neighboured, my kinda gig...
    
    Seriously don't use that....
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Anonymous Coward, 20 Apr 2012 @ 12:07am

If you can't make a good movie, get a room in WeHo
Well, a few things about these attempts to pass laws like this are quite entertaining, and where else to find entertainment than in the entertainment lawyer industry. Yes, they seem to be getting creative again.

Actually, I spoke with an attorney, by phone, about a proposed patent office in Denver recently, and well, he's at a very esteemed law firm. He said "Go to West Hollywood to see what's going on". And I did, but only for a little bit-- I went to West Hollywood and frankly, it's a very homosexual neighborhood where anything goes.

It seems that if that's where all the entertainment legislation is being written, all the nation's attorneys of this type, convene to play a game of "hide the legislation"

I'm not making this up. Someone needs to go there and get a second opinion because I am pretty sure to live in that part of town, you have to want to have sexual relations with anything that moves. Just do a quick search on Craigslist in the personals section for the area called "WeHo".
[ link to this | view in chronology ]
Anonymous Coward, 20 Apr 2012 @ 12:09am

If you can't make a good movie, get a room in WeHo
Well, a few things about these attempts to pass laws like this are quite entertaining, and where else to find entertainment than in the entertainment lawyer industry. Yes, they seem to be getting creative again.

Actually, I spoke with an attorney, by phone, about a proposed patent office in Denver recently, and well, he's at a very esteemed law firm. He said "Go to West Hollywood to see what's going on". And I did, but only for a little bit-- I went to West Hollywood and frankly, it's a very homosexual neighborhood where anything goes.

It seems that if that's where all the entertainment legislation is being written, all the nation's attorneys of this type, convene to play a game of "hide the legislation"

I'm not making this up. Someone needs to go there and get a second opinion because I am pretty sure to live in that part of town, you have to want to have sexual relations with anything that moves. Just do a quick search on Craigslist in the personals section for the area called "WeHo". It's very revealing to the type of people and culture in the area of the folks who write this type of legislation.
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Josef Anvil (profile), 20 Apr 2012 @ 1:23am

It doesn't really matter
I'm really not sure why we get bent out of shape about this stuff any more.

fact: the content industry will always push for more
fact: the distribution channel for media has merged with the communications platform
fact: homo sapiens have an intense NEED to share and communicate.

The content industry wants more money and that's just fine, but trying to have governments legislate things that run contrary to human nature tends to be a losing battle. Alcohol is legal because humans like to consume alcohol, and regardless of the health and safety issues, it is viewed as something that should be legal. Sharing is an even more powerful need that we have hardwired into us. We all saw what happened on 1/18 and we will probably see more activity like that as the content industry seeks to restrain our ability to use the technology available to us.
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DanZee (profile), 20 Apr 2012 @ 8:30am

Artists?
And where are the artists in all of this? Reminds me of the $1.62 royalty check Lady Gaga got from a million downloads from some European online store. Someone made a million euros from her music and it wasn't her!
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- PaulT (profile), 21 Apr 2012 @ 2:46am
  
  Re: Artists?
  Got a citation for that? I can't seem to find it anywhere... Oh, and your maths depend on the assumption that all downloads were charged at $1, which seems very unlikely for a non-legal store - and surely legal stores won't have that kind of blatant rip-off?
  
  If you want to find those who are ripping of artists through download sales, start with the major labels. God knows plenty of their artists have complained about their shady practices.
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  - Ophelia Millais (profile), 22 Apr 2012 @ 2:26am
    
    Re: Re: Artists?
    Google lady gaga spotify for news reports. You're basically right; DanZee doesn't know what he's talking about. In 2009, a Swedish newspaper reported that Lady Gaga only got $167 for 1 million Spotify plays of one song ("Poker Face"). This wasn't even correct, and it got blown up into something it wasn't. As far as I can tell, what happened was this: Spotify pays labels for the use of recordings, and it pays collection societies for the use of the underlying compositions/songs. Actual royalties are distributed by these entities according to their contracts with the artists. "Poker Face" was co-written by Lady Gaga and RedOne, a Swede, and we don't know what their split was; maybe it was 50-50, maybe it was 99-1. Whatever it was, his share for the composition, as distributed by the Swedish collection society STIM, worked out to $167 for that particular time period. I believe it was only for a few months'-worth of plays of "Poker Face" in Europe; Spotify had just launched in late 2008, after all. Meanwhile, Spotify surely paid out gobs more money to Universal for the recording and to ASCAP for Lady Gaga's share. And then as the song went on to sell 8 million more copies and as Spotify expanded, we can assume tons more went out. Who knows how much Lady Gaga herself got from all of that, but I'm betting it's way more than $167.
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