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Where has all the music gone, now that Napster Inc.’s music-sharing service has gone dark? It’s still easy to find radio stations broadcasting on the Web. But ever since the 9th U.S. Circuit Court of Appeals squashed Napster’s free file-sharing service earlier this year, downloadable music (music you can keep and listen to again) is much harder to come by — especially if you are a middle-aged guy (that’s me!) who is somewhat uncomfortable visiting various underground pirate sites. Songwriters, record labels and music publishers say that the collapse of the online market is a good thing, but, as somebody who likes both music and computers, I’m not so sure. I feel like a customer in a Moscow store — I’m ready to buy, but the shelves are empty. Moscow storefronts and online music have more in common than greets the ear. The stores in Moscow are empty for the same reason that the Internet is missing music. In a 1998 article in the Harvard Law Review, Michael Heller makes a fascinating observation: Years after the collapse of Communism, Moscow storefronts remained empty, while “flimsy metal kiosks, stocked full of goods, mushroomed up on Moscow streets.” Why, Heller writes, “did new merchants not come in from the cold?” The answer, says Heller, a law professor at the University of Michigan, is that the kiosk merchants had rights to their rickety shacks, but store owners did not. In the transition from Marx to markets — the title of a Heller course — property rights in Russia are often held by many owners; one collects sales revenue, another lease revenue, while a third has the right to occupy. “No one can set up shop without collecting the consent of all the other owners,” Heller writes. This description of barren Moscow stores comes remarkably close to the state of online music. There are too many owners, and each can block the rest from exercising their ownership rights. In recent testimony before Congress, Robert Glaser, the acting chief executive of MusicNet Inc., an online music distributor backed by three record labels, sums up the mess: “Music publishing rights are one of the most tangled areas of our copyright systems. My legal team advises me that up to eight claimed rights arguably are needed to clear a single song to be placed on a computer server and delivered to a consumer via downloading and streaming.” Heller’s article does not make the connection between Moscow and music. But he and a fellow Michigan law professor, Rebecca Eisenberg, argued a similar point about how overprotecting the fruits of genetic research may produce fewer rather than more beneficial drugs. To make the connection between real property rights in Russian storefronts and intellectual property rights in cyberspace, it helps to recall the history of music licensing, both in the material and the online worlds. For each piece of recorded music, there are two distinct copyrights. One covers the notes and lyrics, or the musical work. The other covers the sounds themselves, or the recording. These rights are owned by several overlapping parties and trigger numerous royalty streams. The songwriter receives a payment each time his or her work is recorded or performed. (These rights are often owned jointly by a music publishing company, which is often the arm of a record label.) The record labels generally own the sound recording copyright. In many instances a label and its publishing arm will be on opposite sides of a negotiation. Over the years, courts, Congress, and the U.S. Copyright Office have had to intervene in various disputes among the players. In 1908, for example, the U.S. Supreme Court ruled that songwriters could not block companies from creating player piano rolls of their musical works. The next year, Congress intervened and created a royalty for songwriters and music publishers whenever their work was recorded — the so-called mechanical right. When the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI) began clearing rights on behalf of songwriters, antitrust regulators stepped in to limit the organizations’ market power. Consent decrees governing ASCAP and BMI’s behavior remain in force. The system is neither perfect nor harmonious. Bar owners are upset that they must pay ASCAP and BMI to play music, and record labels are upset that radio stations play their songs for free. But at least the players understand the rules. The Internet changed everything. Onto this tablet of the future, the major parties have tried to imprint their wildest, most hallucinogenic wishes. As the representative for publishers and songwriters, the National Music Publishers Association has tried to argue that its members ought to be compensated for all copies transmitted across the Internet — even those that are temporary. ASCAP and BMI likewise have tried to argue that all transmissions — even those that are wholly private — are performances, invoking yet another royalty stream. And the record labels keep trying to stretch the law to maximize their collection of revenue from digital transmissions. Although the Napster litigation has received the most press, the online music industry has been roiled in other litigation, recrimination, and distrustful negotiation over who owns the rights to what, and when. The ultimate losers are consumers. As Heller puts it in his article about Moscow: “When there are too many owners holding rights of exclusion, the resource is prone to underuse — a tragedy of the anticommons.” In the early days of the Internet, there were at least two convenient and opposing fictions floating about. The optimistic one was that the online world promised to reduce transaction costs to zero. Buyer and seller could meet without a middleman. Music could be distributed without resort to warehouses, stores, and other overhead. Yada yada yada. If nothing else, the arrival of lawyers and lobbyists on the scene ought to have signaled that the Internet is anything but frictionless. The pessimistic fiction was that the Internet would create a tragedy of the commons — the overuse of a public resource. Law professors describe a common grazing area or unregulated bandwidth spectrum as tragedies of the common. The tragedy of the Internet was to be that consumers would rip off copyrighted works because it was so easy to make perfect copies of them. If Heller is right about Moscow storefronts and I am right about his analysis applying to online music, we have the opposite problem. The music industry is slighting consumers by not making their wares available online. What can be done? Slowly, the players are retreating from their most extreme positions. If nothing else, the threat of Napster awakened the music moguls to their need to define the market realistically rather than be defined by noneconomic forces such as Napster. In October, for example, the record labels and music publishers reached an agreement that will help launch Seattle-based MusicNet and a competitive online subscription service, pressplay, based in New York and Los Angeles. The agreement, however, doesn’t tackle the thorniest issue: the setting of a royalty rate. Nor does it address the concerns of antitrust regulators both in the United States and in Europe that the big five labels are trying to control distribution of online music through MusicNet and pressplay. There is still a long way to go. Unfortunately, Heller doesn’t help us out of the mess much. In Moscow, the kiosk merchants are thriving because they have made deals with the devil. As Heller writes: “They executed corruption contracts with local government rights-holders and protection contracts with the mafia.” In the United States, it will be up to the lawyers and judges to clarify the boundary of rights before the next Napster tries to do it for them.

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