Month: January 2013

“No Stairway. Denied!” – The Effect Of Copyright On DVD Releases

The Copyright Effect of Music and DVD Releases of TV Shows and Films
Licensing Music that has Copyright Protection for DVD Releases of TV Shows and Films

For those of you in the right demographic, you may recall a sketch comedy show that aired on MTV in the early 1990’s, “The State.” This critically acclaimed, but commercially unsuccessful, production featured many skits that featured popular music to construct its humor. (Marvin Gaye’s “Let’s Get It On” being one example). This background music was often critical for comedic effect. MTV was able to liberally insert copyrighted music in the show because it had generous licensing deals with various record labels at the time. These deals allowed it to use songs from music videos aired on its network for its original programming without having to pay royalties.

In no small part to the music used, The State developed a cult following during its 4-season run and many clamored for its DVD release years later. There was a major snag, however. MTV did not have the broad licensing rights necessary to include the original music for home video (e.g. DVD) reproduction. Its music license only covered television broadcasts. A simple calculation revealed that the cost to obtain licensing rights to include the original music for the DVD release would have swamped any profit from selling the DVD’s of the niche show. MTV instead opted to dub over the songs with cheap alternatives and blur any copyrighted images. The end product was a watered down version of the show that alienated fans and skits that made little sense to the newcomer.

The State is just one example of the issue of copyright and DVD releases of older films and televisions shows. Many other programs far more popular than The State have been affected, including: Saturday Night Live, In Living Color, WKRP in Cincinnati, 21 Jump Street, Grease, Captain America: The First Avenger, and even Wheel of Fortune. This clip from Wayne’s World highlights the effect of such changes:

In the theatrical release of the movie, Wayne plays the first four notes to “Stairway to Heaven,” but an employee quickly cuts him off and points to the store’s “No Stairway to Heaven” sign. The joke parodies novice musicians’ need to jam that particular song over and over in guitar shops, but never buying anything. As you can see in the video clip of the DVD release, however, Wayne’s intro of Stairway is dubbed over with a bland guitar riff. This is because Led Zeppelin refused to give permission, at any price, for the studio to use their song in the release of Wayne’s World on DVD. Without the subsequent dub over, the studio would have been infringing on Led Zeppelin’s copyright to the song. The dubbed version, however, fails to make sense without those four notes, especially to an international audience of first time viewers. Even when copyright permission is available for other works, executives have resorted to dubbing and blurs rather than pay licensing fees.

But why did executives not acquire broader licensing deals to the music used in films and television? The answer lies with the technology and markets that existed at the time creators produced their works. Executives didn’t foresee the upcoming DVD revolution and securing broader licensing rights would have cost more. Many felt it was simply an unnecessary expense years ago. The sale of VHS tapes, laser discs, and other home video media was just not that profitable. It was only with the coming of DVD’s that things changed and distributing films and TV shows for home use became a booming business. Copyright owners naturally want a slice of the profits networks and studios make in releasing DVD’s, but sometimes demand exorbitant fees for music licenses. Networks and studios instead often choose to dub over songs and blur images to avoid these fees and any potential copyright infringement. This happens either because music licensing fees would be greater than any profit on selling the DVD’s, or simply because they want to keep all of the profit.

As these cases illustrate (and anyone familiar with George’s Lucas’ foresight to acquire licensing rights to sell Star Wars merchandise), the extent of licensing rights can have a huge impact on money changing hands. Keeping this in mind, what future issues do you predict could occur with copyright, technological advances, and artistic productions?

– Ari Good, Esq.

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. Ari Mr. Good received his BA, With Distinction, from the University of Michigan in 1993. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida. Ari represents DJs, live musicians, fashion models and other entertainers in copyright, licensing and contract matters.

The Right To Resell Or Not Resell Foreign-Made, Copyrighted Goods; That Is The Question

The U.S. Supreme Court Will Soon Decide the Reach of U.S. Copyright Law on Foreign-Made Goods
Copyright Law and Resale of Foreign Goods

What is the reach of U.S. Copyright Law in regulating the sale and distribution of protected works in the global marketplace? The U.S. Supreme Court will soon answer that question when it delivers its decision in the case of Kirtsaeng v. John Wiley & Sons. Its ruling will have far-ranging implications for the fast growing ecommerce industry and its consumers. This includes the sale of copyrighted music on sites such as eBay and Amazon (infamously parodied in a Colbert Report bit: http://goo.gl/B8Bsz).

Kirstaeng is a story of how a university student sought to finance his education using copyrighted materials lawfully printed and sold in different places. The defendant (respondent, for you legal types) set up online stores on eBay other online retailers to sell textbooks for American university courses that his family members purchased in his native Thailand. The family bought lawfully produced copies of the textbooks and shipped them to the defendant in the U.S., where he was able to resell them to other students at a significant profit, earning as much as $100,000 in one year alone! The textbook publisher was not as enthusiastic about the defendant’s brand of geographical arbitrage, and filed suit in a New York federal court for copyright infringement.

The core issue in Kirtsaeng is the “First Sale Doctrine.” This rule permits someone who lawfully purchases a copyrighted work to resell, rent, or otherwise distribute that work without the permission of the copyright owner. Also at issue in the Kirstaeng case, however, is another provision of federal copyright law that makes it illegal to “import” copyrighted works obtained outside the United States without the permission of the copyright owner. The student in Kirstaeng is arguing the former, the publisher, the latter.

The US Supreme Court frames the issue as such: “The question presented is how these provisions apply to a copy that was made and legally acquired abroad and then imported into the United States,” the Court said in a statement. The student has argued that the First Sale Doctrine provides a safe harbor for his activities. The Doctrine is limited to copies lawfully made under the Copyright Act and the textbooks he sold were not counterfeits and could qualify as lawfully made. The textbook publisher, on the other hand, claims the Copyright Act does not apply to anything produced overseas. It argues the Copyright Act is domestic law only and does not extend beyond our borders. The First Sale doctrine, therefore, is not applicable and provides no defense in this case.

Prior decisions of lower federal courts have split on issues similar to those in Kirstaeng. The Second Circuit Court of Appeals ruled that a person could never resell a foreign-made product in the U.S. without the copyright owner’s permission. The Ninth Circuit took a middle road, reasoning that a person could sometimes resell a foreign-made product in the U.S. without permission if the copyright owner had previously approved such a sale. The Third Circuit concluded that a person can always resell a product in the U.S. so long as this “first seller” lawfully purchased the product abroad. This is the student’s position in Kirstaeng.

The U.S. Supreme Court’s decision on this issue could have a significant impact on online retailers and brick and motor stores alike. These companies have built their operations around global sales and reselling of goods, usually without regard to their countries of origin. eBay wrote the Court (they submitted what is known as an “amicus brief”) arguing the importance of this secondary marketplace to producers and consumers alike. The Court’s decision could also have a significant impact on how licenses and intellectual property rights are administered, affecting groups such as Netflix, which would potentially have to limit access to movies or television shows to particular countries depending on who has licenses to what. Taken to an extreme, even the weekend warrior yard seller would have to be concerned about countries of origin. A ruling for the student, conversely, could encourage “geographical arbitrage” to a point where buyers assume that like products shipped from overseas are the real thing, when in fact such goods may not have been legally produced or sold.

Attorneys argued the Kirtsaeng case, Supreme Court Docket No. 11-697, on October 29, 2012, and the legal community expects a decision in early 2013. How do you think the U.S. Supreme Court should decide Kirstaeng?

UPDATE: The Supreme Court has ruled in favor of the defendant, Kirstaeng.  Ultimately, they decided that the law does not have a geographical restriction on the Right to First Sale.

– Ari Good

Ari Good, JD LLM, a tax, aviation and entertainment lawyer, is the Shareholder of Good Attorneys At Law, P.A. Ari Mr. Good received his BA, With Distinction, from the University of Michigan in 1993. He graduated from the DePaul University College of Law in 1997 and received his LL.M. in Taxation from the University of Florida. Ari represents DJs, live musicians, fashion models and other entertainers in copyright, licensing and contract matters.

Music Licensing and Copyright Law – How Internet Radio Pays Artists

Music Licensing and Copyright Law

How Pandora and Spotify Pay Artists

As many of you know, music websites Pandora and Spotify are two of the more popular options to listen to music on the internet.  Pandora is essentially internet radio, wherein the consumer creates a “channel” from an artist, song or genre.  The software then identifies the songs in its database that fit the channel model based on a range of musical characteristics.  Pandora is based on the clever “Music Genome Project“, which, borrowing from the Human Genome Project, creates identifies music “genes” for different genres.  Genes for house music might include, for example, “four on the floor beats”, “synth loops” or “disco influences”, while jazz genes might include “syncopation” and the like.  Spotify has a channel feature like Pandora, but gives the user more flexibility.  Unlike Pandora, users can select individual songs and stop, start or store these songs as the user likes, in much the same way as if he had the song on his computer.  Spotify users can interact with each other in a Facebook-like manner, share songs across social media

But how do these companies make money, and why would a DJ or artist allow their creations to be played seemingly for free?  The key is that they pay licensing fees for the music (part of which goes to the artists) and then get money from people who come to their sites.

Pandora pays a number of different parties a three layer cake of royalties.  Pandora’s approach is to pay for the right to broadcast music under a so-called “compulsory music license” for the composition itself.  This is a program created by federal copyright law.  It allows internet radio stations to pay set royalty rates for the right to play copyrighted music without asking for permission from the owner.  Second, Pandora pays a performance royalty.  This gives them a license to broadcast a particular version of a sound recording (song) by a performing artist.  A third party, SoundExchange, collects performance royalties, and after taking its cut, sends the rest to the record labels (who typically own the copyright to the sound recording) and the performing artist.  Performing artists on average tend to collect about 45% of the royalties collected by SoundExchange.  Pandora then pays songwriters and composers and their music publishers a publishing royalty.  This royalty typically goes to the music publishers, who are often also the record companies that own the sound recording and performance rights. Out of all of them, performance rights represent the highest percentage of the royalties paid to the different parties.

Pandora attempts to recoup money in royalties by selling advertising space to other companies on its website.  Only a small portion of its revenue comes from listeners who pay for its premium features.  This model has yet to mean a profit for Pandora.  It has lost money every year of its existence.

Spotify, on the other hand, avoids the compulsory music license process and negotiates directly with record labels on performance royalty rates.  This can lead to lower music royalty rates, but these bargains are difficult and time-consuming.  Making these agreements is an extra cost that can reduce savings from lower royalty rates.  It also still has to pay publishing royalties.  These publishing royalties are also small relative to the performance royalties.

Spotify earns most of its money from paid subscriptions, rather than advertising like Pandora.  Four million users across 15 different countries pay $5 to $10 a month for access to its premium services.  All of this still added up to losses of $57 million for Spotify last year, despite a large jump in revenue.

Music Royalties
Music Royalties

Declining sales and music piracy have hit artists and the music business hard over the past decade, but internet streaming provides one interesting solution.  Pandora has a stated goal of creating a “middle-class” for smaller acts.  It has claimed to pay 2,000 artists over $10,000 per year in licensing fees despite being a small player in the radio listening business.  Music websites also potentially reduce the need for stealing music when listeners can have it for “free.”  This also doesn’t account for another way to promote music for new listeners.  With both companies currently losing money and lobbying for changes in the royalty system, however, it’s going to take some serious compromise for all involved to find a way to keep a good thing going.