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Interview With Cary Sherman, President of the RIAA

 
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PostPosted: Tue Aug 20, 2002 3:42 pm   Post subject: Interview With Cary Sherman, President of the RIAA Reply with quote


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Interview With Cary Sherman, President of the RIAA
Good morning all! Welcome to our live interview with RIAA pres Cary Sherman. I will be asking questions sent along by our contributors and readers. We will begin shortly. Thanks for stopping by, Eric Olsen.
Question #1:
Why are you lobbying so hard for copy-restriction technologies when
a) they are readily defeated by anyone with a CD player and an audio cable and time on their hands
b) they annoy legitimate customers trying to transfer music from CD to MP3 players
c) they crash computers, leading to class action suits against your memeber for distributing malicious code?
These do not add to the value of your recordings, they reduce it. Instead, why not adopt Enhanced CDs that have images and lyrics on for computer users, as is done widely in the UK?
Kevin Marks
Cary Sherman:
Actually, we're not lobbying for copy-restriction technologies. We do want our companies to be able to use copy protection technology on their CDs, however, so that they can discourage unlimited copying and distribution on the Internet. Each company decides on its own whether to use such technology, and so far, only one major has done so for commercial releases in the U.S., and then only on four albums. (ALL releases with copy protection on them have been labeled, by the way. Don't believe rumors that companies are secretly putting copy-protected CDs into the market.) Significantly, the US companies have been conscious of the fact that lots of consumers listen to music on their computers, so they've been using additional technology to give consumers the ability to play the CDs on computers (in what are called "second sessions"). Technologies are also coming along that will allow consumers to transfer music files to portable devices, etc. - but still protect against unlimited copying and distribution on the Internet. The idea is to come up with consumer-friendly technology that allows users to make appropriate personal use of their music, but that prevents piracy.
As for crashing computers, I know that there have been reports of that out of Europe. That's one of the reasons the US labels are proceeding so cautiously, because they don't want the consumer to have a bad experience. The technology in this area keeps changing, and improving. You mention Enhanced CDs. As it happens, lots of consumers have had trouble with Enhanced CDs, because they may not play on all devices. So every time you mess with computer technology, there are unexpected effects. But I certainly agree that giving the customer more value - like images and lyrics - is a great way to encourage people to buy CDs rather than download the music without paying for it.
Question #2:
Let's get down to brass tacks –
1:why is there truly a need for the RIAA any more, given the existance of technology that permits and encourages the bypassing of the "middleman" organizations in the first place? The impression most have been given is that the RIAA is out to squash the technology from P2P sharing to Internet Radio, simply because they have not been able to find a valid methodology of extracting "Caesar's" cut ("render unto Caesar what is Caesar's") from each unit sold (i.e., download that takes place). Is this the case, and if so/not, why/why not?
2:If the recently introduced bill permitting the scanning of individuals' computers ever sees the light of day, then how would you discern whether or not someone honestly owns (or has honestly purchased) a piece of music on their computer, as opposed to something that supposedly has not? Isn't this piece of legislation nothing more than a legal means to rifle through individuals' computers in order to glean yet more money from them in the form of users' fees or "fines?"
3:Are the RIAA (and by extension the MPAA) out to remove music (and video) from the net entirely, unless it is tightly and rigidly controlled?
Michael King
Cary Sherman:
1. Record companies have been major beneficiaries of new technology (from wax cylinders to vinyl to LPs to CDs), and the current technological developments are no exception. But let's face it, even great technology can be abused. And that's what we're confronting right now. Our companies have to figure out how to take advantage of the great new delivery systems that the Internet offers, without being seriously damaged by uncontrolled piracy. P2P in particular can really be a fabulous technology - but right now it's doing far more harm than good. (So our surveys show.)
Also contrary to your impression, record companies want Internet radio to succeed. We need lots of outlets for music, and webcasting is one of the most exciting new ways for new artists and new music to gain exposure. Record companies (and artists - who get 50% of the royalties) also want to be paid fair value for their music when it's used for commercial purposes by webcasters. Just because we have a disagreement over what fair value is for the music doesn't mean we want to "squash" Internet radio. Right now, we're in negotiations with small webcasters to figure out what kind of rate works for all sides.
As for the need for RIAA (and presumably record companies), there will always be a need for record companies - because they are the venture capital companies of the music business. They invest their money, and their time and energy, into developing artists and bringing them to the attention of the public. Record companies may change in the years ahead, but their core function will always be an important part of the music business.
2. I think you've been misled about what the Berman bill would do. It would allow copyright owners to use technical measures to prevent illegal distribution of copyrighted works on P2P systems. It would not allow, and we would never seek the right, to go into people's computers and "scan" their files. No viruses; no deleting MP3 files; no hacking; just technical measures to prevent distribution of a file after it leaves someone's computer. Thus, we would have no reason to ever try to discern whether or not someone honestly owns a piece of music on their computer.
3. NO! I understand that people read more about litigations than about the day-to-day efforts of record companies to launch (and license) legitimate online businesses, but the fact is that the record companies have been working very hard at getting music on the Internet legally. That happens to be difficult - because you need the permission of the songwriters and music publishers, and in many cases the artists as well, and those clearances aren't easy to get. (Everyone is nervous about piracy, and trying to figure out how much revenue they should earn, and what the business model is going to be, etc.) And then there are the technical infrastructures that have to be built to account for downloads and streams and pay royalties to rightsowners; the security for the content; and so on. It's a lot easier to do it illegally (just post it, don't worry about security, and don't pay anybody anything); doing it legally takes time. But the companies are getting there. There are a lot of subscription services that are up and running with lots of content; more companies are allowing more downloading, and burning; there's a lot of experimentation on pricing. In other words, a real market is emerging!
Question #3:
Why does the entertainment industry in general, and the recording industry in particular, look at technology- MP3 and internet radio being the two examples that come most readily to mind- as a threat to its profits that must be agressively neutralized? Instead of exerting energy against technology in an effort to maintain the status quo, why not work with technology, put your own creative resources behind it, and help figure out a way to make change a positive thing for everyone?
Andrew Duncalfe
Cary Sherman:
Please see my response to the last question - I think I answered essentially the same question. What's important to understand is that the record companies are not trying to "neutralize" MP3s or Internet radio? they're simply trying to ensure that they operate in a manner that's consistent with a legitimate marketplace. If P2P systems are displacing sales, then who is going to invest in an online delivery system that actually pays royalties to artists, songwriters, producers, publishers and labels? The companies are anxious to work with technology and put their own creative resources behind it to make a positive change for everyone - that's why they've been working on deals for new delivery systems like subscription services, download services, locker services, etc. But if third parties like KaZaA can come into the same marketplace and offer the same music without permission, without licenses, without paying anybody anything (other than themselves), the Internet will become nothing more than a haven for piracy, with no legitimate alternatives. That's what the litigations are all about - establishing that the same copyright law that applies in the physical world applies on the Internet too. Once those ground rules are established, businesses can flourish - and everyone benefits.
Question #3a:
3 specific questions in the spirit of Andrew Duncalfe's question.
1) Why not embrace the technology for greater profits?
I have blank CDs and a CD burner. You, the record company, have content. Sell me the content and let's skip the plastic box, the pre-printed CD, and the little flaps of paper with writing too small to read. I will burn my own CD or MD, or place the content on my file server for safekeeping. If you make the price reasonable, I'll buy all my music this way and you can eliminate ALL of the middle men. The majority of people are honest and would pay a reasonable amount for the convenience and quality you could offer.
2) Do you believe that last sentence? and
3) Why wouldn't this work?
Mark Mavroudis
Cary Sherman:
Of course record companies want to embrace the technology for greater profits. That's what they've done before, and that's what they want to do again. How to do it isn't so clear or easy, however.
All of the majors are already offering sales via downloads. So you can skip the plastic box and all that (although lots of music fans want that stuff). Some of the majors have recently announced price reductions (99 cents a track, $1.49 a track, etc.). Some are beginning to allow burning as well. And all of them want to allow transfers to other devices (like portable music players, car stereos, etc.). (All the companies recognize that portability is key; that people will not accept music that can only be listened to on a computer; and the technology companies keep promising that portability with security is "almost ready," but software isn't the only vaporware.)
So the market for downloads is developing, and it will probably start to move more quickly now that a lot of the clearance problems have been solved.
Yes, I do believe that most people are honest and would pay a reasonable amount for convenience and quality. What I also believe is that it doesn't take much for people to justify not paying. If it's a major artist, they say "they're already rich enough." If it's an unknown artist, they say "I'm doing her a favor by promoting her work." But in the end, convenience will count for a lot; and security will count for even more (only now are the security flaws in P2P systems becoming known, not to mention the privacy risks). So I'm optimistic about the prospects for legitimate businesses online.

(Too be continued......)
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PostPosted: Tue Aug 20, 2002 3:45 pm   Post subject: Interview With Cary Sherman, President of the RIAA Reply with quote


(Continued from Previous Post....)

Question #4:
Several questions:
1:Studies have shown that there has not been a general decline in CD sales since the advent of P2P filesharing, in fact it's been sort of a wash hasn't it? I know that had I not downloaded some of the Nine Days tracks from "Maddening Crowd", I never would have bought the CD. So why are you trying so hard to fight this?
2:How are you actually going to overcome the "fair use" doctrine? It's already a fact that "archival" copies are allowed, so why is "space shifting" not archival and thus "fair use"?
3:You say that you are protecting artists rights, but after what AFTRA did to Sam Moore, shouldn't you be helping artists suffering from the indignities of piss-poor managments of their pension funds and royalties?
Interested to hear your answers....
Shawn
Cary Sherman:
1. I wish you were right that CD sales haven't been impacted by filesharing. (I hate that term, by the way. To me, "sharing" means we each get a little less. If I share my pie, I only get to eat half. If I share my car, I can't use it when the other person has it. "Filesharing" however means we each get the whole thing, and noboby gives up anything! That's not sharing, it's publishing!)
In 2001, sales were off by 10% in the US. That's a huge drop. Sales are down more than 10% so far this year (according to SoundScan). What's more, this is happening around the world, not just in the U.S. It's hard to think that people suddenly don't like the new music being offered in countries as diverse as the US, Japan, Germany, Sweden, the UK, etc. But what all these countries have in common is growing Internet access and increasing numbers of CD burners and burgeoning sales of blank CD-R discs. Get the idea?
Furthermore, we've been studying this for awhile (no surprise there). In a study we'll be releasing soon conducted by Peter Hart Research Associates for us, we learned that -- by more than two to one - those who say they are downloading more say they are purchasing less. To be fair, some said they were purchasing more. But only 19% said they purchased more, while 41% said they purchased less. We've got lots more data that's consistent with these findings. The studies being bandied about to show that filesharing helps music sales don't really show that - they just show that there's a correlation between people who download music and people who buy CDs. Well that's no surprise. Music fans are going to buy CDs as well as download music for free. But if there's any promotional benefit from filesharing, it's more than outweighed by the damage it's doing to sales. In 2000, the top ten albums sold 60 million units in the U.S. In 2001, they sold 40 million units. Seven albums sold over 5 million copies in 2000; none did in 2001. People are copying the biggest hits, and those are the money-makers that record companies rely on to pay for investments in new artists and music. (I'm glad you bought the Maddening Crowd CD, by the way.)
2. This question brings out the lawyer in me. It is not a fact that "archival" copies are allowed. Copyright law specifically allows certain kinds of archival copies of software, but not of music, movies, books or anything else. In fact, in the Texaco case, the court held that making archival copies of scientific papers was not a fair use. As for space shifting, I don't think any court has actually held that it's a fair use. And a couple have specifically ruled that it isn't. That doesn't mean that copyright owners are likely to come after you if you make a copy for your car. But the space-shifting argument tends to be abused - it was used by Napster to justify their P2P system, for example. And the court rejected it.
3. The Sam Moore dispute with AFTRA is bad news, no question about it. But it's ancient history. Today, artists are the most well-represented people on earth. They have managers and lawyers that specialize in extracting money from record companies for their clients, and they're very good at it. We just got the results of a study of contracts, and the amount of money being paid to these artists is impressive. New contracts in 2000 averaged $450,000 in advances and commitments for the first album; if the artist was successful and renegotiated his contract, the average soared to $3.7 million. You can imagine the sums being paid to the superstars. By the way, the companies have been helping out the older artists with major contributions to the Rhythm & Blues Foundation and other groups.
Question #5:
I can walk into any bookstore and peruse a book for hours before buying. I can also return that book for store credit without the bookstore accusing me of photocopying the book at home.
I generally cannot peruse the contents of a CD, and I can not return it once it has been opened. Thus, I'm treated as a criminal, and forced to buy a $16.99 raffle ticket.
Why are you hiding the contents of a CD from the consumer? Are you afraid that generally once they hear the full album (rather than just the radio hit that has been drilled into their heads) that the consumer will not buy it?
Please elaborate on why, as a consumer, I am not entitled to know what I am buying.
Thanks
Jon
Cary Sherman:
I guess you haven't been to a record store lately. A lot of them feature this really cool "wand" that you can swipe across the barcode of any CD in the bins - and you will immediately hear samples from the various tracks on that CD! It's really great.
Most record stores also feature "listening posts" where you can sample the music from CDs, but those are limited to the specific CDs being offered that month.
The Internet presents an unbelievable opportunity for sampling. Go to online music stores (like Tower, or Amazon, or loads of others) and click on the album you're interested in and you'll be able to hear samples all day long.
In short, everyone is better off when you, the consumer, get to know what you're buying before you buy it. You're a happier music fan, and we don't have an unhappy customer who feels ripped off.
Posted by Eric Olsen on August 13, 2002 08:21 AM
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