Transformation of the Recorded Music Industry to the Digital Age 307 ------703 703
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PETTERI GÜNTHER TRANSFORMATION OF THE RECORDED MUSIC INDUSTRY TO THE DIGITAL AGE: A REVIEW OF TECHNOLOGY-DRIVEN CHANGES IN THE EU COPYRIGHT FRAMEWORK FOCUSING 307 EKONOMI OCH SAMHÄLLE ON THEIR EFFECT ON DIGITAL MUSIC MARKETS ECONOMICS AND SOCIETY Technology has upended the music industry. ‘Digital’ sures that aim to support increasing the demand for legiti- has changed the mechanics of music distribution; first, CDs mately available content might be effective – as suggested were replaced by downloads such as mp3 files, and today, by the potential that subscription streaming services have the share of access-based distribution such as streaming demonstrated. Ultimately, control over content may not services of total recorded music sales is growing globally. alone be sufficient: if online music services do not live up to AGE TO THE DIGITAL OF THE RECORDED MUSIC INDUSTRY PETTERI GÜNTHER – TRANSFORMATION However, ‘piracy’ still remains perceived as a problem. consumers’ expectations, the level of intellectual property protection alone might prove to be an insufficient answer to The technological disruption has given rise to challeng- the challenges faced by the music industry. Instead, incen- es for copyright in an increasingly digital world – the ‘infor- tivizing consumers to use legitimate offerings by increasing mation society’. Copyright law has generally changed in the relative attractiveness of online music services in rela- response to external pressures – societal changes such as tion to unauthorized channels should be factored in. technological changes. And today copyright law is typical- ly applied to rapidly changing technologies and services Overall, despite for instance the potential that subscrip- facilitated by those technologies. This in turn necessitates tion streaming services have shown, reducing infringe- taking a broader view to understand how copyright legis- ment on the internet requires also appropriate measures lation has evolved to respond to those changes affecting for keeping illegal activities at bay, and understanding that music distribution, as well as whether the European copy- there might be no one-size-fits-all solution to combating pi- right framework has managed to support growth in the dig- racy. Reducing online piracy, to be effective, might well re- TRANSFORMATION OF ital music markets in Europe, and to develop a European quire different types of anti-piracy measures, like involving digital single-market. intermediaries and using ‘follow the money’ approach to ad-funded sites offering unauthorized copyrighted content. Looking at the digital music markets of today, there ap- To support growth in the digital music markets in Europe THE RECORDED MUSIC pears to be an ongoing shift in music consumption habits the focus should be on developing a market-oriented ap- toward access-based offerings such as streaming services. proach with a combination of appropriate measures that And while illegal activities remain perceived as a problem, both target supporting growth of legitimate sales of digital INDUSTRY TO THE subscription streaming services have shown potential for music and decreasing piracy by having available effective decreasing piracy. Therefore, with a view to improving the online copyright enforcement measures. functioning of the digital music markets, focusing on mea- DIGITAL AGE A REVIEW OF TECHNOLOGY-DRIVEN CHANGES IN THE EU COPYRIGHT FRAMEWORK FOCUSING ON THEIR EFFECT ON DIGITAL MUSIC MARKETS HANKEN SCHOOL OF ECONOMICS HELSINKI PETTERI GÜNTHER ARKADIANKATU 22, P.O. BOX 479 00101 HELSINKI, FINLAND TEL +358 (0)9 431 331. FAX +358 (0)9 431 33 333 ISBN 978-952-232-325-5 (printed) VAASA ISBN 978-952-232-326-2 (PDF) KIRJASTONKATU 16, P.O. BOX 287 ISSN-L 0424-7256 65101 VAASA, FINLAND ISSN 0424-7256 (printed) TEL +358 (0)6 3533 700. FAX +358 (0)6 3533 703 ISSN 2242-699X (PDF) [email protected] JUVENES PRINT, HELSINKI HANKEN.FI/DHANKEN Ekonomi och samhälle Economics and Society Skrifter utgivna vid Svenska handelshögskolan Publications of the Hanken School of Economics Nr 307 Petteri Günther Transformation of the Recorded Music Industry to the Digital Age A Review of Technology-Driven Changes in the EU Copyright Framework Focusing on Their Effect on Digital Music Markets Helsinki 2016 Transformation of the Recorded Music Industry to the Digital Age: A Review of Technology-Driven Changes in the EU Copyright Framework Focusing on Their Effect on Digital Music Markets Key words: copyright, intellectual property, law, music © Hanken School of Economics & Petteri Günther, 2016 Articles have been reproduced with permission. Petteri Günther Hanken School of Economics Department of Accounting and Commercial Law P.O. Box 479, 00101 Helsinki, Finland Hanken School of Economics ISBN 978-952-232-325-5 (printed) ISBN 978-952-232-326-2 (PDF) ISSN-L 0424-7256 ISSN 0424-7256 (printed) ISSN 2242-699X (PDF) Juvenes Print - Suomen Yliopistopaino Oy, Helsinki 2016 i PREFACE Technology has upended the music industry. The technological disruption has given rise to challenges for copyright in an increasingly digital world – the ‘information society’. Moreover, digital music has changed the mechanics of music distribution; first, CDs were replaced by downloads such as mp3 files. Today, the share of access-based distribution of total recorded music sales is growing globally. Since the beginning of my research, the digital music landscape has changed considerably as offerings have evolved. Different approaches to the distribution of digital music online have been tested as we have witnessed the shift from an album-based to a singles-based distribution model and the ongoing shift from download stores and music downloads to access-based distribution, the ‘celestial jukebox’ of cloud-based music services. Moreover, changes in copyright law have generally occurred in response to external pressures, which often are technological changes. Delving into a narrow field of law, particularly copyright law, which today is typically applied to rapidly changing technologies and services facilitated by those technologies, has shown the need for a broader view to understand how new intellectual property legislation, particularly copyright law, has evolved to respond to societal changes such as technological changes in the field of music distribution and to understand whether intellectual property law has managed to support digital music markets in Europe. My journey in this field, researching copyright law and digital music distribution, initially began in 2007 in Stockholm with my LL.M. thesis on digital music distribution. I continued to study this topic at Hanken that led to my M.Sc. thesis on digital music distribution and technology-driven changes in copyright law. These studies formed the basis of my PhD studies on the same theme. Thanks goes to Professor Marcus Norrgård who encouraged me to continue my research at Hanken and has acted as my supervisor, and has always been available for discussions and advice. I also wish to thank my pre- examiners, Dr. Viveca Still and Professor Matthew Rimmer. Professor Rimmer was also kind enough to act as my opponent. This journey has over the years taken me as a visiting researcher to the Max Planck Institute, the Stanford Center for Internet and Society and the Oxford Intellectual Property Research Centre, each of which has welcomed me as a fellow academic, for which I am grateful. I also wish to thank all those people who I have met during those visits for interesting discussions on copyright law. And finally, a special thanks goes to you, Katja, who have all the time shown me your support. Helsinki, 24.4.2016 Petteri Günther ii CONTENTS LIST OF PUBLICATIONS ........................................................................... iv 1 INTRODUCTION....................................................................................... 1 1.1 Background of the Study ..................................................................................... 1 1.1.1 Technology Has Changed the Mechanics of Music Distribution ............ 1 1.1.2 Digital and On-demand Are the New Normal for Entertainment .......... 3 1.2 A Digital Single Market for Europe: Supporting the Growth of Digital ............. 8 2 APPROACH ..............................................................................................13 2.1 Objective and Research Questions .................................................................... 13 2.2 Methodology ...................................................................................................... 15 2.3 Structure ............................................................................................................ 19 3 FOUNDATIONS ..................................................................................... 21 3.1 Development of Modern Copyright .................................................................. 21 3.1.1 Copyright: Historical Background ........................................................ 21 3.1.2 Justifying Exclusive Rights under Copyright Protection ...................... 25 3.1.3 Modern European Approach to Copyright ...........................................26 3.2 Copyright Law: from the Analog to the Digital World ...................................... 31 3.2.1 Internet Treaties and the InfoSoc Directive ......................................... 31 3.2.2 Present EU Copyright Framework ........................................................32 3.3 Evolution of Digital Music and Challenges to Copyright .................................