New Architectures for Music: Law Should Get out of the Way Henry H
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Hastings Communications and Entertainment Law Journal Volume 29 | Number 3 Article 1 1-1-2007 New Architectures for Music: Law Should Get out of the Way Henry H. Perritt rJ . Follow this and additional works at: https://repository.uchastings.edu/ hastings_comm_ent_law_journal Part of the Communications Law Commons, Entertainment, Arts, and Sports Law Commons, and the Intellectual Property Law Commons Recommended Citation Henry H. Perritt rJ ., New Architectures for Music: Law Should Get out of the Way, 29 Hastings Comm. & Ent. L.J. 259 (2007). Available at: https://repository.uchastings.edu/hastings_comm_ent_law_journal/vol29/iss3/1 This Article is brought to you for free and open access by the Law Journals at UC Hastings Scholarship Repository. It has been accepted for inclusion in Hastings Communications and Entertainment Law Journal by an authorized editor of UC Hastings Scholarship Repository. For more information, please contact [email protected]. New Architectures for Music: Law Should Get Out of the Way by HENRY H. PERRITr, JR.* I. Introduction .................................................................................................. 260 II. Coase and C opyright ............................................................................... 264 III. Copyright ................................................................................................. 270 A . Justification .......................................................................................... 270 B . H istory .................................................................................................. 270 C . Current C ontent .................................................................................... 274 D. Response to Changes in Technology ................................................... 277 E. Supreme Court Grokster Decision ....................................................... 279 IV . The M arket for M usic .............................................................................. 282 A . Supply .................................................................................................. 284 1. Products and Revenue Streams ............................................................ 287 2. Inputs and Factors of Production and Their Costs ............................... 290 a. H um an C apital ................................ ................................................. 290 b. Physical C apital ............................................ 0 ................................. 294 c. Organizational Capital ..................................................................... 297 3. Monetary and Non-monetary Incentives .............................................. 301 4. Supply Function .................................................................................. 301 B . D em and ................................................................................................ 304 1. Size and Scope of M arket .................................................................... 306 2. Inputs and Outputs of Purchase Decisions ........................................... 308 3. Network Effects and Demand for Complementary Products ............... 312 4. Search C osts ......................................................................................... 3 13 Professor of Law and former Dean, Chicago-Kent College of Law. Member of the bar: Virginia, Pennsylvania, District of Columbia, Maryland, Illinois, United States Supreme Court. The author thanks several of his law students who also are musicians--or avid consumers of music-for sharing their experiences: Andrew Strong, Matt Topic, Mat Bloom, Ben Shanbaum, Ross Edwards, Jay Carle, Jeff Swatzell, and Jason Mollner. He appreciates insights from Indie musicians Dick Prall, Tim Sandusky, and Jamie Gallagher, from music attorneys Albert Gieseman and Lawrence Scanlon and useful discussions with his colleagues Graeme Dinwiddie, Tim Holbrook, Ron Staudt, Richard Warner, and Ed Harris. Professor Holbrooke, Mr. Scanlon and Mr. Mollner were kind enough to read an earlier version of this article and provide detailed comments and suggestions. Participants in the 2006 Intellectual Property Scholars' Conference, held at Berkeley, provided helpful comments on an earlier version of this article. The author is a songwriter (more for fun than for profit). See www.myspace.com/modofacprof. HASTINGS COMM/ENT L.J. [29.3 5. D em and Function ................................................................................. 314 C . C om bined Effect .................................................................................. 320 1. O n Supply and D em and ....................................................................... 320 2. O n P iracy ............................................................................................. 323 3. On Intermediation: Connecting Musicians and Their Fans .................. 328 V . N ew A rchitectures .................................................................................... 329 A. New Production and Distribution Channels ......................................... 329 B . N ew Business M odels .......................................................................... 333 1 Tw o C ase Studies ................................................................................. 334 a. D ick Prall ......................................................................................... 334 b. O ucho Sparks ................................................................................... 336 C . O ther Possibilities ................................................................................ 339 V I. Role of Copyright Law ............................................................................. 340 A. Maximizing Social Benefits Through Law .......................................... 342 B . Politics of R eform ................................................................................ 350 C. Legitimating Reform Under Current Fair-Use Law ............................. 351 D . M arket or Law-Reform ? ......................................... .. .. .. .. .. .. .. .. .. .. .. .. 357 I. Introduction The United States Supreme Court's decision in Grokster' and the filing of thousands of lawsuits against individual consumers of music2 have focused public attention on the economics of musical entertainment. Grokster itself involved liability of intermediaries who facilitate infringement by individual consumers of music, but it reawakened debate over fundamental premises of copyright law, including what music consumers should be privileged to do with music. The copyright laws are intended to-indeed, the Congress is empowered only to write copyright laws that-create incentives for the production of creative works. In order to do that, intellectual property law must walk a fine line between making it too easy for people to steal creative work product and making it illegal for people to enjoy it. 1. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 125 S.Ct. 2764 (2005) (reversing court of appeals and holding that distributor of music-file-sharing software could be liable for copyright infringement by users of software upon proof that distributors clearly expressed intent that software be used for infringing activities). 2. See Andrew C. Humes, The Day the Music Died: The RIAA Sues its Consumers, 38 IND. L. REV. 239, 239 (2005) (reporting September 2003 RIAA lawsuits against 261 defendants alleged to have downloaded and uploaded copyrighted music); Brett J. Miller, The War Against Free Music: How the RIAA Should Stop Worrying and Learn to Love the MP3, 82 U. DET. MERCY L. REV. 303, 312 (2005) (describing more than 9,000 lawsuits against music downloaders by music industry). 2007] NEW ARCHITECTURES FOR MUSIC 261 This article explores the economics of popular music creation and consumption in the wake of Grokster and suggests the most appropriate role for copyright law in striking a socially beneficial balance between those who create and distribute music and those who consume it. As technology changes, it increases and decreases risks of certain kinds of market failure, altering the incentives to create and perform music. Before Gutenberg invented the printing press, one who wanted to listen to music had to be close enough to hear the composer perform.3 The printing press increased the scope of markets by allowing performance of another's music without any contact between composer and performer, but it also created risks of unauthorized mass reproduction of the written representation of music. Before invention of the earliest sound recording devices, consumers of music had to be present at alive performance.' Sound recording changed all that. Each later technological revolution-improvements in the techniques for manufacturing phonograph records in large quantities, the invention and commercialization of magnetic recording, the development of low-cost techniques for producing digital recordings on cheap plastic media, and most recently a combination of advanced compression techniques and greatly increased bandwidth available to most users of the Internet, altered equilibria5 and raised questions about the proper balance between law and technology in preserving appropriate incentives for producing and consuming music. The impact of technology on the music market is widely recognized by the public and by legal experts. But, too often, observers only focus on the possibility for technological advances