Ramifications of New Technology on the Record Business
(Revised 10/28/93)
By Wallace Collins, Esq.
The future in home entertainment technology is ever more rapidly approaching as headlines herald "mega-mergers" between and among cable, computer, electronics, telecommunications and entertainment conglomerates. The rapid development of interactive computer technology and the imminent availability of of an infinite number of cable channels means that the electronic information superhighway is just over the horizon. The entertainment marketplace of the future could consist solely of a wall of interactive computer catalogues; consumers will go shopping with a compact disc and a credit card. With the addition of computer modems and/or fiber optic cable hook-ups, the consumer would not even have to leave home to choose music, video games, and movies stored in a central databank. The ramifications of this global computerized information network, and other related technological developments, will be enormous for the entertainment industry, the legal community, and the world.
Telephone software already exists which will allow a consumer to listen to 90-second samples of a favorite recording artist's new album, and then, by touch-tone selection, order it shipped to him and have it charged to his telephone bill. Not only does this software facilitate sale of product, it compiles a consumer profile on the purchaser which can then be provided to record label marketing departments. This software has the capability, once appropriate fiber optic cable is in place, to transmit the product directly to the consumer at the push of a button.
For better or for worse, the arrival of computer driven consumption is eventually going to reshape the way business is conducted, from the way product is packaged, shipped and marketed to the way radio is programmed. Businessmen and lawyers in the entertainment industry will be confronted by new concepts in copyright and contract law not currently addressed in existing contracts. These delivery systems also raise new concerns regarding privacy and free speech.
Entertainment companies will soon be able to transmit their wares digitally instead of trucking them, dealing in the transfer of information rather than the shipment of product. Given the entertainment industry's investments in pressing plants, warehouse facilities, and distribution networks, this transition may not be an easy one. However, such a system will ultimately economize on packaging and transportation expenses. It will also eliminate the ecological issues surrounding the wasted plastic and paper used to package CDs and videocassettes.
With the advent of electronic distribution of music, the most basic concepts that govern contractual relationships between recording artist and record company will be effected. Fundamental record contract issues such as "free goods" and breakage allowance, even though veritable fictions at this point in time, could be completely eliminated from recording contracts. The concept of reducing what the artist is paid by deducting "container charges" will be an anachronism since the CD-ROM container will now be provided by the consumer. With instantaneous transmission of an artist's album, accountings would be simplified and there would be no need for record labels to hold "reserves" for returned goods.
Recording artist royalty rates are currently based on package-related retail or wholesale prices. With the elimination of packaging, storage and shipping costs, the record companies would have the ability to lower the cost of recorded music to the consumer. However, since the artist's royalty is tied to the price, reduction in the price would reduce the royalty to the artist. On the other hand, it is more likely that, since the buying public has already accepted the current retail prices, the record companies will simply maintain the current prices and take a larger profit. This raises the additional issue of whether the current contractual artist royalty rate concepts would even be relevant; a royalty based on some new type of "transmission" charge should probably be implemented.
A difficult predicament arises if the companies transmitting the music are outside record company control since there is currently no provision in the copyright law for a sound recording performance right. For example, digital audio broadcast and cable companies charge monthly fees to their subscribers. The transmission could arguably be deemed to be a "broadcast" performance rather than a "copy". Then, even though these new broadcast and cable companies transmit the record labels' product to consumers for profit, they would have no clear legal obligation either to secure permission or to compensate the labels and artists for the commercial use made of the copyrighted sound recordings.
With the coming of the one-world, global marketplace, transfer could be instantaneous and worldwide, and the issue of reduced "foreign" royalty rates could be abolished. Sales figures for albums would be compiled with absolute accuracy, and sales charts released on a daily rather than a weekly basis. Whether retail record stores and video outlets will disappear completely or continue to survive (the way radio continued to endure despite the advent of television, or people continue to go to the movies even after the arrival of home video) remains to be seen.
A particularly troublesome issue with respect to direct computer driven consumption is how to prevent the consumer from copying the transmission and circulating it (the way some computer software programs are currently copied from PC to PC in any given business office). An anti-copying code still needs to be developed and programmed into each album or video transmission.
Electronic distribution also has certain disturbing ramifications of the "Big Brother" variety. Popular culture has always thrived on decentralization - on garage bands, basement tapes, and independent film releases. If the larger entertainment conglomerates control the central databanks, what would the consequences be for independent releases and street music? Government intervention analogous to FCC regulation may be necessary to insure fair access to the databanks. New technology raises other questions: - What effect will credit card ordering directly through computer or cable hook-ups have on rights of privacy?; Would the databank also compile a wealth of personal information on each consumer?; If so, who will have access to this information?; Will centralized distribution make suppression of disturbing or "obscene" work much easier?; Will works be automatically transmitted in edited form? If so, who will decide what is suppressed and how a work is edited?
The ramifications of the new computer and communications technologies are simultaneously exciting and frightening. The next wave of technological developments is almost upon us and it is best that the entertainment industry and the legal profession confront the pertinent issues, review the relevant revenue streams, and resolve the outstanding legal issues now in order to capitalize on the coming changes as expeditiously as possible.
Wallace Collins is a New York attorney specializing in entertainment and intellectual property law. He was a recording artist for Epic Records before attending Fordham Law School.
E-Mail Wallace Collins
wallacecollins@yahoo.com
www.wallacecollins.com
