The MP3 Phenomena and Innovative Music

Approximately 4/5 of the record labels in the U.S. are owned by one of five large international conglomerates, commonly referred to as “the big five.” These corporations are: Sony Music Entertainment, EMI, Universal Music Group/Vivendi, BMG Entertainment, and Warner Music Group. These conglomerates retain control of the maximum amount of profits from their sales of recordings by owning all aspects of the record industry including music publishing, record labels, CD and cassette manufacturers, record distributors, record clubs, and most retail stores. Record distribution through “the big five” is imperative for availability in the major retail record outlets.       

In recent years independent labels have been completely shut out of normal distribution channels. Corporations drove most small independent shops out of business by coming into local markets and opening mega-stores that offered a wide selection of titles at prices below what the independent stores could compete with. Then, over-confident with their new oligopoly, the corporate labels began flooding the market with too many titles, which led to a collapse in the retail industry. In the wake of the collapse, innovative music titles were the first to be cut from the distribution system. The CRI and New Albion contemporary classical labels state that now their primary income is no longer from retail store sales, but rather from other sources such as mail-order, Internet sales (including sales through the new maverick online distributor of innovative music, CDeMUSIC) and sales to libraries. (This would seem to agree with the statements by the Napster focus group that innovative music was simply unavailable to them through stores in their area.)

Not only do these conglomerates control the distribution channels, but they control most artistic output as well. Typically, most corporate record labels require artists to sign contracts stating that the artist will pay for the recording, production, manufacturing, marketing and administration costs out of the artist’s own profits. The record label also usually requires the artist to sign over the rights to the actual recording and sometimes even the rights to the composition itself. Most record contracts force artists to give up control of their work. Yet, it is estimated that only 5% of artists signed to labels make money from record sales. Publicity is the only reward most artists will reap from the release of a recording through a record label.

For corporations, this total ownership and control of intellectual property is essential. It gives them the power to manipulate, promote, recycle or censor this material to their maximum profitability. And current copyright laws in the U.S. allow for this ownership to extend for seventy years.

However, the MP3 phenomenon has the corporate record industry running scared. As is evidenced by the Napster controversy and other lawsuits, they are afraid of injuries to CD sales due to digital copying and file sharing. But the record companies’ greatest fear is that the new system could bar them from appropriating and exploiting new artists, and thus new intellectual property and copyrights. If artists can self-produce, market and distribute their material through the Internet, the record industry becomes obsolete and the intellectual property empires could crumble.

In the copyright problems of the last 20 years with cassette tapes, videotapes, DVDs and so on, the industry has always dealt with the problem through a combination of legal and marketing strategies. If the recent past gives any indication of the near future, corporate industry will adapt and thrive through the MP3 phenomena, and current trends in corporate assimilation and commodification of artistic creativity will continue. One example of the industry’s new efforts to maintain control through legal means is SDMI.

SDMI (Secure Digital Music Initiative) is an organized effort by the international recording industry purportedly to stop copyright infringement through technological means. The system is based on the use of digital “watermarks.” A digital watermark is an inaudible, secret code that is hidden in an audio file.

SDMI will happen in two phases. First, through the threat of lawsuits for complicity in copyright infringement, they will force all manufacturers of home stereos, portable devices, personal computers, and any other such equipment, to make their equipment recognize this watermark. Then, in the second phase, all newly released CDs will contain watermarks. When the playback or recording equipment encounters the digital watermark, certain information is communicated, telling the equipment the conditions under which this material can be played or recorded.

The primary members of SDMI are the recording industries “big five” corporations. The cost for membership in the organization is $20,000, a price that excludes small labels, artists and many other organizations from having a voice in this group. Subject to the approval of the paying members of SDMI, certain artists rights organizations may attend some meetings free of charge, but these organizations have no say in the ultimate decisions concerning SDMI.

SDMI claims that their technology will not affect the distribution of non-watermarked material. In other words, they assert that SDMI compliant equipment will play non-watermarked material. But many critics argue that SDMI’s control over playback and recording equipment leaves too much room for abuse, since SDMI is an organization created and run by the corporate industry.

SDMI also claims that the watermarking feature will be available to independent artists and labels that want to use it, but currently refuses to provide details of the price, availability or conditions of such a scheme until their own private SDMI members have agreed on an acceptable method. Paul Marotta of New World Records, a label that includes American jazz and contemporary classical artists, states, “The companies involved in the SDMI may create an industry standard that will be very expensive for a small label to adopt. It will be less of an issue on new titles but going back to remaster an entire catalogue of master tapes to add digital codes may end up being prohibitive financially.”

In the United States, laws have already begun to be put into place for defending such a system. The Digital Millennium Copyright Act gives further power to SDMI by making it a federal offense to create and distribute programs that circumvent security mechanisms. The DMCA also makes it possible for the government to compel Internet Service Providers to monitor their subscribers and take actions to prevent exchange of copyrighted material.

Corporate marketing strategies may pose an even greater threat to innovative music than legal obstacles. Already, corporations and large businesses are establishing control of centralized systems. Many search engines now favor paid or popularity-based placements to actual search results. Concerning Internet listings of the Kalvos & Damian webcasts Dennis Bathory-Kitsz says, “We had come up first in most search engines (and still do in most), at least until some of them went “popularity based” rather than using contents and <META> information. In fact, as more searchers have become commercialized, their click-throughs are important to them, so quantity matters rather than accuracy of results.” As corporations gain control of the filters through which information on the Internet passes, more regulation and censorship will occur.

Of course, the recording industry does not care at all about contemporary and experimental music. The sales figures on such CDs are miniscule compared to popular music. In the words of Foster Reed at the New Albion label, “The corporate recording industry lives in a completely different world, of commodity and markets, than the independents do, who make and publish work that is near and dear to them.” But accessibility to innovative music on the Internet may be blocked by the record industry’s rush to protect and maintain total control of its own high-profit intellectual property.

(Editor’s Note: A wide array of opinions on Internet distribution models for music can be found on: The Electronic Frontier Foundation Homepage, an inner-page of the National Music Publishers Association, an inner-page from the Web site of the experimental rock band Negativland, an in-depth interview with “The Artist Once Again Known as Prince” on ZDNet, and on Prince’s own website.)

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