The recording industry is taking a proactive approach to protecting its interests. This article on digital rights management (DRM) sets out the background to the topic and looks at the steps being taken.
Consumers are now able to buy and store music and film in a number of ways, not just the traditional formats of CD or vinyl (for those who still love the crackle and hiss) but increasingly as digital versions downloaded from the internet. Once a consumer has purchased the music, is it their property to do with as they wish?
DRM provides the recording industry with a way of ensuring that consumers have to purchase a new version, or a licence at least, every time they wish to transfer their music from one medium to another. Why is the industry so concerned with this? After all, they have been making money out of consumers for a long time. Surely consumers are entitled to take their vinyl music and import it on to their computer and then to their MP3 player, or download the latest track to their computer and then upload it onto the MP3 player or mobile phone without paying again?
It has long been an urban myth that consumers are legally able to make copies from their vinyl or CD to cassette tape (to listen to in their cars, of course), provided it is for personal use. However, this is not actually the case. Although it was never contemplated that a record store would require the consumer to come back and exchange their CD for a tape, this is what DRM effectively does.
In the past, it was too difficult and costly for the record industry to concern itself with every individual who made copies of their record collection in this way (though they did, along with the police, concern themselves with market traders selling such illegal copies). However, the rise of the internet and the advent of the MP3 player have struck at the core of the recording industry’s profits and turnover.
The internet has allowed people to share their record collections with others and to download music without charge. The recording industry’s initial response was to prosecute the most high-profile peer-to-peer (P2P) site (Napster), but all this did was spawn similar services (Grokster and Limewire, to name but two).
The recording industry is certainly within its rights to take action to protect its investment of millions of euros per year developing new musical talent and it did this by supplying music that was ‘locked’ by DRM. However, they are now removing DRM from the downloadable music many consumers are purchasing from legitimate internet sites. Why the sudden change?
Surprisingly, it comes not from the result of computer hackers opening the DRM ‘locks’, though this has no doubt had some effect, but from the desire of recording companies to find ways into alternative revenue streams. United Music Group (UMG) is the key player in a new strategy to make money from indirect sources. Instead of locking the music and charging consumers each time they download, UMG is now entering into licence agreements with the manufacturers of mobile phones and MP3 players (and other such devices) so that UMG receives revenue from the context in which a consumer encounters the music, rather than through the download-licensed ‘ownership’ itself. The cost of the licence paid by the manufacturers is undoubtedly passed on to the consumer in the purchase cost of the device but given consumers’ desire to regularly purchase the latest device, UMG has possibly identified a more reliable income stream. Whether this is sustainable is something only time will tell.
So where does this leave the consumer? Confused at this point in time. It is still illegal to obtain music from anything other than a legal source but, if the other recording companies follow suit, then consumers may soon be legally able to transfer the music between their digital storage devices.
One new development comes from the IT industry giant Apple, whose iPod has dominated the digital music player market for several years. Apple has taken the step of making music purchased from its iTunes store DRM-free. It remains to be seen whether this will have a significant impact on legitimate digital music sales but, given its market penetration, it would be unwise to bet against it.
But just as it seems DRM has had its day, not all of the major companies are following UMG or Apple’s lead. In what is thought to be the first agreement of its type, EMI, Sony BMG, Universal and Warner have signed an agreement with Irish internet service provider (ISP) Eircom. Eircom will implement a ‘three strikes and you’re out’ policy with its customers who are shown (by the record companies) to be downloading copyrighted music from P2P sites. After two warnings, continued use will mean Eircom will disconnect the relevant individuals. Needless to say, the record companies are trying to put similar agreements in place with other ISPs.
In addition to applying pressure to ISPs, the record industry has turned to both governments and courts to protect the interests of recording artists and enforce the rights of the record companies themselves.
Scarlet Extended
In 2004 the Court of First Instance in Belgium ruled that a Belgian ISP (named Scarlet Extended) must block or filter network traffic which it thought infringed copyright, though the Court stopped short of imposing a general obligation on the ISP to monitor its network. This decision appears contrary to the E-Commerce Directive which provides ISPs with limitations of liability where they act as mere caches, conduits or hosts of unlawful information. It has yet to be followed in other EU member states and its impact is potentially limited because the decision was reached before the Belgian laws implementing the E-Commerce (2000/31/EC) and Copyright (2001/29/EC) Directives came into force. In 2006 a Danish court ordered an ISP to block access to a Russian music site that was claimed to be operating illegally. While the site stated that it complied with Russian law and pays royalties to a Russian collecting society, this society is not recognised internationally and artists must apply to it directly to receive any money.
Virgin Territory
In the UK (in the summer of 2008) Virgin Media co-operated with the British Phonographic Industry (BPI), which represents the UK record industry, to send approximately 800 letters informing Virgin’s customers that their services would be suspended if they were found to be using illegal download sites to distribute music. Entertainment Media Research, which regularly conducted surveys of consumers, found that for the first time in its five-year history illegal downloads were in decline, with 51% of respondents (up from under 40%) now obtaining their music from legal download sites.
UK Developments
The UK government has been under pressure from the bodies representing rights holders to legislate against file sharing and has published a consultation paper on legislative options for addressing illegal P2P file sharing of music (and video). This concluded on 30 October 2008. The UK government leant more towards fostering a self-regulating system between the ISPs and legitimate music retail sites. This appears to be more attractive to the ISPs who have, so far, Virgin excepted, shied away from taking action against their customers on behalf of third parties by claiming, in accordance with the E-commerce Directive, that they are merely ‘conduits’. Who has the right to access, filter or monitor ISP’s network traffic is a matter that should concern us all.
Irish Repercussions
Decisions reached in the UK usually have repercussions in Ireland. At the beginning of this year the Irish subsidiaries of EMI, Sony BMG, Universal and Warner brought an action against Eircom claiming infringement of copyright. Music sales in Ireland are claimed, by the Irish Recorded Music Association, to have reduced from €146m in 2001 to €102m in 2007. The four record companies claim that Eircom’s network makes music available without the owners’ consent. While they want Eircom to filter material on its network, Eircom is claiming the ‘conduit’ defence under the E-commerce Directive. Before the matter could be resolved in court, the parties settled and Eircom agreed to the ‘three strikes and you’re out’ policy that had also been sought, but rejected, by most UK ISPs (save for Virgin Media). Once again, time will tell how this affects Eircom’s customer base and its loyalty.
With ISPs being pushed more to police the internet and as more legal DRM-free sites come on stream, further inroads will be made against illegal file sharers. However, there is one final question: will the push toward DRM-free music also spur a drive toward premium movie content also being stripped of the DRM currently protecting it? As the devices making music more portable also become able to play movies, will another industry be drawn into the fray? Watch this space.
By Carol Plunkett, partner, and Grant Jackson, associate, William Fry.
E-mail: carol.plunkett@williamfry.ie; grant.jackson@williamfry.ie.
