Thursday, May 19, 2011

Apple 'Scan & Match': A Record Industry Breach of Contract with Artists

Apple now has the freedom to offer a range of features that rivals are prevented from rolling out because of the licensing restrictions, the sources said.

One example is that instead of requiring users to spend hours uploading their songs to the company's servers, as Google and Amazon do, Apple could just scan a user's hard drives to see what songs they own and then provide them almost-instant streaming access to master recordings. The process is sometimes referred to as  "scan and match".
(CNET, May 19, 2011)

The record labels are breaking their contracts (and/or fiduciary duty) to their artists by approving anything less than a "clean cloud". Record companies will be feathering their own nests with "licensing" income from Apple that goes into an "ancillary income" category from which the artist's share is de minimis* and where accounting/auditing difficulties are legion.  Meanwhile, there are three other parties outside of the record label (the artist, the songwriter, and the publisher) who have reversionary rights (or residual rights) in the copyright that underlies. That reversionary interest is being diminished by the lack of verification in the cloud.  These parties, as early as 2013, will step into a copyright that is greatly diminished in value. 

The record labels either don’t know or don’t care to know about the DCE method of verification, registration and immobilization (a DRM-free method that keeps all pirated copies from 1996-present whenever created OUT of any cloud service).

* "at best".  This income cannot be effectively tracked back and will probably just go into a "pool".  How it gets paid out of the pool will be anyone's guess. 

[Update: The dirty deal is done, June 6, 2011] 
[ Update: Call it "Scan & Snatch", since the low-bit rate download is traded in for a high one, the users scanning of an illegal song confirms and bolsters his "snatch".]


  1. Can the record companies really pull this off as you describe (not paying significant royalties to their partners)? As you point out it could break the industry totally, as it will put the artist/songwriter/publisher out of business. Then the record companies would either go out of business our limit themselves to already produced music. I just don't see how that can work. If they are breaking their contracts, there are enough powerful artists/songwriters/publishers/attorneys to launch many lawsuits, again bringing the industry down. What am I missing here?

  2. Its not clear that they *are* breaking their contracts by not paying this royalty. The industry often waits for the entertainment lawyers to catch up on the new formats. CDs were paid at a lower rate as "experimental formats" long past the time they were widely accepted in the market place. And things like container charges and breakage were charged long after records were shipped in crates or were especially brittle. Billboard was reporting a "new tech" container charge of 25% as early as 2001
    The above is bad, if you want my opinion, but at least the industry has the ability to say, "you signed the contract" to get x percentage of new formats, new tech, or 0% of the record company's service income. But what artists need to really get po'd about (and what I think is definitely a breach) is the fact that they are allowing counterfeits into the cloud. *That* the record companies had no right to allow. Because that just took the value of your residual copyright down to zero. Record contracts have always strictly spelled out the amount of "free goods" that record companies can dole out for other consideration, because it's always been an area of a suspected shell game.

    As with *all* these miscariages, however, royalties are so slim now that it would take an artist with a huge royalty interest like Adele to have enough "fat in the fire" to fight this stuff. And then she's got to weigh, "If I tick them off, how are they going to sabotage my next album?".

    As far as "going out of business" is concerned, there are people out there who say, "Let the record company make all the money off of recordings. As long as the CD promotes my live touring and merchandising, I'm ok." But I say: "If you let go of the time-honored inducement to create that goes back to the Statute of Anne Copyright Act of 1709, i.e. the artist gets to decide when, where and how his work is disseminated ... you are throwing away something substantial that you may never get back again." The result may be akin to the film Idiocracy. Creativity will be reduced to Youtube videos of people injuring themselves accidentally, babies and pet tricks.