Prepared Statement of Rep. Howard Berman (D-CA). Re: Music on the Internet. Event: House Courts, Internet and Intellectual Property Subcommittee hearing. Date: May 17, 2001. Source: Office of Rep. Berman.

Statement of the Honorable Howard L. Berman
for the
House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property Hearing
on
Music on the Internet

May 17, 2001

Mr. Chairman,

Thank you for calling this hearing on online music.  You have put together a fine panel of witnesses who should give us relevant and timely testimony.  I want to thank you for expanding the panel to five witnesses in order to accommodate the variety of voices that seek to be heard on this contentious issue.

I am excited about the myriad possibilities for online music.  If there is a better “killer app” for the Internet than delivery, promotion, and performance of music, it hasn’t shown itself.  Think about the possibilities:

• By doing away with “shelf space” constraints and virtually eliminating reproduction and distribution costs, the Internet enables obscure titles from back catalogues long out of print to be made available online alongside recent Billboard chart-toppers.
• The Internet enables music retailers to offer consumers exactly the two songs they want at a customized price, rather than requiring consumers to purchase a whole CD at an unattractive price to get those two songs.
• The Internet enables consumers to access their complete music library or a “celestial jukebox” any time and from any Internet-enabled device - whether car stereo, PC, Palm Pilot, or cell phone.
• The Internet enables consumers to sample a nearly endless supply of music from the comfort of their own home and in a variety of formats - whether one-time plays, 45 second sound bites, or degraded quality listens - before making a purchase decision.
• The Internet enables millions of audio broadcasts to occur simultaneously, each accessible to listeners around the globe, and each tailored for lovers of a particular genre or sub-genre.
• The Internet enables even the smallest artist or independent record label to sell and communicate directly to music consumers, and enables consumers who don’t know a song’s web address, label, title, or even artist to easily find the music through search engines, browsers, and other information location tools.
• The Internet enables the near costless reproduction and distribution of music, and so should bring down the cost of music when made available online.

The music possibilities enabled by the Internet seem on the verge of realization.  Certainly, the demand for online music is there - if nothing else, Napster has demonstrated that.

Now it appears that the supply of online music is beginning to catch up with the demand.  While the music industry may have been slow to jump into the online music market, lately the pace of online music deal-making has been dizzying.

I am sure that today we will hear a lot about the two biggest deals - the creation of Duet by Vivendi Universal and Sony, and the creation of MusicNet by EMI, BMG, AOL Time Warner and RealNetworks. Certainly these two deals are remarkable because they promise to make a huge amount of new music instantly available online.  But it should be noted that a countless number of smaller deals have also been cut for a mind-numbing array of online music services.  For example, EMI licensed and invested in Giga to sell downloadable music to the Taiwanese market; Sony licensed Loudeye to offer samples of Sony songs and thumbnails of album covers; Universal Music purchased GetMusic.com, which will continue to carry music from other labels like BMG; RIAA members licensed Kickworks to use their music for its free, ad-based Internet radio service; Capitol Records is promoting its music through Aimster; and BMG has invested in Napster with the goal of making its music legally downloadable through Napster. In fact, music is legally available in a variety of formats on literally hundreds of websites today.

Despite these deals, we continue to hear criticism that the online music market has not evolved quickly enough to satisfy consumer demand. Specifically, we hear that consumers want access to all the music ever published in an on-demand, interactive format, and that copyright owners of sound recordings and musical compositions have not made their works available to satisfy this demand.

I am sure that consumers really do want such convenience.  I am also sure that consumers would like all movies, software, books, photographs, recipes, needlepoint designs, and architectural drawings available in such a format. They would probably also like a guarantee of gasoline at under $2 a gallon, price caps on drug prices, free upgrades of computer software, and Coca-Cola at the greatly reduced price charged in most developing countries.

My point is a serious one. Only in extraordinary circumstances, such as demonstrable market breakdowns caused by antitrust violations, does our government require property owners to make their property available to the public at government-established rates.

Furthermore, copyrights are Constitutionally-sanctioned property, and music, despite its emotive power and cultural significance, is basically entertainment.  One may credibly argue that property rights sometimes need to be limited to address an energy crisis or epidemic, but convenience of access to entertainment  seems a particularly weak justification for the abridgement of Constitutionally-sanctioned property rights.

It is especially difficult to justify government interference with property rights when the free market, however fitfully, appears to be moving in the right direction.  MP3.com, which is testifying today, operates my.mp3.com, a digital music locker service that provides on-demand streaming of one’s music library.  As I understand it, when they go online, Duet and MusicNet likewise plan to non-exclusively license other companies to provide on demand, interactive streams.

I don’t think government intervention is justified just because interactive streaming services won’t immediately be able to provide consumer access to ALL the music out there. Why is it so essential that all music be available right now on a variety of individual websites? This certainly isn’t the case with the offline world. Wal-Mart, Best Buy, and other mass merchants are responsible for a substantial percentage of all retail music sold, and yet carry only about 4000 titles each. Tower Records, the “superstore” of all music retailers, carries approximately 80,000 titles in each store. These retailers appear to be perfectly successful carrying only a small percentage of the quarter-million titles currently on the market and a tiny percentage of the millions of albums recorded.

If music buyers are willing to shop in record store that carries a mere fraction of published music, why can’t online, interactive streaming services find success initially carrying only 70%, or 50%, or 25% of the music out there? Even if any one interactive streaming service can only stream 25% of published music, it still provides consumers with exponentially greater musical choice than any existing record store, broadcaster, or music subscription service. If interactive services go online, as many have, with the music for which they can secure all necessary licenses, owners of the copyrighted music not yet licensed will come flocking to tap into that market. Basic principles of market economics operate online as well: owners of sound recording and musical composition copyrights will not act irrationally by passing up a new revenue stream.

Even if compelling justifications could be found for government interference with rights of copyright owners, I am disturbed by the implications of what would essentially be Internet-specific government regulation.

For years, Congress has been told that government should not regulate the Internet.  The high-tech sector has persuasively argued that government is far too slow and “out of it” to effectively legislate industries that are growing and changing at Internet speed. Any Internet legislation we pass, it is argued, would be outdated before it was enacted, and might run the risk of freezing or stifling technological developments in the Internet sector. It was further argued that the incredible dynamism evident in the Internet was the direct result of the minimal government regulation covering it.

I don’t understand why the dynamic is any different in the online music space. In fact, an objective analysis indicates the dynamic is exactly the same. Less than a year ago, we heard that the big stumbling block to the success of online music companies was their inability to secure licenses from the owners of sound recording copyrights. Today, that complaint is infrequently heard, and in fact several online music business executives have told me that reasonable licenses are available from the owners of sound recordings. As this hearing will show, the complaint now is about an inability to get licenses from owners of musical composition copyrights.

As my colleagues can attest, there is no way we would have legislated on the sound recording license issue more quickly than the market solved it. In fact, if we had sought to legislate last year on the sound recording licensing issue, we would likely still be at it this year despite the fact that the market has made such legislation largely irrelevant.

Once the legislative process is set in motion, it is very difficult to control. Legislation to mandate access to licenses for online use of sound recordings or musical compositions might end up containing mandates for the use of certain security technologies, onerous accounting and auditing requirements, caps on the prices consumers can be charged, and ostensibly unrelated quid pro quos. That is just the nature of the legislative process, and anyone who want the Internet to remain unregulated should understand that the risks of inviting regulation may greatly outweigh the apparent immediate benefits.

With this philosophical grounding, it should come as no surprise that I see no need or good reason for sweeping legislation regarding online music.  I do not deny that several obstacles seem to remain in the way of full-scale realization of online music possibilities. Nor do I deny that some of these obstacles are created by an inability to secure licenses from copyright owners or confusion as to whether certain activities require licenses. However, it is obvious that all parties have strong pecuniary incentives to resolve these problems, and I have observed that such incentives are a powerful motivator.