HILARY ROSEN, RIAA PRESIDENT AND CEO
Thank you for that introduction.
What a thrilling time this is. And what an honor to speak to the people who are making it possible.
I represent a complicated industry. But really, weíre in a pretty simple business -- and for a pretty simple reason.
We love music. What we do for a living is try to make it as accessible as possible to as many people as we can.
And streaming media may be one of the most powerful tools for distributing music weíve ever seen.
The title of this conference -- "the race to sustainable revenue models" -- has it just about right. Because harnessing the power of streaming media is very much a race.
But who wins depends on what kind of race you think is being run. And let me start by telling you what Iím pretty sure itís not.
I donít think getting content online is a sprint. Sprinters charge out of the box in a hurry, and run out of wind just as fast.
And this industry has certainly seen its share of them. They were blue chips one day, bargain buys the next, and theyíre being delisted today.
I donít think weíre running a marathon either. Consumers wonít wait that long. And they shouldnít have to.
Where does that leave us? Call it an 800-meter run. Or maybe a mile -- Nonetheless we are in a race that must combine speed, strategy and longevity.
And itís probably going to be won by those whoíve trained before the starting gun fired partnering with those who have thrown themselves into this world with their fresh ideas.
And the recording industry offers all those qualities.
Our business is creativity, so we must embrace innovation. Our creations are valuable, so weíve created the infrastructure to protect them and encourage their development.
Our industry is pushing the frontiers of tomorrowís possibilities. But weíre also powered by decades of experience connecting people with music.
And weíre ready -- weíre eager -- to run by your side, matching our content with your technologies and in some cases your infrastructure. In fact, we already are.
Today, I want to talk with you about the kinds of businesses we have already been working to support; give some insight to the underpinnings of our efforts and review how we can work together to harness technology to enable more people to experience the joy, the energy and the inspiration of music.
I envision a day when digital music is a seamless experience for fans -- from the tops of their desks to the palms of their hands to the dashboards of their cars and beyond.
Thatís an ambitious goal, and -- like any objective worth pursuing -- it requires vision, determination and hard work to get there. And weíre committed to supplying all three.
Deriving sustainable revenue from these activities means building a legal infrastructure that can enable a legitimate market for digital music to flourish.
Let me speak from experience: A legal framework, from laws to licensing agreements, is the best way Ė A most important way -- to ensure that we can do business in real time without the constant drag of disputes.
Donít take my word for it. Ask the companies represented in this room.
You seal partnerships with contracts, not handshakes. You accept and invest capital with written agreements, not oral conversations. And you protect innovation with copyrights and patents, not best wishes and good intentions.
You recognize what we believe: respect for intellectual property -- and a framework for protecting it -- will enable, not encumber, technology to flourish.
But that opinion is not universally held. Especially in our case, there are those who insist that there is nothing wrong with making money off copyrighted music without compensating those who create it.
But to say that taking music without compensation is not wrong is to say that music has no value.
And that, in turn, is to suggest that a fundamental tenet of the Internet Age is fundamentally flawed: that ideas and information are as valuable as materials and machines used to be.
Few would argue that the innovations being churned out in the technology sector at breathtaking speed are worthless -- or free for anyoneís use -- because they are made from ones and zeroes rather than bricks and mortar. To the contrary, few would take the risks to innovate if what they created did not belong to them.
And for streaming media to flourish, we have to accord music the same level of respect.
Let me state that more broadly -- because a lot more than one technology is at stake. For our economy to flourish, we have to protect intellectual property.
Intellectual property lies at the core of American competitiveness and economic growth. In fact, itís our number one export.
Foreign sales and exports of intellectual property are bigger than automobiles, aircraft and aviation.
In 1999, U.S. copyright industries achieved foreign sales and exports of more than $79 billion -- a gain of 15 percent from the year before. The same year, these industries accounted for nearly 5 percent of GDP -- adding more than $450 billion to our economy. In the last two decades, employment in copyright industries more than doubled.
Intellectual property is a foundation of the U.S. economy. And a framework of copyright laws is the foundation for intellectual property.
A fundamental linchpin of this framework is the idea -- now embodied in law -- that a particular recording of a song deserves protection the same way the music and lyrics do.
For decades, people who write lyrics and music have been compensated for performances of their creations. Performers animate the words and bring the sounds to life. They carry different meanings to different ears. And they, too, deserve protection.
But until recently, those who owned the copyrights to recordings had no right to be compensated for performances even though writers of lyrics and music were.
Congress has closed that loophole by creating a performance right for digitally transmitted sound recordings. It says, in short, that copyright holders have the right to authorize performances that are webcast or otherwise digitally transmitted.
We supported that, and for a few reasons.
First, the absence of a performance right for broadcast media was, in essence, a historical accident. Itís a relic of the days when artists dropped by radio stations and were paid to perform. And the birth of a new medium offers an opportunity to correct what started as an accident and became an injustice.
Second, this medium is fundamentally different from broadcast. Itís interactive -- whatís been called the "celestial jukebox" or user controlled programming. Listeners can choose what they hear.
Finally, and most important, protecting the rights of performers protects the incentive to record. It guarantees a steady stream of content for streaming media. And you canít have one without the other.
Of course, we believe all options -- on-demand and pre-programmed -- should be available to listeners. And the law creates licenses for both.
The pre-programmed model can be licensed collectively by the recording industry.
We are negotiating these licenses through the newly launched Sound Exchange. Sound Exchange now represents the repertoire of more than 2,000 record labels.
Itís been very productive time. In the last 18 to 24 months, we have signed licenses that will make it possible to bring more than 1 billion performances online legitimately.
These deals range from startups like musicmusicmusic.com to large players like Yahoo. The other major webcasters today are MTV and AOL. We are working productively towards an agreement with both of them.
This April, we are slated to go into arbitration with other webcasters to determine statutory rates for performance rights. But we believe the marketplace is being set in these deals that are already in place and the arbitration panel will follow those guidelines.
To any webcaster in the audience, let me say this, weíre ready to work with you. Weíre eager to work with you. We believe we can find common ground to reach a common goal -- getting music online.
If we sit down to talk, weíll probably disagree at first. Reasonable people often do. But our experience negotiating licenses with webcasters tells us that when we sit down to talk, we almost always work things out.
And we can do it again. Iím confident itís in our interest. I believe itís in yours. And I know itís in the interest of the millions of people around the world who love music and are anxious to enjoy it online.
If we want digital music in our living rooms, then letís get the issue out of the courtroom and into the conference room.
To broadcasters, our message is similar.
As you may know, broadcasters who simulcast their programming on the web have asserted that they should be exempt from paying digital performance rights.
We disagree. The law and the equity argue otherwise. Itís not fair to the artists who perform music. It isnít fair to the people who take risks to produce it.
And it isnít fair to the many webcasters who are following the law, paying their way and who have the right to compete on a level playing field in an open market.
In December, the Copyright Office agreed with us. Right now, the case is being appealed. Our case is clear, and so is the law. Weíre confident weíll prevail.
But we donít think consumers should have to wait for a resolution in the courts. We can find one together.
We invite broadcasters to discuss this issue with us in a spirit of open minds and honest dialogue. You have my word that we will be flexible. We are open to any solution that respects the creative process and the public interest.
Much of the important and exciting innovation in this space is targeted to more personalized programming. These so-called "on-demand" services are personalized for an individual consumer or personalized to a specific artist. For those types of uses and most others, businesses must go to the sound recording copyright owner, usually the record company to get individual licenses.
I have heard some say that this is a difficult process. That record companies donít want to license their material. Let me say this. Record companies have sought these rights precisely because they know that the future of their business lies not in just selling physical goods Ė although I donít think the retail market is going away anytime soon Ė but so they could expand the revenue.
By creating more opportunities for exploitation and licensing record companies who have heretofore had to make up all of their income by selling the music in a store can now increase their opportunity for a favorable return on their investment.
-Pricing can be more flexible than they are because there are more varied outlets.
-Smaller selling artists have a better chance of getting real earnings when their audiences can be targeted more efficiently.
-Less than 15% of all the records released in the marketplace even make back their costs today. There is a real chance of improving on that number through these efficiencies and as well as maximizing the return on the hits.
So know that the commitment is real. But understand that these are new businesses. What to charge? What is the relationship to the retail price? What is the relationship to how the consumer views their purchase choices? How to service the customer? What about old recording contracts with artists or agreements with music publishers that donít account for how the technology is using the music today. These things have taken some time.
I have teased the companies that they donít have enough lawyers to do all the licensing deals that are possible, but in some ways it is true. These new businesses Ė your businesses - are entirely different systems and there has been an adjustment period. Not an attempt to deliberately hold on to an old way of selling Ė but to assure that it is done right Ė that it is a new opportunity not a replacement sale at lower revenue streams. This process has sometimes seemed arduous and difficult. It may feel slow in the moment but measured against the history of new technologies, it has been speedy.
The recording industry does want to work with you. Whether it is the statutory licenses that Sound Exchange at the RIAA can negotiate with you or whether you have ideas for services that need individual record company support. This message of flexibility goes out to everyone who seeks to bring music to a digital space. Web sites. Webcasters. Broadcasters. Wireless. Streaming providers. If we share a common goal, we can find common ground.
Let me also offer some unsolicited advice to those in other segments of the entertainment industry who are streaming or expecting to deliver content on-line. I do believe and have said before, that in the record industry, we started serious investment in new technology opportunities perhaps a year or eighteen months too late. Now of course, record companies are spending hundreds of millions dollars and thousands of man-hours working with technology on new offerings for consumers. There are thousands of songs available for sale or promotion on-line from the major record companies and subscription and more interactive streaming, download and tiered services are just around the corner.
Donít make the same mistake we made. If there is a vacuum in the marketplace, it will be filled by pirates. Then no one makes any money but a level of consumer expectation is developed that is hard to recapture. From here today, I am on my way to San Francisco to implore the District Court not to allow Napster any further delays before implementing an injunction. For those who want to build legitimate systems, my message is clear, don't start until you are licensed. For those who have the ability to offer content, move quickly to meet your customer demand.
I will close on this note: If we want streaming media to flourish, we have to get this right.
We have to get it right because if there is no incentive to produce content for digital transmissions, there will be no reason to build the infrastructure for it either.
We have to get it right because we love entertainment -- because we believe it has value -- and because we envision a day when digital technology enables people to enjoy it seamlessly, from their desks to their palms to their cars and beyond.
Above all, we have to get it right because protection for innovation is a fundamental principle that extends beyond music to the whole of the Internet ethic.
Getting it right takes time -- but if reasonable people can talk with one another, it need not take much.
We obviously havenít run a sprint, but we have not waited for a marathon either.
The work ahead of us is still complicated but the paths are much clearer than they were even a year or two ago.
I stay in this job for a pretty simple reason. I love music.
And if you share that value, as do so many of the millions of people out there counting on us today, then nothing need stand in our way.