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Business News (more headlines) 04-03-2001

Testimony Of Steve Gottlieb To The Senate Judiciary Committee - April 3, 2001

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Mr. Chairman and distinguished members of the Committee, good morning and thank you for inviting me to participate in this hearing. I am both honored and humbled to be here among such highly celebrated business colleagues and legendary recording artists. My purpose in appearing before you today is to lend my perspective and support for a fair and equitable solution to the challenge of concentrated copyright ownership and democratic content access in the digital age.

By way of introduction I am Steve Gottlieb president and founder of TVT Records, the largest freestanding record company in America. By freestanding I mean we are neither owned by; funded by; distributed by; nor otherwise aligned with any of the five major multinational music companies. Like many independent labels ours is the story of the most unlikely of successes. Fresh from school with degrees from Yale and Harvard under my belt, I foolishly undertook to license Americas best loved and appreciated music, namely our TV themes and assemble them in a compilation called Televisions Greatest Hits. The resulting vinyl lp, for alas that was the poor state of our music technology at that time, became a worldwide success. From those humble beginnings, armed with almost no capital and even less experience, I began my assault on what was then a music establishment of 6 major record companies. Back in those days independents were considered to be a low rent farm club at best. The major record companies owned the charts and the notion of an independent having a hit record without the "help" of a major most unlikely. Happily times have changed. While Televisions Greatest Hits was a huge seller in the United States, given the then state of affairs the record never entered Billboard's chart of Top 100 best sellers. Nevertheless the millions earned from that release enabled me to fund my company's growth. From a one man shop, TVT employs well over 100 people and had sales in excess of 50 million dollars in calendar 2000. Our roster now extends well beyond TV themes running the musical gamut from hard rock to pop to hip-hop to R&B to alternative. Through TVT SoundTrax, our label is also a force in motion picture soundtrack albums including releases from such top films as Steven Soderburgh's Oscar nominated "Traffic" - a film I am proud to be associated with as, I hope, Sen. Hatch is as well.

As an independent, TVT is part of a community of thousands of entrepreneurs and artists responsible for one of the most vital segments of the US music industry. Collectively our market share is some 17% of domestic retail sales, a market share greater than four of the multinational music companies, and second only to that of Universal. This figure perhaps understates the size of the independents' share of music that most engages the public's interest. In the major labels filings against Napster they have acknowledged that a full 27% of the music files shared were non-major titles. Therefore, it is clear that beyond our collective market power, the independent community plays a unique role as the principle spawning ground for new artists and new music movements. While new artists and new music movements are typically nurtured by the indie community, many often find ultimate commercial fulfillment in the hands of major record companies. However, I believe, there is little doubt that it is by virtue of the independent community's constant prodding and rejuvenation of the music scene that we as Americans enjoy such a diverse choice of music and such a productive and profitable music industry.

Many fellow entrepreneurs, artists of all varieties, and society at large are all beneficiaries of a complex music ecosystem that has created what today is an essentially level playing field with regard to music consumption and enjoyment. This level playing field allows consumers to hear a broad array of music on radio, to find it at record stores and to embrace it as they choose. They do so with such unpredictable results that no record company, no matter how well capitalized, can sit idly by comforted by the notion that their most recent success will have any bearing on their ability to identify, attract, and support tomorrow's most popular artist. Picking tomorrow's stars is at best a low percentage game.

The hallmark of the music business is that the public listens to songs and artists -- not record companies. Ideally, those songs and artists compete against one another in a marketplace of musical ideas. This competitive framework, has evolved from a combination of laws created by Congress, judicial rulings and market forces. For example laws against Payola and against concentration of radio station ownership, combined with the discipline of market forces, insure that radio stations are always searching for what excites the listener. Failure to do so would only create opportunity for competitors to gain an advantage in the marketplace. Similarly retailers who can ill afford to drive a customer across the street are forced by the marketplace to stock whatever consumers demand. This proximity to public demand makes them the most responsive to the independent marketplace.

Where there is a lack of marketplace competition, as in the area of music video television the results are informative. There, the majors have demonstrated both the desire and ability to exploit their market dominance so as to deprive independents from gaining an amount of airtime devoted to their artist that is anywhere near commensurate with their marketshare.

Moving beyond these examples, with the advent of the digital age the greatest threat to the composition of the music industry, its vibrancy and independent competitive spirit is the emergence of yet new barriers between music providers and the market discipline exerted by public demand.

Some years ago, decidedly without the authority or rights to do so, Shawn Fanning introduced the world to a profound new notion and tapped directly into this market demand. His notion of having immediate access to the entire world of music without limitation has allowed a wholly new and unique way of interacting with music as transformative, different, and disruptive an innovation as the radio. This powerful concept was instantly understood and embraced by the public in an unprecedented manner as something with no real world equivalent. What this innovation depended on (aside from the misappropriation of music copyrights which I will return to in a moment) is unfettered access on a democratic and evenhanded basis to the idealized infinite jukebox. It is, I would argue this freedom to choose from everything in existence that has so ignited the passion; so inspired and renewed people's love of music and has so fueled this digital music revolution. It is freedom and not freeness or absence of cost. For surely while copyright owners may not have been recompensed through Napster's early unauthorized infancy, clearly many others have been able to monetize the consumers passion for digital music. As the advertisements for a wide array of hardware and software makers currently attests to, enjoyment of online music has been major driver of computer sales and has helped fuel extraordinary growth for ISP's and infrastructure providers. Music file sharing has earned itself recognition as the killer "Napp". And peer to peer sharing will certainly be an application that will grow to accommodate and encompass other forms of intellectual property.

Once security issues are addressed, the question becomes what will this new digital world look like? The genius of Napster is that all music is available on an equal footing and that the consumer's choice runs free unfettered. If this is something we all value, if this free access is as important to us as the free expression itself, how can we preserve it? In my opinion, Napster and the overwhelming public support it has received, attest to the fact that a service such as they have envisioned by opening up universal desktop access to all music on some limited controlled and licensed basis deserves careful consideration as something possibly in the public interest.

Our concern is that without Congressional scrutiny, any service that develops that attempts to encompass a majority of available music content could be unfairly dominated by the few owners of the most content. The result would be a 2-class system of copyrights wherein there are the copyrights that are owned and aggregated by multinational corporations and represented by professional trade associations that are treated one way -- and the copyrights of everyone else. In this potential future what becomes significant about the economic reward to be accorded copyright is not so much the nature of the copyrighted content but rather the nature, or more specifically the market share of its owner. We have already begun to experience that firsthand. Right now, TVT's lawyers are in New York in front of a Federal Judge, defending the copyrights of our artists against a company, MP3.com that has taken the viewpoint that while major labels were entitled to substantial damages and license fees with regard to their copyrights, independents are not.

Such a 2-class system of copyrights that places copyright value based on who owns it and what market power they can exert would be a tremendous setback to our fertile entertainment economy. Similarly, the various announcements of entities being fostered by the major record labels are all consistent in their failure to acknowledge the necessity of a scheme where by all content creators are treated equally. A lack of equal treatment serves to, in effect, shift the benefits and protections conferred by copyright away from creators whom copyright law is meant to reward and to the largest aggregators of such copyrighted content. Thereby threatening to undermine the level playing field on which creators have a fair expectation that they will be able to compete. None of these vehicles to date, as far as I can tell, have made it clear that the creation of a level playing field is one of their organizing principles. Indeed, the very opposite seems to have been expressed - that is by all these vehicles with the exception of Napster.

I should point out that TVT, while in a lawsuit with MP3, has not been slow to offer its content on the Internet. We are particularly proud as a label to have a history of "firsts" on the Internet. We were the first label to invest in Reciprocal, a major digital rights management security firm. We were the first label to adopt Microsoft's Secure Windows Media format with regards to our label's musical output and believe we remain to this day the label to have delivered the largest number of secure music files via download to the consumer. In November of 1999 we put our entire catalog online free to the consumer on a timed-out and secure basis. More recently, we were the first label to recognize that once Napster had expressed its willingness to acknowledge copyrights and to establish a scheme to compensate all rights holders, that we had indeed reached the goal of our litigation with them. Thus, in January of this year, we became the first label to withdraw all of our claims against Napster and entered into a license agreement with them for their anticipated new secure music subscription service. Amongst all entities vying to provide music online in a responsible and secure manner, Napster alone has promised to establish a system that acknowledges rights of all content owners and recognized the central importance of creating a platform on which all rights holders may compete on the basis of quality and appeal on their content. This commitment to equal access and opportunity may never come to fruition if Napster is not successful in persuading the major content owners to grant it rights. Under such a circumstance a question arises: given a marketplace in which a handful of multinational labels controls a lions share of the content, is it possible for such a marketplace to produce a universal delivery system in which equal access and equal opportunity is provided to all content owners?

The question is one that I believe this Committee must consider to be an issue of importance. It is my opinion that rewarding copyright aggregators at the expense of copyright creators is antithetical to the spirit of the law. If the largest aggregators of content are able to leverage their market power to gain undue advantage over smaller copyright owners in the exploitation of copyright, then they will be allowed to transform a mechanism intended to incent creation into a mechanism that perpetuates the current marketplace status quo. [It is currently within the power of market leaders to make the size of the copyright owner the determining factor as to a copyright's worth instead of the underlying nature of the content.] Such a distortion of copyright policy would institutionalize current content owners positions of dominance in the marketplace and shift the benefit of copyright law from creators to the largest of aggregators. The unique nature of phenomena introduced to us all by Sean Fanning has the potential to open up a whole new horizon to all content owners and consumers alike. While in my opinion at present intervention may be premature, I welcome the Committee's scrutiny of the marketplace as it works through these many new and interesting challenges and hope the committee's continued interest in the matter will assist in motivating our industry's leaders to indeed lead us toward a fair and equitable market solution: one that will neither limit consumer choice or create inequities amongst content owners.

Thank you.

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