Five to Three

Merger mania picks back up; a smaller Warner gives up

This fall, there are five major labels; next fall, there could be three. Sony Music and BMG have been showing off engagement rings all over town. Meanwhile, BMG's jilted former suitor EMI (their proposed 2001 union was blocked by European Union regulators) has been trying to work out a pre-nup with Time Warner's record division, Warner Music—with which it had previously tried to merge in 2000 (the EU stopped that one, too), and which in turn was trying to lure BMG up to see its etchings a few months ago.

While they were at it, Universal Music Group, the biggest of the Big Five right now, announced its purchase of DreamWorks' record division (just an hors d'oeuvre by their standards) for $100 million. And Universal's former CEO, Edgar Bronfman Jr., wants to buy Warner Music if the EMI deal doesn't pan out, but he also wants its music publishing division Warner Chappell: Even when CD sales are slack, music publishers pretty much have a license to print money.

In any case, if American and European regulators approve both the Sony-BMG and EMI-Warner mergers, about 75 percent of global music sales would be controlled by three companies. For a typical music shopper, that could well mean fewer new acts (since artist development is so expensive), fewer independent stores (since business with large chains is more cost-efficient), and more major-label product on the racks of remaining stores (since they'd be able to strong-arm retailers the way the big snack and soda companies do with delis).

But think about it: What could a five-company industry do to convince skeptical regulators that it should be a three-company industry? Perhaps arrange things to make it look like it's in terrible trouble; that new technology is destroying its business model; that it's in fact so desperate that it would sue its own customers for enormous sums. Sound familiar?

The 1976 Copyright Act, written when bootleggers ran their own pressing plants, is what allows the record industry to threaten solo file-traders with those huge suits. Instead of proving actual damages from someone using their work without permission, copyright holders can opt to sue for "statutory damages": from $750 to $150,000 per infringement.

A much smaller Warner—Massachusetts music archivist Chuck Warner—found that out the hard way. For years, Warner has lovingly assembled CD-R compilations of hyper-obscure, decades-old punk, D.I.Y., and power pop singles, sold through his site hyped2death.com. He's tried to track down every band he's featured, to offer them free copies and publicity for their current work. Almost none object, even when they find out that they're on a volume of Teenline or Homework after the fact; the artists he documents are mostly happy just to be remembered.

Unfortunately, one of the musicians on one of the songs on one of the compilations (John Roberson, once of the power pop band John Are) is now a lawyer, and decided to teach Warner a lesson. Roberson sued him, along with a handful of the tiny stores and distributors from whom Roberson had bought the CD-R in question (Warner had sold a total of 408 copies). The case was recently settled, and nobody's disclosing details, but Warner notes that he spent over $10,000 on legal fees "before talk of a settlement even entered the picture."

The suit "just left all of us incredulous as to why there's an onus on a retailer to be completely aware of every song that crosses our desks," says Bruce Brodeen of Not Lame Recording Company in Fort Collins, Colorado, who made "a net profit of about $20" on sales of that CD-R before the lawsuit hit them. "Why the copyright law has not evolved beyond this flagrant misrepresentation of its spirit is beyond me," Brodeen says. "All this for a single that probably sold in the neighborhood of 100 copies when it came out."

In the meantime, Chuck Warner has mostly given up on archiving one-single wonders, and he's been thinking about other potential dangers of statutory damages for copyright infringement. "It raises the alarming specter of a record label that's worth more dead than alive," he says. "Potential lawsuits, with the motivation of turning a profit on out-of-court settlements, could be considered assets of a copyright holder." Suing file-traders, then, isn't just a way to impress regulators—if the mega-merger thing doesn't work out, it could be the music industry's new business model.

 
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