More of AllofMP3
I wanted to elaborate on an editorial we had today on a Moscow-based online music store that has become a stumbling block for Russia's entry into the WTO. In particular, I wanted to explain why we accepted the music industry's argument that AllofMP3 was not, in fact, a legitimately licensed outlet. On Sunday I was downloading my monthly allotment of MP3s from eMusic -- the single most fun thing I do without the wife or kids -- when I hit an unexpected hurdle. The download page for "Paper Television" by The Blow said, "We're sorry. This album is unavailable for download in your country (United States) at this time. We apologize for any inconvenience this may cause." That's when I was struck by how weak the case was in favor of AllofMP3.
AllofMP3 sells music by the megabyte, then gives a percentage of the proceeds to a Russian royalties collection agency called ROMS. It asserts that it has licenses to sell music from ROMS and FAIR, another Russian rights organization, and that it complies with those licenses by paying royalties to those organizations. The exact amount of the royalties hasn't been disclosed, but a spokesman said he believed it was at least 15% of its revenue. The major record companies disagree, saying they never granted ROMS the right to issue licenses for downloadable music sales.
The fact that AllofMP3 sells music as unprotected files in formats shunned by the major labels is the first clue that something's amiss here. So is the business model: despite valiant efforts by the likes of eMusic and Wippit, the major labels simply won't do revenue-share deals for permanent downloads. They want somewhere between 65 cents and 80 cents per track. Likewise for the music publishers, who charge a per-track fee for reproduction rights (not performance rights). With a fee structure like that, it's just not possible for an online music store to do what AllofMP3 does -- for better or for worse. One could argue that significantly lower prices would create such an increase in demand that labels and artists would collect more money, but none of the majors has been willing to test that hypothesis.
Just for the sake of argument, assume that the ROMS and FAIR folks plied the IFPI negotiators with vodka one night and somehow persuaded them to authorize licenses such as the one AllofMP3 claims to have. No individual country's licensing body has the right to authorize sales across its borders. It's an insane and inefficient system, I know, but that's the Balkanized way it works in the global entertainment industry. The best ROMS could have done would have been to authorize a deal for sales within Russia, and AllofMP3 would have been required to do what folks like eMusic have to do: if they want to serve customers in other countries, they have to strike deals with those countries' licensing authorities, which typically results in different inventories for different sets of customers (which explains why "Paper Television" wasn't available to eMusic subscribers in the U.S.) And AllofMP3 hasn't done that. Nevertheless, it caters to customers everywhere, and it offers handy charts to see what its customers in the US, the UK, Canada, Germany, France and Europe are buying. The German sales seem particularly egregious, given that a German court ordered the company last year to stop sales there.
I know there are plenty of consumers who want to believe that AllofMP3 is legitimate, but it's simply too good to be true -- particularly for anyone outside of Russia. The fact that Russia hasn't forced the site offline says less about the legitimacy of AllofMP3 than about Russian authorities' laissez-faire approach to intellectual property rights. And yes, I know, some critics of the major record companies (including some AllofMP3 execs) say the attack on AllofMP3 is aimed at preserving those companies' dominance over the music industry, but AllofMP3 is violating every label's copyrights. In the free market system that Russia is trying to join, manufacturers get to choose their business models. AllofMP3 can't simply take songs and sell them by the megabyte, no matter how compelling the offer might be.
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One could argue that significantly lower prices would create such an increase in demand that labels and artists would collect more money, but none of the majors has been willing to test that hypothesis.
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The reason one could argue that is precisely because that is what allofmp3 is doing and it's got the labels concerned. Wanna bet the Russians are LIVING LIKE KINGS off the money (even with the smallish percentages you give). And the major studio heads are simply NOT going to live like KINGS when they are accustomed to living as EMPERORS.
I have read somewhere that allofmp3 was the most heavily trafficked site on the internet. If there's any truth to that, then the studios KNOW that lowering the price would spur demand, but are UNWILLING to live like mere KINGS.
Enjoy.
Posted by: timtimes | October 27, 2006 at 09:02 AM
You miss the point, and also, you are completely wrong. You assume a lot, instead of doing your homework - research. Arguments like "too good to be true" will not make a site illegal.
In order to determine if an act is legal or not, you need to understand if it breaks any laws. If in doubt, a challenge in court helps.
Fact is, allofmp3.com does not break any law, and has been challenged in russian court and found not to be breaking any laws. This is the end of the story. allofmp3.com operates legally, because there is no law it breaks. Now, it is also true that allofmp3.com hurts business interests of the major labels. But this does not make it illegal. Were it illegal, suing it would put it out of business. The reason why labels won't sue, is that they understand they will lose. Instead, they put PR and lobby pressure on the site, threatening russia with lobbying for the denial of WTO membership, asking them to close the site - ILLEGALLY. Closing allofmp3 because labels demand it would be in fact illegal, strange as it sounds.
To be able to close allofmp3 legally, either one of two things must change FIRST. Either russian laws need to change, or the licensing agreement between labels and russia needs to change. Let me explain (as I DID my research).
Russia has a global, flat fee licensing term with the labels, as russia would not entertain any other type of licensing (it's either this, or nothing). The pay a yearly fee, in return the are entitled to distribute the label's entire catalog by any means (radio, CD, anything) within the country. Agencies like ROMS then are charged to collect licensing fees within the country to recuperate fees payed to labels (an probably to make some profit).
Labels are entitled to break this agreement, but they do not want to, because it's a hefty sum of money.
When these agreements were elaborated and signed, distribution of music via internet did not exist. Agreements with the labels allow for distribution by "any means", and russian laws regulate all channels explicitly within the country, but fail to regulate internet distribution, because as I said earlier, it did not exist at the time. But CD distribution and radio broadcasting did exist, therefore these channels were, and still are, properly regulated.
Now, in order to understand if allofmp3.com is legal, we need to determine what regulated distribution channel does it fall under. The labels have no say in this, because they allowed distribution by "any means" for russia. Only the country's internal regulation applies. In this case, if internet distribution falls under "no category", then no rules apply, therefore it cannot be illegal. Or it falls under "CD distribution", in which case distribution within russia is entirely legal, and selling to foreign citizens for personal use is legal (and importing regulations of their respective countries apply). Or it falls under radio broadcasting, in which case it's entirely legal inside and outside the country (within broadcasting range, which is pretty much the whole planet in the case of internet broadcasting).
This is pretty much what the courts said. Not illegal, sorry. Entirely legal. Might be illegal for you in your country to import, but that's another story. Argumenst like "allofmp3 does not pay royalties to labels" do not apply, because NO ONE WITHIN RUSIA EVER PAYS DIRECTLY TO THE LABELS, even for CDs they pay to collecting agencies. Russia pays collectively a flat fee to labels, ant that's it.
And the labels can break the licensing agreement with russia if they don't like it. Fact is, they like it a lot. Except for it allowing allofmp3.com to exist. There is a legal course for the labels to make allofmp3 illegal, but they do not want to take it because it would cost them a lot of revenue. Instead, they, the labels, try to undertake a "grey" venue by applying political pressure onto russia to make them close the site (i'd say, illegally).
Posted by: Roland Papp | October 27, 2006 at 03:32 PM
Interesting defense of AllofMP3, but I don’t buy it at all. First, you have way more faith in the Russian legal system than I do. Perhaps I’m too cynical here, but prosecutions in that country seems to depend as much as politics and influence-peddling as it does on Russian law. So I don’t infer legality merely from the absense of prosecution. Beyond that, what AllofMP3 does can’t be legal under Russian law unless the Russian collection agencies usurped or nationalized the property of foreign copyright holders. It’s not possible to obtain the rights to sell the Beatles’ music (or Led Zeppelin’s, or a few dozen other artists’) online because the copyright holders refuse to give them. Artists’ contracts aren’t uniform, but in the case of folks like the Beatles, the labels don’t agree to any type of distribution without the consent of the artists. Remember how long it took before the Beatles’ LPs were released on CD? So how is it legal for ROMS and FAIR to authorize downloads for artists like the Beatles and Led Zeppelin, or AllofMP3 to sell them?
Oh and yes – I just checked with one of my favorite indie labels, Barsuk Records. Their stuff is on AllofMP3. They say they’ve never signed over their rights to anybody in Russia – not ROMS, not FAIR, nobody. So, tell me again how AllofMP3 can sell Barsuk’s catalog legally, or the catalogs of thousands of other little indie labels that aren’t represented by the likes of Universal and Sony BMG?
Posted by: Jon Healey | October 27, 2006 at 05:27 PM
It is hard to know where to start in responding to the Papp comments.
Papp confuses the rights of composers and publishers, which generally
are vested in some form of collective administration, and the rights of
labels, which generally are individually exercised except in the case of
broadcasting, streaming services or public performance. Papp talks about
revenue streams for labels for CD distribution? There is no such thing
(there is for publishers under the mechanical rights license). A court
finding allofmp3.com legal? No such thing. Never happened. A couple of
prosecutors have refused to bring action, but we know what that's about.
Simply put, there is nothing about Russian law that offers comfort to
allofmp3.com. At a minimum, they violate the reproduction right and the
right of making available--both found in Russian law and in
international treaties. They do so willfully and for commercial benefit.
There is a word for that--piracy, and the TRIPS Agreement obligates WTO
members to address it through criminal measures. We have not initiated
civil action for a variety of reasons--but most importantly because this
kind of intentional and large scale criminal activity is best addressed
through the deterrence that only a criminal conviction can establish.
This is not a matter of dispute between two private parties. It is a
criminal conspiracy that greatly affects the state, and undermines, or
highlights the lack of, the rule of law. Russia has an obligation to its
citizens and the world community to act responsibly. That means living
up to international standards--and most importantly ENFORCING ITS OWN
LAW--by taking down allofmp3.com (and other similar sites) immediately.
Neil Turkewitz, RIAA
Posted by: Neil Turkewitz | October 30, 2006 at 11:41 AM
Everyone seems to assume that allofmp3 is actually truly and accurately accounting for downloads and paying artists accordingly. Everyone loves to bash the major labels and RIAA, but there are hundreds of independent labels and artists that are impacted by this that have nothing to do with the RIAA. To wit, I know the two following facts: (1) allofmp3 is offering songs and albums for sale by myself that are not authorized releases (they are CD-Rs sent to friends and fans), (2) I have never received a single cent from allofmp3 for these releases (I think I can safely assume that at least ONE song has been downloaded in the last few years they have operated). They have ignored my requests to remove the tracks and provide an account of downloaded tracks, even though I am the sole owner and license holder to the recordings. It's all very shady - until there is conclusive proof that allofmp3 is ACTUALLY PAYING royalties, I will continue to disparage the use of this site.
Posted by: saru | January 03, 2008 at 03:50 PM