The Sample Debate

The sample debate: Sometimes watching the way majors and music retailers interact on industry issues reminds me of how it used to be when the U.S. and the former Soviet Union were engaged in detente after the Cold War, with both sides sharing interests that bring them together out of necessity, but neither side fully trusting the other.

Take music sampling. When sampling for practically every album offered through online stores first became a reality, the majors thought it was a good thing, and rightly so, because it would boost sales. But when music-content sites began offering sampling, the majors began to get concerned, and rightly so, because, after all, it is their music, and they have a responsibility to protect their copyrights.

The majors, mainly through the Recording Industry Assn. of America (RIAA), have been pursuing copyright violations on the Internet. In cases like the one against Napster, retailers are also the beneficiaries of such actions. But since early this year, some majors have been telling retailers that they must get a license to provide music sampling. BMG Entertainment and EMI Recorded Music are said to have been the most aggressive in this area, but supposedly Warner Music Group wants licenses, and Sony Music Entertainment is said to be discussing whether or not to implement them. What's more, the majors have turned the matter over to the RIAA.

Richard Cottrell, president of EMI Music Distribution, says the samples are "our copyrights, and we have asked the retailers [for a license] just for our own protection and for our artists. We are not asking for money."

Similarly, Dave Mount, chairman of WEA, says, "We have required retailers to secure a license from us. It is a no-cost license. We just want to know what they are doing with the product. If it is a third party, it may be a different arrangement."

In other words, if retailers use Muze, Loudeye, or the All Music Guide to supply samples, there may be a charge for obtaining the license, and you can be sure that third-party suppliers would pass the cost on to retailers.

Meanwhile, big publishing organizations like BMI are also seeking to charge retailers for a license to use online samples. The organization offers retailers several formulas to determine the amount to be paid, one of which is the option to fork over 2.5% of a retailer's revenue from subscription downloads.

Needless to say, retailers oppose the idea of a license for a number of reasons. First, some fear that in the future, with the majors setting themselves up to compete with retailers by selling music directly to the consumer via the Internet, a license could be wielded in such a way that the majors could choose who would have the competitive advantage of offering samples.

Also, just because there is not a charge now doesn't mean there won't be a charge later. Retailers fear that once the precedent of a license for sampling is established, the majors could easily impose a fee.

This isn't the first time the majors have used doubletalk concerning money. Remember when the CD was introduced at a lower profit margin, which the majors said was to help defray the cost of launching the new technology? Somehow that introductory lower margin became permanent. Or remember when the majors were pushing to eliminate the longbox, which they said would save 50 cents a unit? But though the labels helped pay for new fixtures, all the savings eventually went only into the labels' pockets.

The National Assn. of Recording Merchandisers (NARM) has stepped up to defend retailers from the need of a license. In a letter sent to the RIAA, NARM acknowledges that there are circumstances in which a sample might be used in a manner that directly exploits copyright, but it doesn't think providing a sample to promote the sale of lawful copies of sound recordings is such an instance. In fact, it says that such sampling falls within the boundaries of permissible fair use, as set forth in the Copyright Act. Moreover, NARM says retailers have the right to outsource sampling from third-party providers without getting a license.

It remains to be seen how this one plays out. But I do know one thing. If downloading takes off and BMI is allowed to collect 2.5% of a retailer's revenue, then music merchants would be eligible to consider themselves nonprofit entities. Because for the past decade, most merchants have struggled to achieve even a 2% net profit.

On the other hand, some merchants like the idea of paying for music sampling. Those merchants suggest maybe retailers should start charging labels and BMI if they want their music available for sampling in stores and online.