Jerry Brito

Archives for September 2005

Variable price fixing?

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Everybody seems to be freaking out about Warner Music chief Edgar Bronfman saying earlier this week that he would like to see variable pricing on iTunes. Rather than a flat 99-cent rate for all songs, Bronfman would like to charge more for popular songs and less for songs that are older or not in demand.

Some have suggested that this would amount to price fixing. They’re thinking of resale price maintenance, where a firm requires resellers of its product to sell at a certain price. If all the resellers are locked in to the same price, they won’t compete on price, price won’t come down, and the producing firm might get a supra-competive return. But to make this work Warner would have to not only set the prices on iTunes, but everywhere else. You would also have to assume that songs aren’t substitutable, so that consumers wouldn’t just move over to non-Warner songs that are cheaper. You would have to assume that or a cartel of all the major labels, which would really be serious.

What Bronfman is really proposing isn’t that strange at all. As BusinessWeek notes,

Some books cost $25, others $15. There are magazines that sell for $4.95 a copy, while others go for $2.95. And who hasn’t secretly perused the bargain racks of CDs, looking for a $5 disc from that hair-metal band you loved so much in the ’80s? [I’m looking at you, Adam.] All Bronfman suggested was creating an environment where some songs would command a premium and others would do the equivalent of filling the bargain CD bin.

Still, some ask, what business does Bronfman have telling Apple what retail price to charge? He’s the wholesaler, they say. He can charge Apple more if he likes and let Apple decide whether it will raise its prices. The problem with this reasoning is that Apple does not license music from the labels for a flat per-song royalty. Proceeds from each download are reportedly split 35-65, Apple-label. Here’s an explanation of the agreement:

The deal is straightforward. Of the 99 cents of a download, Apple keeps a portion and the rest goes back to the label, which is then responsible for distributing back to the artists, songwriters, publishers, and so on according to the existing terms between the labels and their bands. This makes it really simple for Apple to acquire content because they don’t have to deal with stuff like licensing agreements or paying publishers — all that stuff is the labels’ responsibility.

Bronfman is just trying to make the portion kicked back to Warner variable depending on the song’s market value. And, oh yeah, Apple doesn’t have to take the deal.

Now, I agree with Steve Jobs when he says, “If the price goes up, [consumers] will go back to piracy and everybody loses.” But that just means that Bronfman’s variable pricing scheme would be a dumb business decision because I personally don’t think any song is worth more than 99 cents. Priced above this consumers will download illegally or buy other songs. But variable pricing by itself has nothing to do with illegal price fixing as some have suggested.

Cross-posted at TLF. You can leave and read comments there. →

Sep 30, 2005 | Comments Off

NASA Chief Admits Shuttle, Space Station Were Big Mistakes

But going to the moon and Mars are great ideas, I’m sure.

Sep 28, 2005 | Comments Off

Starbucks Drinks Simplified (kinda)

Order yourself a half-caf short one-pump ristretto 140-degree caramel macchiato.

Sep 28, 2005 | Comments Off

Media Counter Piracy in China In New Ways - WSJ

In China, piracy is rampant. U.S. content producers can’t rely on courts and legislators there. So what do they do? They change business models! Imagine that. Link.

Sep 26, 2005 | Comments Off

Google Print: “Potentially” not fair use

I think Tim is right that courts are beginning to realize that “new technological realities” make the kind of copying that search engines and other net applications engage in different from “the copying prohibited by traditional copyright law.” But they are really going to have to get it if Google Print Library is to succeed in court.

To me, the most important factor in a court’s fair use analysis is “the effect of the use upon the potential market for or value of the copyrighted work.” 17 USC § 107(4). A parody or critique is certainly fair use because you’ll never be able to buy a parody from the creator of the original. That is a parody will never be a substitute for either the original or derivatives and so won’t have an impact on the market for the original.

However, to have an impact on the market for the original doesn’t require there to be a copy that is an exact substitute for the original. In UMG v. MP3.com, the service in question wasn’t a direct substitute for the record companies’ product, namely CDs. But the use did affect the market for licensing. MP3.com’s wholesale copying of the plaintiffs’ music catalogs prevented them from exercising their exclusive right under copyright to decide whether to license their works or not. This isn’t contradicted by the holding in Kelly v. Arriba Soft either. In that case the court just didn’t find any evidence of market harm. And one thing the courts in MP3.com and Arriba both agreed on explicitly is that even if the allegedly fair use helps the market for the original that’s still no excuse.

So, is there a market that Google is affecting negatively? Well, the case can be made that there is a market for licensing the text of books for just the kind of thing that Google Print wants to do. Amazon.com has a “Search inside the book” feature and they get permission from every publisher before they make their books searchable. You also have to look no further than Google’s Print Publisher program that, unlike its Library program, gets permission and shares revenues. And mind you, the statute only requires that there be a “potential market” that is affected.

As a normative matter I think that what Google Print is trying to do should definitely be included within the meaning of fair use. But I think it might not be such an open-and-shut case as long as the market effect factor of the fair use doctrine isn’t updated to reflect the new realities of the net.

Cross-posted at TLF. You can leave and read comments there. →

Sep 24, 2005 | Comments Off