Creating a Merit-Based Music Economy: Compulsory or Blanket Licensing for Interactive Subscription Services
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A6. Using Copyright to Leverage Risk

The major labels have two powerful tools to use as leverage for their business: market lock, and copyrights. The market lock comes from dominating distribution and promotional channels for the products they sell. Some of the more vocal critics have characterized this as the equivalent of a cartel or oligopoly -- it certainly affords them a towering influence over retailers and press. This is a powerful position of leverage over the retail market.

Copyright, on the other hand, gives the labels leverage over their artists. Typically, a record deal will state that the records produced by the label for the artist are property of the label. That is, the label owns the sound recording copyrights.

In addition, these deals often state that the label's publisher subsidiary owns the publishing rights to any songs written by the artist for these records. Those rights include half the royalties for the songs themselves, which are separate copyrights from the sound recordings.

The ownership of this intellectual property is as much of an "artist lock" as distribution and promotion are retail market locks. This is because, if the business relationship doesn't work out for the artist, the artist has no assets to bring to a competing label to negotiate a better deal. All their creative output is either partially (songs) or wholly (records) owned by the label. That's a pretty steep price to pay for market access.

It would be as if a consumer product manufacturer not only had to sign exclusive distribution rights to a retail distributor, but had to actually hand over ownership of their products to the distributor as well (or be essentially locked out of the retail market). That is, retail distributors would be hiring product manufacturers as employees or purchasing their businesses as subsidiaries, rather than making partnership deals with them.

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