Introduction
Since 2016, revenues from music streaming services have surpassed those from physical sales and continue to grow, suggesting that this can now be regarded as the dominant form of music distribution. Digital rights management (DRM) systems lie at the heart of this trend and are crucial in this context, enabling such business models in the first place and subsequently protecting the content offered on such platforms. Whilst seemingly beneficial in terms of revenue and consumer welfare, this shift poses a number of important issues which this research will address. Music streaming services have changed the nature of the product offered. Musical content is becoming de-bundled and reduced to a series of permissions covered by DRM and associated licences which may leave users trapped in a permission-based system, and which will be explored by analysing the content of end user licence agreements (EULAs) offered by the large streaming providers. This may also have consequences for the application of copyright law itself regarding personal ownership and exhaustion issues. The doctrine of exhaustion provides a limitation on the economic right of distribution and prevents copyright owners from controlling the subsequent distribution of a work once it has already been ‘sold’ in the market. This enables secondary markets to develop and operate for copyrighted content, but a combination of restrictive EULAs and DRM measures may negate the ability of such digital secondary markets to form.
Although streaming marks a fundamental change from traditional copy-based distribution mechanisms, relevant case law from the US and Europe demonstrates that it is not necessarily the case that digital markets already accommodate this principle. Nonetheless, these licences raise a number of significant issues in their own right for consumers and artists; they create costs in reading and understanding, are non-negotiable and arguably indistinguishable such that consumers’ ability to draw comparison and make informed decisions is undermined. They are more representative of the asymmetric power dynamic between rights holders and consumers, and redefine consumers’ relationship with content by limiting the transfer of the ‘product’ to a series of permissions. This may have a number of further consequences which will be investigated. It is arguably more difficult for new artists to break into the charts, potentially damaging diversity, and recent research has also suggested that popular music composition is changing, which may be creating new compositional norms artists have to conform to for commercial success. On a more technical level, but equally as important, the very nature of the Internet may be changing. The growth of DRM-supported streaming platforms highlights the importance of networks for content delivery. Whilst originally envisaged as a network free of technical control based on the end-to-end principle of system design, the Internet threatens to fragment, with latent DRM control operating on and across the network and connected devices.
The success seemingly enjoyed by music streaming providers suggests that these do not seem to be of much (if any) concern to the users of such services, who appear to value the ease and convenience such services provide in comparison with content on physical media. Inevitably though, this trend is likely to continue and whilst copyright also remains centrally important, its focus is no longer on enforcing reproduction rights, as the ‘copy’ has been removed from the equation. Instead, the role of copyright in this context is merely founding the initial proprietary rights that enable subsequent DRM and licence-based online exploitation – going back to the future to re-establish record industry power allied now to streaming platforms.
This piece will focus on US and EU jurisdictions as both have developed legal frameworks regulating DRM. Whilst music is the primary focus, reference will be made to other copyright works for comparison where necessary. It will begin with an overview of DRM and its evolving nature in the context of music streaming; in particular, its history and early legal controversies can be seen with reference to the US. It will then explore the issue of secondary markets, tied to an analysis of both EULAs and comparable case law from the US and also Europe regarding the principle of copyright exhaustion. Both the US Copyright Act (which refers to the principle as the first sale doctrine) and European Directives place specific restrictions on the rights of copyright owners when it comes to distribution. Finally, issues relating to the diversity and composition of popular music and the architecture of the Internet itself will be explored.
1. Digital rights management
DRM is nothing new when it comes to copyright protection and is certainly not synonymous with music. It has arguably been around in some way since the 1970s, originating in the area of software. With the advent of microcomputers towards the end of that decade, bespoke hardware and software packages became de-bundled, with software providers creating standalone products that did not require additional technical support.Footnote 1 Early technical means here involved utilising a machine's ‘uniqueness’ (based on its serial number) and installation protocols to prevent unauthorised use of software.Footnote 2
In the US, early reference was made to it in the Sony Betamax caseFootnote 3 where the Supreme Court referred to ‘scrambling’ broadcast signals in order to ‘jam’ the recording of television programmesFootnote 4 which could be seen as an early DRM solution (although not ‘digital’ as such). Further efforts persisted in relation to subsequent video cassette recorder technology with then analogue devices employing techniques to interfere with recording synchronisation and subsequently video scrambling.Footnote 5 In the audio industry, the advent of the Digital Audio Tape in the late 1980s caused concern, as it enabled perfect and non-degradable reproduction. This resulted in the introduction of a serial copy management system. In the early 1990s, this gained legal recognition, with the US Audio Home Recording Act of 1992,Footnote 6 providing for a serial copy management system in all digital audio recording devices to prohibit multiple copies being made.
It was only with the development of the Internet and associated digital technologies that it was felt further protection was warranted in order to enhance the effective exercise of copyright in the digital environment. The first attempt to conclude an international agreement in response to the perceived challenges of digital technology was made by the World Intellectual Property Organisation (WIPO) and led to the adoption of two treaties, which established a common basis for DRM protection: the WIPO Copyright Treaty (WCT)Footnote 7 and the WIPO Performances and Phonograms Treaty (WPPT).Footnote 8 The Treaties established, for the first time, that technological protection measures (TPMs) used by rightsholders to protect their works enjoy an independent protection, as well as providing protection for rights management information (RMI) that identifies the work and related copyright information. In the United States, equivalent measures were introduced in s 1201 of the Digital Millennium Copyright Act in 1998;Footnote 9 and in Europe, under Article 6 of the Information Society DirectiveFootnote 10 (InfoSoc Directive). Both pieces of legislation provide protection for the technological measures themselves as well as a prohibition on the manufacture, import and distribution of any device that is primarily intended to facilitate the circumvention of such measures.
Indeed, when the idea that ‘the answer to the machine is in the machine’ was proposed in 1995Footnote 11 by Charles Clark, legal adviser to the International Publishers Copyright Council, it is questionable whether such protections were envisaged. Instead, the goal was that technology would not so much control content but would manage and identify the content being used and the users using it. The threats posed by digital technologies and the perceived lack of copyright's enforceability in the online world explain why rightsholders turned to such private ordering measures as a form of ‘front-end’ protection. DRM was, therefore, a sign that the content industries were becoming adept at presenting the digital environment as a threat.Footnote 12 The extension of copyright protection to include such systems along with anti-circumvention provisions is indicative of Clarke's metaphor being taken as a call to action to utilise copyright in order to regulate the machine.Footnote 13
DRM is a generic term referring to different restrictive measures employed by rightsholders to restrict unauthorised use, or copying, of content.Footnote 14 It involves the use of technology to control digital content, and although the specific components vary from system to system, they can be distilled down to a set of trusted rules, attached to a digital file, that make the use of digital content dependent upon authorisation and have the advantage of being self-executing or independently enforcing.Footnote 15 It will mainly come into play at the last stage of the value chain before delivery to the user.Footnote 16 DRM technologies concern the management of certain ‘permissions’ and may more aptly be described as ‘code as code’ through their use by rightsholders to restrict user rights.Footnote 17 Their primary purpose is that of control, mapping the physical property restrictions into the digital world. With their technical and legal elements, they may be described in the following way:
DRM is technical code, backed up by legal code, for the purposes of identifying, distributing and protecting digital content and that works by acting as a constraint against unauthorised uses of such content.Footnote 18
However, in the era of music streaming, RMI is also integral to DRM systems; in particular as it operates to identify the work, its author or copyright owner, or related information about the terms and conditions of use of the work. As a result, references to DRM in the context of music streaming necessarily include RMI.
In 2001, the first DRM-protected CD was realised in the UK: ‘White Lilies Island’ by Natalie Imbruglia on RCA label, which is a subsidiary of Sony Music. This used a third party technology to prevent the CD from being played or copied on a PC CD-ROM drive. Further incidents involving Sony Music emerged in the following years where again DRM copy-prevention measures were implemented on audio CDs that were much more invasive; creating security holes and leaving PCs unstable to run.Footnote 19 Such examples are indicative of the pre-existing operation of DRM where it was bundled with, or ‘attached’ to, the content it was designed to protect.
The film industry utilised similar measures. In the 1990s, DVD releases were encrypted with the Content Scramble System (CSS) in order to prevent the content being copied, played on unauthorised devices and/or in unauthorised regions, but had been circumvented in 1999 in the form of DeCSS.Footnote 20 This gave rise to a series of DRM-focused lawsuits in the US against individuals for making DeCSS publically available,Footnote 21 and technology providers for products enabling a DVD to be copied onto a computer hard drive.Footnote 22
However, the operation of DRM has evolved as new means of distribution and consumption have emerged. This is evidenced by more recent controversies, notably involving Amazon's remote deletion of George Orwell's 1984 from Kindle e-readers in 2009,Footnote 23 which suggests DRM measures are no longer immediately intertwined with physical media as a consequence of content consumption moving to streaming and on-demand-based networks. In particular, streaming has become the dominant means by which music content is being consumed. In this context, DRM and associated RMI thereunder is important as an enabler of these new business models.
2. Streaming
Music arguably lends itself very well to a streaming-based models as it is generally consumed by repeated listeningFootnote 24 and in 2016 revenues from music streaming services surpassed those from physical sales for the first time.Footnote 25 This trend continued in 2017 and 2018 with the International Federation of Phonographic Industries stating that streaming revenues grew 34% in 2018 alone.Footnote 26 As such, it is clear that streaming is the dominant form of music distribution and revenue generation online, compared to physical format sales which declined by 10.1% in the same year.Footnote 27 Platforms such as Spotify have contributed to ‘distracting’ users from downloading content, familiarising them with on-demand streamingFootnote 28 which has now become a major standard in the online distribution of digital works, allowing the user to consume the content in ‘real time’.Footnote 29 As such, this suggests that the normative conduct of users is also being channelled into specific distribution and consumption channels which the music industry has been searching for since the Napster era in the early 2000s when it became clear that: ‘Better business models are the Holy Grail of the digital age’.Footnote 30 Certainly, there is evidence that a degree of vertical integration between record labels and intermediaries has taken place, with the major record labels acquiring equity stakes in Spotify upon its inception.Footnote 31 This is also representative of the music industry acting to mitigate risk and seemingly promotes consumer welfare alongside technological developments.
In this respect, improvements in storage, Internet connectivity and speed, as well as consumer preferences, have helped familiarise consumers with on-demand content:
The kids’ culture is a highly mobile, networked, all-digital, and interactive culture, and digital technologies are a tacit standard that is completely and unobtrusively integrated into their lifestyles.Footnote 32
This is the so-called ‘Net generation’.Footnote 33 Indeed, recent statistics published in 2019 reveal that the highest proportion of music streamers are those in the 16–24 age group, where 68% of users stream, compared to 52% who download and 20% who purchase physical copies. This is compared to 61% and 45% who stream music in the 25–34 and 35–44 age categories respectively.Footnote 34 Even in 2016, the reach of streamed music among the Net-generation of 16–24 year olds was effectively double that of 25–34 and 35–44 year olds.Footnote 35 The roll-out for 4 G in 2013 further enabled this with 47% of 4 G users found to have engaged in streaming or downloading music/audio, compared to 28% without 4 G connectivity in 2015.Footnote 36
Streaming operates by utilising technology in a way that does not permit downloading.Footnote 37 In this scenario, content is stored on a central server from where a transmission is initialled at the request of a user.Footnote 38 Content streaming has the advantages of efficiency (through compression), leaving no trace of the compressed content (unless permitted by the rightsholder) and the ability of control (to access streamed content, the user will have to return to the rightsholder's service).Footnote 39 Once the process of streaming has started, it is a continuous process of transmission,Footnote 40 but which nonetheless involves a degree of copying or buffering (whereby a certain amount of data is downloaded as an advance supplyFootnote 41) to facilitate the smooth receipt and playing of the user's chosen content. Although this is essentially an act of temporary storage, it is not an act of ‘reproduction’ in legal terms; nowhere is a ‘copy’ of the content stored or any part of it retrievable by users.Footnote 42
As a result, streaming marks an important change from the traditional copy-based distribution mechanisms that have previously existed, and which were undermined through digital technologies and unauthorised downloading in the early 2000s. In the streaming context, a manageable DRM system requires elements such as: rights to manage; encryption; licence management; and a DRM-capable player.Footnote 43 When a customer plays the content, a licence request is sent to the copyright owner's proxy, which communicates with an authentication process to validate the user's rights to the content and release the necessary encryption.Footnote 44 Here, RMI operates in order to enable the content to be played and to track or record information about the content being played independently of the content itself. Clearly, compared to its previous iterations, DRM in this context has very little to do with controlling ‘serial copies’, but rather managing the delivery of musical content and being utilised to design (online) conduits for its consumption.Footnote 45
The operation of DRM on streaming services has an important adjunct through the associated licences that such services offer in order to use their particular service. Arguably, a modern and pragmatic copyright regime needs to regulate access,Footnote 46 and through the operation of DRM in this respect, the ability of content owners to offer and regulate the distribution and consumption of their works may lead to a greater number of specialised options and a wider range of consumer choices.Footnote 47 However, any potential benefits in this respect have, arguably, been negated by homogenised licence terms.
3. Licences
In theory, DRM allows the market to be encapsulated as one single entityFootnote 48 so as to be able to tailor more closely availability and demandFootnote 49 (therefore mitigating risk and improving consumer choice and welfare). DRM provides the ability to design different services and offers producers the ability to price discriminate with regard to buyer tastes and, potentially, enable greater revenue recovery.Footnote 50 With DRM, the rightsholder may make a range of choices that directly affect the availability of their content,Footnote 51 and any privileges rightsholders adopt should in theory compete with one another in the marketplace (such that the market will no longer be for content, but the ‘best’ form of DRM content). A new use ‘equilibrium’ would, therefore, assert itself through a process of experimentation,Footnote 52 and presumably competition. However, this has not proved to be the case as the main streaming content providers appear to have largely homogenised licensing terms which are accompanied by DRM measures.
This can be evidenced by more closely looking at the EULAs or terms and conditions of service provided by several of the biggest streaming and high-profile services: Spotify, Deezer, Pandora, Tidal, Amazon and Apple (through iTunes and Apple Music). These have been chosen for analysis owing to the fact that Amazon and Deezer are amongst the most popular music streaming services used in the UK, according to market research published by the UK Intellectual Property OfficeFootnote 53 (although YouTube and Google Play Music also feature here, they have not been included in the sample due to their more recent integration to YouTube Music which supersedes Google's own serviceFootnote 54). Similarly, Pandora is amongst the leading streaming services in the US (after Apple and Spotify) with 36.8 million users as of March 2018.Footnote 55 Jay-Z's Tidal service will also be included as an example of an artist-led initiative. Whilst it has a much smaller presence in the market, it has been included for comparison owing to its famous backer (Jay-Z) and its high-profile launch in 2015 along with artist stakeholders. Unlike Spotify, it does not offer a ‘freemium’ option and differentiates its service on creating a better service for fans and artists,Footnote 56 along with tiered pricing based on audio quality.Footnote 57 Therefore, it is worth considering whether any distinction can be seen in the content of its EULA.
The licence terms of these services are suggestive of the practices of rightsholders to deny copy ownership;Footnote 58 all except Deezer refer to the granting of a non-exclusive and/or non-transferable licence to the consumer to make use of the services. In particular, Apple states that ‘Apps made available through the App Store are licenced, not sold to you’. And: ‘… the terms of this standard EULA will govern any content, materials, or services accessible from or purchased within the Licensed Application’.Footnote 59 Similarly, Pandora grants a limited, non-transferable and revocable licence to access its services through ‘certified applications or intended methods’.Footnote 60 Spotify also states that:
Spotify and its licensors retain ownership of all copies of the Spotify software applications and Content even after installation on your personal computers, mobile handsets, tablets, and/or other relevant devices.Footnote 61
Spotify, Deezer, Tidal and Amazon refer specifically to DRM and/or TPM measures regarding content available through their services and whilst Apple provides for DRM-free content, this is only allowed on a ‘reasonable number of compatible devices that you own or control’.Footnote 62 DRM-free content also has further restrictions which, although allowing use on any number of synched devices, is only permitted on a maximum of five computers.Footnote 63 Deezer states that its free service is only available on one connection at a time and that it has the technical means to detect any attempts at multiple connections.Footnote 64 Deezer and Pandora users are also expressly bound not to circumvent the services’ technical protection measures or systems,Footnote 65 as is also the case with Tidal.Footnote 66
Where premium/subscription services enabling downloading are available, restrictions are still evident. Deezer refers to ‘temporary downloading’,Footnote 67 and Tidal to ‘temporary storage’.Footnote 68 Amazon states that, ‘When you purchase Music Content from the Store, you are directing us to store that Purchased Music for you’ and that ‘You expressly grant or transfer to us all permissions and benefits necessary to provide you cloud-based access to your Music Content’.Footnote 69 Deezer and Tidal state, in addition, that content cannot be transferred to any other medium.Footnote 70 Where premium or subscription services are offered on Spotify, Deezer, Tidal and Amazon, access to such content ceases upon the subscription ending or not being renewed.Footnote 71
These licences create a number of issues in their own right:Footnote 72 they create costs in reading and understanding, are non-negotiable and arguably indistinguishable, such that consumers’ ability to draw comparison and make informed decisions are undermined. Instead of representing a bargaining process between producers and users, they are more representative of the asymmetric power-dynamic between producers and users and redefine users’ relationship with content by limiting the transfer of the ‘product’ to a series of permissions. This may have a number of consequences that will now be explored.
4. Consequences
Most obviously, music streaming services have changed the nature of the product that is being offered. Musical content has been de-bundled, from a copy with various rights therein, to a series of permissions (covered by DRM and the licences). This has consequences for the application for copyright law itself regarding ownership and exhaustion issues: ‘The copyright marketplace is rife with examples of rightsholders and their intermediaries insisting that consumers do not actually own the copies they buy’.Footnote 73 This has implications for secondary markets for copyright content and whilst these may be limited in their actual effect, there is also a suggestion that the charts are becoming less diverse,Footnote 74 as well as the fact that the composition of popular music itself may be changing. Beyond this, it can be argued that the nature and use of DRM technologies in enabling these business models can impact the design principles evident in the development and operation of the Internet. These will now be explored in turn.
(a) Ownership and secondary markets
The success of the music industry has traditionally depended on the sale of copies and on user participation through the market; their ownership of copies therefore provides a reason for them to do this.Footnote 75 However, this is changing as a result of the growth of streaming services which has put increased tension on this relationship, as the tangible copy is no longer the dominant force in the digital music market:Footnote 76
…the physical copy is, and has historically been, the basic unit of consumption of a work, and the unauthorized creation of additional units of consumption undermines the copyright grant.Footnote 77
The growth of streaming distribution removes the ‘copy’ from the equation and it is the copy of which the user has traditionally had possession and control. The concept of ‘ownership’ may be seen to have two distinct meanings in copyright. Specifically, the ‘owner’ of the copyright work is vested with the exclusive economic rights of reproduction, distribution etc as well as the right to authorise third parties to perform any of these.Footnote 78 Copyright's commoditisation of content also allows authorised copies to be bought and sold, which leads to the second meaning: ownership of the copy as personal property,Footnote 79 along with the associated doctrine of exhaustion which has mediated this space between copyright ownership and personal ownership. Although theoretically distinct, copyright ownership and ownership of the copy are also invariably linked; what it means to own the copy depends on what rights the copyright owner has reserved,Footnote 80 but ‘… digital distribution changes our relationship to the copy’.Footnote 81 From looking at the licence terms highlighted above, it is evident that users of such music streaming services have no personal ownership of the content they may pay for or subscribe to. These licences are also largely homogenised and negate any notion of personal property of content that may have been ‘purchased’.
This creates tension with the doctrine of exhaustion, which provides a limitation on the economic right of distribution that copyright owners are vested with. Article 4(2) of the InfoSoc Directive and the US Copyright Act 1976Footnote 82 state that any subsequent distribution of a copy of a work previously put into circulation is not an infringement. Therefore, a rightsholder cannot control subsequent distribution of a work once it has already been lawfully sold in the market, and this allows secondary markets to form. These traditionally operate in respect to tangible copies of works (CDs, DVDs, books etc) that are owned by the consumers who initially purchase them and then wish to dispose of them. Owing to the fact that the licence terms of the streaming services, analysed above, do not grant any personal ownership rights to their users, this seems to prohibit any such markets being formed for digital music content.
However, it is questionable whether copyright law permits secondary markets for digital products in the first place. Digital technologies are copy-based, therefore implicating the right of reproduction over distribution and to which exhaustion does not apply. This can also be evidenced by examining recent court decisions on the issue from the US and Court of Justice of the European Union (CJEU).
Initially, it appeared that secondary markets could exist for digital products, at least in the case of computer software. In 2012, the CJEU delivered its judgment in the case of UsedSoft v Oracle Footnote 83 concerning the application of the principle of exhaustion to computer programs under Article 4(2) of the Computer Programs DirectiveFootnote 84 which states that the first sale of a program in the Community exhausts the distribution right in respect of that copy. In this particular case, Oracle distributed their software online such that a customer would download it under a licence agreement permitting the right to store a copy of the program permanently and allowing a defined number of users to access it, such that two licences would be required where that number would be exceeded. Updates and patches would also be available to download from Oracle's website and, crucially, the licence agreement was stated to last for an ‘unlimited period’. UsedSoft markets used software licences, including those for Oracle's proprietary software where extra users were required, and they induced their customers to copy Oracle's program on to those users’ computers. The CJEU was called on to consider whether a UsedSoft customer who does not hold a user right in Oracle's program can benefit from the principle of exhaustion so as to therefore be a ‘lawful acquirer’ of it under the Computer Programs Directive.
The Court analysed the nature of the contractual relationship between the Oracle and the customer to determine whether the downloading of the software amounted to a first sale of a copy of the program under Article 4(2) of the Directive. It found that the downloading of the software and the conclusion of the licence agreement formed an ‘indivisible whole’,Footnote 85 especially given the licence granted unlimited duration of use. This, therefore, amounted to a transfer of ownership regardless of the medium (as a download or on a CD-ROM which was a customer option).Footnote 86
Acknowledging the opinion of the Advocate General, the Court noted that if the term ‘sale’ were not given a wide interpretation, the effectiveness of Article 4 would be hindered, as software suppliers would be able to simply circumvent it through referring to the contract (of sale) as a licence.Footnote 87 No distinction was made between tangible and intangible formFootnote 88 concerning the product's format at acquisition, although the reasoning of the court suggests that this may not be an issue regarding exhaustion:
… the exhaustion of the distribution right … concerns both tangible and intangible copies of a computer program and hence also copies of programs which, on the occasion of their first sale, have been downloaded from the internet onto the first acquirer's computer.Footnote 89
This was because the physical sale and the download were deemed similar from an economic perspectiveFootnote 90 and were held to cover any relevant updates or patches.Footnote 91 An important proviso exists in that the original user must render their copy unusable at the time of resale to avoid infringement under the Computer Programs Directive and the InfoSoc Directive,Footnote 92 which, in this context, can involve the use of TPMs, whether ‘classic’ or ‘digital’ to ensure this is the case.Footnote 93
Nonetheless, this case has limited applicability. As the Court twice reiterated, the legal issues here constituted a lex specialisFootnote 94 such that the protection of computer programs and exhaustion of rights therein are confined to this specific type of subject-matter under the Computer Programs Directive and are not extended to the InfoSoc Directive. This is seemingly confirmed when read with the case of Nintendo v PC Box,Footnote 95 a case which also involved the legitimacy of devices that circumvented TPMs. In that regard, it was deemed that PC Box's modifications (‘mod chips’) circumventing Nintendo's DRM (operating concurrently between the video game and console) enabling third-party applications to be used, is something that Article 6 of the InfoSoc Directive is designed to protect against. However, it must be determined what, if any, other purposes such a circumvention device may be used for, and whether or not such purposes are purely geared towards copyright infringement or something different and/or non-infringing.Footnote 96
In contrast to UsedSoft, this case was heard under the InfoSoc Directive and caused the Court to consider the type of copyright subject-matter computer games constitute. As much as they comprise of a computer program, they were held to be ‘complex matter’, including audio and graphical components which may ‘have a unique and creative value’.Footnote 97 As such, they lie beyond the purview of the Computer Programs Directive and this case serves to confine the effect of UsedSoft to purely computer programs (and not computer games). As such, early suggestions from the industry concerning new secondary markets for computer games were premature. When it comes to other categories of copyright works, the cases of ReDigi Footnote 98 in the US along with Art & Allposters Footnote 99 and Tom Kabinet Footnote 100 in Europe seem to further confirm a lack of viable secondary markets for digital content in these jurisdictions.
ReDigi is an online marketplace for pre-owned digital goods that enables registered users to trade their legally purchased, but unwanted, digital content (ebooks and music) utilising a credit-based system. In 2013, Capitol Records sued the company on the basis that its operation amounts to copyright infringement. In much the same way as secondary markets for physical media permit, it allows consumers (or in this case, users) to recoup the value of their purchases. Presumably then, the doctrine of exhaustion would also apply in much the same way.
The system utilised cloud-based technology for which the user must download ReDigi's ‘Media Manager’ which determined the eligibility of content on the user's computer to be sold. From this list, the user can then upload their eligible files to the ‘Cloud Locker’, and it was this particular aspect of ReDigi's operation that the case focused on, with Capitol asserting that this necessarily involved reproduction in contravention of the US Copyright Act. For the District Court:
The novel question presented in this action is whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine. The Court determines that it cannot.Footnote 101
Referring to the Napster decisionFootnote 102 as well as citing evidence from the Act itself, its legislative history (House and Senate reports), and the ‘laws of physics’Footnote 103 the embodiment of a digital music file on the hard disk of a different user constituted a reproduction within the meaning of the Act. However, the case is interesting because unlike unauthorised file-sharing and the associated operation of p2p networks, ReDigi's users ‘migrated’ their copy of the work to the cloud such that it then ceased to exist on the user's computer (any additional copies would also be deleted). Nonetheless, according to the Court: ‘… it is the creation of a new material object and not an additional material object that defines the reproduction right’.Footnote 104
The application of the first sale doctrine as considered by the Court evidences a similarly narrow reading. Given that a ‘new’ copy was created upon upload, the user was deemed not to be selling their ‘particular’ (personal) copy of a workFootnote 105 and that defence was therefore inapplicable. The Court held that this defence was limited to material items (regardless of the fact that the previously mentioned laws of physics dictate that a computer file constitutes a physical location on a hard disk). As such, ReDigi were distributing: ‘… new material objects’.Footnote 106 This decision was affirmed by Court of Appeals for the Second Circuit.Footnote 107 However, it must be borne in mind that the licences described above do not actually permit any personal ownership of a ‘particular’ copy that could be traded on a secondary digital market.
Similar reasoning regarding the application of exhaustion and the requirement of tangibility can be seen from the CJEU in the case of Art & Allposters International BV v Stichting Pictoright.Footnote 108 This case concerned the production and sale of altered versions of copyrighted artworks whereby authorised posters of artworks were transferred by Art & Allposters on to canvas and sold online. As framed by the CJEU, the essential question was the applicability of Article 4(2) of the InfoSoc Directive in circumstances where the original work ‘…has undergone an alteration of its medium’.Footnote 109 Crucially, recital 28 of the Directive makes reference to work incorporated in a ‘tangible article’. However, just as importantly, the process by which Art & Allposters carried out the process meant that the original poster ceased to exist. A synthetic coating was applied to the poster such that the artwork was transferred from it to the new canvas surface;Footnote 110 as such, the medium was ‘replaced’Footnote 111 despite the fact that the physical ink was not alteredFootnote 112 and multiple copies were not created. However, the CJEU determined that the physical object placed on the market by the rightsholder was different to that created by Art & Allposters such that exhaustion did not apply to the altered work; it was deemed to be a new reproductionFootnote 113 in the same way that ReDigi's service created a new ‘material object’. In contrast to Usedsoft, the medium and ‘new’ reproductions (in the literal sense of the word) of the work in these cases were centrally important to the decisions.
The primary mode for secondary markets for copyright content is intrinsically related to the medium in which the work was initially put on the market by the rightsholder and the forum through which the relevant secondary market may operate. Article 4 of the InfoSoc Directive, concerning reproduction, focuses on reproduction of a tangible article, as evidenced by recital 28. Any change therein results in the creation of a ‘new’ copy that is not subject to the principles of exhaustion, despite the original copy ceasing to exist. However, recital 29 makes clear that exhaustion does not apply to online services, and this was most recently affirmed in Tom Kabinet.Footnote 114 Unlike liability under the right of reproduction which was the focus in ReDigi and Art & Allposters, this case concerned the right of communication. Here, the provision of an online marketplace for secondhand ebooks was deemed unlawful; the digital content was ‘made available’ to the public therefore constituting a communication under the InfoSoc Directive and established case law.Footnote 115
A distinction must, and should, be drawn between both the subject-matter and economic rights concerned in these cases. As Advocate General Szpunar opined in Tom Kabinet, in the case of literary, musical or cinematographic works, the usefulness is often exhausted, so to speak, after a single reading, hearing or viewing.Footnote 116
This can be contrasted with computer programs, which supposedly have a longer period of ‘use’ although, as Advocate General Szpunar noted, they also become obsolete relatively quickly.Footnote 117 Nonetheless, digital music and ebooks etc retain their usefulness and, by extension, their economic value to the rightsholder. As a consequence, this type of secondary market was deemed to have a much greater value to rightsholders.
These court decisions related to the specifics of the legislation and rights concerned, as well as the relevant subject matter, and have largely negated the ability for independent secondary markets for digital content to develop. As the founders of the Tom Kabinet platform noted following the decision, ‘Tom Kabinet's story ends here’.Footnote 118
Arguable, streaming platforms themselves are now providing a secondary market for content, be it music or other media – a ‘one-stop shop’ where consumers can access newly released content, but also older content that they may otherwise have acquired through traditional transactions involving physical media. Such paid-for, subscription-based, or rightsholder-controlled secondary markets are developing across the copyright industries, particularly in TV and movie sectors with the launch of new services from Disney (‘Disney+’)Footnote 119 and ‘BritBox’ in the UK, a joint streaming service recently launched by the BBC and ITV.Footnote 120 This was described by the then BBC Director General, Lord Hall, as a ‘modern-day’ version of watching a programme on television and subsequently purchasing it on DVD.Footnote 121 However, the difference here is the continued remuneration to rightsholders, compared to the exhaustion of their rights and, therefore, remuneration after lawfully putting a copy of a work on the market. Unlike secondary markets for physical media, these are virtual markets which rightsholders and intermediaries can also exercise control over through the use of DRM.
This is because today's Internet is, arguably, mostly concerned with connecting people with contentFootnote 122 rather than providing them with copies of it. DRM ensures that streaming platforms can maintain an ongoing relationship with users through subscription models and as an integral component of content provision. A music stream can be controlled by the rightsholder who can thus condition how a user apprehends and consumes content.Footnote 123 Despite this, many services purport to offer a degree of freedom commensurate with personal ownership of music. Just as Apple advertised ‘Rip. Mix. Burn’ in 2001 with the launch of the iMac, so Spotify today advertises ‘Any track, any time, anywhere’,Footnote 124 as well as ‘Listen on the go’ and ‘Play your favourites any time’.Footnote 125
As mentioned, usage rules should result from a bargaining process in which users are involved. Users may have the benefit of convenience, but this is not a consequence of their role in any bargaining process, with unilateral, or bilateral decisions taken (by, or between, rightsholders) regarding content distribution and supported by protective licence agreements. By maximising their return by internalising transaction costs through DRM, external costs may be created for consumers through restrictive licencing terms as well as potential technological lock-in.Footnote 126 This leads to increasingly limited ability to seek out alternative markets for digital content consumption beyond the subscription-based models currently in operation.Footnote 127 Alternatively though, it could just as easily be argued that these services have successfully replaced the need for such alternative markets by providing consumers with choice, ease and convenience as well as maintaining incentives to create and release music.
Nonetheless, the current market structure perhaps creates further consequences yet to be fully felt, relating to musical diversity, musical composition and the very nature of the Internet itself, to which attention will now turn.
(b) Musical diversity and composition
The on-demand nature of streamed music, supported by DRM, suggests that new artists may face difficulties if seeking to break into the charts because established acts can dominate several chart positions at once following the release of new material, which may be ultimately detrimental to musical diversity. In this regard, a related consequence of streaming is that albums themselves may be de-bundled (or indeed replaced by ‘playlists’) and the chart-eligibility of streamed music from 2014 allows the opportunity for this phenomenon to occur when previously it could not.Footnote 128 For example, in March 2017 the artist Ed Sheeran occupied 16 out of the top 20 chart positions with songs from his latest album ‘Divide’.Footnote 129 Similarly, the US artist Drake spent 14 weeks at number one with the track ‘One Dance’ as a consequence of streaming consumption, when sales-only data would have placed it at number one for only three weeks.Footnote 130 As a result, it has been suggested that the charts themselves have stagnated, lack diversity and/or there is a lack of quality new artists emerging. For example, a study by the BBC found that in the first six months of 2016, there were 86 new entries in the UK singles chart, compared to 230 ten years previously. Similarly, 11 songs reached number one in 2016, compared to 26 in 2015 and 42 in 2014.Footnote 131 The examples highlighted above have led to a change in chart eligibility rules for streamed music with the ratio of streams per-play changing from 100:1 to 150:1 for newer releases and to 300:1 for older tracks which will apply after three consecutive weeks of declining streams.Footnote 132 This so-called ‘Accelerated Chart Ratio’ cannot be applied to any track that has spent fewer than nine weeks in the chart.Footnote 133 Whilst this may mitigate similar phenomena happening again, the market performance for music has a deeper dynamic and is not purely based on ‘popularity’.
It can also be argued that the music industry has become much more risk-adverse following the Napster era, when peer-to-peer file-sharing significantly reduced revenues. Although these are being restored, the dominance of streaming has also affected the composition of popular music, and by extension may impact artists themselves. A study by Gauvin in 2017Footnote 134 established that song intros (ie the period of time before the vocal appears) have reduced from an average of over twenty seconds in the 1980s to an average of five seconds by 2015.Footnote 135 This research utilises theory from ‘attention economics’ highlighting that:
…in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.Footnote 136
This is perhaps especially prevalent with the Internet where ‘… The economy of attention – not information – is the natural economy of cyberspace’.Footnote 137 With streaming services, the attention span of listeners has perhaps decreased as it is easy to skip a track if it does not instantly appeal.Footnote 138 As well as this, there is simply an abundance of information, or in this instance music, for the consumer to process; Spotify provides streaming to over fifty million songs and access to over two billion playlists.Footnote 139 Whilst this change in composition may be seen to be consistent with attention economy principles, it should not necessarily come as a surprise.Footnote 140 ‘Standards’ or aesthetics in musical composition have changed over the decades through evolutions in audience, age and phonographic media formats: ‘… a standard develops as the result of its clear location in the popular music consciousness of a particular generational cohort at a specific time and place…’.Footnote 141 By extension, this can also explain why certain songs are favoured by certain generations of listeners. The memory systems of the brain are intrinsically linked to preferences for music first heard between the ages of 10 and 30Footnote 142 which evoke more specific autobiographical memories and emotions than music heard in later lifeFootnote 143 – the so-called ‘reminiscence bump’. Streaming therefore provides ample long tail provision of content that generationally-orientated users keep returning to. Recent data released by the British Phonographic Industry shows that the reach of streaming is permeating the long tail of musical contentFootnote 144 with streams of the most popular songs from the 1960s–1990s comparing relatively favourably to those of more recent years. Spotify's own studies also reveal that the popularity of newly released music peaks in its second year of release,Footnote 145 which could indicate more of a ‘slow burn’ in contrast to the traditional dominance of ‘hits’ that the chart system is designed to reflect.
Whilst physical media imbued a certain ‘permanence’ to recordings,Footnote 146 the shift to streaming perhaps lessened this, as a consequence of generational change, rising streaming-based consumption and the high levels of competition for listeners’ attention. It appears that the key to success is managing listener's engagement – as mentioned above, connecting users with content is necessary at an initial level, but more so maintaining their attention. Along with the evolution of the chart system and the changing composition of popular music, there is clearly a major shift happening in the dynamics of the music industry and the market, beyond the initial ‘surge’ in frontline sales associated with physical formats.
(c) Internet architecture
Further consequences may also be felt in relation to the evolution and even the operation of the Internet itself. The modern role of DRM may be seen as being aimed at the architectural elements of the Internet that are concerned with the efficient transport of content,Footnote 147 but the Internet was (arguably) never designed as a commercially structured medium for selling digital data.Footnote 148 DRM operates as a form of architectural regulation as architectural distribution mechanisms have developed beyond the peer-to-peer architecture common in the 2000s. It was stated in 1995 that the delivery on demand will be the preferred communication pattern on the InternetFootnote 149 and such ‘transport’ of content now takes place via content streaming, with downloading becoming less necessary.Footnote 150
Arguably, the Internet's most important feature (and its main strengthFootnote 151) is its open architecture: ‘Fortunately, nobody owns the Internet, there is no centralised control’.Footnote 152 Delving into the technical literature associated with the development of the technology is instructive in this regard. The Internet is not optimised; instead, the goals of the network are flexibility and evolvability:Footnote 153 ‘Systems that are more closed tend to allocate power to the owner of the system’.Footnote 154 It is designed to maximise interoperability, and to be independent of software programs, hardware platforms and other technologies. This ‘… is its greatest virtue since it encourages greater participation in the form of new technologies and applications that help shape and reshape the entire network’.Footnote 155
Related to this is the principle of ‘end-to-end’ (e2e) which has been latent in the Internet's design for many years.Footnote 156 This architectural principle was envisaged in the early 1980s and described the process whereby ‘the function in question can completely and correctly be implemented only with the knowledge and help of the application standing at the endpoints of the communication system’.Footnote 157
Put another way, if the system end-points (ie Internet users) cannot be trusted, then this may imply the development of mechanisms on the network itself to enforce ‘good’ behaviourFootnote 158 through interventions to protect copyright.Footnote 159 This implicates DRM as a network issue: ‘As trust erodes, both end-points and third parties may wish to interpose intermediate elements into a communication to achieve verification and control’.Footnote 160
As mentioned previously, DRM's role in relation to content streaming can create technological lock-in, and such power concentration has been noted by the Internet Architecture Board as being a ‘concerning phenomenon’ as recently as September 2020.Footnote 161 Issues here relate to hardware and software ecosystems; the stream of data must be routed through the device, which must have some ability to see what sort of information is in the stream so it can make the necessary processing decisions.Footnote 162 Although there is not a readily apparent relationship between this and the role of copyright itself, the anti-circumvention provisions highlighted above now provide this link such that circumventing such a system is an offence in the same way that copyright infringement may be illegal. As a consequence, it can also be used to regulate technologies to create and maintain such ecosystems. Apple has become an important digital gatekeeper for the content industries,Footnote 163 through transforming itself from a technology-based company, to an entertainment-based one.Footnote 164 Steve Jobs himself came to play a major role in shaping the strategy of rightsholdersFootnote 165 although, ironically, he did not favour a subscription-based distribution model.Footnote 166 The role of DRM also contributed to this, initially through attempts to develop the ‘Secure Digital Music Initiative’ as a standard encryption format for music files in 2002.Footnote 167 Although this ultimately ended without agreement due to the conflicting interests of those involved, that did not mean that the issue faded:
Meanwhile, unbeknownst to most of the panel members, another group of smart, hi-tech business people was watching the proceedings very, very carefully. It was Apple Computer… [who] decided they could do a far better job.Footnote 168
Apple's then proprietary ‘FairPlay’ DRM system benefited them much more than the labels as it locked consumers into Apple products.Footnote 169 This ‘lock-in’ created an Apple ‘ecosystem’ that essentially tied its product range together for commercial transactionsFootnote 170 (originally driven by the iPodFootnote 171) such that they were mutually reinforcing. Originally, this was between Apple's iTunes software and the iPod,Footnote 172 but now extends to their other technology products (in particular the iPhone and iWatch) which have strengthened their ecosystem.
This is also how Apple operates – entering a new market and refining its products and services until it yields success.Footnote 173 This interconnected nature of Apple's products and services is an important part of its business strategy,Footnote 174 as well as the rigidity of its business practice: ‘Apple is a stalwart on its pricing scheme’.Footnote 175 It has now, however, spun out its iTunes service into four distinct parts (Apple Music, Apple Podcasts, Apple TV and Finder) to further drive users into its software and services.Footnote 176 Music consumption is no longer about ripping, mixing and burning, but again connecting users with content on proprietary platforms and networks. This interconnected nature between products and content (even if the content is DRM-free) therefore highlights the importance of rightsholder-controlled digital distribution networks on which the rightsholder and/or streaming platform is most likely to add services (and thus constraints) by modifying the part of the network that they control.Footnote 177
This may lead to what Sir Tim Berners-Lee has referred to as ‘fragmentation’ and whilst he was referring more specifically to social media sites, the same analogy could be applied in this context: ‘The more you enter, the more you become locked in…’, and referring to iTunes, ‘You are trapped in a single store, rather than being on the open marketplace’.Footnote 178 Therefore, streaming-based distribution of music (supported by DRM and licences) may threaten to create network fragmentation whereby centralised and closed distribution networks are prevalent and where DRM operates on the network itself. All of this is in contrast to the decentralised, open and e2e-designed network that originally developed.
Conclusion
The growth of streaming-based music consumption is unlikely to change; it is the dominant mechanism by which such content is consumed online and the recording industry is dependent on its success, especially bearing in mind the major labels have equity stakes in Spotify.Footnote 179 DRM plays an important role in this context, enabling such business models in the first place and subsequently protecting and managing the content offered on such platforms. In contrast to its early incarnations, it now operates as an ‘omnipresent connectivity’Footnote 180 and is an inescapable necessity.Footnote 181 Digital networks can now be designed to mirror the traditional industry market normsFootnote 182 and re-establish the market practices and market regulation that were threatened by digital technology. Such a content-centric network focuses on what a user wants, with increasing concentration on the delivery of content.Footnote 183 A successful network may increase the available choices to the user, but conversely, restrict interoperability,Footnote 184 such that user choices are limited amongst streaming providers and their proffered content. Such restrictions are also evident through the associated licensing terms that these services offer; there is no need for them to offer more freedoms when they can simply introduce further restrictions in order to appeal to the record labels, as rightsholders, on whom they depend for content provision.
Such choices may interfere with the ‘value’ of a piece of music as this arises as a result of its utility through consumption:Footnote 185 ‘People want to be engaged with their content … They want to engage in an ongoing relationship…’.Footnote 186 However, the development of streaming-based and DRM-supported content distribution changes this dynamic. DRM may affect users’ perceptions of their rights,Footnote 187 changing their normative behaviour alongside the underlying architecture of digital content consumption:
Nowhere is this transformation more apparent than among young people who have grown up in a digital world and, in some cases, cannot relate to the physical objects of the past.Footnote 188
As has been shown, the operation of DRM in conjunction with licence agreements may have few consequences regarding secondary markets, but more so music chart diversity, musical composition, and threatening the fundamental design principles of the Internet. However, the success seemingly enjoyed by streaming providers suggests that these do not seem to be of much (if any) concern to the general public and users of such services; overall, streaming services seem to create a lower incentive to illegally download music. Music on physical media also continues to exist and, in the case of vinyl, has enjoyed a degree of resurgence in the UK due to the Covid-19 pandemic.Footnote 189 Nonetheless, these individual issues can be seen at a macro-level that is indicative of a re-establishment of record industry power allied to streaming platforms. This trend is likely to continue and present broader level, unique problems that are related to those already highlighted.
Issues such as streaming piracy, click fraud and the ‘value gap’ have all emerged in recent years and whilst there are attempts to mitigate these in the form of the new Directive on copyright in the Digital Single Market,Footnote 190 problems may still remain. The Internet has enabled artists to innovate how they present their work to consumers, but the movement to streaming arguably makes this more difficult. In 2014, the US band Vulfpeck released their album ‘Sleepify’ on Spotify. The album consisted of ten songs of silence lasting between 31 and 32 seconds which they asked their fans to stream on repeat in order to generate sufficient royalties to fund an admission-free tour.Footnote 191 The album was subsequently removed from the service for violating their terms of content.Footnote 192 Although these services offer services for artists themselves, for unsigned acts they involve third parties (who handle licensing and distribution for a fee or percentage).Footnote 193 Even with direct distribution schemes, like those offered by Spotify since 2018,Footnote 194 complexities exist and artists may still receive slightly less than the major record labels.Footnote 195 Controversies over royalty payments and mechanisms suggest that only artists who are globally established have any bargaining powerFootnote 196 against these services. It could also be argued that simply being a talented musician is no longer enough: new artists perhaps now need a background in, or require education on, the technology and business practices involved in the streaming-based landscape. They may subsequently find themselves competing for the attention of potential fans through these services and being forced to conform to associated compositional necessities. This may also jeopardise older artists, who either lack familiarity with current practices and technologies, or whose work does not conform to modern standards; artists whose work lies in the long tail that current trends seem to be ignoring and which streaming may either help or exacerbate.
This is being driven in part by DRM, but more broadly by the interrelationship between the record industry and streaming platforms.Footnote 197 Copyright also remains centrally important here, but its focus is no longer on enforcing reproduction rights, because the ‘copy’ has been removed from the equation. Technologies and intermediaries have now evolved around copyright law. The locus of copyright in this context is moving towards the immediate bundle of rights acquired that enable online exploitation but with little opportunity for copyright's in-built balancing mechanisms to operate.
