Mr. Chairman and Members of the Committee:
My name is James Hazen Griffin. I am the Chief
Executive Officer of Cherry Lane Digital, part of
the Cherry Lane Music Group created by
world-renowned musicologist Milton Okun. At Cherry
Lane Digital we hope to absorb the uncertainty of
our clients regarding the change inherent in
entertainment technology. I serve as co-chairman
along with Jeremiah Chechik of Evolab, the
Evolutionary Laboratory, where we are focused on the
wireless delivery of media. Before my involvement
with these companies, I started in 1993 and ran for
five years the technology department at Geffen
I am also a founder and leader of the Pho group,
approximately a thousand people connected
electronically and through over a dozen meals held
weekly around the world. The Pho group takes no
position on these issues, but is instead a catalyst
for discussion on issues such as those we are
addressing here today. In addition, I write a column
in every issue of the magazine Business 2.0.
Counsel accompanying me here today is Phil Corwin, a partner
at the Washington, D.C., firm of Butera &
Andrews. This appearance would be considerably less
coherent without Mr. Corwin's guidance and that of
the Senate Judiciary Committee's staff, and I thank
all these people along with you for the opportunity
to appear today and address these issues, which I
believe to be of Paramount and Universal importance,
to name just two of the studios that will be
affected by them.
The Pho group and my advisors and associates have
contributed mightily to my comments today, but they
are not to blame for its presentation and my
nervousness and perhaps resultant failure to fully
foresight in convening these hearings is to be
commended, as there is and always will be enormous
change in the delivery of entertainment and all
intellectual works, whether music, movies, books or
other forms of art.
my remarks are a brief presentation centered around
a half-dozen fundamental points:
No one is here to defend free music, but music
can and should be made to feel free, even when it is
will suggest music should be free, as this would be
absurd from either a business or emotional point of
view. Indeed, if it were truly free, there wouldn't
be much more of it, as any economist can tell you,
and any artist will readily verify. I am certain
there are some here today who will.
as certainly as it must not be free, I suggest that
it is our obligation and our opportunity to insofar
as possible make it feel free, at least at the
moment we decide to use it.
delivery of music is approaching zero marginal cost
- the cost of enabling each listen after the first.
For some, this is a terrifying prospect, as their
income may have depended upon charging a price much
higher than marginal cost, say $18 for a disc that
costs no more than a dollar to reproduce.
others, this is not at all terrifying. To Mel
Karmizan, who runs CBS radio and its Infinity
broadcast stations, it is expected. He makes music
played on CBS stations feel free to its listeners,
though they pay indirectly each time they patronize
an advertiser. Likewise, Jerry Seinfeld feels free
to his viewers, none of whom can remember paying,
though they all do. If we suggested to either of
these gentleman that they encrypt and protect from
non-paying eyes and ears their words and images,
they would laugh, as this would reduce the income
for those who pay a subscription fee to watch MTV or
listen to an audio service, though they pay
directly, each decision to listen or watch returns
more value for fees already paid, making the use of
music or movies a positive economic act/
it can be truly said that music behaves more like
Thomas Jefferson's candle - which when lit with
another candle diminishes the flame of the first not
at all - than it does like an object subject to the
laws of supply and demand.
the music listener who shares music, there is no
consumption, as there is no less music after playing
it than there was beforehand. The supply of boxes
containing music is decremented not at all, and
arguably the demand is increased.
are the new clothes the music industry must wear if
it is to grow to the $100 billion business it wishes
from the $40 billion business it is.
This is because in the music world, like so many
others, service is replacing product.
economy that affects the jobs of steelworkers and
artists alike is changing in fundamental ways, and
like so many industries, the artist's world is
transitioning from product to service.
we are learning that the answers lie in new business
models, not technology-based solutions. The video
industry that once emphasized control now sees
greater value in growing the crowd.
best forms of copy protection are new business
models that destroy the motive to copy, not its
mechanism. A wireless flat-fee/advertising-supported
jukebox of unlimited capacity would strip us of our
desire to make MP3 files. We are transitioning, as
my friend John Perry Barlow likes to say, from an
economy of nouns to one of verbs. An economy that
emphasizes the wine, not the bottle.
and data networks liberate content from control over
its quantity and destination, in much the same way
that broadcast of radio and television remove
control over the number and location of listeners or
viewers. Control over quantity and destination are
customary requisites for establishing pricing
schedules that leverage maximum price over marginal
control is lost, price falls and hovers at or near
marginal cost of delivery. For example, if DeBeers
lost control over the distribution of diamonds,
their price would drop dramatically. Absent DeBeers'
control, the price of diamonds would obey the
standard laws of supply and demand and command a
lower price in the market.
service relationships, on the other hand, can and do
flourish in an environment where there is no control
and the audience is left to grow virally. With the
service provider serving as a gatekeeper to the
growing audience, profit can follow. Service
relationships, such as those established by radio or
television stations, emphasize repeat visits and
informal or formal "data mining" to
extract full value from the business affiliation.
Net of the future will continue to exhibit
flat-fee/flat-free pull, where we choose to monetize
our presence by tolerating advertisements or by
paying a subscription fee to banish the ads and the
loss of privacy. We've already seen online services
such as America On-line adopt the flat-fee model, as
have telephone companies such as Sprint and
AT&T. Where these companies once billed us for
our activities and their duration, we now enjoy a
smorgasbord of communication for one price.
its most rational, consumer behavior suggests they
believe media should be priced at or near marginal
cost of delivery, which is closer to zero than 99
cents. This is the price to which they have grown
accustomed in radio, television, newspapers,
magazines, and so on. Where media can be controlled,
such as concert seats or difficult-to-replicate
analog items, consumers are more likely to be
compelled to accept a wide disparity between price
and marginal cost, but uncontrolled media generally
move at or near marginal cost.
if we can control the destiny of songs, we give up
control over quantity and commoditization, creating
a singles business where none has ever proved
profitable. Even singles at a dollar apiece reduce
album-related income because debundled consumers
will skim the cream off a market built on bundled
pricing. For years we've promoted singles and sold
its most irrational, by the way, consumer behavior
suggests the obvious: We are often doing business
with teenagers! This should be little surprise
because it is teenagers we target with the music.
It's as if we were complaining that they should like
our dinosaur books more than those silly Pokemon
cards -- value is in the eye of the beholder, and
the beholder is distracted and empowered in ways our
experience cannot appreciate.
we must realize that our digits will flow like water
from their source to their destination. Whether
disintermediated from broadcast or networks or disk
duplication or kids plugging into listening posts or
whatever, our reality is that our inability to
control has a dramatic effect on pricing and our
music was made long before music the product was
even conceived. Music the product is a relatively
modern invention, and has been part of music for
only a blip in history.
ubiquitous music as a service creates the right
business model -- with the permission of the
appropriate rights holders (which may or may not
include the artist, and may or may not include the
music listener). When we move away from the package
we liberate the content to seek larger audiences,
and serving as gatekeeper to that ever-growing crowd
is the key to viral success.
product-based business will thrive from
entertainment the service. By creating a flat-fee
buffet instead of the current tax on trying new
things ($15 to see if you might like more than one
song from that new band), we'll likely see
merchandise and concert tickets and all manner of
ancillary income increase. At the same time, we can
grow the bundled subscription revenues to support
the financial licensing needs of the industry.
time to set a price for the interactive license and
administer it. The consumer wants option value
without the disk, and in an increasingly mobile and
wireless world this is not an unreasonable request,
certainly no more unreasonable than wanting to watch
a local network television station via my DirecTV
satellite dish (which Congress mercifully recently
enabled over the objections of the local network
television station, which copyrights the content).
Digits will become ubiquitous and will increasingly
arrive just-in-time, and in a customized way. They
will eventually cease to be distributed digitally
through downloads or transferred in analog boxes.
arrival of wireless digital access will someday
permit just-in-time, customized access to music,
movies, books and other media content. These digits
and the content they carry will be streams, not
capital markets enthusiastically support the growth
of connectivity by whatever means, including
wireless, copper cable, and fiber optic.
Connectivity becomes an assumption, not a
complicated arrangement. Our American obsession with
wires and set-top boxes ignores belies the fact that
China and Africa and others are not wiring, they're
skipping ahead, leap-frogging to wireless,
a commonly held assumption that digital distribution
will replace the analog distribution system that
traditionally delivers services and
information-based products. In the music industry,
for example, there is much talk about the future of
downloading music singles for a dollar apiece - or
free - in MP3 or some other digital format.
likely, however, the notion of offering music or
other data, such as Websites or movies or
newspapers, to be downloaded and stored will give
way to business models that emphasize the widespread
availability of content. When we can access all the
bits we want, wherever we are, whenever we want
them, we won't want to carry them around. Delivery
on a disk or fixed storage of any kind will atrophy,
as consumers tire of digital-asset management
lessons and content providers become annoyed at
giving those lessons.
we once could only conceive of as tangible are now
fully functional services without form, ubiquitously
delivered just-in-time at marginal cost and
customized for each use and user. Put more simply,
the ability to decide what I want and get it where
and when I want it.
call it option value. What it means to you is that
this content is available at your option.
Conversely, the song you hear on the radio or video
you see on MTV isn't at your option, and is priced
accordingly. We pay a price for the ability to have
option value over something. A movie or song
broadcast ephemerally has low economic cost to the
viewer, but on a prerecorded cassette it draws a
premium for its option value. The entertainment
business refers to it as the difference between a
performance license (inexpensive, compulsory,
generally embodied in a radio or television
broadcast) and a mechanical license (relatively
expensive, discretionary, and generally a box
containing a disc or tape).
however, consumers have access to a multiplicity of
recording devices, some real products we plug into
the wall (such as the Replay or TiVo devices or
standard audio or video recorders), others are
software services downloaded or accessed over the
Web. They are buffers, repositories of digits that
hold them for your later use, cached to enable you
to summon them at will.
products and services offer consumers option value
over streams, the ability to retain an ephemeral
performance and use it when and where they want to
other words, these buffers transform push into pull.
They take content pushed aimlessly by broadcasters
and make it content you pull when you want it, and
if you don't want the commercials, you click a
button and they disappear. They buffer or cache the
output of the broadcast and allow consumers the
ability to retain the content and use it virtually
the only purpose of the buffers and caches we rely
upon today, such as diskettes and compact discs and
DVDs, is to overcome real or perceived supply
and storage are determinative factors of our media
interaction today, but long-term they are obsolete,
the equivalent of today's floppy disk - or disk of
any kind. Disks are like traveler's checks in an era
of automatic teller machines. Who amongst us didn't
rely upon traveler's checks when we absolutely,
positively had to have the money we needed to feed
and shelter ourselves in a foreign land? Today, with
the just-in-time efficiency of customized cash
available with the swipe of a plastic card, I know
few who bother.
the final analysis, products, hard drives, and
downloads disconnect, depriving the audience - and
the creator - of a relationship bonded with
continuous access. Every streamed use, however, is
an opportunity to grow a closer, better relationship
between artist and fan.
History proves this analysis by analogy.
was the first Napster, just as Gutenberg made simple
the task of printing previously difficult papal
indulgences. Radio meant that we could no longer
control the quantity or destiny of the music, or
sporting event, or church service, once broadcast.
New Economy is anything but new. Like a recently
purchased vehicle, it's new to us. But let there be
no illusion: This economy has been around the block
a few times. Sadly, we put out to pasture decades
ago those who could teach us now. There are few
old-timers remaining to bear witness to the truth:
The Roaring '20s make our 2,000 days in the throes
of dot-com fever look tame by comparison.
became electric during the '20s with far more savage
impact on the economy of art than we see now with
electric becoming digital.
was followed almost immediately by television. In
1925 the image of a revolving windmill was
broadcast, and by 1928 the first patent was filed
for color television.
and movies and books not only survived the 1920's,
they thrived because of them, not in spite of them.
Where radio was once viewed as a threat to the music
business, it is now viewed as a necessity to
success, and television and then cable television
and the video cassette recorder have proven no
recognized this and acted accordingly: There is a
blanket, compulsory license applicable where control
is difficult or impossible (i.e., broadcast,
performance, satellite, etc.), and for the same
reasons I am suggesting here it should be applied to
electric becoming digital. These systems produce a
known cost and easy licensing. Blanket, compulsory
licenses imposed by Congress were the outcome of the
recent DirecTV/DBS/DSS debate over rebroadcasting
the copyrighted material of network broadcast
stations, and in my opinion they will and should be
applied to interactive use.
some point, there will be so many digital licensees
and so many digital licenses and so many digital
licensors that we will likely agree to lower the
overhead of negotiations and establishing a simple
rate and an easy way to pay. The Digital Millenium
Copyright Act itself offers a similar analogy in our
world, because it promises (but has not yet
delivered) one simple rate with automatic licensing.
today we live in a world of blanket, compulsory
enforcement (there is one organization per industry
enforcing the laws on behalf of every company in
roughly the same way) instead of blanket, compulsory
Video cassette recorder
entertainment industry must learn from its mistakes.
In the 1970's, Universal City Studios fought the
introduction of the videocassette recorder.
Universal felt that losing control of the quantity
and destiny of content would lead to ruinous damages
for information purveyors, and took Sony to court as
the primary manufacturer. The case went all the way
to the United States Supreme Court, but fortunately
Sony won. Today, Sony shares with Universal the rich
revenue stream provided by videocassette
distribution, and most television companies
participate in the VCR+ system that makes
purveyors took a similar view in the early days of
the Web. Many that previously feared copying today
offer a one-click button to "send this story to
team owners were once certain that televising
sporting events would be the death of their sport --
why go to the game if you can watch it on
television, our business is selling stadium seats --
who now could not and would not survive without it.
is legend that Ronald Reagan was one of the very
first sports broadcast pirates, recreating games in
a booth after reading them over a wire service.
Ultimately we've come to realize that not only was
there no threat to Reagan's game broadcasts, but
they actually grew the size of the crowd, and served
an important purpose that we once confused with
theft. Little wonder we now encourage broadcasts
from the ballpark.
I wade deep into law and technology, I find an
analogy helps shed light on the otherwise
incomprehensible. Biology fuses the wondrous with
the incalculable, and it is instructive where
methodology fails. Our rising level of digitization
is like the Mississippi River during a flood, with
whole towns and small cities disintermediated by
water seeking the shortest path from source to
day I find evidence of this flood, but technological
or legal sandbags will not stop the deluge. As they
say, the water eventually finds its way to the sewer
and floods your home anyway. Technology has no
switch, no lever to throw, no way to reverse the
course that history and fate have chosen for
intellectual property. Napster, Gnutella, and their
progeny are the first flood waves to crest the berm.
These peer-to-peer file-sharing systems were born to
swap music, but are already finding use for movies,
photographs, and other rich media content.
storage is also part of this flood. The video
business has its TiVo, Replay, and other devices
that buffer push-based content and make it feel
interactive to the viewer, allowing pull at push
prices (flat-fee or flat-free), and without the
commercials if you prefer. Audio versions of TiVo
and Replay will likely arrive soon, permitting users
to fill jukeboxes from digital and analog broadcast
does not have a switch, there is not a way to decide
to go back. We can pass laws and we can hire lawyers
to enforce them and they can employ technologists to
enable their legal vision, but ultimately control of
art is shifting from push (instigated by the artists
and their enabling companies) to pull (at the will
and at the instigation of art lovers).
There will be a renaissance of creative expression.
deepest impact will be from enabling the digital
delivery of art, such as music, movies, books, and
other intellectual property. The effects will go
deeper than just changing the way we listen to
popular music. Currently, we kill art regularly due
to our need to balance the costs of distribution
with its rewards. Once delivery is digitized, art
need never die, and new art can come to life that
might not otherwise find an audience.
enabling effects of digitization will not be found
in today's or yesterday's stars or big names. After
all, they achieved worldwide delivery and
primary effects of digitization are three:
Dead art will come back to life, and in the future
art need never die.
it is necessary that we kill most art to ensure that
some can live. Like a gardener who prunes a rose
bush, we kill some art to enable others.
studios routinely discontinue music products. They
must determine where the cost of distribution
exceeds the rewards, and act to keep the rewards
greater than the costs.
digitized with the costs of delivery commoditized to
a marginal cost near zero, no art will be said to
have delivery costs in excess of its rewards, and it
is likely we will not only bring dead art out of the
vaults and back to life, but we will find that art
will never die in a digital future.
we abort new art even more often than we kill it.
Everytime we turn away a new artist, what we mean to
say is that we've decided that the costs of
distributing their art will exceed the rewards.
are essentially a college admission committee,
denying an opportunity to dozens for the same of the
few we admit.
commoditized with a minimal delivery cost, digital
art can find a life it might never have otherwise
found. We can enable new artists to find their
audience where once distribution costs prohibited
many such bold and noble experiments.
rock band Nirvana, for example, might like to
release every concert the band ever performed, but
in an analog world of distribution this is
these bands can make available their entire
repertoire of music, and so we will likely see in
the future that we are able to purchase any Rolling
Stones concern every performed, or watch any
baseball game played and kept in an archive.
In the alternative, this could condemn billions of
people to access to knowledge conditioned only on
their ability to pay.
was a very useful tool in allocating access to art.
Riding my bicycle to the library overcame the
friction that others would pay to defeat. If the
delivery of intellectual property is to become truly
friction-free, new models must evolve to restore and
preserve balance in access to art.
"lending institutions" must evolve and
flourish, spreading entertainment and information,
replacing product with service. We must promise our
children that like us they deserve to hear any song,
read any book, watch any movie - regardless of their
ability to pay.
potential of every individual is at stake. Will
their parents' wallet determine the music they hear,
the books they read, the movies and video they
digital delivery may prove as problematic as it is
enabling. Once digitized, art can be liberated, but
equally if not more tempting is the idea of making
access conditional through encryption. If we choose
the course of predicating access to intellectual
property on ability to pay, a class-based society of
information haves and have-nots will emerge.
those with access will find the content pool
diminished unless we open access to all, through
digital libraries and ad-based services that make a
mockery of content as product.
replicated, books - and by extension - movies, and
music are available to everyone. As a child, I
became addicted to books and music that librarians
and others were happy to supply, regardless of my
ability to pay.
I was encouraged to borrow any book or record in
existence with the promise that if it was
unavailable locally, other libraries would lend it
to my library. I was promised access to any
intellectual property I might seek.
Librarians schooled me in what could now be called the
instruments of piracy. The library was the first
place I saw a photocopy machine and a tape recorder.
Use of these copying tools was openly encouraged and
taught by those who also made change for the nickels
needed to feed the copy machine.
No one called us pirates. None dared - though our
actions violated any corporate interpretation of
copyright laws, we were considered the opposite of
scofflaws. We were scholars.
The fine balance between scholarship and piracy eludes
us today in our relentless struggle to monetize the
digital delivery of art and other intellectual
property. Devoid of contextual motive, we now
declare illegal and immoral any use of digits
outside their predefined, technically based rule
Quite the opposite of the situation in my youth, it can
now be said that some digits (and the knowledge they
embody) are off-limits, and those limits are based
purely on my ability to pay.
The digital delivery of intellectual property is our
generation's nuclear power. We can either liberate
knowledge through its friction-free delivery, or we
can develop these same tools to condition access to
art on ability to pay.