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State of the Culture Flat-Rate

Volker Grassmuck

March 2008

Table of Contents


I gave a little overview on recent developments concerning the flat-rate copyright levy model on a panel at Transmediale at the beginning of February, and had wanted to write this up for this list ever-since. Two weeks ago there was another public discussion here in Berlin with people from the music industry, a collecting society and science where the flat-rate was a central issue. I took this as an opportunity to finally write up the following report. The conclusion, without any flattery: things are looking decidedly good for the flat-rate

I‘ll start with the discussion in Berlin, recap some developments on alternatives to a flat-rate that industry is pursuing and then look at several countries from which I received news on the trend to B Flat (sorry, couldn‘t resist ,-). France deserves the pole position, but I keep the most exciting stories for the end.


Legale Piraterie im Musikgeschaeft und die Frage des Urheberrechtes. Berliner Wirtschaftsgespraeche, Berlin, 21.02.2008.

The first speaker was Christian Heinicke, Managing Director of Flatster.com, a service that lets users order songs that are then fished out of Internet radio streams and delivered for download to the subscriber. Flatster costs 0,00 € for the top 20 single charts only, and 4,99 € for the full service for one month or 7,99 € for one year. Heinicke argued that users are not paying for the music itself but for the inter-mediation service and the editorial content (playlists etc.) the company offers. He compared it to a TV programme magazine where people pay for the navigational meta-information, not for the content itself.

The main critique was that Flatster pays no money to artists or new talent. The representative from the music industry, Stefan Michalk, Managing Director of the Bundesverband Musikindustrie e.V., predicted that business models like those of Flatster, ISPs, Apple will lead to a decrease in music diversity. He called them short-sighted because they don‘t invest in new talent in order to make the resource they profit from sustainable. Marketing, he said, remains essential. DIY is no alternative. There are 500,000 bands on MySpace but only a handful (e.g. Arctic Monkeys) got famous.

Heinicke was rather defensive about their business model and in the end came around to offering talks about sharing their proceeds with musicians. For lack of other models, artists need to be paid directly by society, i.e. a flat-rate. No ISP was present in the discussion, so Flatster had the role of the intermediaries. There was general agreement on the panel that telecoms who sell broadband services because there is free content on P2P (70% of Internet traffic) and other intermediaries should be held accountable.

Alexander Wolf, Director Industry at the German music collecting society GEMA, mentioned talks between GEMA and the German telco Arcor that were abandoned by Arcor without result. Following the French example, GEMA wants to bring all players into dialogue. But often there is a conflict, a battle over entitlements even within the same company where one part wants to sell broadband and another downloads (e.g. German Telekom and its download service Musikload.de). Also talks by GEMA with US-companies like Apple and Napster that, like ISPs indirectly profit from free downloads (selling iPods), are exceedingly difficult. The deal concluded with MySpace (Murdoch) resulted in only a six-figure sum per year for all uses in Germany.

Wolf said that it is his personal conviction -- „the board of directors of GEMA will not be pleased to hear this“ -- that in the long-term the culture flat-rate is the only possible solution. But this is not the philosophy of GEMA. The creatives among its members want to push GEMA to give them tariffs to put music online (Urhebervertretungen gegen Filesharing-Kulturflatrate, heise online, 13.11.2007). The labels are opposed to it.

Artur-Axel Wandtke, professor for copyright law at Humboldt University Berlin, criticised that the developed is defined solely by technology rather than by politics. The only chance that individual authors have is collective action by collecting societies. In the context of culture it‘s nonsensical to talk about business models. It is creativity that needs to be supported. Everybody, he said, must be allowed to download, and in return everybody is paying something like a public-broadcast fee. He was very clear: a culture flat-rate is the only possible solution.

In the end the count on the panel was 3:1 (if the moderator Tim Renner, Motor Entertainment GmbH, is included 4:1) pro flat-rate. Only Michalk from the music industry insisted that the flat-rate is a capitulation. His argument was that companies need to use blockbusters to cross-finance new and small acts. What he did not say is that also with a flat-rate titles that are downloaded more get a larger share from the pool of fees. Therefore labels could do the same kind of cross-financing as today -- if they were actually doing it all. When the question was discussed what share an artist gets from exploitation of her work, Michalk said that new acts get a smaller share because the label has to invest in building it up, whereas famous acts can make much better deals because they can threaten to go to a competitor.


2007 was a turning point in the history of DRM. Now the world is going flat.

It started when EMI announced at MIDEM 2007 that it would go DRM-free. The other three majors followed throughout the year, with Sony-BMG as latecomer in the first days of 2008. Software, text (e-books etc.) and music are done. They have learned the lesson the hard way, i.e. that cryptographic protection for mass market digital goods is useless and stupid. Let‘s hope that the movie industry is not going to take another ten years before it learns the same lesson.


Now that DRM is dead, industry is shifting gear to strategies no less disastrous than DRM.

In time for MIDEM 2008, IFPI released its annual Digital Music Report. Its headline reads: “2007 was the year ISP responsibility started to become an accepted principle. 2008 must be the year it becomes reality”

The report calls ISP co-operation, leading to systematic disconnection of infringers and the use of filtering technologies, now that DRM is gone (which the IFPI report didn‘t mention at all), the most effective way copyright theft can be controlled.

It specifically points to a Memorandum of Understanding that French President Sarkozy had brokered in November 2007 between the music and movie industries, ISPs and the state. In the ‚Olivennes Agreement,' intended to lead to legislation, ISPs agreed to filtering fingerprinted works and disconnecting allegedly infringing users in what has come to be known as a ‚three strikes approach‘: first a warning, then a temporary disconnect, and if the person continues her alleged infringements she is disconnected for good. The subscribers whose contracts have been terminated are to be included in a a national directory, supposedly in order to prevent them from contracting with any other ISP and possibly even accessing the Internet in Internet cafes, at work or university. The state established a new public office to which exploiters can address their complaints. These guys are ARMT (Autorité de Regulation des Mesures Techniques ) and dangerous. (EDRI-gram on this; an English translation of the Agreement for the development and protection of cultural works and programmes on new networks by Enzo Mazza.)

Society is shifting its information and communication infrastructure to the Internet. Education, access to science, communal services, banking, participation in political processes -- all of society, culture, economy are increasingly going online-only. How can such a society in democratic decision making possibly justify excluding potentially millions of its members from the Internet?

In spite of the blatant absurdity of this approach, the UK has followed suit with a draft law to the same effect.

Also in fall 2007 Sweden’s government-appointed copyright analyst Cecilia Renfors proposed disconnecting file sharers from the Internet. Here apparently the response from all parts of society was unisono: no way! Seven Members of the Swedish Parliament from the Moderate Party collected the counter-arguments.

The IFPI report also calls for legislative action by the European Union establishing filtering and disconnects. At that level at least the question is still open and directed at all of us. Viviane Reding, within the EU strategy for "Creative Content Online," had started a consultation that ended on 29. February, asking us specifically what we think about the Memorandum of Understanding adopted in France. In a separate question we are asked about Internet filtering, while the 'three strikes approach' is not expressly mentioned.


The end of DRM in music and the shift to ISP liability makes the proposals for a flat-rate compensation system for the Internet appear in new light. Industry veterans like Jim Griffin and Peter Jenner for years have called this the only possible solution. So have many law scholars, consumer organisations and collecting societies.

The model reached its most advanced stage in France. The Alliance Public Artistes, a broad coalition of 15 organisations of musicians, photographers, designers, Internet-users and consumers proposed “licence globale.” It commissioned studies on its legal, technical and economic feasibility, and gained parliamentary support from Socialists as well as Conservatives. And one night in December 2005, their amendment to the French copyright law implementing the global license was actually passed into law. When the rights industry found out, they raised hell at Midem 2006, and the decision was reversed.

After that the Alliance was a bit shell-shocked. Some of its members started an initiative for defending the private copying exception.

In October 2007, a number of Whitebooks on P2P were released in France. SNEP (Syndicat national de l'édition phonographique, representing the major labels) in its Whitebook suggested the line of action that emerged as the Olivennes Agreement mentioned above.

Another Whitebook -- LIVRE BLANC sur le peer to peer, 26.10.2007 -- collects papers from organisations representing consumers, performers, authors and publishers, and free and proprietary software. It includes contributions by A.F.U.L (Association Francophone des Utilisateurs de Linux et des Logiciels Libres), A.P.P. (Agence pour la Protection des Programmes), Association Musique-libre.org, SPEDIDAM and UFC-Que-Choisir.

It is a mixed lot. The software industry, unsurprisingly, rejects a legal license. Ambroise Soreau from A.P.P. wrote that with it „authors“ would lose the right to authorise or prohibit the use of their works. He calls the flat-rate „expropriation.“ Collective management was a necessary evil in the analogue environment. New technologies make possible complete individual rights management. Soreau actually explicitly spells out that the issue is the organisation of artificial scarcity. Copyright law by conferring a monopoly is one way to do this. DRM is the other.

The Association Musique-libre.org, again unsurprisingly, is opposed to DRM. About the Legal license, they simply say, without any reasoning, that it raises more problems than it solves.

Lionel Thoumyre from the collecting society SPEDIDAM is still in favour of a licence globale, giving a full overview of the model. The most interesting in his article: in a survey they found that 75.5% of Internet users in France are "ready" and "fully prepared" to pay a monthly optional levy in exchange for legalising peer-to-peer file sharing. Also 14.000 performers have signed a petition to the same effect.

Alain Bazot, Président of France‘ largest consumer organisation UFC-Que Choisir, in the same white paper, argues against the cynicism of creating artificial scarcity in the name of artists. P2P is here to stay. "When an infringing practice becomes widespread for a generation, it's evident that the application of the law is particularly unsuitable." UFC-Que Choisir therefore proposes to implement a three-year transition period which allows both to secure legal file sharing for non-commercial purposes and to provide a fair compensation for artists.

On 23. January 2008, a commission instituted by French president Sarkozy and headed by Jacques Attali issued its final report. It had a broad task to design policies to do away with blockages to growth. Among the 316 proposals of the Attali commission is also a levy on Internet use.

In the objective leading to Action 57 is defined as a reconciliation of economic development and free legal downloading. The report argues that introducing controls of individuals' Internet use like filtering and monitoring would be a major impediment to growth and conflict with constitutional rights of privacy and individual liberties. ISPs are called the real beneficiaries of downloading.

Therefore, says Action 57, ISPs should pay a contribution to the beneficiaries in the various societies for the collective management of copyrights in the form of a levy based on the overall volume of sharing of music and video files. ISPs may pass the payment on to users who can contribute on a voluntary basis. This contribution, says Action 57, in addition to the income from live performances, CDs, DVDs, subscriptions to download services and any other source of income to come, ensures a fair compensation for artists without penalising Internet development.

At Midem, the French Minister for Culture and Communication, Christine Albanel, strongly rejected that idea, saying that it is not an issue in her ministry nor among industry and other associations. Instead she present the new public office ARMT.

On 8. January 2008, French President Sarkozy announced his plans to tax ISPs, mobile phones and the ad revenues of private broadcasters ... in order to remunerate creatives? No, in order to ban ads on public TV. This is, of course, a bizarre attempt of making the new media cross-subsidise the old, and tax payers‘ money funding private broadcasters whose stock prices immediately rose after the announcement. But interesting in our context is that the idea is out to put a levy on ISPs, even though, after Viviane Reding expressed her opposition to Sarkozy's proposal. it seems less likely to go through (Financial Times 8.1.2008, International Herald Tribune 8.1.2008 and International Herald Tribune 21.1.2008).


There is the consistent feeling that small countries will be the first to go flat.

At a conference last summer I was told that Slovenia made the new WIPO Internet Treaty right of making available subject to mandatory collective management. Unfortunately, I was not able to confirm this.

According to unofficial information from the Slovenian Intellectual Property Office this is not the case. However, the inquiry yielded interesting information from the director of he National Library. If I understood correctly, there is an initiative to introduce an exception similar to the private copying exception but connected to the making available right. At first this would allow library users to access material only inside a library but the intention is to extend this to remote access as well. Not quite the legalisation of P2P but an important step toward introducing a balance into the exclusive online right. [thanks to Alexander, Vera and Maja]


More rumours, in this case started by the marketing director of Danish IFPI, Jesper Bay in the newspaper Børsen in August 2007. Bay suggested unlimited free music downloading for a fee of 100 Danish Krone (13.42 Euro). This was reported as an all-you-can-eat-subscription and expressly positioned as a solution to P2P, linking to Gerd Leonhard‘s flat-rate model. Another IFPI spokesperson, Jens-Otto Paludan, said in October that the model could start in 2008. Andy Oram caught up on the news at O'Reilly Radar, 23.10.2008.

FutureZone reporter Patrick Dax called Bay and was told that the Danish IFPI is not proposing a flat-rate license at all, but is suggesting to ISPs that they offer a streaming music subscription together with their Internet access contracts. Subscription services like Napster and RealNetworks‘ Rhapsody are not yet available in Denmark.

The music industry put great hopes in subscription services but now considers them failed. Users dislike the DRM scheme that creates compatibility problems and lets all downloads expire the moment the subscription is discontinued.

So it‘s hard to imagine that Bay was actually proposing a failed model. Maybe he was intentionally vague in his statement in order to test the waters for a real flat-rate. As with all these rumours, where there is smoke there must be fire...


... is not a small country, but a quite innovative one, and stubborn when it comes to holding out against implementing copyright disimprovements.

In mid-February 2008, the Songwriters’ Association of Canada (SAC) and Recording Artists advanced a „proposal for the monetisation of file sharing of music.“ At its core is a new right to be written into copyright law, the Right to Equitable Remuneration for Music File Sharing. Distinct from the private copying exception, this new right would authorise the sharing of music not only with family and friends but with everyone as long as it is without motive of financial gain. In return, creators and rights holders would be entitled to receive a monthly license fee of $5 from each Internet and wireless account. Usage is to be tracked by companies like Big Champagne so creators can be paid according to the popularity of their works. „We believe that implementing a fair way of compensating Canada’s music creators for the online sharing of their music will usher in a new Golden Age of creativity.“

SAC has put together a list of very compelling arguments that I‘m not going to repeat here. If you haven‘t done so, have a look. They‘ve also got endorsements for their proposal from the Canadian Music Creators Coalition (CMCC), the Nashville Songwriters Association International and a number of individual artists.

This proposal has triggered quite a debate (e.g. at TheStar.com and at The National Post), with many negative responses. Some are based on misunderstandings but the most frequent one is this: ‚I don‘t download music, why should I pay?‘ The French model solved this issue by making the licence globale optional. Internet users would have the choice but if they don‘t get a license and get caught downloading, copyrights will be enforced.

The Canadian branch of IFPI, the Canadian Recording Industry Association (CRIA), is naturally opposed. CRIA president Graham Henderson catered to primitive fear of communism: "What you are basically saying is, ‘OK, we are going to let the government run this.'" Knowing fully well that collecting societies are not government agencies but collective organisations of creators and, alas, exploiters. He also called the SAC proposal a „distraction“ from the real issues (at The National Post). He didn‘t mention what those are, but one can assume it‘s the overall IFPI strategy: implementing filtering and disconnects.

A much more considerate if critical response came from Michael Geist. His first argument is that $5 extra for Internet access conflicts with the public policy goal of universal access and affordable broadband. A tiered (Geist mentions this himself) and voluntary levy would solve much of this issue. Then he rightly says that P2P does not concern music alone. Creators of other categories of works would also demand their piece of the pie, pointing to a proposal by the Canadian film and TV sector to make ISPs contribute a share of their profits to creating media content. This is indeed a flaw of the SAC proposal. Other models like the French licence globale and the German content flat-rate do include all work categories (except software which is also excluded from the private copying exception). His doubts notwithstanding, Geist welcomes the SAC proposal as a start of a conversation. (See also a poll that shows Canadians support ISP and WSP financial contributions for Canadian digital media content production.)

In his first post, Geist puts the question into a much wider perspective: „While we all pay for services we don't use (my tax dollars support museums in other cities that I don't visit or schools that my kids don't attend), there are times when such systems are necessary for broader policy reasons. In this instance, I don't think we are there yet.“

Leaving aside that schools are not a „service“ but a constitutional right and obligation for every citizen, and leaving aside that a levy is not a tax, this does raises what to my mind is the true issue and in which the copyright flat-rate is only one element: i.e. how do we, all citizens, collectively relate to our common culture? Media are not only culture industry (Adorno/Horkheimer) but also public sphere (Habermas/Derrida). Therefore they need to be approached differently than by standard industry policies. The market has its role, but leaving culture -- its creation, dissemination, preservation, re-evaluation and reuse -- to the market will lead to its impoverishment for all. The I-only-pay-for-what-I-consume attitude leads to the end of culture as we, at least in much of Europe, know it.

What we need is a debate not on what the music industry might be losing but what we all have to loose and what we have to gain: open access to knowledge, a rich public sphere and a versatile and sustainable culture. Starting the debate from there, infusing it with a bit of the old-fashioned idea of solidarity (those of us who can, pay a bit extra to bridge the digital divide for those who can‘t; creators set aside 10% of their common levy proceeds to foster newcomers and support those in their community in need), I‘m convinced, will put the issue of taxes, public broadcast fees, levies in a different light. The fact that 75% of French Internet users are willing to pay a monthly optional levy is a clear indication.


„Un casino“ was one of the words I came to love when I learned Italian. I had to think of it when I read the slashdot headline „Italian Parliament To Mistakenly Legalize MP3 P2P.“ Everybody else has a hard time in doing the obvious and the Italians just go ahead and do it -- by mistake!

So what is all this about? The amendments to the Italian copyright law that were approved by Chamber and Senate in January 2008 include a paragraph that reads: "It is permitted to freely publish through the Internet, free of charge, images and music at low resolution or of degraded quality, for scientific or educational use, and only when such use is not for profit." La Repubblica cites Andrea Monti, a lawyer and copyright and Internet expert and member of a working group on copyright at the Ministry of Culture. Monti said that whoever wrote this did not realise that the word ‚degraded‘ has a precise technical meaning, which includes lossy compression formats like MP3.

The reaction of the President of the Italian IFPI, Enzo Mazza, was unconcerned. He expects the decree by the Ministry of Culture on how to interpret the new provision to set the scientific or educational use condition very restrictively. E.g. a personal website of a professor would be excluded. Monti replied: "It is impossible to restrict it in this manner because the Italian constitution allows all citizens to disseminate educational and scientific information.“

Andrea Glorioso, when I asked for his opinion, was more cautious. The meaning of „degraded quality“ will be left to courts to evaluate. „I think Monti might have gone a bit too far by assuming that any publication on the Internet would satisfy the other requirements of the new article, i.e. it being for teaching/educational/research (TER) purposes and without any commercial gain. The point is that it might not be so easy for people to demonstrate the TER purposes (the non-commercial gain is, in my opinion, easier) for publications ‚in the wild,‘ i.e. exchanges over an ‚open‘ P2P network. Still, this is an important development, and one that was not expected by those who pushed for this article, i.e. the Italian branch of IFPI.“ He added that the article does not introduce a new levy for the this online exception in addition to the existing levy on blank media. [thanks to Andrea]

We‘ll have to wait for the ministerial decree, but it looks like P2P file-sharing at least between schools, universities and research institutions might become legal in Italy. What a test bed for the content flat-rate model -- and even better: without a flat-rate!


The new German copyright law came into force on 1 January 2008. It does not, of course, contain a flat-rate, but an interesting provision: Works marketed under DRM are explicitly excluded from collective compensation (§ 54h.2). This is the first half of the „Dual System“ proposed by Alexander Peukert and others like Till Kreutzer: Exploiters must choose whether they want to use DRM which makes private copying impossible and therefore excludes these works from compensation through the collecting societies. Or they don‘t use DRM in which case they do receive their share from the levy for recording devices and recordable media. This raises the question whether these will be sufficient to bear the load, considering that the model of recorder + cassette, burner + CD is rapidly being replaced by downloads onto hard-disks. How far can levies on HDDs be raised? When does it become inevitable to include Internet access?

In the meantime, more public people in Germany have joined the flat-rate proposal.

Peter James, Chairman of the German indie label association VUT at a conference in December, organised by the unions‘ association DGB, finally came out in favour of a flat-rate -- at least as a basic form of remuneration, as he explained to me. On a panel at c/o pop in Cologne in August 2007 he was still very much opposed to a flat-rate. In March 2007, the VUT, or more precisely its legal committee had issued a statement, in which they demanded an expansion of the existing system of blanket licenses to include ISPs. In return, they half-heartedly proposed to include downloads in the private copying exception but keep uploads illegal (Stellungnahme VUT zum 2. Korb, 15.3.07).

Tim Renner, former head of Universal Europe, discoverer of Rammstein, now running the label and radio station Motor.FM, in an interview on 22.01.2008 said that a global music flat-rate is the model most suitable to the Internet, its spirit and dynamics of free sharing, and that he would welcome it. He also pointed to an allegedly existing pilot project in Iceland.


Again more smoke, no fire. What I did find was an international conference on the future of music distribution and Internet marketing entitled “Who is in Control?” held in October 2007 by the Icelandic Music Export (IMX). Self-appointed 'Media futurist' and well-known flat-rate promoter Gerd Leonhard was one of the keynote speakers. A press release announced: „The ‘Who is in Control?’ international conference will present a ground-breaking new business model which Iceland could be a test bed for.“

That sounds very promising, indeed. But again my inquiry led to nothing more than the general idea that the small and isolated territory of Iceland might be suitable as a test bed for a flat-rate. What I did come up with is no less exciting, if entirely unrelated to Iceland. The link leads to the UK.


In the land of no private copying levies a remarkable development came onto my radar, if only just barely. The mysterious „Value Recognition Strategy Group“ (VRSG) is so secretive that Google has only three hits on it, two are to the same BMR press-release on the resignation of Emma Pike.

Emma Pike is the former Chief Executive of British Music Rights (BMR), and since June 2007 Vice President, Communications & Artist Relations at Sony BMG. The press-release says that as co-chair of the VRSG she has been a leading voice calling for open debate across the industry on copyright and licensing in the digital age.

The other bit of information Google came up with is by AIM, the UK Association of Independent Music Limited which is a member of the VRSG (2007 AIM Annual General Meeting, Report and Financial Statements | 31 December 2006). It reads:

„AIM, in conjunction with British Music Rights, leads a group which was created following the Summer 2006 industry round table discussion on Copyright in the Digital Age hosted by the Smith Institute and AIM. This group comprises lawyers, technologists, economists and business owners from across the UK music industry. By bringing together this unique set of skills and disciplines, we are focussed on the challenge of examining how new economic models can be created, based on new usage models. We are determined that the value of music must be acknowledged, and paid for in some way appropriate to those new usage models. The group is called the Value Recognition Strategy Group, and they are producing some very exciting work which will be presented to the industry during the summer of 2007.“

And then there was this conference in Iceland. On which there is also no publicly visible reporting at all. Upon request, the organisers pointed me to a report in the subscriber-only newsletter of Music.ally, a UK music business research consultancy (Music.ally Report, Issue 178 - 18 October 2007). Another request and the report was on my screen. And it is quite surprising indeed. [Thanks Anna, thanks Paul.]

The UK‘s VRSG according to this report had had the task to investigate new forms of licensing of currently unremunerated forms of usage like copying and sharing. Models to be looked at included licensing ISPs and device manufacturers. Just in time for the Reykjavik conference it had completed its report. The group, writes music.ally, reports to a principals group which includes senior UK label executives. Some of whom chose remote Iceland for leaking some of the key findings. „Although unable to share too many details of the report publicly, Sony BMG's Fred Bolza and AIM's Alison Wenham presented some conclusions and key insights at the event in Reykjavik and Music Ally understands that the report has produced some interesting and arguably unexpected results.“

What follows is not that unexpected at all. In analysing the decline in value of the UK recorded music business from its historic peak in 2004 (i.e. five years after the birth of P2P!) the group found that the proportion of the value gap caused by other factors, such as the drop in prices and format changes and device to device sharing, is greater than that caused by file sharing and is growing at a faster rate. That there is no negative effect by file-sharing on sales has been shown consistently by independent empirical academic research starting from Oberholzer-Gee and Strumpf‘s paper in 2004 (here is the actual paper) to Bhattacharjee et al.‘s study on the dynamics of music album life-cycle in 2007.

The most exciting result to me was that the group, working with a mathematical model to estimate the economic impact of blanket licensing, „calculated that the monthly rate required to close the value gap from a flat rate fee on either ISPs or manufacturers would be extremely low.“ One would have to look at the actual model applied in order to evaluate in how far this goes beyond existing studies, but the fact that an apparent high-level group directly advising industry executives says that an extremely low levy would fix the problem is indeed remarkable.

This excitement was immediately followed by disappointment, as in the end the VRSG report as reported by music.ally called the model, although clearly desirable, not feasible: „The report concluded that any attempt to implement such a flat rate which would cover all ISP users and/or all devices would not be feasible in the commercial world owing to the structural and legislative changes that would be required to enable it.“

Again one would wish to know more about the underlying reasoning. Devices have been levied in Germany and many other countries for more than forty years, making it hard to understand what is unfeasible about it. Extending the model of legal permission plus levy to the Internet is controversial, but since the study commissioned by the Alliance Public Artistes to France‘s most renowned copyright scholar André Lucas there is solid proof of its juridical feasibility (French original and English translation). I have no idea what the „structural changes“ part could refer to: a change from file-sharing without remuneration to file-sharing with remuneration?

The final glimpse of the VRSG report that the Music.ally article gives is this: „What the report does highlight is the need to move away from licensing models which are based on units and actual usage to one based on monetising the user -- similar to the ARPU (Average Revenue Per User) and CLV (Customer Lifetime Value) approaches favoured by mobile operators and ISPs. Due to the unlikelihood of delivering a pure user based model, it points the way towards more 'hybrid' models that blend a flat user fee with usage where practical. This may take the form of a large number of tracks offered for a monthly fee by an ISP or bundling a fee on devices which would then allow the user unlimited consumption of music -- the latter being a model which Universal is reportedly exploring with its Total Music initiative.“

More on Total Music below. The Music.ally article ends with a link back to Iceland, calling it idealy suited as a potential test market for a flat-rate model because it is a fairly isolated territory with few relevant players who could forge a consensus more easily than elsewhere.


Powerful signals are also coming from the land of the Pirate Bay and the Pirate Party. In following up on flat-rate news from Iceland I was told about a flat-rate experiment that was to be set up in Sweden. I was pointed to Daniel Johansson from Musiclink.se to ask about it. Musiclink‘s website does not give much but quite interesting information:

„Musiclink is developing a new tool, MIMS – Music Intelligence Mashup Services, that will gather statistics and information from hundreds of online services and then analyse and present the data in easily accessible formats. The service is based on Web 2.0 technologies, making use of mashups and dynamically collecting data through APÍs and webscraping. A prototype of the service will be available during the second half of 2008.

„Musiclink is a new media company owned by the largest music festival in Sweden, the Hultsfred Festival. ... The MIMS project is a part of the Musiclink project where new technologies are used for creating new business intelligence tools for music companies.“

Johansson confirmed that the technology they are developing could be used not only for scraping the web but also P2P services. This could be another building block for rewarding creatives according to the number of downloads of their works. [thanks to Anna, Paul and Daniel]

The information about a flat-rate experiment, as Johansson confirmed, is related to an announcement by the Swedish Performing Rights Society (STIM) in mid-February 2008: „How downloading could be made legal“. In a statement also signed by FST (Swedish Composers Society), SKAP (Swedish Society of Popular Music Composers) and SMFF (Swedish Music Publishers Association) these artist and industry groups are calling for a new paradigm:

„Downloading music from the net could become legal if users paid for it through their ISP. ... We want to sit down and talk with ISPs about what we and they can do to offer users a way of paying through their Internet charges for the music streaming through the providers’ networks -- a way of making their music surfing legal.

„Typically it will mean increasing the ordinary Internet user’s monthly charge by an amount related to the overall use of music on the net. In return, they will be free to legally download music from the net for their own use. What will make this possible is for providers to sign licensing agreements with STIM and other rights societies -- just as radio stations, supermarket chains and sports facilities do today. ...

„To begin with, perhaps, one or two providers will have to take the lead with an ‚ethical‘ broadband offering. An obvious target group is parents worried about their Internet connection being used by teenage offspring for illegal file sharing. But in time we hope that ‘legal free Internet’ will become the new norm, offered as standard by ISPs to private customers.“

On the STIM proposal see also the blog posts by Karl Sigfrid, Member of the Swedish Parliament for the Moderate Party (here and here). He favours decriminalising file-sharing, is rather critical of the flat-rate but says „a modest fee would be more palatable to ISPs and users than tougher enforcement of intellectual property rights, but STIM’s plan won’t work until the international copyright regime is changed.“


Industry has been calling blanket licenses and the flat-rate a „loss of control of authors over their works“, „expropriation“ and „communism.“ Now it turns out this was all propaganda. They are not opposed to a flat-rate at all -- as long as they are managing it.

The motivation is, of course, not to do away with oppressive copyright enforcement, foster information freedom and legalise P2P. The initiative is coming from Universal Music Group (Vivendi), and their motivation is to fight iTunes that UMG has been at odds with since early 2007. Vivendi CEO Jean-Bernard Levy had called the 29 cents that Apple takes of the 99 cents "indecent."

The first we‘ve-heard-it-from-insiders rumours on a new UMG licensing service called Total Music were reported by digital music news on 10 September 2007. The article talks about a music subscription but different from that of Napster and Rhapsody. It would require buy-in from ISPs and mobile access providers and force opt-in by ISP and mobile subscribers requiring them to pay a monthly fee.

In reporting on this, Wired blog added another forced opt-in, that of artists and labels because „otherwise rights holders and ISPs would need to negotiate a near infinite number of deals in order to offer the 100% catalogue coverage consumers would demand for their monthly fee.“

On 22 October 2007, Business Week followed with some more details on Total Music in a piece entitled „Universal Music Takes on iTunes.“ It talked about an industry-owned subscription service for which UMG had already got Sony BMG to sign on and was talking to Warner about. It mentioned that existing subscription services aren‘t very popular but said that in the case of Total Music the majors wouldn‘t license music to end-users but to device makers, ISPs and mobile carriers. Those would pay them roughly US$ 5 per month and customer for which they could offer their customers free all-you-can-eat music downloads. It named Microsoft's Zune and Sony's PlayStation as possible devices with which the „free“ music might be bundled. The article ends with some back-of-the-envelope calculations that the service would increase the cost per player by about US$ 90, assuming that people on average get a new music player or phone every 18 months.

In November 2007, Wired Magazine had a big story on Universal‘s CEO Doug Morris. It gave the Total Music strategy a good chance against Apple. „After all, why buy an iPod if a Zune will give you songs for free?“ It is less optimistic about the DRM that the service will almost certainly require. „The irony is that if he decides to base his plans around DRM, Morris will be missing the larger truth that has propelled his business for the past 30 years. Ultimately, it's convenience and ease of use that drive new media formats.“

US-industry expert Bob Lefsetz commented on the Business Week article: „Doug Morris is not stupid, but he’s an old wave player failing miserably in a new world. ... The way out is to license your music to everybody, let the techies develop the new model, in concert with the public. ... Unlock the music. As Jim Griffin always says, license the anarchy. Rather than telling every restaurant and coffee shop to stop playing music, or getting them to write down each and every song they play, get a fee, then divvy it up amongst rights holders. It’s kind of like YouTube. Instead of trying to get people NOT to use copyrighted music in their videos, find out a way to get PAID FOR THIS USE! Instead of suing people to stop trading, instead of trying to convince them to rent instead of buy, license/charge them for their present use, and follow the evolution of technology. Instead of saying no, say yes. Doug and Universal’s days as a monopoly are done. If their shareholders had a say, if their boards truly understood the business, they’d say to STOP LEAVING MONEY ON THE TABLE! Make deals with everybody. Acknowledge what’s really going on. STOP trying to convince people to do what you want them to.“

On 4 December news about the first licensing deal of Total Music emerged, and it wasn‘t a subscription like Napster and Rhapsody any more but people were to keep their downloads for good. Nokia announced its „Comes with Music“ offering that, starting in the second half of 2008, would allow buyers of certain of its mobile phones unlimited free downloads from UMG's entire catalogue for 12 months, after which users can keep all of their music. Downloads would be from Nokia‘s Ovi mobile Internet services onto the phone or a PC. Ars Technica reported that they would be protected by Microsoft's PlaysForSure DRM, a system even Microsoft itself has chosen not to support on its own Zune. „Burning a CD of any track(s) will require an upgrade purchase for each track.“ The article has an update that says that Nokia clarified that while it is working with Universal for this program, „Comes With Music“ actually does not have anything to do with Total Music.

The latest news on Total Music I found was from the US Department of Justice. On 7 February 2008, Ars Technica reported that Universal and Sony BMG have been targeted in an antitrust investigation. The DoJ will look into whether the Total Music initiative might give the majors a way to shut out uncooperative vendors from the unique initiative.

FutureZone, in reporting on Total Music, added a pointer to a similar deal that UMG had recently made with the ISP Neuf Cegetel in France. Customers who subscribe to a package of DSL, telephone and cable-TV for about 30 Euros per month get access to a selection of songs from UMG‘s catalogue. For an additional 5 Euros per month they get unlimited downloads from a selection of 150,000 tracks and 3,000 music videos.

And then there is Qtrax. The advertising-funded, free-for-users P2P service had planned a grand launch at this year‘s Midem. But the sign-ons by all four major label that were first announced in June 2007 already, again didn‘t materialise.

Looking at their website in early March 2008, it boasts 25,000,000 songs ... coming soon. For now the visitor is invited to download the Qtrax media player and import and play songs from her existing music library. The Qtrax player contains a Gnutella client and is integrated into a Mozilla browser. It wraps its P2P downloads in Windows Media DRM -- Qtrax' Executive Vice President is a DRM expert -- and ads advertising to them.

The FAQ explains: „Eventually, Qtrax will have approximately 25 million songs available for downloading. Qtrax accesses the universe of P2P directly, which has an ever-expanding galaxy of files. If it's available on P2P, you can get it on Qtrax. ... Every file that you download runs through a filter, which removes undesired adware, spyware, and/or spoof files. ... The downloaded music can be found in your library. You can then play these files anytime you want in the Qtrax player.“ It says that it also plays Fairplay protected songs from iTunes. „As long as you are on the computer where you downloaded the tracks, you'll be able to play them using the Qtrax player.“ You can also get them out of your PC but just barely. The Microsoft DRM allows transfers to Windows Mobile devices. And „you're always free to share these files with other users via Qtrax.“ The company reported that 500,000 people downloaded the Qtrax player after the failed launch at Midem.

Qtrax also caters to creatives. „Qtrax was created to allow musicians to monetize their music over P2P. ... Qtrax respects your rights as an artist. We will not intentionally distribute any artist's works without a license. Please remember that P2P is an open network with millions of users, which Qtrax uses as a source for the catalogue. If you do not want your music available to Qtrax users or if you find your music on Qtrax and want it removed, please email: artists@qtrax.com.“

The website states that „Qtrax has the unparalleled support of the major record labels.“ Again, one can safely assume that where there is smoke there is also fire. But it is also evident that the start-up lacks business expertise when it went public without actually having signed licensing contracts and turned the hyped launch event at Midem into a fiasco.

Ars Technica reported on a presentation by the company's CEO, Allan Klepfisz, at Digital Forum East in New York on 27 February 2008. He repeatedly said „that he was buoyed by the amount of behind-the-scenes support he received from the labels“ implying that contract signing is imminent. The article also says that users have to consent to having their playback data tracked and uploaded to Qtrax and that they need to be online to continually refresh the DRM licenses. Finally the article pointed to competition from MySpace that is rumoured to be preparing a similar ad-supported download/streaming service, and by Google.

The claim of major label support for Qtrax was backed by GEMA's Alexander Wolf at the Berlin event I started this review with. Wolf said that this time around the labels early on bought shares of the start-up company so that when it gets bought up by one of the big shots, like YouTube that was bought by Google for 1.6 billion US$, they are sure to participate.

Whether Total Music or Qtrax, MySpace or Google, these are forms of the flat-rate done by corporations among themselves. With two significant differences compared to the original flat-rate model: The „end-users“ who will have to foot the bill in the end are not being asked. When you buy one of the Nokia phones you will have to pay for music even if you don't download any. When you buy a product advertised on Qtrax you will have to pay the music fee folded into the products' advertising budget even if you're not using Qtrax at all. And a deal between two corporations is obviously going to be less transparent, less accountable, less fair to authors and musicians than a flat-rate administered by a collecting society under member control and public oversight. Both creators and listeners are sure to be losing out.


Privacy invasion is one of the major arguments against DRM and for a flat-rate. Two recent court decisions, for a change, strengthened privacy protection.

The European Court of Justice on 29 January 2008, ruled that governments can, but are not required to, order ISPs to disclose personal data about subscribers suspected of online copyright infringement. One would have hoped for a stronger ruling as suggested by ECJ Advocate General Juliane Kokott who had argued that European law allows disclosure only in the course of criminal proceedings. However, the ECJ made it clear that if European member states do make laws that require disclosure in civil cases they have to do so in a manner that does not conflict with the fundamental right to privacy or with the principle of proportionality (IP Watch report).

This was followed by a ground-breaking decision by the German Federal Constitutional Court on 27 February 2007 that introduced a new fundamental right of guarantee of confidentiality and integrity of information systems. The court had to decide the constitutionality of online searches. Germany's Interior Minister Wolfgang Schaeuble has been eager to enable law enforcement to hack into suspects' computers and install Trojan horses in order to obtain data. The court ruled that the new fundamental rights of confidentiality of data and integrity of IT systems may only be violated in severe cases of imminent danger to human life or the state as such (Netzpolitik report).

The Federal Commissioner for Data Protection and Freedom of Information, Peter Schaar, welcomed the judgement as a milestone and urged that in its light a re-evaluation of the new data retention law is necessary. “The data retention legislation has been challenged by 34,000 German citizens in the largest constitutional complaint ever filed in Germany. Privacy advocates in Germany fighting back against the flurry of new legislation in the fight against terror hope for another landmark ruling in the coming months,” reports IP Watch.

To sum up, I would say the time is ripe for an Internet copyright flat-rate. After the end of DRM, copyright hard-liners, the IFPI in particular, are fighting a rear-guard battle they are sure to lose. Proposals for Internet filtering have been going around for a while but are considered unacceptable in democratic countries. The new idea to prohibit citizens using the Internet altogether is too ludicrous to even consider. On the other hand, ever more and more powerful voices not only by individuals but by authors' and musicians' organisations and collecting societies are calling for a flat-rate. There is some confusion as to the details of its design but I see no argument in principal against it. The answers are there. They only have to be communicated in a solid and convincing way.

Am I too optimistic? Did I get anything wrong or miss important developments to the contrary or in support? What can we do to contribute to the public debate? Please let me know.