The music industry is the proverbial “canary in the coal mine” for the rest of entertainment, and content monetization issues in the streaming age and the complicated questions posed by the rise of artificial intelligence are things Hollywood could benefit from said veteran music lawyer Don Passman.
The attorney spoke at a keynote conversation as part of The Hollywood Reporter‘s breakfast in honor of the industry’s Power Lawyers, an annual event that had gone virtual during the pandemic and returned this year to Spago in Beverly Hills.
The Wednesday morning event kicked off with comments from THR editor-in-chief Nekesa Mumbi Moody, who welcomed the group. “Congratulations to this year’s Power Lawyers for their exceptional performance,” she said. “We are so excited to finally be back together to celebrate in person for the first time since 2019. … And it’s my privilege to welcome the new inductees of it THR‘s Legal Legends: Michael Gendler, Ira Schreck, Daniel Petrocelli, Bobby Schwartz and Ivy Kagan Bierman.”
Next, Moody introduced Disney Entertainment co-chairman Dana Walden, who presented the Raising the Bar award to Horacio Gutierrez, senior executive vice president, general counsel and chief compliance officer of The Walt Disney Company.
After that presentation, Passman took the stage with yours truly for a keynote Q&A about changes in how music monetizes in the streaming era, why artists hold more power in the modern landscape, and how emerging artificial intelligence can impact the industry.
“The music business has undergone more changes in recent years than in its entire history,” said Passman. “Since the beginning, money has always been made in the music business by selling something. Whether it was a rolled piano or a wax cylinder or later vinyl and CDs, money was always made by selling an object. When steaming became a force, suddenly monetization was no longer about buying something, but monetization was about renting something.
Pre-streaming, fans would buy CDs and songwriters, artists and labels would get the same amount regardless of whether people listened to them a hundred times or never took the disc out of its case. Now, he said, it’s the opposite because there’s a finite amount of money and it’s distributed proportionally based on the number of streams.
“When I used to have a hit, it didn’t matter if you had a hit. Your fans bought yours, my fans bought mine,” he said. “That is no longer true. The more streams I get, the less you get. … The competition is now not for sale. The contest is for listeners.”
Another big change, he said, is how artists release their music and who controls it.
“What’s going on is a power shift from the record labels to the artists, something extraordinary. I’ve never seen anything like it,” he said. “The record gatekeepers no longer have the power they used to have. Within an hour you have your music on all streaming services.”
While that means there’s no barrier to getting music to fans, it also means the market is saturated. “A hundred thousand new songs are uploaded every day,” said Passman. “Think about that. The challenge is, how do you cut through the noise?”
One way: breaking out on TikTok. He said the ability for an artist to burst onto the platform and build a fan base quickly changes the way labels think about deals.
“The record labels have now hired all these data nerds who just look at the trends on the internet, and when they see something start to move, they go after it,” said Passman. “They all have the same data, so they all go after it, and you get these artist bidding wars that no one has ever heard of. These artists can get deals that years ago were reserved for superstars: seven-figure advances, owned by the masters, sometimes not always, 50-50 profit shares instead of royalties.
He continued, “So you get all these new deals and all these extraordinary things that you couldn’t get before because the record labels decided they’d rather spend more money and take less risk because they’re buying something that was already gaining momentum.”
After that, the conversation shifted to the rise of artificial intelligence and what implications it has for the music industry. (If you haven’t seen it yet David Guetta’s AI Eminem clip nevertheless it is worth seeing. And this portion of Passman’s speech is embedded below.)
“Back to what I said at the beginning about how the streams make money. You take the total number of streams and divide it by the number of plays. Well, in AI you can go and say, “Hey, write me some spa music.” And within 20 minutes you have enough for 4,000 massages.”
And, he warned, if you put that fast-produced AI spa music on streaming services, it has the potential to divert revenue away from human artists by diluting the pool of cash.
Then, of course, there’s the copyright issue. After an introduction to US copyright law and protection of sound recordings (which were only introduced in 1972), Passman turned to something used by some foreign territories called neighboring rights. While U.S. copyright law currently requires a human author for a work to be eligible for protection, which would exclude AI-created works, related rights can cover sound recordings that are not made by a person.
“Neighboring rights are completely separate from copyright,” he explained. “It is a right for the author and the producer of the quote, i.e. the owner, the record label and the actual producer, to be paid when a recording is performed. Therefore, you should be able to get a performance fee for the sound recording for AI in those areas. Now, there’s no author, so it wouldn’t be the artist. It would just be the record label. That’s probably what’s coming down the road and it’s concerning because it will again dilute what’s in the [revenue] swimming pool.”
Of course, it is not always the case that works created by AI are not protected by copyright. Passman noted that there is a litigation on this issue and there is potential for legislation. Until then, it creates an interesting thought exercise on the boundary between author and tool.
“Suppose you go to the AI and give it very specific instructions. You say, ‘I want a picture of Kim Jong-un and Abraham Lincoln wrestling on a rooftop in Mumbai in leotards [and] the audience is purple.’ … I don’t know why anyone would want that, but is that enough human input? Nobody knows,” he said. “If this becomes a tool like a computer – which you would argue improves what you do – you can certainly copyright the creative part you put together.”
Passman continued, “It seems like if it’s an improvement it should be a perfectly legitimate use, and I don’t think we’re going to stop the technology. I mean, I don’t think you can put the genie back in the bottle. I think it’s out there and people are going to use it one way or another. … So it’s like a synthesizer now making music that sounds like an orchestra? Who knows? We’re going to figure out all these things. Definitely a fascinating and interesting area.”
So, what are Hollywood’s top lawyers supposed to deduce from all this?
Passman concluded: “The people in this room are the most sophisticated in the industry and we could use all your brains. Historically, the other industries have followed music. We were the first schlumps to talk about piracy and modeled what was to happen elsewhere. So take a look at us. We are a microcosm and things move very fast. Use us as the canary in the coal mine to see what happens.”
