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Rights restrictions and new media

The absence of mandatory licensing means that contracts for music rights drafted years ago that failed to contemplate the ways new technology could be used adversely affect the quality of "ports" of movies to DVD or online-computer viewing. At NPR, Linda Holmes complains (via ALOTT5MA) about the resulting Netflix-butchering of "When Harry Met Sally." I discussed the countervailing issues in a 2006 Overlawyered post:

X owns the right from Y to use a song in a tv series, but, because of poor contract-drafting doesn't obtain the same right for use in the future medium of DVD. The song has become associated with the tv series, and is now worth more than it was ex ante; Y tries to extract economic rents that were generated by X. It's a sensible argument to say we shouldn't cry for the inside-baseball machinations of studios and music-rights holders jockeying for these economic rents; they had the ability to protect themselves, but failed to do so, and the problem will disappear in the future as entertainment lawyers learn to account for non-existent technology in current contracts. Still, in the short term, some deals will break down or not get made at all as the two sides play chicken, and consumers are a little bit poorer in the process. A society can choose to have a mandatory licensing scheme (as the US does in many other copyright areas) to prevent the loss of consumer surplus when these negotiations break down; or a society can choose to let copyright holders attempt to maximize their own utility and wealth, though at the expense of requiring expensive lawyers to negotiate these things, with the result that fewer beneficial deals get made. It's not immediately clear to me which is "better." ...

NB the difference between here and Kelo: in Kelo, either the homeowner or the city could use the land, but not both. But if I use a song in my documentary, I'm not preventing others from using it. That might not be enough to change one's conclusion, but it requires a different analysis, because the interests are different.

This isn't the place to discuss the economics of hold-out problems, but there's going to be negotiation friction when the ex-post value turns out to be much greater than the ex-ante value. Ex ante, the "Love and Marriage" song-rights-holders wouldn't have charged much for the DVD rights to "Married with Children"; after the show became a success, and the technology made it possible to market the show on DVD, the song-rights-holders can act as a holdout to demand the entire economic value of the DVD, even though their actual contribution is small. "So what?" is indeed one possible policy response, but it's not the only one.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.