Performers like Enrico Caruso made a lot of money off the invention of the phonograph. Composers, not so much. Source: Library of Congress Prints and Photographs Division.

The First Time Tech Ruined the Music Business

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Dec. 14 (Bloomberg) -- The music business was in turmoil at the turn of the century. Technological innovation had made songs much easier to copy, and established artists foresaw their sales plummeting.

The companies that had once dominated the industry were rapidly losing ground to upstarts who produced new devices for playing music. The established companies urged Congress to tighten up the law to prohibit copying, while the innovators argued that any such change would only harm consumers.

This sounds like a story about how Apple Inc. disrupted the music business in the past decade, but it actually describes the years around 1900. The technological change was the invention of sound recording.

Before sound could be stored and reproduced, the music business was built on the sale of sheet music. Stephen Foster sold more than 130,000 copies of “Old Folks at Home” in the early 1850s. “On the Banks of the Wabash,” a hit in the 1890s for the composer Paul Dresser, sold more than half a million. To the extent there was much income in composing, it came from publishing sheet music.

Edison’s Invention

Then everything changed. Thomas Edison built the first phonograph in 1877. By the 1890s, phonograph makers and companies selling cylinders and disks containing recorded music were proliferating. Record sales skyrocketed, from about 500,000 in 1897 to 2.8 million only two years later, and they kept rising thereafter. The player piano, capable of reproducing music from rolls of perforated paper, came on the market in the first decade of the 20th century. Millions of them were sold between 1900 and 1930.

Sound had once been a fleeting sensation, but now it was a commodity capable of being sold -- it could become property. But who owned it?

The music publishers, and the composers they represented, insisted they did. “I myself and every other popular composer are victims of a serious infringement on our clear moral rights,” declared John Philip Sousa, perhaps the most commercially successful composer of the era. The new record companies were hiring musicians to record Sousa’s marches, and they were selling the cylinders and disks in huge numbers, but they weren’t paying Sousa anything.

All the profits went to the record companies and to popular performers like Enrico Caruso. “They pay Mr. Caruso $3,000 for each song,” complained Victor Herbert, another well-known composer. “He might be singing Mr. Sousa’s song, or my song, and the composer would not receive a cent.” If customers bought records and piano rolls instead of sheet music, the composers worried, their primary source of income would dry up.

On the other side of the debate were the rapidly growing manufacturers of player pianos, piano rolls, phonographs and records. Allowing composers to control the use of songs, they argued, would destroy this new industry just as it was getting off the ground. Records and piano rolls wouldn’t cut into sheet music sales, they contended. Instead, recordings might actually promote sheet-music sales, by serving as a form of free advertising: Customers would be eager to play for themselves the songs they heard on record.

Choking Supply

Allowing composers and music publishers to exact a toll would only make recordings more expensive, the new companies added. The purpose of the copyright law was to encourage the production of creative work, but the composers were asking for a reform that would choke off the supply of music, one that would benefit themselves at the expense of their listeners.

And why should the law be especially solicitous of composers? They weren’t the only creators of recorded music, the industry pointed out. There were several steps between printed notes and a record, each of which required just as much talent and hard work, and each of which was just as essential to the finished product. “It takes the genius of a Sousa to play into the horn,” argued a lawyer for the American Graphophone Co. “It takes the voice of the magnificent singer to sing into the horn; and it takes the skill of the mechanician who is operating the graphophone.”

Caught between these two powerful forces, Congress did nothing but hold hearings for several years. The impasse was eventually broken by a compromise enacted as part of the Copyright Act of 1909. The composers were granted the right to forbid recordings of their compositions, but once a composer permitted one recording to be made, anyone else could make one, upon payment to the composer of a royalty set at 2 cents per copy. Composers thus received a share of the revenue, but probably not as much as the most famous ones could have commanded had they been able to negotiate a price. This arrangement, with some tinkering, has been with us ever since.

The larger story is the role of technological change in the creation of property rights. When sound could be stored and reproduced it could be sold in new ways. For the first time, there were gains to be had from establishing a system of property rights in sound. So we established one. But whose rights would they be? And where would those boundaries be located?

The answers to these questions would determine how the spoils of technological advance were divided. And they would help define the relationship between creators, consumers and commercial intermediaries. They’ve never been fully resolved.

(Stuart Banner is the Norman Abrams Professor of Law at the University of California, Los Angeles, and the author of “American Property: A History of How, Why, and What We Own.” The opinions expressed are his own.)

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