Arista Records LLC et al v. Lime Wire LLC et al

Filing 580

DECLARATION of Melinda E. LeMoine in Support re: 579 Memorandum of Law in Support of Motion,, 572 MOTION to Preclude Certain Purported Expert Testimony.. Document filed by Arista Music, fka BMG Music, Arista Records LLC, Atlantic Recording Corporation, BMG Music, Capitol Records, Inc., Capitol Records, LLC, fka Capitol Records, Inc., Elektra Entertainment Group Inc., Elektra Entertainment Group, Inc., Interscope Records, Laface Records LLC, Motown Record Company, L.P., Priority Records LLC, Sony BMG Music Entertainment, Sony Music Entertainment, fka Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records America, Inc., Warner Bros. Records Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3)(Lemoine, Melinda)

Arista Records LLC et al v. Lime Wire LLC et al

Doc. 580 Att. 3

EXHIBIT 3

Dockets.Justia.com

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ARAM A. SINNREICH, PH.D. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------x ARISTA RECORDS LLC; ATLANTIC RECORDING CORPORATION; ARISTA MUSIC, Civil Action No. fka BMG MUSIC; CAPITOL RECORDS, INC.; 06 CV 5936(KMW)(DF) ELEKTRA ENTERTAINMENT GROUP INC.; INTERSCOPE RECORDS; LAFACE RECORDS LLC; MOTOWN RECORD COMPANY, L.P.; PRIORITY RECORDS LLC; SONY MUSIC ENTERTAINMENT, fka SONY BMG MUSIC ENTERTAINMENT; UMG RECORDINGS, INC.; VIRGIN RECORDS AMERICA, INC.; and WARNER BROS. RECORDS INC., Plaintiffs, vs. LIME GROUP LLC; LIME WIRE LLC; MARK GORTON; GREG BILDSON; and M.J.G. LIME WIRE FAMILY LIMITED PARTNERSHIP, Defendants. ---------------------------------------x CONTAINS CONFIDENTIAL PORTIONS February 11, 2011 9 a.m. Videotaped deposition of ARAM A. SINNREICH, Ph.D., pursuant to subpoena, at the offices of Cowan Liebowitz & Latman, 1133 Avenue of the Americas, New York, New York, before Nancy Mahoney, a Certified Court Reporter, Registered Professional Reporter, Certified LiveNote Reporter, and Notary Public within and for the States of New York and New Jersey.

23 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 09:23:42
A. ARAM A. SINNREICH, PH.D. I can't tell you the exact number.

3 09:23:44 There are several courses in which political 4 09:23:46 economy was a methodology. 5 09:23:56
Q. So political economy, you're

6 09:23:58 saying, is a methodology? 7 09:24:00
A. Yes. It's a framework for

8 09:24:02 understanding the relationship between 9 09:24:06 institutions and other social elements. 10 09:24:20
Q. Okay. Do you think that -- so

11 09:24:22 you've taken several courses in which political 12 09:24:24 economy was a methodology.
Did you take any

13 09:24:26 course in which political economy was the sole 14 09:24:30 focus of that course? 15 09:24:32 16 09:24:32
A. Q. No. Have you taken any course ever in

17 09:24:36 which economics was the sole focus of that 18 09:24:36 course? 19 09:24:40 20 09:24:50
A. Q. I don't believe so. Do you consider yourself qualified

21 09:24:52 as an economist? 22 09:24:54 23 09:25:04
A. Q. No. Okay. And you don't have a degree

24 09:25:06 in statistics, correct? 25 09:25:08
A. No, although statistical

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42 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 09:47:42
ARAM A. SINNREICH, PH.D. Those are -- in the past were very

3 09:47:44 difficult to quantify to any degree that would 4 09:47:46 allow you to make statistical analyses because 5 09:47:48 they would rely on the subjective analyses of 6 09:47:54 musicologists. 7 09:47:54
Today we have very interesting new

8 09:47:58 software that can actually provide much more 9 09:48:00 mathematical detail on the subject and thus, I 10 09:48:04 believe, will allow me to make a much more 11 09:48:06 statistically valid and detailed analysis of the 12 09:48:10 question than has been performed in the past. 13 09:48:12
Q. Okay. So tell me again why the

14 09:48:16 musicological properties of songs that are being 15 09:48:18 offered by the record labels has anything to do 16 09:48:22 with the effect of file sharing or LimeWire on 17 09:48:28 losses that the industry has sustained. 18 09:48:30 19 09:48:32 form. 20 09:48:32 21 09:48:34
A. You can answer. Well, I would say two things: One, MR. OLLER: Object -- object to

22 09:48:38 the scope of my report is a little broader than 23 09:48:42 the way that you just positioned it.
So I would

24 09:48:44 say that it's more relevant to the broad scope 25 09:48:46 of my report.
But even within the narrow

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43 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 09:48:50 constraints of your question, I would say that 3 09:48:54 the consumer marketplace behaves according to 4 09:49:02 the range of options that's available to it. 5 09:49:06 And better understanding what the marketplace 6 09:49:08 looks like from a consumer's vantage point gives 7 09:49:12 me, as a researcher, a better understanding of 8 09:49:16 how the different actors in the marketplace 9 09:49:20 influence its dynamics. 10 09:49:24
MS. YOUNG: Can I have my question

11 09:49:26 read back again, please. 12 09:49:28 13 09:49:48
Q. (Record read.) Do you have anything else you want

14 09:49:50 to add to your answer? 15 09:49:50 16 09:49:56
A. Q. I don't think so. Okay. You're -- you said you're

17 09:49:58 also -- oh, I'm sorry -- at an academic 18 09:50:00 conference, you presented a network analysis of 19 09:50:04 the structure of payola. 20 09:50:06 21 09:50:06 22 09:50:10
A. Q. A. That's correct. Okay. What was your analysis?

My finding was that, ironically,

23 09:50:16 the payola laws and other regulations that 24 09:50:18 prohibited the exchange of money and other 25 09:50:24 considerations for access to airtime produced

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60 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 10:09:08 3 10:09:10
A. Q. ARAM A. SINNREICH, PH.D. That's correct. Okay. Really quick, just to hit

4 10:09:12 some of the points in your CV and then we can 5 10:09:14 get more into the substance of the report. 6 10:09:18 7 10:09:18
A. Q. Okay. So you're now teaching at Rutgers

8 10:09:22 and you're an associate professor there -- an 9 10:09:24 assistant professor, I'm sorry. 10 10:09:26 11 10:09:26 12 10:09:28 13 10:09:30 14 10:09:36
A. Q. A. Q. Are you -- are you tenured? No. Are you on the tenure track? Yes. Radar Research, you currently are

15 10:09:40 involved with Radar Research as a consultant? 16 10:09:44 17 10:09:44
A. Q. And a co-owner, yes. Okay. And what percent of your

18 10:09:46 time is devoted to Radar versus teaching? 19 10:09:50
A. Well, obviously depends on the

20 10:09:52 month, but on the whole, about 20 percent is 21 10:09:58 Radar and 80 percent is my academic work. 22 10:10:00
Q. And this would be, say, over the

23 10:10:02 course of a year? 24 10:10:04 25 10:10:06
A. Q. Yes. Okay. And what percent of income

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86 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 10:49:12 3 10:49:24
A. Q. ARAM A. SINNREICH, PH.D. No. Okay. Okay. Turn to Page 12. You

4 10:49:30 offer the opinion -- and this is in the heading 5 10:49:34 at Roman numeral III -- "Plaintiffs' losses 6 10:49:38 cannot be substantially attributed to LimeWire," 7 10:49:44 right? 8 10:49:44 9 10:49:44
A. Q. Yes. Has LimeWire caused any decline in

10 10:49:48 record label -- record label sales? 11 10:49:48
A. I -- I couldn't attest to the fact

12 10:49:52 that it has, no. 13 10:49:52 14 10:49:54
Q. A. Why not? Well, the -- the -- first of all, I

15 10:49:58 haven't performed any research specifically 16 10:50:00 dedicated to LimeWire's market effects.
This

17 10:50:04 is -- this report is all meta analysis of -- of 18 10:50:08 a range of research. 19 10:50:10
Second of all, the -- as I discuss

20 10:50:12 in the report, you know, there are a great many 21 10:50:18 credible research publications suggesting that 22 10:50:20 the role of file sharing in general is to 23 10:50:22 improve the market for recorded music.
Although

24 10:50:26 there's other research that says -- has contrary 25 10:50:28 findings.

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88 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 10:51:36 contributed to record label revenues by virtue 3 10:51:40 of a range of industry beneficial effects that I 4 10:51:46 outline in the report. 5 10:51:48
Q. Okay. Let me ask a perhaps

6 10:51:50 different question. 7 10:51:50
Is it your opinion that LimeWire

8 10:51:52 has had a net positive effect on total revenues 9 10:51:58 for the record labels? 10 10:51:58 11 10:52:10
A. Q. Yes. And show me where in your report

12 10:52:12 you say that. 13 10:52:28
A. If you look under Roman numeral

14 10:52:34 III, capital B, small Roman numeral I, I talk 15 10:52:42 about the direct industry benefits of file 16 10:52:48 sharing. 17 10:52:48 18 10:52:50 19 10:52:58
Q. A. Q. What page is that? It begins on Page 27. Okay. Well, this is titled Sharing

20 10:53:00 Can Help Sales, Revenues and Profits, right? 21 10:53:02 22 10:53:04
A. Q. That's true. Where does it say sharing through

23 10:53:06 LimeWire did help sales, revenues and profits? 24 10:53:10 25 10:53:12
A. MR. OLLER: Object to the form.

The -- the first paragraph says,

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89 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 10:53:14 "Although file sharing has presented strategic 3 10:53:16 and economic challenges to the music industry, 4 10:53:18 it has also delivered significant benefits, both 5 10:53:22 helping traditional record sales and opening new 6 10:53:24 avenues for economic exploitation." 7 10:53:26
Q. Okay. So where in the report do

8 10:53:30 you say that LimeWire had a net positive effect 9 10:53:32 on total record label revenues? 10 10:53:38
A. The report doesn't say that and I

11 10:53:40 can't conclude that conclusively, that LimeWire 12 10:53:44 itself had -- you asked me whether it was my 13 10:53:46 opinion. 14 10:53:46
My opinion is that it has, as

15 10:53:48 LimeWire's representative of file sharing more 16 10:53:50 broadly. 17 10:53:54
Q. Okay. But you cannot offer a

18 10:53:56 conclusion that LimeWire has had a net positive 19 10:54:00 effect on record label revenues? 20 10:54:02 21 10:54:04
A. MR. OLLER: Object to the form.

I don't have any data specifically I

22 10:54:08 demonstrating the LimeWire's market effects. 23 10:54:12 only have information about file sharing more 24 10:54:14 broadly. 25 10:54:14
So it's my opinion, based on the

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90 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 10:54:16 fact that LimeWire's representative of a great 3 10:54:20 deal of file sharing behaviors and technologies, 4 10:54:24 that what is true of file sharing in general is 5 10:54:26 true of LimeWire specifically, but I cannot 6 10:54:30 conclusively demonstrate that. 7 10:54:32
Q. Can you conclusively demonstrate

8 10:54:34 that file sharing has had a net positive effect 9 10:54:38 on record label revenues? 10 10:54:42
A. No, I can't. But, as I say in my

11 10:54:46 report, there is a bulk of credible research, 12 10:54:50 some of it authored by me and some of it 13 10:54:52 authored by others, that concludes that that's 14 10:54:56 the case. 15 10:54:56
Q. What do you mean by bulk? Do you

16 10:55:02 mean that a majority, do you mean some, what do 17 10:55:04 you mean? 18 10:55:04 19 10:55:08
A. Q. A majority of what? You say there's a bulk of credible

20 10:55:10 research. 21 10:55:10 22 10:55:10
A. Q. Yes. Does that mean that the majority of

23 10:55:12 credible research comes out on the side that you 24 10:55:14 have come out on or does it mean that some group 25 10:55:18 has?

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92 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 10:57:22 of the overall market effects of file sharing on 3 10:57:26 recorded music. 4 10:57:30
Q. Okay. And the ones that you picked

5 10:57:32 to highlight in your report are the ones that 6 10:57:36 have found some sort of positive correlation 7 10:57:38 between file sharing -8 10:57:40 9 10:57:40 10 10:57:42
A. Q. That's correct. -- and music sales, correct? Did you list all of the studies

11 10:57:46 you're aware of that have reached a conclusion 12 10:57:48 that file sharing has some sort of positive 13 10:57:52 effect on record sales or revenue? 14 10:57:54 15 10:57:56
A. Q. All the -- all the -- yes. Okay. Have you read each of these

16 10:57:58 studies yourself? 17 10:57:58 18 10:57:58
A. Q. Yes. Have you considered the underlying

19 10:58:00 data on which each study relied? 20 10:58:02 21 10:58:02
A. Q. No. And are the studies that you cite

22 10:58:04 here the most recent version of -- of the 23 10:58:08 studies? 24 10:58:12
A. To my knowledge, yes. I think

25 10:58:16 Oberholzer has published more recently, but it's

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93 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 10:58:20 not a different version of the same study, to my 3 10:58:24 knowledge. 4 10:58:24
Q. Okay. So your understanding is

5 10:58:26 that the more recent publication of Oberholzer 6 10:58:28 that you're aware of doesn't relate to the study 7 10:58:32 you cite in your report? 8 10:58:38
A. I'm not exactly certain what the

9 10:58:40 conclusion of the most recent Oberholzer study 10 10:58:48 is. 11 10:58:48
Q. Okay. Would it be important to you

12 10:58:48 to know if any of the authors you cite have 13 10:58:52 altered their conclusions since the publications 14 10:58:54 you're citing here? 15 10:58:58
A. Only insofar as they -- that

16 10:59:02 alteration represents a different analysis of 17 10:59:06 the same data. 18 10:59:06
If, for instance, an author found

19 10:59:08 one effect in 2004 and a different effect in 20 10:59:12 2008, that wouldn't discredit the 2004 finding. 21 10:59:16 It would just update it. 22 10:59:22
Q. But if the authors were looking at

23 10:59:24 the very data that was the subject of the 24 10:59:24 publication you listed -25 10:59:26
A. Yes.

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94 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 10:59:26
Q. ARAM A. SINNREICH, PH.D. -- and altered their conclusion,

3 10:59:28 would that be important for you to know? 4 10:59:30 5 10:59:34
A. Q. Yes, of course it would. Are the studies that you cite in

6 10:59:36 here all published? 7 10:59:42
A. Yes, but in different formats.

8 10:59:44 They're not all journal articles, for 9 10 11 10:59:48
instance -Q. A. Are --- but they're all publicly

12 10:59:48 available. 13 10:59:50
Q. Are you citing the published

14 10:59:52 version of all of the studies that you reference 15 10:59:56 in Pages 28 through 30 of your report? 16 11:00:00
A. No. 62 and 63 footnotes, I

17 11:00:10 actually cite the articles about the reports 18 11:00:12 rather than the reports. 19 11:00:14 20 11:00:18
Q. A. Why did you do that? While we were looking for

21 11:00:20 citations, I could not find the originals of 22 11:00:22 those reports. 23 11:00:24
Q. Have you read the originals of

24 11:00:26 those reports? 25 11:00:30
A. I don't remember whether I've read

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95 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D. I -- I believe that I

2 11:00:32 those two reports or not.

3 11:00:38 read the Moya report, but I can't be certain. 4 11:00:44
Q. Other than the footnotes you

5 11:00:46 pointed out, are you citing the published 6 11:00:50 version of the studies that you referenced at 7 11:00:52 Pages 28 through 30 of your report? 8 11:00:54 9 11:01:02
A. Q. I believe so, yes. Do you believe you're qualified to

10 11:01:04 assess the validity or reliability of the 11 11:01:06 statistical methodologies that were applied in 12 11:01:08 these studies? 13 11:01:12
A. Well, it depends on the individual

14 11:01:12 study, but to the extent that it falls within 15 11:01:14 the range of statistical methodologies we 16 11:01:16 discussed before, yes. 17 11:01:18
Q. Did you do anything to assess the

18 11:01:22 validity or reliability of the statistical 19 11:01:24 methodologies that these studies employed? 20 11:01:26
A. Other than reading the -- the

21 11:01:30 research and deciding whether or not it was -22 11:01:36 looked relevant to me and -- and looked like it 23 11:01:40 was performed in a methodologically sound way, 24 11:01:42 no. 25 11:01:42
Q. Well, do you have an opinion as to

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96 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 11:01:44 whether these -- these studies were performed in 3 11:01:48 a methodologically sound way? 4 11:01:50
A. I would not have included them if I

5 11:01:52 didn't believe that they were. 6 11:02:00
Q. Were you familiar with all of the

7 11:02:10 statistical methodologies that were used in all 8 11:02:12 of these studies? 9 11:02:12
A. No. Some of them involved complex

10 11:02:18 economic analyses that are beyond the scope of 11 11:02:20 my expertise. 12 11:02:20 13 11:02:24
Q. A. Tell me which ones. Off the top of my head, I don't Some of them are more

14 11:02:26 remember which ones.

15 11:02:28 survey-based, some of them are more theoretical. 16 11:02:42
For instance, the Gopal one, I

17 11:02:46 believe, was more theoretical, possibly Peitz 18 11:02:56 and Waelbroeck, but I would have to look at the 19 11:03:00 studies to -- to render a more conclusive 20 11:03:06 opinion. 21 11:03:06
Q. Is it fair to say, though, that at

22 11:03:08 least some of these studies used statistical 23 11:03:10 methodologies that you are not qualified to 24 11:03:14 assess the reliability or validity of? 25 11:03:16
A. Yes.

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97 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 11:03:22
Q. ARAM A. SINNREICH, PH.D. What about the studies that used

3 11:03:24 survey methodologies, do you feel qualified to 4 11:03:26 assess the validity or reliability of those 5 11:03:30 methodologies? 6 11:03:30 7 11:03:34
A. Q. Yes. And what about the economic

8 11:03:38 analyses offered in these studies, do you feel 9 11:03:40 qualified to assess the validity or reliability 10 11:03:42 of that analysis? 11 11:03:44
A. Well, it depends on the study, but

12 11:03:46 in some cases, yes. 13 11:03:48 14 11:03:48
Q. A. And in some cases, no? Yes, correct. In some cases, yes,

15 11:03:54 and in some cases, no. 16 11:03:56
Q. Okay. And do you purport to offer

17 11:03:58 an opinion about the relative merits of any of 18 11:04:02 these studies? 19 11:04:02
A. Not beyond the fact that I thought

20 11:04:06 they merited inclusion in the report. 21 11:04:10
Q. Well, what qualified for meriting

22 11:04:18 inclusion in your report? 23 11:04:18
A. Well, when you're a research

24 11:04:20 professional, you can -- you develop a sense of 25 11:04:22 whether individual pieces of research are -- are

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98 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
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2 11:04:28 written in a -- using methodologies that are 3 11:04:32 supportable, written by people who understand 4 11:04:36 what they're doing and what they're talking 5 11:04:38 about and published in venues that -- that have 6 11:04:42 reputations for methodological rigor. 7 11:04:48
Q. Okay. So one criterion is what

8 11:04:50 publication? 9 11:04:50 10 11:04:52
A. Q. Yep. You said another -- another

11 11:04:54 criteria would be who the author is? 12 11:04:56 13 11:04:58 14 11:05:00 that? 15 11:05:00
A. Well, authors who are either in A. Q. Yes. Okay. And can you elaborate on

16 11:05:06 academic positions or who work for known private 17 11:05:12 research firms are part of institutions that 18 11:05:14 have certain standards that lend them a halo 19 11:05:18 of -- of, you know, confidence. 20 11:05:28
Q. And by academic positions, are you

21 11:05:30 talking about people who are professors and -22 11:05:34
A. Professors or post-doctoral

23 11:05:36 researchers or people who have the oversight and 24 11:05:38 the reputation of the departments that they're 25 11:05:42 affiliated with, yes.

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100 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 11:06:54
A. ARAM A. SINNREICH, PH.D. Sociological Quarterly,

3 11:06:58 International Journal of Communication, Journal 4 11:07:02 of Communication, American Quarterly. 5 11:07:10 or three others. 6 11:07:10
I mean, what happens is typically Maybe two

7 11:07:12 you'll just get a request via email or less 8 11:07:18 often by phone from a journal saying, we have an 9 11:07:22 article that falls within your bailiwick, we'd 10 11:07:24 like you to take a look at it and do some peer 11 11:07:28 review. 12 11:07:28
So, off the top of my head, those

13 11:07:30 are the journals I can think of -- oh, also 14 11:07:32 University of Massachusetts Press, which was the 15 11:07:34 publisher of my book.
I peer reviewed another But there are

16 11:07:38 book manuscript for them.

17 11:07:40 probably two or three others that I didn't name. 18 11:07:44
Q. Okay. Okay. So you acknowledge

19 11:07:50 that there are studies that have come out the 20 11:07:52 other way, finding that there's a negative or 21 11:07:56 neutral effect of file sharing on music sales, 22 11:08:00 correct? 23 11:08:00 24 11:08:00
A. Q. Yes. Okay. How many studies are you

25 11:08:02 aware of that find a negative effect of file

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101 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
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2 11:08:04 sharing on music sales or revenues? 3 11:08:06
A. Somewhere on the order of ten, you

4 11:08:10 know, on par with the ones that I cited in terms 5 11:08:14 of the general, you know, site of -- location of 6 11:08:16 publication or position of -- of the authors. 7 11:08:22
Q. And have you read all those

8 11:08:24 studies? 9 11:08:24 10 11:08:30 11 11:08:32
A. Q. A. No. Why not? I've had limited time, and my role,

12 11:08:38 as I understand it, in preparing this report was 13 11:08:40 to say whether there was credible evidence that 14 11:08:44 file sharing had beneficial market effects. 15 11:08:46
Q. So you didn't take the time to

16 11:08:48 examine the evidence on the other side? 17 11:08:50 18 11:08:50 19 11:08:52
A. A. I'm -MR. OLLER: Object to the form.

I'm willing to accept that there is

20 11:08:54 credible evidence on the other side, and so I 21 11:08:56 did not take the time to examine it. 22 11:09:02
Q. You say, "It's neither my role nor

23 11:09:04 my intention to dispute these findings," at 24 11:09:08 Page 30. 25 11:09:10
What findings are you referring to

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121 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 11:31:04
Q. ARAM A. SINNREICH, PH.D. Did you personally, in preparing

3 11:31:06 this report, set out to analyze empirically the 4 11:31:10 effect that these different factors have? 5 11:31:12 6 11:31:12
A. Q. No. Okay. Did you, in preparing this

7 11:31:14 report, attempt to quantify the magnitude of the 8 11:31:16 effect of these factors? 9 11:31:18 10 11:31:22
A. Q. No. Okay. Do you have any idea

11 11:31:24 quantitatively what effect each of these factors 12 11:31:28 had in, as you say, contributing to declining 13 11:31:32 music sales and revenues? 14 11:31:32 15 11:31:34
A. MR. OLLER: Object to the form.

It would be difficult, for reasons

16 11:31:36 that we've already discussed, to discretely 17 11:31:38 attribute a percentage of the effect to any 18 11:31:44 single given factor because there are many 19 11:31:46 interaction effects between the factors. 20 11:31:48
For instance, the recession

21 11:31:50 influences the market for brick and mortar 22 11:31:54 retail, and so on and so forth. 23 11:31:56
Q. Well, did you attempt to quantify

24 11:31:58 the effect of the factors in combination on 25 11:32:04 declining music sales and revenues?

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A. Q. ARAM A. SINNREICH, PH.D. No. Okay. And I want to go through

4 11:32:12 each of these factors a little bit more and talk 5 11:32:16 about -- talk about them. 6 11:32:20
All right. Changing Consumer You say

7 11:32:22 Psychology and Market Expectations.

8 11:32:24 that -- this is on Page 14 toward the bottom -9 11:32:28 "Digital music provided music fans with an 10 11:32:30 unprecedented degree of choice over their 11 11:32:34 consumption habits, control over their music 12 11:32:36 listening experiences, volume of content to 13 11:32:38 choose from and portability in their music 14 11:32:42 listening venues," correct? 15 11:32:44 16 11:32:46
A. Q. Correct. Shouldn't that make digital music

17 11:32:48 more, and not less, valuable to consumers? 18 11:32:50 19 11:32:52 value.
A. Well, it depends on your measure of It makes it more valuable to consumers

20 11:32:56 in terms of the total amount of time and 21 11:33:00 attention that they're devoting towards 22 11:33:02 listening to music. 23 11:33:04
It's also making them probably

24 11:33:10 invest in a lot of music technologies that can 25 11:33:14 be used to access music with -- with portions of

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2 11:33:20 wallet share. 3 11:33:20
So if you measure value in that If you're

4 11:33:22 kind of broader holistic sense, yes.

5 11:33:26 asking about value purely as represented through 6 11:33:28 the retail market, no, because it's not an 7 11:33:30 accurate barometer of consumer sentiment. 8 11:33:34 9 11:33:36
Q. A. And why is that? Because, as I describe in the

10 11:33:38 report, the labels and other industry players 11 11:33:42 have not been -- have not effectively and 12 11:33:48 rapidly accommodated their business models and 13 11:33:52 distribution models to the changing needs of 14 11:33:54 the -- of the marketplace. 15 11:33:58
Q. Could another reason that the

16 11:33:58 market is not an accurate barometer of consumer 17 11:34:04 sentiment be that many consumers are acquiring 18 11:34:06 their music for free so that's not picked up on 19 11:34:10 the radar? 20 11:34:12
A. Certainly many consumers are

21 11:34:12 acquiring their music for free, but there's 22 11:34:16 little question that they continue to spend a 23 11:34:20 significant amount of their wallet share on 24 11:34:22 music and music related products and services. 25 11:34:24
Q. But is one of the reasons why the

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2 11:34:24 market might not be an accurate barometer of 3 11:34:28 consumer sentiment, that some consumers are 4 11:34:30 choosing to spend -- choosing not to spend their 5 11:34:32 dollars and instead just getting the music for 6 11:34:34 free? 7 11:34:34 8 11:34:36
A. Q. Some consumers, yes. You also say -- I'm now on Page 15

9 11:34:44 at the bottom of the section -- "The labels 10 11:34:46 themselves are to blame for taking a decade to 11 11:34:50 absorb the significance of this shift in market 12 11:34:52 demand." 13 11:34:54 14 11:34:54 decade? 15 11:34:56
A. Sorry. I -- I don't see the Why are you saying it took a

16 11:34:58 sentence. 17 11:34:58
Q. It's at the very end of this

18 11:35:00 section, right above B. 19 11:35:04 20 11:35:04 21 11:35:06 22 11:35:10 23 11:35:12 decade? 24 11:35:14
Q. Yeah, why do you say it took a A. Q. A. Yes. Do you see where I am? Yes. Okay. Why do I say a

So the question is:

25 11:35:16 decade for the labels to absorb the significance

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2 11:35:18 of this shift in market demand and for failing 3 11:35:22 to accommodate it sooner? 4 11:35:22
A. Well, the shift began at least as

5 11:35:24 early as 1999 with the introduction of Napster 6 11:35:28 into the marketplace.
And as recently as 2010,

7 11:35:30 public filings by -- by major record labels have 8 11:35:34 acknowledged that they've been slow to react to 9 11:35:36 changes in -- in the market. 10 11:35:38
Q. And so that's what you're referring

11 11:35:40 to when you say it took a decade to absorb 12 13 14 11:35:44 15 11:35:44
the -A. Q. A. Well, that's --- significance of that shift? -- one of the many indicators that

16 11:35:48 that's the case. 17 11:35:50
I mean, it was not until 2007, for

18 11:35:52 instance, eight years after the introduction of 19 11:35:54 Napster into the marketplace, that the major 20 11:35:56 labels allowed non-DRM encrypted music to be 21 11:36:02 sold through retailers.
That's eight years,

22 11:36:04 that's nearly a decade, despite the fact that 23 11:36:06 there was abundant evidence of consumer demand 24 11:36:10 for that product early on. 25 11:36:12
Q. Yeah, we're going to talk about

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2 11:36:12 that in a minute. 3 11:36:14
What year did record labels first

4 11:36:16 start offering services, digital music services 5 11:36:20 on the Internet? 6 11:36:20
A. Well, it depends on your definition

7 11:36:22 of digital music services, but it was roughly 8 11:36:28 2000 when the labels started to invest a 9 11:36:34 significant amount of effort in developing 10 11:36:36 digital strategies. 11 11:36:38 12 11:36:42 13 11:36:42
Q. A. Q. And when was iTunes introduced? 2001, I believe. What about subscription services,

14 11:36:46 when were they introduced, the subscription 15 11:36:48 services that the labels licensed, when were 16 11:36:50 they introduced? 17 11:36:52 18 11:36:54
A. Q. 2001, maybe. And iTunes has been successful in

19 11:36:56 selling downloads on the Internet, correct? 20 11:36:58
A. Well, it depends on your definition I mean, they have been unsuccessful

21 11:37:00 of success.

22 11:37:02 at selling enough downloads to replace revenue 23 11:37:06 lost by CDs, largely, as I discuss in my report, 24 11:37:10 because it's a singles market as opposed to a 25 11:37:14 bundled market.
And they've -- at the moment

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2 11:37:18 they've been very successful in terms of market 3 11:37:20 share, but their sales volume is -- is leveling 4 11:37:24 off, so they haven't been successful in taking 5 11:37:26 that early success and translating it to a 6 11:37:30 consistently growing market. 7 11:37:30
Q. Were -- let me ask you: Were there

8 11:37:32 significant sales of downloads before iTunes 9 11:37:34 opened? 10 11:37:36 11 11:37:40
A. No, not major label downloads. MR. OLLER: Counsel, we -- we I'm happy

12 11:37:42 can -- we can correct this later.

13 11:37:44 to -- I think it's undisputed and the record 14 11:37:48 shows iTunes started in 2003, but I just throw 15 11:37:52 that out. 16 11:37:52
THE WITNESS: No, I don't think

17 11:37:54 that's the case. 18 11:37:56 19 11:37:58
MR. OLLER: THE WITNESS: iTunes, Apple iTunes? Yeah. Well, there -There's

20 11:38:00 there's several things called iTunes.

21 11:38:00 iTunes software, there's the iTunes music store 22 11:38:02 which started later, yeah. 23 11:38:04 24 11:38:04
Q. Okay. MR. OLLER: I didn't know what you

25 11:38:06 were asking about.

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128 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 11:38:06 3 11:38:10 start? 4 11:38:10
A. Yeah, I think that's 2003. That Q. ARAM A. SINNREICH, PH.D. So when did the iTunes music store

5 11:38:12 sounds about right. 6 11:38:12
Q. And when you said iTunes started in

7 11:38:14 2001, what were you referring to? 8 11:38:16
A. I was thinking about the market That was a

9 11:38:18 introduction of the iPod, actually. 10 11:38:20 misstatement by me. 11 11:38:22 12 11:38:24 13 11:38:26 14 11:38:30 15 11:38:32
Q. A. Q. A. Q. Okay.

So iPod came first in 2001?

Yes, that's correct. And then came iTunes in 2003? Yes. Okay. Okay. Factor number 2 on

16 11:38:34 your list is an increase in small scale 17 11:38:36 commercial CD bootlegging, correct? 18 11:38:38 19 11:38:38
A. Q. Yes. And you say that this has been

20 11:38:40 analyzed empirically by the plaintiffs? 21 11:38:42 22 11:38:44 23 11:38:46 24 25
A. Q. A. plaintiffs. Q. Okay. That's correct. And what are you referring to? By representatives of the

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129 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 11:38:46
A. ARAM A. SINNREICH, PH.D. I'm referring -- I'm referring to

3 11:38:46 the IFPI music piracy report from June 2002 that 4 11:38:54 I cite in the footnote. 5 11:38:54
Q. Okay. And did you rely on any

6 11:38:56 other source in offering empirical support for 7 11:39:00 your conclusions expressed in the section on 8 11:39:02 small scale of commercial CD bootlegging? 9 11:39:06
A. No, although it's a subject that

10 11:39:10 I've continued to read trade articles about over 11 11:39:12 the years.
So this was not my first

12 11:39:14 introduction to the subject -13 14 11:39:16
Q. A. Got it. -- but this was the only empirical

15 11:39:18 evidence that I leveraged in writing the report. 16 11:39:22
Q. You say, "Pirate CD-R sales had

17 11:39:26 tripled in the course of a single year to 450 18 11:39:28 million units." 19 11:39:30 20 11:39:30 21 11:39:32 22 11:39:34
A. Q. A. Q. Yes. What year was that? 2001, I believe. Okay. And what were pirate CD-R

23 11:39:36 sales doing before 2001? 24 11:39:38 25 11:39:40
A. Q. They were one-third the size. And did you look at what they were

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2 11:39:42 doing in 1999? 3 11:39:48
A. I didn't really need to because

4 11:39:50 CD-Rs were not massively penetrated in the 5 11:39:54 marketplace until the end of the '90s. 6 11:39:56
Q. Okay. Did you look at what

7 11:39:58 happened to CD-R -- pirate CD-R sales after 8 11:40:00 2001? 9 11:40:02
A. Well, they continue to be mentioned

10 11:40:04 in RIAA and IFPI publications from time to time. 11 11:40:08 And, as I say, there continue to be trade 12 11:40:10 stories about it, especially globally speaking. 13 11:40:12
So there are certain markets like

14 11:40:16 China, for instance, where it's considered to be 15 11:40:18 a rampant problem. 16 11:40:20
Q. But did you do anything to look at

17 11:40:22 the empirical data about what happened after 18 11:40:26 2001 in terms of pirate CD-R sales? 19 11:40:30
A. No, that was the last empirical

20 11:40:30 data that I -- that I used for my report. 21 11:40:30
Q. Okay. And the IFPI data, what

22 11:40:34 geographic area does it cover? 23 11:40:34 24 11:40:36
A. Q. I believe it was global. Okay. So 4 -- 450 million units is

25 11:40:38 a number of pirate CD-R sales globally, correct?

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A. Q. A. Q. ARAM A. SINNREICH, PH.D. In 2001 or '2, yes. That's a global number? Yes. Okay. Do you know what the numbers

6 11:40:48 in the U.S. were at that time? 7 11:40:50 8 11:40:50
A. Q. I don't. Did you attempt to determine what

9 11:40:52 they were in preparing your report? 10 11:40:54 11 11:40:56
A. Q. No. Would that have been relevant to

12 11:40:56 your analysis? 13 11:40:58
A. Yes, but it's a question of limited I could certainly -- if -- if

14 11:41:00 time and scope.

15 11:41:04 the primary subject of my analysis had been the 16 11:41:08 pirate CD-R market, I would have devoted more 17 11:41:12 time and attention to it. 18 11:41:14
Q. And do you know if pirate CD-R

19 11:41:16 sales are more prevalent in areas abroad than 20 11:41:20 they are in the United States? 21 11:41:20
A. I -- I think certain markets they

22 11:41:22 are, yes. 23 11:41:22
Q. And did you attempt to quantify the

24 11:41:28 extent to which pirate CD sales contributed to 25 11:41:30 the decline in revenues?

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A. Q. ARAM A. SINNREICH, PH.D. No. Are you aware of how many songs

4 11:41:34 were downloaded over peer-to-peer networks 5 11:41:36 compared to the number of pirate CD sales? 6 11:41:40 7 11:41:42
A. Q. No. Do you know how many songs were

8 11:41:44 downloaded over LimeWire during the time period 9 11:41:46 of its existence? 10 11 11:41:48
A. Q. No. Would that have been relevant to

12 11:41:48 your analysis? 13 11:41:50 14 11:41:50
A. Q. Broadly speaking, yes. Did you ask to get those numbers

15 11:41:52 from LimeWire? 16 11:41:54 17 11:41:54
A. Q. No. Did you do anything to try and

18 11:41:56 determine what those numbers were? 19 11:41:58 20 11:41:58 21 11:42:00
A. Q. A. Yes. What did you do? I looked at publicly reported data

22 11:42:04 from -- and descriptions of data from Big 23 11:42:10 Champagne, which is a third-party research 24 11:42:12 organization that looks at file sharing 25 11:42:14 networks.

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Q. ARAM A. SINNREICH, PH.D. And based on your research, what do

3 11:42:18 you understand the -- the number of songs that 4 11:42:18 were downloaded over LimeWire to be? 5 11:42:20 6 11:42:24
A. Q. I don't know. Okay. You mention, factor

7 11:42:28 number 3, the widespread economic recession. 8 11:42:30 This is on Page 16. 9 11:42:34
Did you make any attempt to

10 11:42:36 determine the magnitude that the effect of 11 11:42:38 either or both -- either or both of the 12 11:42:40 recessions you mentioned had on music sales in 13 11:42:44 the United States? 14 11:42:46
A. You mean a direct causal

15 11:42:50 relationship between the recession and the size 16 11:42:52 of the -- of the hit that the music market took? 17 11:42:54 18 11:42:54 19 11:42:54
Q. A. Q. Correct. No. Are you aware of any studies that

20 11:42:58 have analyzed that issue? 21 11:43:00
A. No. It's a good subject, though,

22 11:43:02 for a piece of research. 23 11:43:12
MS. YOUNG: We have just a few

24 11:43:14 minutes left on the tape, so why don't we stop 25 11:43:16 quickly so it can be changed.

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2 12:08:42 reading market research. 3 12:08:42
Q. Okay. So you cite your own

4 12:08:44 experience? 5 12:08:46 6 12:08:46
A. Q. Yes. And then you cite other research.

7 12:08:48 I want you to tell me what research that is. 8 12:08:52
A. Well, published reports by Jupiter,

9 12:08:54 Forester, Gartner, IVC, NPD, Pew, there -- there 10 12:09:02 are -- Yankee Group.
There are many, many being

11 12:09:06 many different providers of market information 12 12:09:12 that quantify through surveys and through other 13 12:09:16 forms of analysis how consumer expenditures 14 12:09:20 shift from -- from one channel to another over 15 12:09:30 time. 16 12:09:30
Q. Okay. Are you attempting to

17 12:09:32 quantify how much money was substituted by -18 12:09:34 let me rephrase that. 19 12:09:36
Are you attempting to quantify how

20 12:09:40 much money people were spending on other forms 21 12:09:40 of entertainment that they might otherwise have 22 12:09:44 spent on music? 23 12:09:46 24 12:09:46
A. Q. No. And are you offering an opinion

25 12:09:48 about how much of the decline in music sales is

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2 12:09:52 attributable to competition from other forms of 3 12:09:54 entertainment? 4 12:09:54 5 12:09:54 6 12:09:58 7 12:09:58 8 12:09:58
A. Q. A. Q. A. No. Do you think that can be measured? No. Why not? For the reasons that we've talked

9 12:10:02 about a few times during this deposition, which 10 12:10:04 is that the many different factors don't operate 11 12:10:08 discretely, but in confluence with one another. 12 12:10:10
Q. What factors operate in confluence

13 12:10:14 with this particular factor that we're talking 14 12:10:16 about now? 15 12:10:18
A. Well, the recession obviously has

16 12:10:20 an influence on overall consumer spending, and 17 12:10:24 it also causes consumers to reprioritize their 18 12:10:26 discretionary spending.
The success or failure

19 12:10:30 of the retailers in the marketplace influences 20 12:10:32 the availability, price points and consumer 21 12:10:36 knowledge of and interest in the products. 22 12:10:42 The -- obviously the CD format cycle and end of 23 12:10:46 MAP pricing are both -- and unbundling are very 24 12:10:48 music specific, so those don't have as many 25 12:10:50 interaction effects -- although, you know, to a

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ARAM A. SINNREICH, PH.D. So you're saying there's no doubt

3 12:15:18 that the availability of illegal music online 4 12:15:22 contributed to the bankruptcy of music retailers 5 12:15:24 and decline in shelf -- in shelf space? 6 12:15:30
A. Yes, I believe that it was one of

7 12:15:32 many factors contributing. 8 12:15:44
Q. Okay. Okay. I want to get back to

9 12:15:48 the minimum advertised pricing, but I'll just 10 12:15:50 take your factors in order and I'll follow up on 11 12:15:52 some of the things you mentioned there. 12 12:15:52 13 12:15:54
A. Q. Okay. Okay. Your next factor on this

14 12:15:56 list is the maturation of the CD format and the 15 12:15:58 end of the replacement cycle.
And just can you

16 12:16:02 briefly summarize what you mean here? 17 12:16:04 18 12:16:06
A. Sure. When CDs became broadly distributed

19 12:16:12 technology around the beginning of the 1990s, a 20 12:16:16 great many people who already owned songs in LP 21 12:16:18 or cassette format bought those same songs or 22 12:16:20 albums in CD format, partially because of the 23 12:16:24 convenience and partially because of the 24 12:16:26 attendant hype surrounding the higher audio 25 12:16:30 quality that CDs had.

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2 12:18:28 relevant format to consumers overall. 3 12:18:30
So the -- the bulk of new releases

4 12:18:38 were becoming available either primarily or 5 12:18:42 entirely in CD format, meaning there was no 6 12:18:44 requirement that they be replaced by a CD. 7 12:18:48
Also, exacerbating that was the --

8 12:18:56 the de-emphasis on non-CD formats in -- in 9 12:18:58 retail environments.
So there was essentially a

10 12:19:00 whole -- a decade-long ascension of CD to the 11 12:19:04 dominant format, and by the time that was done, 12 12:19:12 more or less all of the replacing that was going 13 12:19:14 to happen had happened and there wasn't a lot 14 12:19:16 left to be done. 15 12:19:16
Q. Okay. For that last statement, all

16 12:19:18 of the replacing that was going to have happened 17 12:19:20 had happened -18 12:19:22 19 12:19:22
A. Q. Right. -- what empirical evidence do you

20 12:19:26 have about when that point was reached? 21 12:19:28
A. I don't have a -- I didn't cite a

22 12:19:32 specific point because I don't have empirical 23 12:19:36 evidence regarding that specific point. 24 12:19:36
I mean, this is a trend, not a -- a

25 12:19:40 discrete event encapsulated at a specific moment

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ARAM A. SINNREICH, PH.D. So if you think of it as a -- as -- I

3 12:19:48 think I describe it as a cycle, the reason it's 4 12:19:50 described as a cycle, it begins, it reach is its 5 12:19:54 apogee and then -- then it ends. 6 12:19:56
Q. Okay. Are you aware of any

7 12:19:56 academic literature that attempts to gauge the 8 12:20:00 impact of the replacement phenomenon on record 9 12:20:04 sales? 10 12:20:04
A. Yes. I've seen academic literature

11 12:20:08 on the subjects. 12 12:20:08 13 12:20:10
Q. A. What have you seen? I couldn't cite titles or authors

14 12:20:12 off the top of my head. 15 12:20:14
Q. Did you review that literature in

16 12:20:16 connection with preparing this report? 17 12:20:20
A. No. I think I would have cited it

18 12:20:22 if I had. 19 12:20:22
Q. Do you know what that literature

20 12:20:24 has concluded? 21 12:20:26
A. Yeah, I think it supports the

22 12:20:28 consensus opinion that -- that there was a CD 23 12:20:32 replacement cycle that began in the late '80s or 24 12:20:36 early '90s and lasted until the end of the '90s. 25 12:20:38
Q. Are you aware of any academic

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2 12:20:40 literature that reaches the opposite 3 12:20:42 conclusion -4 12:20:42 5 12:20:44 6 12:21:12
A. Q. No. -- that there was no -- I'm sorry. So what kind of music was being

7 12:21:14 replaced by CDs? 8 12:21:16
A. Everything that was being made

9 12:21:18 available on CD that had previously been made 10 12:21:22 available on other formats. 11 12:21:24
Q. I think you said earlier, though,

12 12:21:24 for the most part, new releases weren't being 13 12:21:28 replaced because if you just wanted a new 14 12:21:30 release, you'd go get it on CD, you wouldn't buy 15 12:21:34 the cassette or the LP? 16 12:21:34 17 12:21:36
A. Q. Correct. So, again, are you offering any

18 12:21:40 opinion about how much of the decline in music 19 12:21:42 sales is attributable to this replacement -- the 20 12:21:44 end of the replacement cycle? 21 12:21:46
A. No, I don't think that's a

22 12:21:48 quantifiable figure. 23 12:21:54
Q. All right. You've mentioned

24 12:21:56 minimum advertised pricing a couple of times, so 25 12:21:58 let's talk about that.

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163 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 12:22:04
ARAM A. SINNREICH, PH.D. Do you know for how many years

3 12:22:06 minimum advertised pricing was used to price CDs 4 12:22:10 in the United States? 5 12:22:10 6 12:22:10
A. Q. No. Do you know roughly what time

7 12:22:12 period minimum advertised pricing was used for? 8 12:22:16 9 12:22:20
A. Q. I'm not sure. Have you considered whether record

10 12:22:24 label revenues increased and to what extent when 11 12:22:28 MAP was introduced? 12 12:22:30
A. Yes. I know that MAP was standard

13 12:22:32 practice throughout the 1990s, which was a 14 12:22:38 period of time during which the value of the 15 12:22:40 retail industry increased considerably. 16 12:22:44
Q. Okay. You said it was standard Can you

17 12:22:44 practice in industry through the 1990s.

18 12:22:48 be more specific about the time period in which 19 12:22:52 you believe it was standard practice for MAP? 20 12:22:54
A. I think throughout the entire

21 12:22:56 1990s, it was standard practice, but I don't 22 12:23:00 know specific dates. 23 12:23:06 24 12:23:12
Q. A. Do you know what the MAP price was? Not off the top of my head,

25 12:23:14 although I've seen the figure, so a wholesale

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2 12:23:20 price in the range of maybe -- well, the MAP 3 12:23:22 price wasn't wholesale, it was retail -- I think 4 12:23:26 it was in the range of $15, but I don't remember 5 12:23:28 the exact figure. 6 12:23:30
Q. And where did you see that figure,

7 12:23:32 where is -- where is that from? 8 12:23:36
A. I've read many articles about MAP You know, most of them

9 12:23:38 pricing over the years.

10 12:23:40 I haven't read since the end of MAP pricing a 11 12:23:44 decade ago, which is why my memory is not as 12 12:23:46 clear as it would be if it were more recent. 13 12:23:48
Q. Okay. So you say here, starting at

14 12:24:02 Page 18 and going over to Page 19 -15 12:24:06 16 12:24:06
A. Q. Yes. -- "Given that many music retailers

17 12:24:10 immediately reduced prices from the $15 range to 18 12:24:14 the $10 range following the end of MAP pricing 19 12:24:18 in 2000, it is likely that this is a significant 20 12:24:20 contributory factor in market devaluation." 21 12:24:20 22 12:24:22
A. Q. Yes. So what's your basis for saying

23 12:24:24 that prices were reduced from 15 to 10 dollars? 24 12:24:28
A. There are several bases. One, I've

25 12:24:32 seen figures -- although I couldn't find them

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2 12:24:36 when I was writing this, so I didn't cite 3 12:24:38 them -- showing the average retail price of new 4 12:24:40 CDs during the time period and price comes down 5 12:24:44 from roughly the $15 range to the -- roughly the 6 12:24:46 $10 range. 7 12:24:48
Second of all, during this period

8 12:24:50 of time, while I was employed at Jupiter, I -- I 9 12:24:56 was in frequent contact with retailers and NARM, 10 12:25:00 which is the music retailer trade organization, 11 12:25:04 in fact, keynoted the NARM industry conference 12 12:25:08 in, I think, both 2001 and 2002, if I'm not 13 12:25:12 mistaken, maybe it was 2000, 2001, but for 14 12:25:16 two -- two consecutive years, so I was exposed 15 12:25:18 on an ongoing basis to the concerns about -16 12:25:20 about pricing from the retail sector. 17 12:25:24 18 12:25:26
Q. Okay. MR. OLLER: Can I just wait for ten

19 12:25:30 seconds to get him some water. 20 12:25:32 21 22 12:26:04 BY MS. YOUNG: 23 12:26:04
Q. So you say many music retailers THE WITNESS: Thank you.

(Discussion held off the record.)

24 12:26:08 immediately reduced their prices when MAP 25 12:26:10 pricing ended.

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Q. Do you know roughly what percentage A. ARAM A. SINNREICH, PH.D. How many retailers? I don't know off the top of my

6 12:26:18 of retailers reduced their prices immediately? 7 12:26:20
A. Well, I know that the big box

8 12:26:22 retailers who accounted for a -- at that time 9 12:26:30 probably a plurality of brick and mortar CD 10 12:26:34 sales reduced their prices instantaneously after 11 12:26:42 that -- that ruling came down. 12 12:26:44
Q. And after -- okay. What ruling are

13 12:26:46 you referring to? 14 12:26:46
A. The -- the settlement in the MAP

15 12:26:52 pricing investigation. 16 12:26:56
Q. Okay. And what's your basis for

17 12:26:58 saying that the -- the big box retailers 18 12:27:02 immediately reduced their prices? 19 12:27:04
A. Again, I was in contact with the The head of the retailer

20 12:27:08 retailers at the time.

21 12:27:12 trade organization was somebody I spoke to on an 22 12:27:16 ongoing basis. 23 12:27:18 marketplace.
I was paying attention to the There were many articles written

24 12:27:22 about it, some of which I was probably quoted 25 12:27:24 in.
It was -- it was a matter of common

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2 12:27:26 knowledge within the music industry. 3 12:27:30
Q. Have you heard of the term

4 12:27:34 "elasticity"? 5 12:27:36 6 12:27:38 you. 7 12:27:50
Q. Okay. So what empirical evidence A. Yes, but I couldn't define it for

8 12:27:54 do you have that because of reductions in prices 9 12:27:58 as a result of the end of MAP, revenues 10 12:28:00 decreased? 11 12:28:06 12 12:28:08 logic. 13 12:28:08 14 12:28:10
Q. A. Explain that logic to me. Well, if -- if the -- if the price A. Well, it's a matter of standard

15 12:28:14 point for a product is $15 and a hundred people 16 12:28:20 buy that product, the retail value of those 17 12:28:24 exchanges will be $1,500; if the product is 18 12:28:30 priced at $10, then the retail value of those 19 12:28:34 exchanges will be $1,000. 20 12:28:36
Q. If the same 100 people buy the

21 12:28:38 product? 22 12:28:38
A. If the same 100 people buy the

23 12:28:40 product, absolutely. 24 12:28:42
Q. Would you agree with me that some

25 12:28:42 people might be more willing to buy a product

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ARAM A. SINNREICH, PH.D. Are you familiar with the use of

3 13:17:15 instruments in statistical analysis? 4 13:17:18 5 13:17:20 6 13:17:20 7 13:17:22
A. Q. A. Q. Statistical instruments? Yes. Well, yeah, broadly speaking. Well, what do you understand me to

8 13:17:24 mean when I use the term "instrument"? 9 13:17:26
A. Well, a -- any method of obtaining

10 13:17:29 data or of analyzing data can be considered a 11 13:17:34 statistical instrument. 12 13:17:35
Q. Okay. Do you know what the term

13 13:17:37 "instrument" means in a statistical analysis? 14 13:17:39
A. I -- I don't think I know what --

15 13:17:43 the usage of the term you're talking about, no. 16 13:17:45
Q. Are you aware of studies that use

17 13:17:47 things called instruments as part of their 18 13:17:50 statistical methodology? 19 13:17:52 20 13:17:59
A. Q. No. Okay. Okay. Another factor that

21 13:18:01 you identify as having contributed to the 22 13:18:04 decline of the record industry is unbundling 23 13:18:08 songs. 24 13:18:09 25 13:18:12
A. Q. Yes. Have you ever heard of the term "a

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2 13:18:15 mixed bundled"? 3 13:18:16 4 13:18:16 5 13:18:17 6 13:18:19
A. Q. A. Q. Yes. What does that refer to? I couldn't define it for you. Have you ever heard of the term

7 13:18:21 "pure bundle"? 8 13:18:22 9 13:18:25 10 13:18:28
A. Q. A. Pure bundle? Um-hum. I may have heard the term, but,

11 13:18:30 again, I can't define it for you. 12 13:18:31
Q. Okay. And do you know what

13 13:18:32 economic theory tells you about what should be 14 13:18:34 more profitable as between mixed and pure 15 13:18:40 bundles? 16 13:18:40
A. Yeah, some of this was covered in

17 13:18:43 one of the reports I cited in my -- in my 18 13:18:46 report, but it's not my area of expertise. 19 13:18:48 20 13:18:50 to be? 21 13:18:50
A. I think it was in the Elberse And off the Q. What do you understand the theory

22 13:18:55 report, if I remember correctly.

23 13:19:03 top of my head, I couldn't summarize the 24 13:19:05 strategic and economic implications of the 25 13:19:07 difference between the two types of bundles.

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2 13:24:22 those reductions. 3 13:24:25
Q. Okay. And, again, are you offering

4 13:24:27 any opinion about how much the decline in music 5 13:24:30 sales is attributable to this set of factors, 6 13:24:33 shrinking artist revenues, fewer album release, 7 13:24:37 fewer shipments? 8 13:24:37
A. Not as discrete from the other

9 13:24:39 factors, no. 10 13:24:41
Q. You also talk about increased

11 13:24:43 competition from used and independently 12 13:24:45 distributed music, starting at Page 21, right? 13 13:24:51 14 13:24:55
A. Q. Yes. And you say -- why -- why did you And the reason I'm

15 13:25:00 include this in your report?

16 13:25:02 asking is I'm trying to understand what point 17 13:25:05 you're making here. 18 13:25:06
A. I can tell you about what point I'm Maybe that'll answer the first half of

19 13:25:09 making.

20 13:25:12 the question, as well. 21 13:25:14 22 13:25:14
Q. A. Yes. The point I am making is that if we

23 13:25:16 look at the amount of money that consumers are 24 13:25:20 willing to spend for recorded music products at 25 13:25:23 retail, a percentage of that has always been for

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2 13:31:06 song into the technology that they use to listen 3 13:31:09 to that song. 4 13:31:10
Q. Okay. And, again, what percent of

5 13:31:12 the decline in record label sales, if any, do 6 13:31:15 you attribute to the growth in the used CD 7 13:31:20 market? 8 13:31:20
A. As with the other factors, I can't

9 13:31:23 discretely quantify it. 10 13:31:23
Q. Okay. You then talk about the And is it your

11 13:31:25 market for independent music.

12 13:31:31 testimony that there's no source that tallies 13 13:31:33 independent record sales? 14 13:31:36
A. Not a single source that I'm aware

15 13:31:38 of, no. 16 13:31:39
Q. Okay. Would you be surprised to

17 13:31:40 learn that SoundScan, in fact, tallies 18 13:31:42 independent sales? 19 13:31:44
A. I'm -- I'm not surprised that they

20 13:31:47 have figures, but given SoundScan's 21 13:31:51 sampling-based methodologies, I doubt that they 22 13:31:53 are comprehensive reflections of the total size 23 13:31:58 of the independent music sales market. 24 13:31:59
Q. Okay. Can you explain what you

25 13:32:01 mean by that?

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2 13:42:36 of the cost of distribution that we were talking 3 13:42:38 about before. 4 13:42:38
Q. Okay. Do you know what percent of

5 13:42:40 the songs on LimeWire were songs by independent 6 13:42:43 artists? 7 13:42:44
A. I'm not sure I understand the Are you talking

8 13:42:45 parameters of your question.

9 13:42:47 about the number of transactions, or are you 10 13:42:49 talking about the aggregate number of titles 11 13:42:51 that you could list? 12 13:42:52
Q. Let's talk about downloads. What

13 13:42:54 percent of the downloads from LimeWire were 14 13:42:56 independent -- from independent artists? 15 13:42:59 16 13:43:02
A. Q. I don't know. And, again, are you attempting to

17 13:43:04 offer any sort of opinion about what percent of 18 13:43:08 the decline in total record -- record label 19 13:43:10 sales is attributable to the independent market? 20 13:43:14 21 13:43:18
A. Q. No. Let's go to the next section of

22 13:43:21 your report on page -- Section 3(a)4. 23 13:43:33 24 13:43:36 25 13:43:40
MR. OLLER: MS. YOUNG: What page is that? It's Page 22.

And it's titled, "To the extent

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225 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 14:27:31 3 14:27:32
A. ARAM A. SINNREICH, PH.D. Sure. It's a broad term that has a number

4 14:27:34 of different variations, but the general concept 5 14:27:37 is that instead of simply monetizing their 6 14:27:42 relationship with the artist through retaining 7 14:27:45 whatever is left of the wholesale price of a 8 14:27:49 recording after paying back the various 9 14:27:52 royalties and -- and production costs, record 10 14:27:57 labels participate on a percentage basis in 11 14:28:01 additional artist-based revenue streams, such as 12 14:28:04 touring and merchandising and licensing. 13 14:28:07
Q. Okay. What percent do the record

14 14:28:09 labels get under 360 deals? 15 14:28:11
A. To my knowledge, there's no Depends on how good

16 14:28:13 boilerplate at this point.

17 14:28:16 the artist representation is and how badly the 18 14:28:20 label wants them. 19 14:28:21
Q. What's the highest percentage the

20 14:28:23 record labels get that you've heard of under a 21 14:28:26 360 deal? 22 14:28:27 23 14:28:28
A. Q. I don't know. What's the lowest percentage you've

24 14:28:30 heard of that they get? 25 14:28:31
A. I couldn't give you a range.

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Q. ARAM A. SINNREICH, PH.D. Do you have any idea what percent

3 14:28:34 record labels get out of 360 deals? 4 14:28:37 5 14:28:38 6 14:28:40
A. Q. A. Yes. Okay. What percent?

If I had to make a guesstimate of

7 14:28:44 the range, I would say it ranges from 10 to 30 8 14:28:47 percent. 9 14:28:47
Q. What's your -- I'm sorry. Finish

10 14:28:49 your answer. 11 14:28:50
A. Depending on the revenue stream,

12 14:28:52 depending on the artist, depending on the label, 13 14:28:55 depending on the deal. 14 14:28:56 15 14:28:58 on? 16 14:29:01
A. Conversations with artists, Q. And what's that guesstimate based

17 14:29:04 conversations with their representatives, 18 14:29:06 conversations with people at labels, reading the 19 14:29:10 trade press. 20 14:29:11
Q. And have you specifically asked

21 14:29:14 them what percent do record labels get under a 22 14:29:16 360 deal? 23 14:29:17 24 14:29:18
A. Q. Yes. And what have you heard in

25 14:29:20 response?

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228 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 14:30:37
A. ARAM A. SINNREICH, PH.D. Except for the market sizing

3 14:30:39 figures about the growth, for instance, in 4 14:30:41 concert ticket sales over the last decade and 5 14:30:44 figures along those lines, yes. 6 14:30:45
Q. And what -- what degree of growth

7 14:30:49 have concert ticket sales experienced in the 8 14:30:51 last decade? 9 14:30:54
A. Somewhere in the vicinity of 250

10 14:30:58 percent. 11 14:31:04
Q. And do you know what that

12 14:31:05 represents in terms of overall revenues made off 13 14:31:08 of music? 14 14:31:10 15 14:31:11 16 14:31:14 17 14:31:16 labels. 18 14:31:16 19 14:31:17
A. Q. No. And are you aware of any attempt to A. Q. By whom? Well, that's a good question. Let's say by record -- record

20 14:31:29 quantify the extent to which growth in revenue 21 14:31:33 streams from 360 deals is attributable to 22 14:31:37 peer-to-peer or file sharing or other free 23 14:31:41 distribution of music online? 24 14:31:42
A. No. Again, I don't think it's

25 14:31:45 something that could be quantified.

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234 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 14:37:34
Q. ARAM A. SINNREICH, PH.D. Okay. And can you just explain to

3 14:37:36 me what the -- to the extent that the labels 4 14:37:43 derive additional revenues from performance 5 14:37:45 rights, what that has to do with peer-to-peer. 6 14:37:56
A. It doesn't have a -- a whole lot to

7 14:37:59 do with peer-to-peer. 8 14:38:00 9 14:38:04
Q. A. Why do you say that? These are revenues that are

10 14:38:06 delivered through licensed channels, either 11 14:38:08 negotiated or statutory, and those revenues 12 14:38:15 don't accrue from peer-to-peer channels, except 13 14:38:19 for licensed peer-to-peer channels. 14 14:38:21
Q. Okay. You also talk about synch And I have a similar question,

15 14:38:25 rights revenues. 16 14:38:28 which is:

What do synch rights revenues have to

17 14:38:31 do with peer-to-peer? 18 14:38:32
A. Well, to a certain degree -- well,

19 14:38:35 it doesn't have a direct relationship. 20 14:38:39
To a certain degree, synch rights

21 14:38:41 revenues are influenced by peer-to-peer 22 14:38:45 behaviors in terms of giving -- providing a more 23 14:38:53 accurate impression of what the market demand 24 14:38:55 for various acts is, so that music licensors, 25 14:38:59 you know, producers of television shows, movies

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2 14:39:02 or what have you, will make better decisions in 3 14:39:07 terms of which songs they want to license and at 4 14:39:10 what rates they're willing to license them. 5 14:39:12
Q. Okay. You also talk about music What does this

6 14:39:14 video games.

And same question:

7 14:39:19 have to do with peer-to-peer? 8 14:39:23
A. It's the -- pretty much the -- the Bands that are more successful

9 14:39:26 same situation.

10 14:39:30 due to, in part, to the degree of consumer 11 14:39:37 interest that's exhibited via peer-to-peer are 12 14:39:40 more likely to get licensing deals in these 13 14:39:44 channels and -- and to recognize revenues as a 14 14:39:49 result of that. 15 14:39:50
Q. What's your basis for saying that

16 14:39:51 they're more likely to get their songs on 17 14:39:58 video -- music video games just because they're 18 14:40:01 followed on peer-to-peer networks? 19 14:40:03
A. Well, peer-to-peer is at this point

20 14:40:06 a vital element of the production of demand and 21 14:40:12 the -- the marketing and promotion of certain 22 14:40:19 artists and -- and songs to the -- to the 23 14:40:21 public. 24 14:40:21
And music -- music -- music

25 14:40:22 directors and other licensors of music for --

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2 14:40:26 for products are aware of the overall degree of 3 14:40:29 consumer interest in and hype around a band, in 4 14:40:33 part, due to activity on those file sharing 5 14:40:36 networks. 6 14:40:38
Q. Okay. And, again, what's your Have you talked to these

7 14:40:41 basis for saying that? 8 14:40:44 promoters? 9 14:40:44
A.

I mean, have you -Yes, I've spoken to music directors

10 14:40:47 about what influences their licensing behaviors. 11 14:40:51 12 14:40:53
Q. A. Okay. Who have you talked to?

When I was in Los Angeles, I knew a

13 14:40:57 number of people who were in the business of 14 14:41:00 music licensing. 15 14:41:01 16 14:41:06 USC -17 14:41:08 18 14:41:11 19 14:41:11
Q. A. Correct. (Clarification for the reporter.) And are you still in contact with Q. When you were in Los Angeles at the

20 14:41:13 those people? 21 14:41:14
A. Only socially. I haven't done any

22 14:41:16 research on the subject any time recently. 23 14:41:21
Q. Okay. You say that "Labels get a

24 14:41:24 hefty royalty from music video games." 25 14:41:27
A. That's a quote.

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Q. A. Q. A. ARAM A. SINNREICH, PH.D. Yeah. What -- what's the royalty?

If I knew, I would have said. Okay. I did a significant amount of

6 14:41:37 research for the purpose of this report into 7 14:41:40 answering that question, and what I found was a 8 14:41:44 broad range of answers, to a certain degree 9 14:41:50 conflicting, from various sources in a position 10 14:41:53 to know. 11 14:41:54
So my sense is that, again, this is

12 14:41:57 a situation where there's a range of licensing 13 14:42:02 rates and structures and no boilerplate. 14 14:42:05 15 14:42:07
Q. A. And what's the range? For -- typically -- as I understand

16 14:42:14 it, typically songs that are licensed for games 17 14:42:17 are licensed on a flat basis, that is, there's a 18 14:42:24 fee against anticipated volume of sales, and for 19 14:42:30 lesser known songs, it could be a few thousand 20 14:42:33 dollars, for better known songs, it could be a 21 14:42:36 half a million dollars and that there's an 22 14:42:38 entire range between them. 23 14:42:39
Furthermore, when games are --

24 14:42:41 exceed the anticipated volumes of sales or have 25 14:42:44 downloadable content expansion packs or are in

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ARAM A. SINNREICH, PH.D. MS. YOUNG: Okay. So we'll just

3 14:43:45 designate that last portion of the transcript 4 14:43:49 confidential. 5 14:43:52 6 14:43:52
Q. MR. OLLER: Okay. Yes.

And then you also mentioned

7 14:43:54 hardware -- hardware royalties as an additional 8 14:43:56 source of revenue. 9 14:43:57
And I have the same question as What does this

10 14:43:59 with some of these other things: 11 14:44:02 have to do with peer-to-peer? 12 14:44:09
A.

To the extent that peer-to-peer

13 14:44:12 increases consumer demand for high volume 14 14:44:21 hardware devices like MP3 players and hard 15 14:44:25 drives and writable media like CD-Rs, it has a 16 14:44:31 direct impact. 17 14:44:37
Q. And you say that revenues -- labels

18 14:44:40 get -- that -- I'm sorry -- you say that labels 19 14:44:42 get revenues from hardware sales? 20 14:44:46
A. In -- in some -- for some forms of

21 14:44:49 hardware in some regions, yes. 22 14:44:52
Q. Okay. Tell me which forms of

23 14:44:54 hardware and which regions you're talking about. 24 14:44:56 25 14:44:58 list.
A. I couldn't give you an extensive

In the U.S., there's no statutory

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2 14:45:02 compensation for hardware devices; however, some 3 14:45:05 manufacturers, like Microsoft, have volunteered 4 14:45:09 a royalty to be paid to rights holders which 5 14:45:15 they do for Zune, I believe. 6 14:45:17
And in other regions, there are --

7 14:45:17 and in the U.S., there are statutory royalties 8 14:45:20 that have to be paid on certain kinds of 9 14:45:23 writable media like DAT tapes and certain forms 10 14:45:26 of CD-Rs, I believe, but not all CD-Rs. 11 14:45:31
Maybe the -- I've heard, although

12 14:45:32 I'm not certain, that in the U.S., CD-Rs 13 14:45:35 designated as music CD-Rs pay royalties, but 14 14:45:36 those that don't, don't. 15 14:45:39
There are other -- there are

16 14:45:40 markets governed by different laws that I've 17 14:45:42 read about in -- especially in Europe and Asia 18 14:45:46 where there are more kind of blanket rules 19 14:45:49 regarding MP3 players, hard drives, CD-ROMs and 20 14:45:55 what have you -- or CD-Rs, rather. 21 14:45:59
Q. Okay. Do you know -- can you give

22 14:46:00 me any numbers, even a range, about how much 23 14:46:03 revenue labels get from hardware sales? 24 14:46:06
A. I've never seen any published

25 14:46:08 figures on that subject.

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254 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 15:12:57 to demonstrate what they benefit, I have to show 3 15:13:02 what the rel -- what the alternative is, what 4 15:13:04 the relative market conditions are without the 5 15:13:06 existence of file sharing. 6 15:13:08
And the indirect artist benefits

7 15:13:10 are part of the larger argument about the 8 15:13:14 overall beneficial effects of file sharing. 9 15:13:16
Q. Why did the fact that major labels

10 15:13:18 have been consistently criticized for unfair or 11 15:13:22 unethical business relations with their artists, 12 15:13:25 why is that relevant to any of the opinions that 13 15:13:28 you're offering? 14 15:13:28
A. It demonstrates that labels have

15 15:13:30 not always worked in the artists' best interests 16 15:13:34 and have, therefore, strategically not always 17 15:13:37 worked in their own best interests. 18 15:13:41
Q. Okay. And explain -- explain to me

19 15:13:42 why that's the case. 20 15:13:47
A. The artists are the bread and The -- the

21 15:13:49 butter for the record labels.

22 15:13:53 labels' financial success is contingent on the 23 15:13:57 financial success, the continued creative 24 15:14:01 output, the audience demand for the -- the work 25 15:14:09 of the artists themselves.

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255 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 15:14:12
ARAM A. SINNREICH, PH.D. When artists are not -- are

3 15:14:15 constrained from operating optimally, when 4 15:14:19 they're not adequately compensated for their 5 15:14:22 work, when they are embittered as a result of 6 15:14:25 their labor relations, it negatively impacts 7 15:14:30 their output and negatively impacts their 8 15:14:33 ability to produce and support products that are 9 15:14:37 going to succeed in the marketplace. 10 15:14:39
And when that's the case, the

11 15:14:41 labels, as the -- as their partners in bringing 12 15:14:45 those products to market suffer, as well. 13 15:14:48
Q. And is it your opinion that

14 15:14:49 phenomenon you just described is what caused the 15 15:14:52 decline in sales of recorded music starting in 16 15:14:56 2000? 17 15:14:57
A. Well, I refer you again to the -The -- the

18 15:14:58 the outline of -- of the report.

19 15:15:03 section it comes in is the section where I'm 20 15:15:06 talking about how sharing can help sales, 21 15:15:09 revenues and profits. 22 15:15:10
So, again, the -- the point is to

23 15:15:13 illuminate how sharing has actually made the 24 15:15:17 process of creating a career in music a better 25 15:15:20 one for artists.
And to the extent that labels

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298 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 16:17:33
A. ARAM A. SINNREICH, PH.D. Not on -- on order with the

3 16:17:35 services I've listed in this section. 4 16:17:45 5 16:17:47
Q. A. And why do you say that? As I said before, I think it's only

6 16:17:49 marginally differentiated from -- from other 7 16:17:52 file sharing front ends that I've seen. 8 16:18:00
Q. Okay. Let's move now to the

9 16:18:02 last -- I think it's the last section of your 10 16:18:04 report, Section 5. 11 16:18:16
You have a discussion about why you

12 16:18:20 think market-based carrots will be more 13 16:18:23 effective than legal statistics. 14 16:18:25
Why did you include that discussion

15 16:18:27 in your report? 16 16:18:28
A. I was asked to offer an opinion on

17 16:18:32 the question of the effects of the damages on 18 16:18:35 the availability of music in the marketplace. 19 16:18:40
Q. Okay. And do you consider damages

20 16:18:42 to be carrots? 21 16:18:44 22 16:18:46 23 16:18:50 then? 24 16:18:51
A. I'm suggesting that there are A. Q. No, I'm not sure why -So why are you addressing carrots

25 16:18:53 alternative strategies to achieve the ends

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299 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 16:18:57 that -- that this suit was -- was undertaken in 3 16:19:03 order to achieve that don't involve massive 4 16:19:08 litigation. 5 16:19:28
Q. Okay. And you talk about the

6 16:19:29 massive financial burdens that were borne by 7 16:19:34 mp3.com, Napster and Grokster, right? 8 16:19:36 9 16:19:39
A. Q. Yes. Okay. Did a court award statutory

10 16:19:43 damages in any of those cases? 11 16:19:46
A. I don't think so. I don't know.

12 16:19:54 I -- to the extent that I have seen the -- the 13 16:19:56 legal documents about damages, I don't recall 14 16:20:00 the details. 15 16:20:01
Q. Well, what massive financial

16 16:20:03 burdens are you referring to? 17 16:20:05
A. Well, there was -- there were

18 16:20:10 considerable settlements or awards in each of 19 16:20:13 these cases levied against -- against the 20 16:20:17 defendants in the realm of hundreds of millions 21 16:20:22 of dollars or more. 22 16:20:34
Q. And have you seen a document that

23 16:20:37 causes you to say that? 24 16:20:42
A. Well, they were fairly widely It may have been tens

25 16:20:44 reported on at the time.

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312 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 16:35:32 believe. 3 16:35:32
Q. Okay. But, collectively, do you ARAM A. SINNREICH, PH.D.

4 16:35:35 know what the range of potential damages is 5 16:35:39 that's being sought in this case? 6 16:35:41
A. No. I've read -- prior to my

7 16:35:43 engagement on the case, I had read that it was 8 16:35:45 in the billions, but I don't know what the 9 16:35:48 actual number is. 10 16:35:49
Q. If there were a damages award in

11 16:35:51 the billions, do you think that would deter 12 16:35:53 people from operating or financing illegal file 13 16:35:57 sharing services? 14 16:35:57 15 16:35:59 16 16:35:59
A. Q. A. Not on a whole, no. Okay. Why not?

Well, for the reasons I already

17 16:36:04 talked about, although it's true that -- for a 18 16:36:08 variety of reasons. 19 16:36:11
One, in the wake of Grokster, it's

20 16:36:14 become, I think, clearer to the business 21 16:36:17 community that under current conditions file 22 16:36:20 sharing is not a viable investment anyway, so I 23 16:36:22 don't think there's a whole lot of money out 24 16:36:25 there funding commercial unlicensed file sharing 25 16:36:29 ventures at this point.

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313 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 16:36:32
ARAM A. SINNREICH, PH.D. And consumer behaviors have File sharing, I can tell

3 16:36:34 definitely moved on.

4 16:36:36 you, among my students, I asked 20 students 5 16:36:40 enrolled in a class about music and technology 6 16:36:42 last week how many of them have used file 7 16:36:46 sharing networks in the last year, or something 8 16:36:48 like that. 9 16:36:50 hands. 10 16:36:51
And it's not that they are not They just have I think two of them raised their

11 16:36:52 interested in digital music.

12 16:36:54 other ways of gaining access to it, many of 13 16:36:57 which I outline in my report. 14 16:37:00
So file sharing is also, you know,

15 16:37:02 no longer a -- an innovative or even leading 16 16:37:08 edge paradigm for distribution.
It's just one

17 16:37:11 of many, many, many different platforms that 18 16:37:13 people use to achieve the same ends. 19 16:37:15
Q. Okay. Well, let me ask my question

20 16:37:17 a little differently then -21 22 16:37:19 23 24 16:37:21
A. Q. sharing. If there were a damages award in Sure. -- and not limit it to file

25 16:37:23 excess of a billion dollars in this case, do you

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314 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 16:37:25 think it would deter people from operating or 3 16:37:28 financing illegal music services? 4 16:37:31
A. No, I don't. Would you like me to

5 16:37:34 say why not? 6 16:37:35 7 16:37:38
Q. A. I would. Okay. First of all, as I've

8 16:37:41 observed, everybody has ample evidence that 9 16:37:50 services that are found to be in violation of 10 16:37:53 copyright are liable for sufficient damages to 11 16:37:59 put them out of business, and, in fact, that 12 16:38:02 services can go out of business just defending 13 16:38:05 copyright infringement accusations, whether or 14 16:38:11 not they -- they are legitimate accusations. 15 16:38:17
So the addition of one more set of

16 16:38:24 damages to the pile, I don't think, would 17 16:38:27 significantly change the outlook of any 18 16:38:31 developers or investors. 19 16:38:34
That being said, you know, I'm not

20 16:38:37 an attorney, but I believe that there is 21 16:38:40 probably still a fair amount of legal gray area 22 16:38:43 that people are interested in examining in the 23 16:38:50 quest to find a workable music distribution 24 16:38:53 paradigm that can both deliver revenues to 25 16:38:58 operators and rights holders and match the needs

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315 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1
ARAM A. SINNREICH, PH.D.

2 16:39:01 of today's online music consumers. 3 16:39:05
So I think that quest will probably

4 16:39:10 continue to drive the desire for people to 5 16:39:13 innovate. 6 16:39:14
And then there's the factor that we

7 16:39:15 were talking about before, which is the kind of 8 16:39:18 global community of coders who aren't interested 9 16:39:20 in, you know, making any money or delivering any 10 16:39:23 revenues necessarily to anybody and just want to 11 16:39:27 make cool tools that they think make the world a 12 16:39:30 more interesting place. 13 16:39:32
So I -- I don't really see -- I --

14 16:39:35 I can't really image a scenario in which the 15 16:39:39 presence or absence of a large damages award in 16 16:39:42 this case would significantly change the 17 16:39:47 availability of free music or the -- the overall 18 16:39:53 pace of innovation in -- in this arena. 19 16:39:56
Q. Let me ask you this: If you had

20 16:39:59 money that you wanted to invest in an unlicensed 21 16:40:02 Internet music distribution service, would the 22 16:40:05 fact that somebody got a $1 billion award 23 16:40:08 against them from doing that deter you in any 24 16:40:12 way from investing your money in an illegal 25 16:40:14 distribution service?

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317 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 16:41:07
ARAM A. SINNREICH, PH.D. I mean, we've had -- you know, it's

3 16:41:10 been -- it's been a decade since Napster and I 4 16:41:13 think that anybody in a position to invest is 5 16:41:17 already -- regardless of the outcome of this 6 16:41:20 case, is already well-aware of what the, you 7 16:41:22 know, financial risks are. 8 16:41:31
Q. Okay. You say in your report that,

9 16:41:35 "The most likely effect of a large damages award 10 16:41:41 will be further erosion of the plaintiffs' 11 16:41:43 already tarnished reputation among consumers and 12 16:41:46 the business community, undermining their 13 16:41:48 ability to effectively counter any economic and 14 16:41:51 organizational challenges they face." 15 16:41:55
So are you saying that a large

16 16:42:00 damages award is actually against the 17 16:42:01 plaintiffs' interest? 18 16:42:02 19 16:42:07
A. Q. Reputationally, absolutely. And are you trying to balance that

20 16:42:10 against any other factors? 21 16:42:11
A. Well, you asked a legitimate

22 16:42:14 question about whether the -- a large damage 23 16:42:22 award in this case would have any beneficial 24 16:42:25 effect on the financial outlook for the 25 16:42:27 plaintiffs.

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318 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 16:42:27
ARAM A. SINNREICH, PH.D. It's a legitimate question. My

3 16:42:29 opinion is that the answer is no. 4 16:42:41
MS. YOUNG: Okay. Let me take a

5 16:42:42 minute to look over my notes. 6 7 16:42:49 8 16:42:50 9 16:42:51 at 4:42 p.m. 10 16:42:53 11 16:54:08
(Recess taken.) THE VIDEOGRAPHER: We are back on (Multiple speakers.) MS. YOUNG: Go off the record. Off the record

THE VIDEOGRAPHER:

12 16:54:16 the record at 4:53 p.m. 13 16:54:18 BY MS. YOUNG: 14 16:54:19
Q. You testified that the record

15 16:54:22 labels should have partnered with unlicensed 16 16:54:25 services instead of suing them, correct? 17 16:54:28 18 16:54:31
A. Q. By and large, yes. Okay. What sort of business model

19 16:54:33 should they have used? 20 16:54:35
A. There are a range of possible ways

21 16:54:40 in which the innovative distribution platforms 22 16:54:43 presented by these services could have been 23 16:54:47 monetized. 24 16:54:48
There are successful examples of

25 16:54:50 micropayments base models, there are successful

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335 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 17:15:49
ARAM A. SINNREICH, PH.D. THE VIDEOGRAPHER: This concludes The time

3 17:15:51 today's testimony of Aram Sinnreich. 4 17:15:55 on the record is 5:15 p.m. 5 17:15:58 tape number six. 6 17:16:00 7 17:16:01 8 17:16:01 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
__________________________________ Notary Public Subscribed and sworn to before me this _____ day of _________, 2011. (Time noted: 5:15 p.m.)

This also concludes

___________________________ ARAM A. SINNREICH, Ph.D.

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337 CONTAINS CONFIDENTIAL PORTIONS ARAM A. SINNREICH, Ph.D. - 2/11/2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
_________________________ NANCY MAHONEY, CCR/RPR I, NANCY MAHONEY, a Certified Court Reporter, Registered Professional Reporter, Certified LiveNote Reporter, and Notary Public within and for the States of New York and New Jersey, do hereby certify: That ARAM A. SINNREICH, Ph.D., the witness whose deposition is hereinbefore set forth, was duly sworn by me and that such deposition is a true record of the testimony given by the witness. I further certify that I am not related to any of the parties to this action by blood or marriage, and that I am in no way interested in the outcome of this matter. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of February 2011. COUNTY OF NEW YORK ) C E R T I F I C A T E STATE OF NEW YORK ) : ss.

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